<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, 2000
[ ] 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.
--------------------------------------------------------------------------------
(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
--------------------------------------------------------------------------------
(Address of principal executive offices)
(727) 895-4410
---------------------------
(issuer's telephone number)
--------------------------------------------------------------------------------
(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 10, 2000, of the
issuer's Common Stock, $.0001 par value, there were 31,003,515 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. Consolidated Financial Statements (unaudited) F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statement of Stockholders' Deficit F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 2
PART II. OTHER INFORMATION 5
SIGNATURE PAGE 8
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2000
F-1
<PAGE> 4
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(unaudited) (audited)
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 11,501 $ --
Cash, restricted 30,000 30,000
Other current assets 122,787 45,533
------------ ------------
Total Current Assets $ 164,288 $ 75,533
Officer loan receivable, net 161,138 --
Equipment, net of accumulated depreciation 307,566 474,699
Other assets 6,948 4,255
------------ ------------
Total Assets $ 639,940 $ 554,487
============ ============
LIABILITIES AND CAPITAL DEFICIT
Current Liabilities:
Accounts payable and accrued expenses $ 3,406,222 $ 3,261,427
Loans payable, stockholder -- 165,387
Loans payable, related party 705,348 --
Notes payable, current portion 241,563 256,599
Convertible debentures -- 300,000
Preferred stock subscription received -- 620,000
------------ ------------
Total Current Liabilities $ 4,353,133 $ 4,603,413
Long-term liabilities
Notes payable, less current portion 15,684 17,352
------------ ------------
Total Liabilities $ 4,368,817 $ 4,620,765
------------ ------------
Stockholders' deficit:
Preferred stock, $2.00 stated value
10,000,000 shares authorized,
1,250,000 issued and outstanding 1,250 --
Common stock, $.0001 par value
300,000,000 shares authorized,
28,163,415 and 25,058,316 shares issued and outstanding 2,816 2,506
Additional paid-in capital 54,615,072 42,578,200
Treasury stock, 13,130 shares at cost (125,000) (125,000)
Accumulated deficit (58,223,015) (46,521,984)
------------ ------------
Total Stockholders' deficit (3,728,877) (4,066,278)
------------ ------------
Total Liabilities and Stockholders' deficit $ 639,940 $ 554,487
============ ============
</TABLE>
F-2
<PAGE> 5
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenues $ 56,125 $ 164,910 $ 107,233 $ 267,211
------------ ------------ ------------ ------------
Operating Expenses
Salaries & contract services 499,696 744,746 1,128,910 1,454,835
Payroll taxes and benefits 45,860 118,063 88,917 196,300
Rent 95,446 83,903 182,257 123,288
Telephone 61,153 102,842 132,374 241,028
Travel and entertainment 52,093 82,249 93,489 169,496
Advertising and promotion 1,365 39,476 40,536 56,843
Depreciation and amortization 86,118 55,439 173,088 89,902
Outside advisory services 4,485,438 -- 7,853,199
Other expenses 1,314,007 474,851 2,036,143 853,162
------------ ------------ ------------ ------------
Total Operating Expenses 6,641,176 1,701,569 11,728,913 3,184,854
------------ ------------ ------------ ------------
Net (loss) from operations (6,585,051) (1,536,659) (11,621,680) (2,917,643)
Other income (expenses)
Interest income 20,689 818 25,502 2,664
Interest (expense) (116,915) (37,008) (117,731) (60,188)
Gain on sale of assets -- -- 12,875 --
------------ ------------ ------------ ------------
Total Other Income (Expense) (96,226) (36,190) (79,354) (57,524)
------------ ------------ ------------ ------------
Net (loss) from continuing operations (6,681,277) (1,572,849) (11,701,034) (2,975,167)
------------ ------------ ------------ ------------
Discontinued operations:
Loss from operations of VSI -- -- -- (161,988)
Gain on liquidation of subsidiary -- -- -- 4,541,689
------------ ------------ ------------ ------------
Total gain from discontinued operations -- -- -- 4,379,701
------------ ------------ ------------ ------------
Net income (loss) (6,681,277) (1,572,849) (11,701,034) 1,404,534
Preferred Stock dividends (62,334) -- (18,812,334) --
------------ ------------ ------------ ------------
Net income (loss) applicable to Common Stock $ (6,743,611) $ (1,572,849) $(30,513,368) $ 1,404,534
============ ============ ============ ============
Basic and diluted loss per common share:
Continuing operations (0.243) (0.178) (1.134) (0.372)
From discontinued operations -- -- -- 0.547
Net income (loss) per common share: $ (0.243) $ (0.178) $ (1.134) $ 0.175
============ ============ ============ ============
Weighted Average
Shares Outstanding 27,753,817 8,856,333 26,911,736 8,005,504
============ ============ ============ ============
</TABLE>
F-3
<PAGE> 6
TELESERVICES INTERNET GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' (Deficit)
From December 31, 1999 through June 30, 2000
<TABLE>
<CAPTION>
Common Preferred Additional
Stock Stock Paid-in Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock Total
---------- ------ --------- ------ ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 25,058,316 $2,506 $ $42,578,200 $(46,521,984) $(125,000) $(4,066,278)
