UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended January 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED) For the transition period ___________to___________
Commission File Number 0-25002
TELEHUBLINK CORPORATION
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(Name of small business issuer as specified in its charter)
DELAWARE 59-3200879
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 NEW ENGLAND EXECUTIVE PARK
BURLINGTON, MA 01803
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (800) 342-1931
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
TITLE OF EACH CLASS REGISTERED: Common Stock, par value $.01:
Redeemable Warrants, each to purchase
one share of Common Stock
Check whether the issuer (1) filed all reports required by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $-0-
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the price the stock closed at on April 30, 1999) was
approximately $5,596,955.
The number of shares outstanding of the registrant's
Common Stock, par value $.01 per share, as of April 30, 1999 was 17,873,442.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X ]
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TELEHUBLINK CORPORATION
ANNUAL REPORT ON FORM 10-KSB
for the
FISCAL YEAR ENDED JANUARY 30, 1999
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. DESCRIPTION OF PROPERTIES 11
ITEM 3. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS 13
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 14
ITEM 7 FINANCIAL STATEMENTS 18
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 18
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE
ACT 19
ITEM 10 EXECUTIVE COMPENSATION 21
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 24
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 25
ITEM 13 EXHIBITS, LIST AND REPORTS ON FORM 8-K 26
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
TeleHubLink Corporation, (formerly known as What A World!, Inc.)(the
"Company") was incorporated under the laws of the State of Delaware in July
1993. Until May 1997, the Company operated as a mall-based specialty retailer of
a wide assortment of products which targeted customers having an active interest
in nature, the environment, education, wildlife, the outdoors and science. In
May 1997, the Company sold substantially all of its assets to Natural Wonders,
Inc. for cash in the amount of $517,795 plus the assumption by Natural Wonders,
Inc. of specified liabilities (the " 1997 Sale"). The completion of the 1997
Sale terminated the Company's specialty retail operations. For the period May
1997 through February 3, 1999, the Company had no operating business and sought
to serve as a vehicle to effect an acquisition, whether by merger, exchange of
capital stock, acquisition of assets or other similar business combination. On
February 4, 1999, the Company acquired all the issued and outstanding capital
stock of Tele Hub Link Corporation ("TeleHub"), a privately-held company
organized under the laws of the Province of Ontario, Canada, that is engaged in
the business of providing teleservices. Pursuant to a Share Purchase Agreement
dated as of December 21, 1998 and amended as of January 11, 1999 (as amended,
the "Share Purchase Agreement") between the Company, TeleHub and the
shareholders of TeleHub (the "TeleHub Shareholders"), the Company acquired from
the TeleHub Shareholders all of the issued and outstanding capital stock of
TeleHub in exchange for an aggregate of 13,011,339 shares (the "Shares") of
common stock, par value $.01 per share ("Common Stock"), of the Company (or
3.9252318 shares of the Company's Common Stock for each share of TeleHub common
stock) and, as a result thereof, TeleHub became a wholly-owned subsidiary of the
Company (the "TeleHub Transaction"). In addition, in connection with the TeleHub
Transaction, the Company amended its Certificate of Incorporation in order to
change its name from What A World!, Inc. to TeleHubLink Corporation.
GENERAL
As a result of the 1997 Sale and the TeleHub Transaction described above,
the Company currently operates as a holding company, the principal asset of
which is its 100% ownership interest in TeleHub. Accordingly, the business of
the Company is currently conducted primarily through TeleHub.
BUSINESS OF TELEHUB
OVERVIEW
TeleHub was formed in May 1998 under the Business Corporations Act (Ontario)
and is in the early development stage. Since its inception, TeleHub has been
primarily engaged in exploring and developing opportunities in the call center
teleservices industry. Call centers facilitate the direct communication by
telephone of information to and from current and prospective customers of the
call center's clients. Generally, the teleservices provided by call centers
include performing call center-initiated ("outbound") teleservices as well as
responding to and managing customer-initiated ("inbound") calls. Outbound
teleservices consist primarily of direct marketing and sales activities
initiated on behalf of a call center's clients, and inbound teleservices
activities consist primarily of the processing of incoming phone calls (often
placed by customers using toll free numbers) for product or service orders,
customer inquiries, processing of credit and other consumer applications and
customer and technical service.
Call campaigns provided by call centers involve outbound and/or inbound
calling programs that follow prepared scripts targeted at specific markets or
customers previously determined by the client. In connection with outbound
teleservices, call center representatives typically place phone calls through
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automated dialing systems (known as predictive dialers). A predictive dialer is
an integrated computer and telephone switch designed to minimize time spent
dialing numbers, getting busy signals, or no answers. The automated dialing
system works with databases either provided by clients or prepared by the call
center to launch outgoing calls. Once a live connection has been established
with a potential customer, the automated dialing system transfers the call,
together with relevant customer information and the applicable prepared script,
to a call center representative to complete the call. In connection with inbound
teleservices, call center representatives typically receive phone calls through
an automated call distributor, which is a phone switch that accepts and routes
incoming calls to increase the speed at which incoming calls can be
appropriately answered. Once the call is received, the automated call
distributor directs the call, together with relevant customer information and
the applicable prepared script, to an available call center representative.
Since its formation, TeleHub has been marketing its proposed services and
forming relationships with individuals and organizations in the teleservices
industry to develop and further TeleHub's call center business. In August 1998,
TeleHub secured a lease of premises in Montreal, Quebec and thereafter acquired
furniture and telecommunications and computer equipment for use in its call
center operations. To date, TeleHub has performed teleservices pursuant to
agreements with Access One Communications Inc. ("Access One"), a
telecommunications services provider, Call Tel U.M.P.G. ("Call Tel"), a
teleservices company, Corporate Services Telecom, Inc. ("CSTI"), a long-distance
services provider, and Shared Network Services ("SNS"), an Internet service and
content provider, and is currently providing teleservices to approximately 30
other clients, including MetroNet Communications Group, Inc. ("MetroNet"), a
telecommunications services provider, PageMart Canada Limited ("PageMart"), a
telecommunications messaging services provider, TeleBank International
("TeleBank"), a credit card company, and StarLink ("StarLink"), a U.S. telecom
company. See also "Business of TeleHub - Customers."
To date, TeleHub has generated limited revenues from its operations and has
a limited operating history upon which an evaluation of its performance and
prospects can be made. The financial statements of TeleHub have been filed with
the Securities and Exchange Commission (the "Commission") as part of the
Company's Current Report on Form 8-K filed with the Commission on February, 19,
1999, as amended by the Company's Current Report Form 8-K/A as filed with the
Commission on April 20, 1999, and are incorporated by reference herein.