Conversion of debt to common stock 620,120 62 -- -- 299,938 -- -- 300,000
Issuance of common stock in
settlements 205,392 20 -- -- 390,614 -- -- 390,634
Repricing of stock options -- -- -- -- 2,518,548 -- -- 2,518,548
Exercise of options for services 290,000 29 -- -- 863,000 -- -- 863,029
Exercise of options for cash 745,924 75 -- -- 588,485 -- -- 588,560
Issuance of Preferred Stock -- -- 1,250,000 1,250 2,498,750 -- -- 2,500,000
Net loss quarter ended March 31, 2000 -- -- -- -- -- (5,019,754) -- (5,019,754)
---------- ------ --------- ------ ----------- ------------ --------- -----------
Balance, March 31, 2000 26,919,752 2,692 1,250,000 1,250 49,737,535 (51,541,738) (125,000) (1,925,261)
---------- ------ --------- ------ ----------- ------------ --------- -----------
Repricing of stock options -- -- -- -- 2,960,000 -- -- 2,960,000
Exercise of options 800,000 80 -- -- 399,920 -- -- 400,000
Adjustment to reconcile with
transfer agent (6,337) (1) -- -- 1 -- -- --
Issuance of common stock in settlement 450,000 45 -- -- 1,079,950 -- -- 1,079,995
Issuance of options for services -- -- -- -- 500,000 -- -- 500,000
Accrued preferred stock dividends -- -- -- -- (62,334) -- -- (62,334)
Net loss quarter ended June 30, 2000 -- -- -- -- -- (6,681,277) -- (6,681,277)
---------- ------ --------- ------ ----------- ------------ --------- -----------
Balance, June 30, 2000 28,163,415 $2,816 1,250,000 $1,250 $54,615,072 $(58,223,015) $(125,000) $(3,728,877)
---------- ------ --------- ------ ----------- ------------ --------- -----------
</TABLE>
F-4
<PAGE> 7
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended June 30 Ended June 30
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(11,701,034) $ (2,975,167)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Services paid through issuance of common stock and options 8,687,281 --
Net gain from sale of affiliated business -- (325,323)
Depreciation and amortization 173,088 89,902
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable (2,877) 8,442
Decrease (increase) in prepaid marketing expense -- (809,065)
(Increase) decrease in other assets (77,070) 58,261
(Increase) decrease in accounts payable and accrued expenses 87,013 876,247
------------ ------------
Net cash (used in) operating activities: (2,833,599) (3,076,703)
------------ ------------
Cash flows from investing activities:
Acquisition disposal of equipment (5,156) (221,285)
(Acquisition) disposal of new business -- 706,309
Net advances to officer (161,138) --
------------ ------------
Net cash (used in) investing activities: (166,294) 485,024
------------ ------------
Cash flows from financing activities:
Repayment of loans payable (16,704) (18,790)
Cash proceeds from (repayment of)
loans from stockholders (165,387) 320,484
Cash proceeds from related party note payable 700,000 --
Issuance of common stock 623,475 166,400
Issuance of preferred stock 1,870,010 --
Sale of convertible debentures -- 2,064,000
Repayment of notes payable -- (102,110)
(Increase) decrease in cash collateral -- 50,000
------------ ------------
Net cash provided by financing activities: 3,011,394 2,479,984
------------ ------------
Increase (decrease) in cash 11,501 (111,695)
Cash, beginning of period -- --
Non-cash transactions -- 111,695
------------ ------------
Cash, end of period $ 11,501 $ --
============ ============
Schedule of non-cash operating, financing and investing activities:
Net gain from discontinued operation -- (161,988)
Net gain on disposal of discontinued operations -- (141,649)
Repayment of stockholder loan -- (1,000,000)
Issuance of common stock -- 3,690,404
Stock subscription received 620,000 (488,000)
Conversion of debentures into common stock 300,000 (1,787,072)
------------ ------------
Increase in non-cash items 920,000 111,695
============ ============
Interest paid $ 19,819 $ 60,188
============ ============
Income taxes paid $ -- $ --
============ ============
</TABLE>
F-5
<PAGE> 8
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
(1) Condensed Financial Statements:
The financial statements included herein have been prepared by TeleServices
Internet Group Inc. (Company) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted as allowed by such rules and regulations, and the Company believes that
the disclosures are adequate to make the information presented not misleading.
It is suggested that these financial statements are read in conjunction with the
December 31, 1999 audited financial statements and the accompanying notes
thereto. While management believes the procedures followed in preparing these
financial statements are reasonable, the accuracy of the amounts are in some
respects dependent upon the facts that will exist, and procedures that will be
accomplished by the Company later in the year.
The management of the Company believes that the accompanying unaudited condensed
financial statements contain all adjustments (including normal recurring
adjustments) necessary to present fairly the operations and cash flows for the
periods presented.
(2) Basis of Presentation - Going Concern
The Company's consolidated financial statements are presented on the going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. However, the Company has sustained
recurring operating losses since its inception and has a working capital deficit
of $4,188,845 and a stockholder deficit of $3,728,877 as of June 30, 2000 and
has not begun to generate any significant revenues from its Internet business.
The Company is materially delinquent on payments to various creditor obligations
including the Internal Revenue Service. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments to reflect the possible
future affects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
Management is attempting to expand its operation through the potential
acquisition of three companies through a stock exchange (see Note 5) which
management believes will be synergistic with its existing Internet business. The
Company has continued to raise capital through the issuance of preferred stock
on March 31, 2000 and the issuance of common stock and borrowings under
promissory notes during the three months ended June 30, 2000. Management is
attempting to raise additional capital and has engaged an investment-banking
firm to assist with its acquisitions and capital formation.
F-6
<PAGE> 9
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
(3) Net Income (Loss) Per Common Share
Basic EPS is calculated by dividing the income (loss) available to common
shareholders by the weighted average number of common shares outstanding for the
period without consideration for potential common shares. Potential common
shares were not included for the three or six months ended June 30, 2000 since
their effects are antidilutive under the treasury stock method for options and
warrants and if-converted method for convertible preferred stock. Potential
common shares consist of options and common stock warrants and shares of
convertible preferred stock.
(4) Payroll Tax Liability
Visitors Services, Inc. ("VSI"), a formerly wholly owned subsidiary filed a
voluntary petition for relief under Chapter 7 of the United States Bankruptcy
Code for the Middle District of Florida, Tampa Division on March 5, 1999.
Creditors of VSI, including the Internal Revenue Service, may assert a claim
against the Company. A contingency exists with respect to these matters,
including final determination if the transactions between the Company and VSI
are legitimate transactions allowable by Federal Bankruptcy Code or if they are
determined to be in violation of preference of creditor statutes, rules and
regulations. A provision of $475,000 was accrued by the Company as of December
31, 1999 for the trust fund portion of the federal payroll tax withholding owed
by TSI. In June 2000, the Company accrued an additional $130,588 related to
additional penalties and interest pursuant to a recent statement of account from
the Internal Revenue Service. As of June 30, 2000, the Company had accrued
$605,588 related to this contingent liability. The Company has also accrued
$571,992 in federal payroll taxes due and unpaid for 1999 and the fourth quarter
of 1998. Management is in frequent contact with the Internal Revenue Service and
intends to use proceeds from capital raised subsequent to its planned
acquisitions to pay these obligations.
(5) Common Stock and Options Issued
On January 3, 2000, the Company converted $300,000 in previously issued debt to
620,120 shares of common stock at the previously agreed upon conversion price
equal to 70% the average bid price immediately preceding the date of conversion
or $.484 per share.
In January 2000, the Company charged operations for $390,634 related to the
issuance of 620,120 shares of common stock in settlement of several disputes
with former consultants to the Company. The shares issued were valued at on the
market price of the stock on the date of issuance.
F-7
<PAGE> 10
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
(5) Common Stock and Options Issued (continued)
During the three months ended March 31, 2000 the Company recorded a $2,518,548
charge to operations related to the repricing of previously granted options to
purchase 835,925 shares of common stock that were then immediately exercised.
The charge to operations was determined by comparing the repriced exercise price
with the market price of the Company's common stock on the date of repricing.
These options were held by current and former consultants to the Company.
During the three months ended March 31, 2000, the Company received services
valued at $863,029 in exchange for the exercise of previously granted options to
purchase 290,000 shares of common stock. All of these options had been repriced
immediately prior to exercise.
During the three months ended March 31, 2000, the Company received cash of
$588,560 in exchange for the exercise of previously granted options to purchase
745,924 shares of common stock. All of these options had been repriced
immediately prior to exercise.
In April 2000, the Company received cash of $325,000 and services valued at
$75,000 for payment of the exercise price of previously granted options to
purchase 800,000 share of common stock. The exercise price of the options was
decreased from $1.00 to $.50 per share as a result of the Company not filing a
registration statement pursuant to a consulting agreement. As a result, the
Company recorded a $2,960,000 charge to operations for the difference between
the market price of $4.20 per share and the exercise price of $.50 per share.
In April 2000, the Company also issued 450,000 shares of common stock in June
2000 pursuant to a settlement agreement with a consultant. The Company recorded
a $1,079,995 charge to operations resulting from this settlement. The agreement
requires the Company to issue 191,868 shares of common stock on August 31, 2000
and each month end thereafter, if the company does not file a registration
statement covering shares the consultant owns.
On May 15, 2000, the Company granted options to an officer/director to purchase
450,000 shares of the Company's common stock with an exercise price at market,
or $1.40 per share. Options covering 50,000 shares vest on July 1, 2000 and the
balance of the options vest at the rate of 50,000 shares per quarter. The
options expire on May 14, 2005.
On May 24, 2000, the Company granted options to purchase 140,000 share of common
stock with an exercised price of $1.00 per share. The value of the options was
not material and not recorded by the Company.