INDUSTRY BACKGROUND
Unlike indirect marketing methods, such as radio, television and print
advertising, the teleservices industry facilitates the direct communication of
information to and from current or prospective customers, enabling companies to
deliver sales, marketing or other types of information directly to these
customers. TeleHub believes that businesses are increasingly focused on using
personalized services to target consumers and to service and retain customers.
Call centers have evolved significantly in recent years as businesses
increasingly recognize that teleservices can provide an effective means to
contact targeted consumers and provide customer service. Advances in computer
and telecommunications technology, such as predictive dialers and automated call
distributors, have assisted teleservicers in more accurately and efficiently
identifying and contacting potential customers and have provided call center
representatives with more complete on-line guidance and support.
Traditionally, businesses that have included teleservices in their marketing
and customer service programs have primarily used in-house call center personnel
and facilities. TeleHub believes that businesses are increasingly outsourcing
their telephone-based marketing and customer services needs to third party
providers as part of overall efforts to reduce costs and focus internal
resources on their core competencies. TeleHub believes that outsourced
teleservices can provide advantages over internal operations, including the
ability to reduce marketing infrastructure costs (such as investment in labor,
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training, facilities and specialized equipment) while maintaining or improving
operation efficiencies related to customer contact and support. As a result,
TeleHub believes that many businesses are increasingly seeking to develop
relationships with independent teleservices specialists for the management and
enhancement of the call center aspects of their marketing, sales and customer
service activities.
While there are currently many independent teleservices companies competing
for call center outsourcing, TeleHub believes that any increase in outsourcing
of teleservices presents opportunities for independent call centers if they can
successfully offer and deliver a flexible range of call center services.
THE TELEHUB APPROACH
TeleHub has established and plans to expand its presence in the outsourced
teleservices market by focusing its energies on developing as an independent
call center which is capable of providing a broad range of inbound and outbound
teleservices. TeleHub has obtained 48 call stations and computer and
telecommunications equipment, including a predictive dialer and telephone switch
for automated call distribution, for its call center located in Montreal,
Quebec, and is hiring call center representatives as required by TeleHub's
volume of business. In March 1999, TeleHub acquired an additional 30 stations
and is in the process of equipping them with computers, headsets, and
telecommunications equipment for the expanded business. TeleHub is currently
providing teleservices to approximately 30 clients, including TeleBank,
StarLink, MetroNet, and PageMart and is currently negotiating with several
potential customers and strategic partners in order to expand the breadth of its
service offerings.
TeleHub seeks to capitalize on outsourced teleservices opportunities in the
following manners:
LOW RELATIVE COST. TeleHub has recently established its call center in
Montreal, Canada. TeleHub believes that this location may offer several cost
advantages over locations in the US such as: low rent in comparison to major US
cities; employment incentives offered by the Quebec provincial government; and
the availability of a large number of educated and bilingual unemployed workers.
It is anticipated that these factors, together with declining long distance
rates in Canada, will allow TeleHub to build its infrastructure and operate its
call center at a relatively low cost. TeleHub also believes that the current
exchange rate between the Canadian and U.S. dollars may attract U.S. clients who
can receive U.S. service from TeleHub while paying with Canadian dollars,
thereby realizing a cost savings benefit. TeleHub is currently seeking
agreements with U.S. clients and third party companies who contract for
teleservices from the United States, and to date has provided teleservices to
such U.S. clients as Access One, CSTI, SNS, and StarLink.
MULTIPLE SERVICE OFFERINGS. TeleHub is developing a broad range of inbound
and outbound call center teleservices. TeleHub's current or proposed inbound
teleservices include receiving and processing calls for sales, service and
information and managing product and warranty service and sales support.
TeleHub's current or proposed outbound teleservices include providing
teleservicing in connection with the sale of goods and services, performing fund
raising activities and conducting surveys. See "Business of TeleHub - Services".
TeleHub believes that offering a broad range of services will allow various
companies from various industries to utilize TeleHub's teleservices. For
example, many traditional call centers may narrow their scope by isolating
themselves into single industries such as airline sales, insurance information
or software service. TeleHub believes that there is an opportunity to provide
teleservices for product and service lines not serviced by such narrowly-focused
call centers. TeleHub also believes there is an emerging service market for the
international arena and plans to develop services to address this business.
CAPITALIZE ON OVERFLOW. TeleHub believes there is an opportunity to
capitalize on other call centers' overflow of teleservices requirements or
commitments. Many call centers (both internal and independent) may be subject to
seasonal fluctuations in their operations that mandate either excessive hiring
or staff consolidation to adapt to these changes. As clients and call centers
seek to match capacity with fluctuating
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demand, TeleHub believes there is an opportunity for TeleHub to provide
teleservices on a subcontracted basis to such internal and independent call
centers in times of excess demand. TeleHub's previous agreement with Call Tel is
an example of the available opportunities for such overflow business. See
"Business of TeleHub - Customers."
IMPLEMENTATION OF TECHNOLOGY. TeleHub has licensed the use of automated
dialing technology (predictive dialer) from Info Zero Un, a Quebec
telecommunications company, to assist in outbound teleservices. The Company is
also negotiating to acquire a second predictive dialer to support its business
expansion plans. For inbound teleservices, TeleHub has obtained a telephone
switch from WilTel Inc., a telecommunications company based in Ontario, which
enables automated call distribution. These technologies are designed to improve
call center productivity and thereby reduce the effective cost per call made or
received. TeleHub has also obtained a server which includes scripting software
(which provides call center representatives with prompt access to customer and
product information) and call management data software which is designed to
manage, update and reference client data files and collect statistical
transaction and performance data. TeleHub believes that such technologies will
assist TeleHub in performing quality teleservices on a cost-effective basis.
QUALITY OF SERVICE. TeleHub believes that its customers' satisfaction is,
and will continue to be, based in part on TeleHub's ability to monitor and
improve the quality of its service. In this regard, TeleHub has implemented a
quality assurance program which includes prior client approval of scripts to be
used by call center representatives, monitoring of calls for quality control and
adherence to approved scripts, daily scrutiny of scripts, and script adjustments
in consultation with clients' comments and suggestions.