F-8
<PAGE> 11
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
(5) Common Stock and Options Issued (continued)
During the three month period ended June 30, 2000, the Company issued options to
purchase 1,000,000 shares of common stock with an exercise price of $1.00 to the
Company's law firm for professional services. The options were valued at
$500,000 and charged to operations in June 2000 in accordance with Statement of
Financial Accounting Standard No. 123 "Accounting for Stock-Based Compensation."
The Company accelerated and immediately vested previously granted options to
acquire 180,000 shares of common stock held by the law firm. The Company also
accelerated and immediately vested previously granted options to purchase
1,000,000 share of common stock held by it's Chairman/CEO.
(6) Reverse Stock Split
On June 23, 2000, the Company effected a one-for-ten reverse stock split of its
common stock. All references to common stock have been retroactively adjusted to
give effect to this reverse stock split.
(7) Preferred Stock Issued
Effective March 31, 2000 the Company issued 1,250,000 shares of Series A
convertible preferred stock and received net proceeds of $2,500,000, or $2.00
per share. Each share of preferred stock is convertible into 4 shares of
restricted common stock and 4 warrants exercisable at $2.00 per share, unless a
registration statement does not become effective within 120 days, then the
exercise price will be reduced to $1.50 per share. The preferred shareholders
are entitled to receive an annual 10% cumulative dividend in cash or additional
shares of common stock at the option of the Company. The Company, at its option,
can require conversion if its common stock trades above $1.00 per share for ten
consecutive days. The liquidation preference shall be the stated value of $2.00
per preferred share plus any accrued dividends. The market value for the
Company's common stock on March 31, 2000 was $3.125. Since the conversion price
is $.50, this results in a favorable conversion benefit of $2.625 per share,
totaling $13,125,000. There is also a favorable exercise benefit of $1.125 per
share, related to the exercise rights of the warrants resulting in a total of
$5,625,000. The accounting for these favorable conversion and exercise benefits
results in additions to paid in capital and charges to preferred stock dividends
totaling $18,750,000.
F-9
<PAGE> 12
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
(8) Proposed Business Combinations
The Company has entered into three business combination agreements, all of which
are subject to various contingencies including variable stock issuances
depending on the trading price of the Company's stock. The entities involved in
the proposed business combinations are in the process of completing their due
diligence reviews. There can be no assurance that any or all of the proposed
transactions will be completed because of the various contingencies. Completion
of the transactions could result in a change in control of the Company. As of
June 30, 2000, the Company has borrowed $700,000 from one of the proposed
business combination entities. Subsequent to the end of the quarter, the Company
borrowed additional amounts totaling $550,000 from this entity. The notes bear
interest at 8% per annum payable in arrears at maturity and bear a default
interest rate of 18% if not paid in full when due. The notes are
uncollateralized and are due 120 days from the date of the various loans. The
loan proceeds were received on various dates between May 11 and July 21, 2000.
In addition, the Company's Chairman/CEO was advanced $505,000 in personal loans
from this entity, which are collateralized by certain personally owned stock of
the Company.
(9) Proposed Financing
On February 29, 2000, the Company announced that it had entered into a letter
agreement engaging a prominent New York based investment banking firm as its
exclusive agent for a private placement financing of up to $40 million, and on
April 26, 2000, the letter agreement was amended to provide for a financing of
up to $125 million. However, 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.
(10) Officer Loans Receivable
During the six month period ended June 30, 2000 the Company loaned $423,754 to
its Chairman/CEO. The loans bear interest at 11% per annum, are uncollateralized
and due on demand. As of June 30, 2000 the Company owed the Chairman/CEO accrued
salaries totaling $262,500. For financial statement reporting purposes these two
items were offset resulting in a net receivable of $161,254 as of June 30, 2000.
(11) Litigation
On October 15, 1999, Clarity Consulting, Inc. ("Clarity"), filed an amended
complaint in the Circuit Court of Cook County, Illinois, adding the Company as a
defendant in their suit to recover monies that they originally alleged were owed
by Visitors Services International Corp. ("VSI"). The complaint alleges that on
June 24, 1997, Clarity and the defendants entered into an agreement for
consulting services, that consulting services were provided between October 1996
and August 1997, and that the defendants promised to pay for the consulting
services and failed to do so. Clarity seeks a judgment against the defendants in
the amount of $552,635, plus service charges at the rate of one and one-half
percent per month, plus such other relief as the court may deem equitable and
just, as well as attorneys fees and court costs. On March 13, 2000, the Company
filed a Motion to Quash Service For Lack of Personal Jurisdiction on the basis
that Illinois does not have proper jurisdiction over the Company in this
dispute. On July 7, 2000, the Court granted the Company's Motion.
F-10
<PAGE> 13
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
(11) Litigation (continued)
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 and Mr. Gordon have filed a motion to
dismiss, which is pending.
On December 28, 1998, EIS International, Inc., of Herndon, Virginia, issued a
Demand for Arbitration to the Company, as the result of a dispute arising under
a contract dated May 7, 1998 with the Company. EIS seeks $223,261 for software,
licenses and services, which it claims are due and owing under the parties
agreement, plus interest, attorneys' fees and costs. The Company claims that it
notified EIS of major defects in the software, demanded that they be remedied,
but EIS refused to do so and instead demanded payment. Further, the Company
counter-claimed that it has suffered damages in excess of $200,000, plus costs
and attorneys' fees, because the Company was forced to create alternative
systems for performing the functions for which the EIS software was intended and
suffered significant loss of business opportunities as a result of the failure
of EIS's software to perform as promised. A date for an arbitration proceeding
has not been set yet.