SERVICES
TeleHub currently employs 63 call center representatives and five call
center supervisors who provide call center teleservices using most of TeleHub's
48 existing call stations. TeleHub plans to hire additional call center
representatives as required by TeleHub's volume of business. In anticipation of
this increase in volume, TeleHub has acquired an additional 30 stations and is
negotiating to purchase an additional 24 inbound stations.
TeleHub's service offerings include both inbound and outbound teleservices.
TeleHub's current or proposed inbound teleservices include receiving and
processing calls for sales, service and information, and management of toll-free
or pay-per-use 1-800/888/900 lines for product and warranty service and sales
support. TeleHub also intends to acquire an interactive voice response system,
which will enable it to provide automatic call answering, recording and order
taking services during non-business hours. TeleHub's current and proposed
outbound teleservices include providing teleservicing in connection with the
sale of goods and services, performing fund raising activities, conducting
surveys, and assisting in the production of client lists which can be derived
from information which has been either provided by the client or independently
obtained or developed by TeleHub. TeleHub's role under any outbound marketing
campaign may range from the identification and initial solicitation of
prospective customers to performing a full marketing and sales role involving a
sale of a client's product or services to a customer, the collection by TeleHub
of fees for the product or service and the remittance of such fees to TeleHub's
client. For example, pursuant to TeleHub's arrangement with one of its clients,
TeleHub is acquiring database lists and using these lists in a campaign offering
the client's credit cards to prospective customers.
With respect to inbound teleservices, typically a customer will call a
toll-free or pay-per-use 1-800/888/900 number to request product or service
information, place an order for a particular product or service or obtain
assistance with respect to a previously purchased product or service. The
information and results of calls received are typically captured by the call
center and reported to the client for order processing, customer service or data
management. To assist in the handling of the various calls, TeleHub has acquired
a digital switch to enable automated call distribution, which classifies each
call by program
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and routes the call to a call center representative trained for that program.
Along with the call, the call center representative's computer screen displays
information relevant to the call.
With respect to outbound call campaigns, TeleHub expects that, in most
cases, it will receive customer data, including names and telephone numbers,
electronically from clients. TeleHub may, however, be required to obtain
customer or market information or databases from non-client third parties. The
cost of such acquired databases may depend on the particularity of such
databases and such cost would typically be passed on to TeleHub's client.
Subject to confidentiality obligations to its clients, TeleHub hopes to refine
and build upon customer databases it acquires from non-client third parties and
in time be able to offer detailed customer or market information to prospective
clients in connection with outbound teleservices offerings. Once the applicable
database is obtained or created for an outbound call campaign, TeleHub's call
management system is designed to use a predictive dialer to automatically dial
the telephone numbers in these files, determine if a live connection is made and
present connected calls to a call center representative who has been trained for
the client's program. When a call is connected to a call center representative,
the customer's name, other information about the customer and the program script
will simultaneously appear on the call center representative's computer screen
and the call center representative will then use the script to solicit an order
for the product or service or to request information that will be added to the
applicable database.
TeleHub plans to enhance the value of its teleservices by employing sales
representatives with the capability to market in English and other languages to
reach residential and business customers in the international market.
Many independent call center teleservices firms operate under month-to-month
contracts with their clients. TeleHub's contracts with its clients are also on a
month-to-month basis or are otherwise terminable by the client on short notice.
Depending on TeleHub's role under any given teleservices contract, TeleHub's
compensation for the services it provides can consist of an initial fee and
ongoing service charges which may be based on an hourly or per-call rate or
based only on successful completion of sales either by TeleHub or its client.
Each of TeleHub's current agreements may be terminated on short notice to
TeleHub and, under each such agreement, TeleHub will only be compensated if and
when the client approves a sale referred by TeleHub.
STRATEGY
Key elements of TeleHub's business strategy are as follows:
TeleHub's strategy is to continue to build its "HUB" concept, pursuant
to which TeleHub would act as a central focus for businesses to outsource
typical non-core functions and capitalize on the network established by TeleHub.
In this connection, TeleHub offers or proposes to offer the following services
in addition to its existing call center teleservices:
o Telecom services - Selling local and long distance telephone services.
o Wireless services - Selling cellular telephone services.,
o Teleservices support - Providing sales and marketing and fulfillment
services, infomercial support, product support and customer support.
In addition to the foregoing services, TeleHub is also seeking to expand
its operations by servicing the Internet market, and is in the early stages of
establishing a structure to address the emerging Internet "e-commerce" market.
In this connection, TeleHub currently anticipates forming a new Internet
division which would be engaged in selling client advertisements to Internet
malls, facilitating the creation of web sites for its clients and providing
e-commerce fulfillment services. However, there can be no assurance that
TeleHub will be
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successful in implementing this plan or that any such services, if established,
would generate any meaningful revenue.
The key elements of TeleHub's business strategy for developing its "HUB"
network are as follows:
PURSUE OUTSOURCED TELESERVICES OPPORTUNITIES. TeleHub's current
marketing activities are particularly focused on identifying and soliciting
companies with direct sales and customer service needs and companies which have
large customer bases which can benefit from targeted teleservices programs.
TeleHub is also seeking relationships with other call centers to provide
teleservices on a subcontracted basis to assist in fulfillment of overflow.
TeleHub intends for its teleservices to be adaptable to serve the needs of many
various types of businesses and teleservices requirements.
FACILITATE GROWTH THROUGH EXPANSION AND COMPLEMENTARY ACQUISITIONS.
Subject to financial constraints, TeleHub is committed to growth through
internal expansion. TeleHub currently utilizes substantially all of its 48 call
stations, has acquired an additional 30 stations, and is in negotiations to
acquire an additional 24 inbound stations. TeleHub's practice is to hire
employees as required to support these call stations as well as to expand as
required to capitalize on growth opportunities. In this regard, TeleHub believes
that it will benefit from being located in Montreal, a city that has a large
multi-lingual and educated population with relatively high unemployment. TeleHub
uses local advertisements as well as available human resources outsourcing
groups to fulfill its labor requirements. TeleHub may also explore strategic
acquisitions of existing call centers and telecommunications services and
technology that offer complementary services or that can expand TeleHub's
geographic markets. Although TeleHub has no arrangements, agreements or
understandings with respect to any particular opportunities at the present time,
TeleHub believes that any fragmentation in the call center teleservices industry
could result in opportunities for TeleHub to pursue and consolidate selected
complementary businesses. In March 1999, the Company acquired Call Tel, a former
call center, which provided approximately 30 additional workstations and several
additional contracts.
PROVIDE COMPREHENSIVE CLIENT SOLUTIONS. TeleHub's long-term strategy is
to provide comprehensive telecommunications-based solutions to facilitate its
clients' marketing, sales and other business objectives. Through relationships
with clients and strategic alliances, and its combination of its proposed
inbound and outbound call center teleservices activities, TeleHub intends to
provide its clients with a multi-service call center or "HUB" that will link
clients with their ultimate customer and other organizations across various
complementary industries. For example, certain customers may require financing
once they have expressed interest in contracting for the clients' products or
services; TeleHub's "HUB" would link services provided by other TeleHub clients,
such as banks, which could secure and service the required financing. The
success of TeleHub's "HUB" concept will be largely dependent on its ability to
secure contracts and relationships with complementary customers and strategic
partners including marketing, sales and financial organizations. No agreements
or binding commitments have been consummated to date with such parties.
TELECOM SERVICES. TeleHub is currently also providing teleservices to
long distance telephone carriers to resell long distance telephone services. The
advantageous rates available to resellers of long distance services may reduce
TeleHub's call center costs and allow TeleHub to competitively price the long
distance services it provides to call center teleservices clients while
maintaining a small profit on such resales.
SALES AND MARKETING
TeleHub currently markets its teleservices to potential clients through
a sales team of five full-time commissioned employees who are responsible for
generating accounts and securing service contracts.
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TeleHub's current marketing activities are particularly focused on identifying
and soliciting companies with direct sales and customer service needs and
companies which have large customer bases that can benefit from targeted
teleservices programs. TeleHub is also seeking relationships with other call
centers to provide teleservices on a subcontracted basis to assist in
fulfillment of overflow.
In furtherance of TeleHub's plan to provide Internet services for its
customers, TeleHub is currently seeking to hire a sales manager and additional
commissioned employees to sell and market advertisements to Internet-based
malls, as well as to pursue other Internet-related businesses. However, there
can be no assurance that TeleHub will be able to hire such individuals or to
successfully develop the Internet area of its business.
CUSTOMERS
To date, TeleHub has entered into agreements and informal non-binding
arrangements for the provision by it of teleservices to clients in a broad range
of industries, including financial services, telecommunications, insurance and
other businesses. As a start-up company, TeleHub anticipates a heavy dependence
upon its current relationships. TeleHub has recognized this dependency and is
pursuing other opportunities. Any significant interruption in the business of
its current clients, or any other clients, with whom TeleHub is able to
contract, could have a material adverse effect on TeleHub's financial
performance.
COMPETITION
The teleservice industry is intensely competitive and highly fragmented.
TeleHub competes with many other teleservices companies ranging in size from
very small private companies offering special applications or short-term
projects to very large public companies. Currently, TeleHub's Canadian
competitors include Vox Data Inc., Media Express Telemarketing Corp., the
Equinox Group and Sodema, Transcontinental Technologie Inc. Large U.S.
independent teleservice companies such as APAC TeleServices Inc., Electronic
Data Systems, MATRIXX Marketing Inc., SITEL Corporation, Stream International
Holdings Inc., Sykes Enterprises Inc., and West Teleservices Corporation may
also exert intense competitive pressure on TeleHub in the U.S. market. In
addition, some of these large teleservice companies have recently opened call
centers in Canada and may offer increasing competition as their Canadian
presence grows. Providers of other forms of advertising and marketing media,
such as direct mail, television, radio, and other advertising media, will also
offer TeleHub varying degrees of competition. Furthermore, TeleHub competes with
the internal marketing capabilities of many of its own prospective clients, many
of whom have significant internal teleservices, marketing and sales capabilities
and also contract for these services from competitors of TeleHub.
Much outsourced teleservices work is contracted on an individual project
basis, with many projects being allocated among various teleservice providers
from time to time. This may force TeleHub to compete frequently with other call
centers as individual projects are initiated or reallocated. Furthermore, the
relatively low barriers to entry to this industry and the rapid growth of the
teleservices industry may attract many new competitors, some of whom may be
substantially larger and better capitalized than TeleHub. Entry into the
Canadian market may be especially heavy as a result of the Canadian dollar's
current low exchange rate against the U.S. dollar. TeleHub believes that the
principal competitive factors in its industry will be price, quality, service
and responsiveness to clients' needs.
With respect to the Company's proposed Internet-related businesses, the
Company believes that it will compete with numerous other companies, many of
which will possess substantially greater financial, marketing, personnel and
other resources than the Company. Such companies may include other Internet
support companies providing services similar to those proposed to be offered by
the Company, as well as advertising and marketing firms, web site developers and
order fulfillment companies. Furthermore, given
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the relatively low barriers to entry to this industry and the rapid growth of
e-commerce, it is likely that new competitors will emerge. The Company believes
that the principal competitive factors in this industry will be price, quality,
service and responsiveness to clients' needs.
REGULATION
TeleHub's business is subject to various Canadian federal and provincial
and U.S. federal and state laws and regulations. Specifically, TeleHub is
required to comply with Canadian and U.S. laws and regulations as they pertain
to the call center teleservices industry. TeleHub has established and will
continue to maintain operating procedures to comply with all applicable rules
and regulations. TeleHub does not anticipate that such compliance will require
it to incur significant additional expenses.
In Canada, the rules promulgated by the Canadian Radio Television and
Telecommunication Commission ("CRTC") under the General Tariffs of Bell Canada
require teleservicers to remove from their calling lists for a period of three
years the names of any parties who so request, to provide the names, addresses
and phone numbers of both the teleservicer and of any party for whom they are
acting, to limit the hours during which they may call consumers, to refrain from
the use of sequential dialing and to refrain from calling emergency and
healthcare facilities. Legislation in the several Canadian provinces also
regulates telephone solicitations in regard to cancellation periods and the sale
of goods.
In the United States, the rules promulgated by the Federal Communications
Commission (the "FCC") under the Federal Telephone Consumer Protection Act of
1991 limit the hours during which teleservicers may call consumers and prohibit
the use of automated telephone dialing equipment to call certain telephone
numbers. In addition, regulations under the Federal Telemarketing and Consumer
Fraud and Abuse Prevention Act of 1994, among other things, require
teleservicers to make certain disclosures when soliciting sales. Furthermore,
the U.S. Telemarketing Fraud Prevention Act of 1997 imposes penalties for
persons convicted of telemarketing fraud, requires teleservicers to disclose
information to further investigations of telemarketing fraud, and purports to
extend jurisdiction to foreign teleservicers who may be responsible for fraud
inside the U.S.