(12) Subsequent Events
On July 14, 2000, the Company's board of directors adopted the TSIG.com 2000
Incentive Stock Plan, a non-qualified plan, that terminates on July 13, 2005.
The Plan provides for the grant of options or shares of common stock not to
exceed 9,500,000 shares to employees, directors, officers, consultants or
advisors of the Company. The terms of options granted are determined by the
board of directors (or a committee thereof) at the date of grant.
On July 31, 2000 the Company issued 900,000 unrestricted free trading common
shares to a consultant for services to be rendered for the one year period which
commenced August 1, 2000, pursuant to an agreement dated July 26, 2000. The
closing market price for the Company's common stock on July 25, 2000 was $1.50
per share, which results in stock for service compensation of $1,350,000.
Subsequent financial statements will include an expense provision of $1,350,000
related to this matter.
F-11
<PAGE> 14
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
(12) Subsequent Events (continued)
On July 31, 2000 the Company granted five year non-plan options at $1.20 per
share (approximately 120% of the market price on the date of grant) to acquire
4,000,000 shares of the Company's common stock to its Chairman/CEO. These
options vest as follows:
2,000,000 immediately
1,600,000 upon the closing of one of the proposed business combinations
200,000 upon the closing of one of the proposed business combinations
200,000 upon the closing of one of the proposed business combinations
On July 31, 2000 the Company granted non plan options to its four directors for
300,000 shares each, exercisable and vested quarterly over a three year period
at $1.20 per share (approximately 120% of the market price on the date of
grant). To earn the options the director must remain a director on the vesting
dates.
On July 31, 2000 the Company issued 1,000,000 shares of its common stock to its
Chairman/CEO, related to the exercise of a previously granted option at $.70 per
share. The Company's Board of Directors approved this option exercise without
payment and directed the Company to record the $700,000 as a receivable in the
Company's financial statements.
On July 31, 2000, the Company entered into an agreement with a consultant for
business development services in Asian markets, including China. Pursuant to the
agreement, the Company issued 500,000 registered shares as advanced
payment-in-full for all services to be rendered valued at $500,000 or $1.00 per
share, the approximate market price, and granted the consultant an option under
the TSIG.com 2000 Stock Plan to acquire 3,500,000 shares of common stock, of
which 1,750,000 are deemed fully vested, and the remaining options, totaling
1,750,000, shall vest upon achievement of goals and performance of milestones to
be mutually agreed upon. The options are exercisable for one year at an exercise
price of $1.00 per share, the approximate market price. The Company recorded a
charge to operations in July 2000 of $2,374,000 related to the value of common
stock issued and options granted. The Company will account for the unvested
options using variable plan accounting which results in a revaluation of these
options at each period end through the date of vesting.
F-12
<PAGE> 15
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, 2000, were $56,125, versus $164,910 for the second quarter of 1999, as
the Company continued to focus on its restructuring, acquisitions and financing.
While cash operating expenses decreased in almost every major category, the
reported total operating expenses for the second quarter increased from
$1,701,569 to $6,641,176. This difference is due to the recording of non-cash
expenses resulting from the issuance of shares and the grant of stock options,
to consultants and advisors, based on the market value of the shares at the time
of issuance. The cost of salaries and contract services declined from $744,746
to $499,696, and cost decreases were also recorded for telephone, travel and
entertainment, as well as advertising and promotion.
Similarly, for the six months ended June 30, 2000, revenues were
$107,233, versus $267,211 for the same period in 1999. Again, while cash
operating expenses decreased in almost every major category, the reported total
operating expenses increased from $3,184,854 for the first six months of 1999 to
$11,728,913 for the first half of 2000. This difference is due to the recording
of non-cash expenses resulting from the issuance of shares and the grant of
stock options, to employees, consultants and advisors, based on the market value
of the shares at the time of issuance.
Operating Plan
The Company continues to implement the aggressive restructuring that
was announced in the Form 10-KSB for the year ended December 31, 1999 and the
Form 10-QSB for the quarter ended March 31, 2000. In June, 2000, the Company
announced that it had entered into definitive agreements to acquire three
companies: General Search.Com, Inc., an Internet portal and search engine; The
Affinity Group LLC, an affinity marketing company; and Reliant Interactive Media
Corporation, a direct marketing company that drives retail sales via television
and the Internet. To finance these acquisitions, and to take advantage of the
anticipated synergies therefrom, the Company entered into a letter agreement
with its investment bank to increase its private placement financing to up to
$125 million (see below). Closing of these acquisitions is subject to final
documentation, and there can be no assurances at this time that these
acquisitions will be successfully completed.