A number of states in the U.S. have enacted or are considering enacting
legislation to regulate telephone solicitations. For example, telephone sales in
certain states cannot be finalized unless a written contract is delivered to and
signed by the buyer and may be canceled within three business days. Other states
require third-party verification for this sort of solicitation.
In both the United States and Canada, providers of long distance services
are subject to various regulations, including regulations regarding the
switching of long distance carriers. In the event, TeleHub enters into
agreements with long distance telephone carriers to resell long distance
telephone services, TeleHub will be required to comply with CRTC and FCC
regulations concerning the switching of carriers.
EMPLOYEES
TeleHub currently employs 80 persons, including five in sales and marketing,
seven in administration, two in information systems and 68 call center
representatives (including five supervisors). TeleHub currently hires its call
center representatives as temporary employees who are contracted as required by
TeleHub's volume of business. In addition, administrative personnel have been
hired as full-time employees of TeleHub.
TeleHub has entered into a memorandum of understanding with the Societe de
Developpement Industriel de Quebec (Industrial Development Corporation), a
division of the government of the Province of Quebec, dated July 21, 1998. The
Industrial Development Corporation has agreed to provide TeleHub with a grant of
approximately $2,000 for each full-time employee hired by TeleHub, such amounts
to be
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<PAGE>
paid between 1999 and 2002 and not to exceed a maximum of approximately
$326,400. A deduction in the amount of approximately $1,600 will be made from
the first grant under the memorandum of understanding, representing payment in
the amount of 0.5% of the maximum amount payable under the memorandum of
understanding for federal and provincial taxes.
BUSINESS OF THE COMPANY PRIOR TO THE TELEHUB TRANSACTION
The Company was incorporated under the name What A World!, Inc. under the
laws of the State of Delaware in July 1993 and, until May 1997, operated as a
mall-based specialty retailer of a wide assortment of products which targeted
customers having an active interest in nature, the environment, education,
wildlife, the outdoors and science. The merchandise offered by the Company
included outdoor and garden merchandise, recorded nature music, videotapes,
statuary, telescopes, books, games and puzzles and apparel, all of which
emphasized nature, environmental, scientific and/or educational themes. In May
1997, pursuant to an Asset Purchase Agreement dated as of March 7, 1997 (the
"Sale Agreement") between the Company and Natural Wonders, Inc. ("the Buyer"),
the Company sold substantially all of its assets to the Buyer for an aggregate
cash consideration of $517,795 plus the assumption by the Buyer of certain
liabilities, including liabilities relating to the Company's retail store
leases. In conjunction with the Sale Agreement and in order to immediately
implement the benefits of the Sale Agreement (and to reduce operating losses
which were continuing to be incurred by the Company), the Company and the Buyer
entered into an agreement, effective March 10, 1997 through the closing of the
Sale Agreement, pursuant to which the Buyer operated the Company's specialty
retail gift business (the "Management Agreement").
The Company opened its first store in August 1993 and, until May 1997,
operated twelve stores, which were located in major regional malls in Florida
(Bradenton, Clearwater, Jacksonville, Jensen Beach, Miami (two), Ocala, Orlando,
Tallahassee and Tampa), New York (Staten Island) and New Jersey (Eatontown).
Consummation of the 1997 Sale terminated the Company's specialty retail
operations. Following the 1997 Sale, the Company used the cash proceeds from the
1997 Sale to repay debt, fund transactional expenses and pay ongoing and general
and administrative expenses. In addition, following the 1997 Sale, the Company
engaged in the process of looking for acquisition candidates for a new business
for the Company and, on February 4, 1999, consummated the TeleHub Transaction
ITEM 2. DESCRIPTION OF PROPERTIES
Since September 1998, TeleHub has leased 6,812 square feet of office space
at 1000 St. Antoine Street, Suite 600, Montreal, Quebec, H3C 3R7, Canada under a
lease with Entreprise Point Zero dated August 21, 1998. The lease is scheduled
to expire October 31, 2003, unless terminated earlier in accordance with the
terms of the lease. The lease provides for a minimum monthly rent of
approximately $2,700 per month. Pursuant to the terms of the lease, the lessor
granted TeleHub free rental for the months of September and October 1998, and
applied approximatley $12,000 of the approximatley $18,000 deposit paid by
TeleHub under the lease to rent for the months of November and December 1998.
The balance of such deposit is being held as security for the performance of
TeleHub's obligations under the lease. TeleHub has granted the lessor a security
interest in its moveable assets to secure the value of six months rent under the
lease (approximately $15,100). In March 1999, TeleHub exercised an option under
the lease to expand into an additional 2,900 square feet adjacent to the
existing office space at an additional monthly rental charge of approximately
$2,175, (with the lessor granting TeleHub free rental for the months of April
and May 1999). TeleHub does not anticipate encountering any difficulties in
obtaining future leased space for its call center operations.
11
<PAGE>
In April 1999, the Company established its central headquarters in a
facility located at 24 New England Executive Park, Burlington, MA, which the
Company shares with Young Management Group, Inc. ("YMG"), an affiliate of
Stanley A. Young, the Chairman of the Company. YMG leases approximately 4,000
square feet of office space at such location and the Company expects to utilize,
on a month to month basis, up to 1,500 square feet thereat, at a cost of
approximately $1,500 per month. Management believes that this facility will meet
its executive office needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Neither, the Company nor TeleHub is a party or subject to any legal
proceedings, other than claims and lawsuits arising in the ordinary course of
its business. The Company does not believe that any such claims or lawsuits will
have a material adverse effect on its financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fiscal quarter ended January 30, 1999; however, at a Special Meeting
of Stockholders duly held on February 4, 1999, the Company proposed, and the
shareholders approved (i) the Share Purchase Agreement between the Company,
TeleHub, and the shareholders of TeleHub and the TeleHub Transaction
contemplated thereby and (ii) the amendment of the Company's Certificate of
Incorporation to increase the number of shares of the Company's authorized
Common Stock to 50,000,000 shares and to change the name of the Company from
What A World!, Inc. to TeleHubLink Corporation. Each of the foregoing proposals
was approved by the affirmative vote of shareholders holding 1,203,243 of the
2,118,125 share outstanding on the record date for such Special Meeting. No
shareholders voted against the proposal, and there were no abstentions. See
"Description of Business - Background".
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PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. MARKET INFORMATION
The following table sets forth, for the periods indicated, the range of high
and low closing sale prices for the Common Stock. Through January 31, 1997, the
shares of Common Stock of the Company traded on the Nasdaq Small Capitalization
Market under the symbol "WHAT". Prior to the TeleHub Transaction, the Company's
Common Stock traded under the same symbol on the bulletin board system
maintained by the National Association of Securities Dealers ("NASD") or in the
over-the-counter "pink sheets". Subsequent to the TeleHub Transaction, the
Company changed its symbol from "WHAT" to "THLC".
<TABLE>
<CAPTION>
CLOSING BID CLOSING ASK
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 HIGH LOW HIGH LOW
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter (February 2 through May 3, 1997) $ 0.2188 $ 0.0625 $ 0.5313 $ 0.4375
Second Quarter (May 4 through August 2, 1997) $ 0.1800 $ 0.0156 $ 0.5000 $ 0.0938
Third Quarter (August 3 through November 1, 1997) $ 1.1250 $ 0.1800 $ 1.5000 $ 0.3750
Fourth Quarter (November 2, 1997 through January 31, $ 0.7500 $ 0.2500 $ 1.2500 $ 0.4375
1998)
</TABLE>
<TABLE>
<CAPTION>
CLOSING BID CLOSING ASK
FOR THE FISCAL YEAR ENDED JANUARY 30, 1999 HIGH LOW HIGH LOW
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter (February 1 through May 2, 1998) $ 0.3750 $ 0.2500 $ 0.6250 $ 0.3750
Second Quarter (May 3 through August 1, 1998) $ 0.3125 $ 0.2500 $ 0.5000 $ 0.3750
Third Quarter (August 2 through October 31, 1998) $ 0.3125 $ 0.1536 $ 0.4063 $ 0.2813
Fourth Quarter (November 1, 1998 through January 30, $ 0.3750 $ 0.1536 $ 0.5938 $ 0.2813
1999)
</TABLE>
The prices set forth above reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not necessarily represent actual
transactions and were provided by consultation with the NASD composite feed or
other qualified quotation medium.
The Company experienced during 1996 a substantial decline in the price of
its Common Stock. The market price fell to a point that precluded the Company
from continuing its listing on Nasdaq. As the Company was unable to demonstrate,
by the date specified by Nasdaq, compliance with Nasdaq's listing requirements,
Nasdaq issued a formal notice of deficiency for the Company's securities in
January 1997. Since such delisting, shares of WAW common stock, to the extent
traded, have traded on the NASD bulletin board and in the over-the-counter "pink
sheets". Accordingly, as a result of such delisting, an investor may find it
more difficult to dispose of, or obtain accurate quotations as to the market
value of, the Company's securities. Delisting of the Company's securities may
also result in lower prices for the Company's securities than might otherwise
prevail.
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<PAGE>
B. HOLDERS
On April 29, 1999, as reported by the Company's transfer agent, shares of
Common Stock were held by approximately 67 persons based on the number of record
holders, including at least one who is a nominee for an undetermined number of
beneficial owners.
C. DIVIDENDS
To date, the Company has not paid any cash dividends. Any determination to
pay dividends in the future will be at the discretion of the Company's Board of
Directors. The Board's determination whether to pay dividends will depend upon
the Company's earnings, if any, financial condition and capital requirements as
well as other relevant factors. The Board of Directors does not intend to
declare dividends in the foreseeable future, but instead intends to retain
earnings, if any, for use in the Company's business operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATION
Since the consummation of the TeleHub Transaction, the Company, through its
wholly-owned subsidiary TeleHub, has been engaged in the business of providing
call center teleservices, including both inbound and outbound teleservices. The
Company has not generated any meaningful revenues since the consummation of the
TeleHub Transaction, and anticipates recognizing a loss for the first quarter of
fiscal 1999.
The Company is seeking to continue the development of its multi-service call
center "HUB" concept, pursuant to which the Company would act as a central focus
for businesses to outsource typical non-core functions and capitalize on the
network to be established by the Company. In this connection, the Company offers
or proposes to offer the following services: providing call center teleservices,
including inbound and outbound call center activities in connection with sales,
marketing, customer support and product support; selling local and long distance
telecom services; and selling certain cellular and PCS telephone services. In
addition, the Company is also seeking to expand its operations by servicing the
Internet market, and is in the early stages of establishing a structure to
address the emerging Internet "e-commerce" market. In this connection, TeleHub
currently anticipates forming a new Internet division which would be engaged in
selling client advertisements to Internet malls, facilitating the creation of
web sites for its clients and providing e-commerce fulfillment services, and is
currently in discussions regarding possible acquisitions of certain
Internet-related businesses. There can be no assurance that the Company will be
successful in implementing its "HUB" concept or developing its teleservices
operations or Internet-related businesses.
The Company's long-term strategy is to provide comprehensive
telecommunication-based solutions to facilitate its clients' marketing, sales
and other business objectives. Through relationships with clients and strategic
alliances, and its combination of proposed teleservices activities, the Company
intends to provide its clients with a multi-service call center or "HUB" that
will link clients with their ultimate customer and other organizations across
various complementary industries. In addition, as part of this strategy, the
Company will also seek to introduce its clients to the emerging "e-commerce"
market and to thereby expand its business by providing various Internet services
to its clients.
The Company's proposed plan of operation and prospects will be largely
dependent on the Company's ability to successfully establish and equip
additional call centers on a timely and cost effective basis; hire
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<PAGE>
and retain skilled technical, marketing and other personnel; successfully expand
into the Internet market and attract and retain significant numbers of clients.
The following discussion relates to the Company for the periods ended
January 30, 1999 and accordingly does not give effect to or otherwise reflect
the results of operations or activities of TeleHub, which became a wholly-owned
subsidiary of the Company upon consummation of the TeleHub Transaction on
February 4, 1999.
RESULTS OF OPERATIONS OF THE COMPANY
The Company was organized in July 1993 and opened its first permanent store
in August 1993. All of the Company's twelve stores had been in operation until
May 22, 1997, the date of the 1997 Sale. Consummation of the 1997 Sale
terminated the Company's specialty retail operations. The Company had no
operating business for the period of May 23, 1997 through February 4, 1999, the
date of the TeleHub Transaction. During this period the Company searched for
acquisition candidates for a new business for the Company and incurred expenses
relating to the search, presented below. Accordingly, the Company has a limited
operating history upon which an evaluation of its performance and prospects can
be made.