Upon successful closing of these acquisitions, the Company plans to
fully implement its myCard affinity marketing programs with national
corporations, non-profits and other organizations. These customized affinity
marketing programs are designed to acquire Internet customers at very low cost,
to provide recurring revenues to the Company and its partners, to help develop
strong brand loyalty and awareness within target communities, and to drive
customers to GeneralSearch.com and other Web sites of the Company and its
partners. The Company enhances its myCard programs by providing customer service
and support with its Web-based call center and related services, an operation
that will be strengthened through the acquisition of The Affinity Group LLC.
The Company's Web sites are at www.tsig.com and www.mymusiccard.com.
Liquidity and Capital Resources
Net cash used for continuing operating activities for the six months ended June
30, 2000 was $2,833,599. Net cash used for investing activities for the first
two quarters ended June 30, 2000 was $166,294, of which $161,138 related to
advances to the Company's Chairman/CEO net of accrued but unpaid salary. Net
cash provided by financing activities for the six months ended June 30, 2000 was
$3,011,394. Of this amount, $1,870,000 was received from the sale of $2,500,000
in preferred stock with a 10% dividend rate, the balance of which was received
prior to December 31, 1999. Additionally, the Company received $623,475 from the
issuance of common stock and $700,000 from borrowings under notes payable to
GeneralSearch.Com. The Company also used $165,387 for the repayment of loans to
stockholders during the six months ended June 30, 2000.
2
<PAGE> 16
Limited Working Capital; Financial Instability
As of June 30, 2000, the Company had a total stockholder deficit of
$3,728,877, an accumulated deficit of $58,223,015, and a working capital deficit
$4,188,845. To finance its operations, the Company has relied in part on loans
from GeneralSearch.Com, one of the companies that the Company has entered into a
definitive agreement to acquire. Such loans totaled $700,000 for the quarter
ended June 30, 2000, and since then, the Company has borrowed an additional
$555,000. All of the loans are uncollateralized and are due 120 days from the
various loan dates. The notes bear interest at 8% per annum, payable in arrears
at maturity, and bear a default interest rate of 18% if not paid in full when
due. If and when the business combination of the Company with GeneralSearch.com
is successfully completed, the notes would become intercompany loans and
therefore not reflected in the consolidated financial statements of the combined
companies. The Company can give no assurance that the business combination with
GeneralSearch.Com will be completed.
The Company's consolidated financial statements are presented on the
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. However, the
Company has sustained recurring operating losses since its inception and has a
working capital deficit of $4,188,845 and a stockholder deficit of $3,728,877 as
of June 30, 2000 and has not begun to generate any significant revenues from its
Internet business. The Company is materially delinquent on payments to various
creditor obligations including the Internal Revenue Service. There can be no
assurance that the Company will be able to achieve material revenues or
profitable operations. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments to reflect the possible future affects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible inability of the
Company to continue as a going concern.
Management is planning on expanding its operations through the
potential acquisition of three companies through a stock exchange which
management believes will be synergistic with its existing Internet business. The
Company has continued to raise capital through the issuance of common stock and
borrowings under promissory notes during the three months ended June 30, 2000
and the sale of preferred stock on March 31, 2000. However, the Company requires
additional financing. On February 29, 2000, the Company announced that it had
entered into a letter agreement engaging a prominent New York based investment
banking firm as its exclusive agent for a private placement financing of up to
$40 million, and on April 26, 2000, the letter agreement was amended to provide
for a financing of up to $125 million. However, 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.
Visitors Services, Inc. ("VSI"), a formerly wholly owned subsidiary
filed a voluntary petition for relief under Chapter 7 of the United States
Bankruptcy Code for the Middle District of Florida, Tampa Division on March 5,
1999. Creditors of VSI, including the Internal Revenue Service, may assert a
claim against the Company. A contingency exists with respect to these matters,
including final determination if the transactions between the Company and VSI
are legitimate transactions allowable by Federal Bankruptcy Code or if they are
determined to be in violation of preference of creditor statutes, rules and
regulations. A provision of $475,000 was accrued by the Company as of December
31, 1999 for the trust fund portion of the federal payroll tax withholding owed
by TSI. In June 2000, the Company accrued an additional $130,588 related to
additional penalties and interest pursuant to a recent statement of account from
the Internal Revenue Service. As of June 30, 2000, the Company had accrued
$605,588 related to this contingent liability. The Company has also accrued
$571,992 in federal payroll taxes due and unpaid for 1999 and the fourth quarter
of 1998. Management is in frequent contact with the Internal Revenue Service and
intends to use proceeds from capital raised subsequent to its planned
acquisitions to pay these obligations.
As described in the Company's annual report on Form 10-KSB for the year
ended December 31, 2000, in Note 11 to the consolidated financial statements for
the period ended June 30, 2000 and in Part II, Item 1 of this quarterly report
on Form 10-QSB, the Company is a defendant in several pending litigation
matters. The Company can give no assurance that the outcome of any of these
litigation maters will be favorable 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.
3
<PAGE> 17
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, (iv) statements
about plans of the Company or its management or Board of Directors to raise
capital to fund the Company's business operations and its acquisitions, and (v)
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.