The fiscal year ended January 30, 1999 ("Fiscal 1998") and the fiscal year
ended January 31, 1998 ("Fiscal 1997") included 52 weeks of operations. The
quarterly period ended January 30, 1999 (the "Fourth Quarter of Fiscal 1998")
and the quarterly period ended January 31, 1998 (the "Fourth Quarter of Fiscal
1997") included 13 weeks of operations.
The Company did not operate any stores at January 30, 1999 or January 31,
1998 due to the 1997 Sale, but operated 12 stores for the period February 2,
1997 through May 22, 1997. The stores were operated under the Management
Agreement for the period of March 10, 1997 through May 22, 1997.
CONTINUING OPERATIONS
General and administrative expenses ("G&A") decreased to approximately
$41,000 in the Fourth Quarter of Fiscal 1998 and to approximately $112,000 for
the 52 weeks of Fiscal 1998 from approximately $74,000 and $215,000 for the
Fourth Quarter of Fiscal 1997 and the 52 weeks of Fiscal 1997, respectively. The
primary components of G&A are miscellaneous corporate overhead expenses,
including insurance, transfer agent and printing fees, professional fees, and
wages (including fringe). The decreases in G&A for the Fourth Quarter of Fiscal
1998 and Fiscal 1998 as compared to the Fourth Quarter of Fiscal 1997 and Fiscal
1997 was for the most part, the result of continued reduction of expenses
following the 1997 Sale.
DISCONTINUED OPERATIONS
The loss from discontinued operations was $0 in the Fourth Quarter of Fiscal
1998 and Fiscal 1998 as compared to $0 and $508,000 for the Fourth Quarter of
Fiscal 1997 and Fiscal 1997, respectively. The primary components of
discontinued operations include net sales, cost of sales, selling expenses,
certain general and administrative expenses (expenses that ceased in conjunction
with the 1997 Sale which had related support and operation of the Company's
specialty retail business), loss on impairment, interest and other income, and
interest expense.
The Company did not experience any losses on the 1997 Sale and writedown to
the net realizable value of certain accounts payable and capital lease
obligations in Fiscal 1998 as compared to a loss of approximately $394,000 for
Fiscal 1997.
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<PAGE>
A net loss of approximately $112,000 was recorded for Fiscal 1998 as
compared to a net loss of approximately $1,117,000 for Fiscal 1997. The decrease
in net loss was primarily the result of the elimination of expenses related to
discontinued operations and the reductions of expenses related to continuing
operations.
LIQUIDITY AND CAPITAL RESOURCES
CURRENT
Since the TeleHub Transaction, the Company's primary ongoing capital
requirements have been and are anticipated to be for funding its operations and
exploring and developing opportunities in the call center teleservices industry
and in expanding its business into servicing the Internet market. See "Business
of TeleHub".
The Company has used and expects to continue to use its cash available from
operations to finance its losses from operations. In February 1999, the Company
consummated a private placement pursuant to which it issued 2,593,971 shares of
Common Stock and received proceeds of $165,214. The proceeds were used primarily
for working capital and continued expansion of the Company's operations,
including the acquisition of 30 additional workstations and the hiring of
additional employees. The Company is not presently generating enough cash flow
to support its current corporate overhead expenses. If the Company's cash flow
proves to be insufficient to fund operations, the cash available to the Company
would not satisfy its contemplated cash requirements for exploring and
developing future opportunities in the call center industry. In that event, the
Company would be required to seek additional financing and/or revise its plans,
including making significant reductions in operating costs.
The Company is planning to seek additional financing from several sources,
including private placements of debt and/or equity securities, in order to fund
its business expansion plans, including funding acquisition opportunities which
may arise, and to provide short term working capital. It cannot be anticipated
that any of the officers, directors or stockholders will provide any portion of
the Company's future financing requirements. There can be no assurance that
additional financing will be available to the Company on commercially reasonable
terms, or at all. Any inability to obtain additional financing could have a
materially adverse effect on the Company, including possibly requiring the
Company to significantly curtail, and possibly causing the Company to cease, its
operations. In addition, any equity financing may involve substantial dilution
to the interests of the Company's then-existing stockholders. Further, there can
be no assurance that the Company will achieve profitability or positive cash
flow.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
The Company had working capital of approximately $(67,000) and $45,000 at
January 30, 1999 and January 31, 1998, respectively. In order to fund its
capital and operating requirements, the Company had in the past been primarily
dependent (i) on cash proceeds received from loans from certain members of the
Board of Directors, from the Company's initial public offering in November 1994
(the "Offering") and, prior thereto, from sales of equity securities to David B.
Cornstein, David F. Miller and Edward J. Munley, each of whom was a founder of
the Company (collectively, the "Original Stockholders"), and (ii) on loans from
others. The Company used cash proceeds from the 1997 Sale to repay debt, fund
transactional expenses and pay ongoing general and administrative costs. The
Company used the remainder of the net proceeds for general corporate purposes
and to seek acquisition candidates.
During Fiscal 1998, cash decreased by approximately $131,000 to
approximately $0 at fiscal year end. The decrease in cash resulted primarily
from the Company's use of cash for general corporate purposes, and the loss of
the Company's main source of cash flow as a result of the Company's
discontinuing its retail operations. The Company repaid approximately $1,000 in
indebtedness during the period. During Fiscal
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<PAGE>
1998, the Company did not generate any cash flow to support its current
corporate overhead expenses, and used, to the extent available, any remaining
cash to finance its losses from its remaining limited operations.
During Fiscal 1997, cash decreased by approximately $1,163,000 to
approximately $131,000 at fiscal year end. The overall decrease in cash resulted
primarily from the Company's repayment of debt, its satisfaction of a majority
of its liabilities following the receipt of the proceeds from the 1997 Sale, and
the loss of the Company's main source of cash flow as a result of the Company's
discontinuing its retail operations. The Company repaid approximately $157,000
in indebtedness during the period.
During Fiscal 1998, the Company did not maintain any lines of credit or cash
borrowings to finance its capital requirements. The Company had maintained a
$100,000 letter-of-credit to serve as collateral for primarily all of the
Company's capital lease obligations. The letter-of-credit expired in November
1997 as a result of the 1997 Sale.
During Fiscal 1998, the Company did not maintain any inventories as a result
of the Company's having discontinued its retail operations in the second quarter
of Fiscal 1997.
During Fiscal 1997, the Company's inventories decreased to $0 from
approximately $1,207,000 at February 1, 1997. The decrease is primarily a result
of the 1997 Sale transaction and the Company's discontinuing its retail
operations in the second quarter of Fiscal 1997.