4
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings:
There have been no material developments in any of the legal proceedings
described in the Company's annual report on Form 10-KSB for the year ended
December 31, 2000, except as follows:
As previously reported in the Company's annual report on Form 10-KSB for
the year ended December 31, 2000, on October 15, 1999, Clarity Consulting, Inc.
("Clarity"), filed an amended complaint in the Circuit Court of Cook County,
Illinois, adding the Company as a defendant in their suit to recover monies that
they originally alleged were owed by Visitors Services International Corp.
("VSI"). On March 13, 2000, the Company filed a Motion to Quash Service For Lack
of Personal Jurisdiction on the basis that Illinois does not have proper
jurisdiction over the Company in this dispute. On July 7, 2000, the Court
granted the Company's Motion.
ITEM 2. Changes in Securities:
A. At the close of business on June 23, 2000, the Company effected a combination
(also known as a "reverse-split") of its outstanding, but not authorized common
stock on a 10-for-1 basis. The par value remained $.0001 per share, fractional
shares created as a result of the combination were rounded to the nearest whole
share, and all options, warrants, convertible preferred stock, and any other
convertible securities that are convertible into common stock that are
outstanding on the date of the combination were adjusted on the same basis. All
references to common stock have been retroactively adjusted in the Company's
financial statements to give effect to the reverse split. The reverse split had
been approved by the Company's shareholders at a Special Shareholders' Meeting
held on March 27, 2000.
B. During the quarter ended June 30, 2000, the Board Directors of the Company
authorized the issuance of 450,000 shares of restricted common stock to Basic
Investments, Ltd. in settlement of a threatened legal claim against the Company
made with respect to registration rights. As part of the settlement, the Company
agreed to file by August 31, 2000, a registration statement to register for
resale by Basic Investments, Ltd. all shares of common stock owned by, and all
shares underlying warrants owned by Basic Investments, Ltd. The Company believes
that this transaction was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.
ITEM 3. Defaults Upon Senior Securities: None.
ITEM 4. Submissions of Matters to a Vote of Security Holders: None.
ITEM 5. Other Information:
A. On May 15, 2000 the Company entered into a new consulting agreement with Paul
W. Henry to continue to serve as the Corporate Secretary and Treasurer until
December 31, 2002. The agreement provides for an annual salary of $150,000,
increasing to $180,000 per year after October 31, 2000. Pursuant to the
agreement, Mr. Henry was granted an option to acquire 450,000 (post-split)
shares of common stock, the first 50,000 vested on July 1, 2000, and the balance
vests at the rate of 50,000 per quarter. The option is exercisable for five
years at an exercise price of $1.40 per share (which was the approximate market
value of the Company's common stock on the date of grant).
B. On May 25, 2000, the Board of Directors authorized the accelerated vesting of
1,000,000 (post-split) options previously granted to Robert P. Gordon under the
TSIG.com Incentive Stock Plan. On July 10, 2000, the Company filed a Post
Effective Amendment No. 1 to Form S-8 (File No. 333-32548) to include a reoffer
prospectus pursuant to which Mr. Gordon may sell the shares underlying the
options in the future. The reoffer prospectus included in the Post effective
Amendment No. 1 contained a typographical error in a footnote to information
concerning Mr. Gordon's ownership which incorrectly stated that the exercise
price was $.07 per shares; however, the correct (post-split) exercise price is
$.70 per share. On July 31, 2000, Mr. Gordon exercised all 1,000,000 options.
C. On July 14, 2000, the Company adopted the TSIG.com 2000 Stock Plan, which
covers the issuance of up to 9,500,000 shares of common stock, either directly
or pursuant to options, to eligible employees, directors, officers, consultants
and advisors of the Company. The purpose of the plan is to promote the best
interest of the Company
5
<PAGE> 19
and its stockholders by providing a means of non-cash remuneration to selected
eligible participants. On July 19, 2000, the Company filed a registration
statement on Form S-8 (File No. 333-41716) to register the shares covered under
the plan.
D. On July 31, 2000, the Board of Directors authorized the accelerated vesting
of all outstanding options held by Directors Paul Henry, Frank Ragano and J.R.
LeShufy that were granted prior to December 31, 1999. The Board also granted a
new option to acquire 300,000 shares of common stock to each member of the Board
(i.e., Robert P. Gordon, Paul W. Henry, Frank Ragano and J.R. LeShufy). Each
option vests quarterly over a three year period, is exercisable for five years
and the exercise price is $1.20 per share.
E. On July 31, 2000, the Board granted to Robert P. Gordon an option to acquire
4,000,000 shares of restricted common stock, of which 2,000,000 vested
immediately, 1,600,000 shall vest upon the closing of the acquisition of
GeneralSearch.Com, 200,000 shall vest upon the closing of the acquisition of The
Affinity Group, and 200,000 shall vest upon the closing of the acquisition of
Reliant Interactive Media Corp. The option is exercisable for five years and the
exercise price is $1.20 per share of restricted common stock.
F. On July 31, 2000, the Company entered into an agreement with Star Anise S&T
Co., Ltd. for business development services in Asian markets, including China.
Pursuant to the agreement, the Company issued 500,000 registered shares as
advanced payment-in-full for all services to be rendered, and granted Star Anise
an option to acquire 3,500,000 shares of common stock, of which 1,750,000 are
deemed fully vested, and 1,750,000 shall vest upon achievement of goals and
performance of milestones to be mutually agreed upon. The options are
exercisable for one year at an exercise price of $1.00 per share.
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 Registration
Statement on Form SB-2 (file no. 333-78077) filed on May 7,
1999.)
3.9 Articles of Incorporation, as amended on June 14, 2000, and
currently in effect. (Incorporated by reference to Exhibit
3.9 of the Company's Current Report on Form 8-K dated June
14, 2000 and filed June 15, 2000.)
4.8 Form of Securities Purchase Agreement for private placement
of Series A Convertible Preferred Stock which commenced in
August 1999. (Incorporated by reference to Exhibit 4.8 of
the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999.)
4.9 Form of Series A Common Stock Purchase Warrant issuable upon
conversion of Series A Convertible Preferred Stock.
(Incorporated by reference to Exhibit 4.9 of the Company's
Annual Report on Form 10-KSB for the year ended December 31,
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 and filed on March 31, 1999.)
10.16 TSIG.com Incentive Stock Plan dated December 17, 1999.
(Incorporated by reference to Exhibit 10.16 of the Company's
Registration Statement on Form S-8 (file no. 333-32548)
filed March 15, 2000.)
6
<PAGE> 20
10.17 Employment Agreement between the Company and Joseph K.
Keegan dated December 6, 1999. (Incorporated by reference to
Exhibit 10.17 of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1999.)
10.18 Employment Agreement between the Company and Richard H.
Wheeler dated December 6, 1999. (Incorporated by reference
to Exhibit 10.18 of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999.)
10.20 Agreement to Serve as a Director between the Company and
Frank Ragano dated September 29, 1999. (Incorporated by
reference to Exhibit 10.20 of the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1999.)
10.21 TSIG.com 2000 Stock Plan dated July 14, 2000. (Incorporated
by reference to Exhibit 10.21 of the Company's Registration
Statement on Form S-8 (file no. 333-41716) filed July 19,
2000.)
10.22 Consulting Agreement between the Company and Paul W. Henry
dated May 15, 2000. (Filed herewith.)
27 Financial Data Schedule. (Filed herewith.)
(b) Reports on Form 8-K.
On June 15, 2000, the Company filed a current report on Form 8-K, dated
June 14, 2000, to report the effective date of the revere split of the
outstanding common stock and the related amendment to the Articles of
Incorporation, which had been approved by the shareholders on March 27, 2000.
On July 5, 2000, the Company filed a current report on Form 8-K, dated June
27, 2000, to report that the Company had engaged the accounting firm of BDO
Seidman LLP to serve as new auditors. On July 24, 2000, the Company amended the
report on Form 8-K/A to provide additional information about the change in
auditors.
7
<PAGE> 21
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 15, 2000 /s/ Robert P. Gordon
----------------------------------
Robert P. Gordon, Chairman and
Interim Chief Financial Officer
8
<PAGE> 22
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 Registration Statement on Form SB-2
(file no. 333-78077) filed on May 7, 1999.)
3.9 Articles of Incorporation, as amended on June 14, 2000, and
currently in effect. (Incorporated by reference to Exhibit 3.9 of
the Company's Current Report on Form 8-K dated June 14, 2000 and
filed June 15, 2000.)
4.8 Form of Securities Purchase Agreement for private placement of
Series A Convertible Preferred Stock which commenced in August
1999. (Incorporated by reference to Exhibit 4.8 of the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1999.)
4.9 Form of Series A Common Stock Purchase Warrant issuable upon
conversion of Series A Convertible Preferred Stock. (Incorporated
by reference to Exhibit 4.9 of the Company's Annual Report on
Form 10-KSB for the year ended December 31, 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 and filed on March 31, 1999.)
10.16 TSIG.com Incentive Stock Plan dated December 17, 1999.
(Incorporated by reference to Exhibit 10.16 of the Company's
Registration Statement on Form S-8 (file no. 333-32548) filed
March 15, 2000.)
10.17 Employment Agreement between the Company and Joseph K. Keegan
dated December 6, 1999. (Incorporated by reference to Exhibit
10.17 of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999.)
10.18 Employment Agreement between the Company and Richard H. Wheeler
dated December 6, 1999. (Incorporated by reference to Exhibit
10.18 of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999.)
10.20 Agreement to Serve as a Director between the Company and Frank
Ragano dated September 29, 1999. (Incorporated by reference to
Exhibit 10.20 of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999.)
10.21 TSIG.com 2000 Stock Plan dated July 14, 2000. (Incorporated by
reference to Exhibit 10.21 of the Company's Registration
Statement on Form S-8 (file no. 333-41716) filed July 19, 2000.)
10.22 Consulting Agreement between the Company and Paul W. Henry dated
May 15, 2000. (Filed herewith.)
27 Financial Data Schedule. (Filed herewith.)
</TABLE>