During Fiscal 1998, the Company had no arrangements with respect to, or
sources of, additional financing, and it was not anticipated that any of the
officers, directors or stockholders would have provided any portion of the
Company's financing requirements.
FORWARD-LOOKING STATEMENTS
Certain statements in the foregoing discussion of financial condition and
the results of operations, or elsewhere in this document, represent
"forward-looking" statements as defined in the Private Securities Litigation
Reform Act of 1996. Such statements involve matters that are subject to risks
and uncertainties, as a result of which actual future results or events may
differ materially depending on a variety of factors.
The Company's future operations are subject to various risk factors,
including the following: the limited funds currently available to the Company
may not be adequate for the Company to pursue its business objectives, and there
is no assurance funds will be available from any source and, if not available,
the Company will be required to limit its operations to those that can be
financed from existing funds; TeleHub has a limited operating history and there
can be no assurance that any of its future activities will be profitable; as a
holding company, the Company's success will depend on the operations, financial
condition and management of TeleHub and any other companies which the Company
may acquire, and in the event the Company does not have the resources or is
otherwise unable to diversify its operation into an number of areas, the Company
may become subject to economic fluctuations within a particular business or
industry and thereby increase the risks associated with its operations; TeleHub
may be unable to successfully complete acquisitions of assets or complementary
companies which are necessary to expand its business, and may be unable to
integrate into its operations any such businesses or assets acquired by it;
TeleHub is a start-up company and, as such, may become subject to the problems,
expenses, difficulties, complications and delays that are frequently encountered
by a company establishing a new business; TeleHub may be unable to secure
teleservices contracts with clients or generate revenues under any such
contracts it does secure; TeleHub may be unable to successfully develop and
utilize its acquired infrastructure and develop databases to perform
teleservices for its clients and may be unable to successfully implement
marketing and sales methods for its services or expand into new areas, including
Internet and "e-commerce" related businesses; TeleHub may be unable to acquire
and implement quality telecommunications and computer technology and end user
database and software products necessary for its operations; TeleHub may be
unable to respond to
17
<PAGE>
changing technological developments and acquire and implement new equipment and
systems to meet changing customer needs on a timely and cost-effective basis;
TeleHub may be unable to adequately ensure that its operations will not be
adversely impacted by the Year 2000 issue; TeleHub's inability to obtain
adequate local or long distance telephone service, or any interruption in such
service or rate increases relating thereto, could materially adversely affect
TeleHub's business, results of operations and financial condition; TeleHub may
not be able to procure, hire and train on a timely basis a sufficient labor
force of qualified employees or independent contractors in connection with an
increase, if any, in the volume of its teleservices business; TeleHub's failure
to retain the service of its key employees or its failure to retain additional
qualified management personnel to support its planned growth could have a
material adverse effect on TeleHub; the teleservices industry is highly
competitive and is characterized by low barriers to entry and rapid growth, and
TeleHub may not be able to compete effectively against its current competitors
or future competitors, many of whom may be substantially larger and better
capitalized than TeleHub; and any changes to existing Canadian or U.S. federal,
provincial or state laws or regulations governing TeleHub's business, or any
additional laws or regulations, could limit TeleHub's current or future
activities or could significantly increase TeleHub's cost of compliance.
UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. The Company
recognizes the need to ensure that its operations will not be adversely impacted
by software failures caused by the advent of the Year 2000. While the Company
intends to obtain assurance from its program suppliers and independently assess
acquired computer programs regarding Year 2000 Issue computer risks, the systems
on which the Company relies may be adversely impacted by software failures
caused by the advent of the Year 2000. It is not possible to be certain that all
aspects of the Year 2000 Issue affecting the Company, including those related to
the efforts of customers, suppliers, or other third parties, will be fully
resolved.
ITEM 7. FINANCIAL STATEMENTS
Financial statements are set forth in a separate section of this Annual
Report on Form 10-KSB. See "Index to Financial Statements".
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
A. DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ------------------------------------------------
<S> <C> <C>
Stanley A. Young 72 Chairman of the Board and Director
Bruce W. Young 54 President, Chief Executive Officer, and Director
Patrick Thomas 43 Chief Operating Officer, Secretary, and Director
John De Luca 31 Vice President - Sales and Marketing and Director
David B. Cornstein 60 Director
</TABLE>
STANLEY A. YOUNG has been a director of TeleHub since its formation in
May 1998 and has served as Chairman of the Board of the Company since the
TeleHub Transaction. From January 1997 to May 1998, Mr. Young was Chairman of
the Board of Directors of 3218341 Canada Inc., a privately-held Canadian company
doing business as Socitete Nationale des Telecommunications de Quebec ("SNTQ").
SNTQ was declared bankrupt on June 11, 1998. Since March 1994, Mr. Young has
served as Chairman and Chief Executive Officer of Young Management Group Inc., a
company formed by him and of which he is the sole shareholder. Since November
1990, Mr. Young has served as a director of JetForm Corporation, a provider of
electronics forms and workflow software solutions, and from January 1996 to
1997, Mr. Young served as a director of Andyne Computing Limited, a manufacturer
of software products for information access and reporting software products.
BRUCE W. YOUNG founded TeleHub in May 1998 and has been a director since
inception. In connection with the TeleHub Transaction, Mr. Young was elected on
February 4, 1999 to serve as President and Chief Executive Officer and a
director of the Company. From 1995 to May 1998, Mr. Young served as President of
Global Business Consultants, Inc., a manufacturing and telecommunications
consulting firm formed by him and of which he is the sole shareholder. In
addition, during this time, Mr. Young also served as acting Chief Operating
Officer for NUKO Information Systems, Inc., a publicly-held video compression
hardware company. From 1986 through 1995, Mr. Young served as Senior Vice
President and General Manager of the Fiber Optics Division of Telco Systems,
Inc., a publicly-held access multiplexer company, and from 1978 to 1986, served
as plant manager of Computervision Inc., a publicly-held CADD/CAM software and
hardware company.
PATRICK THOMAS has been Chief Operating Officer and a director of TeleHub
since its formation in May 1998 and has served as Chief Operating Officer and
Secretary and as director of the Company since the TeleHub Transaction. From
January 1997 to May 1998, Mr. Thomas was Chief Financial Officer of SNTQ. From
February 1995 to March 1997, Mr. Thomas was Chief Financial Officer for
Interselect
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Societe Anonymous, in which capacity he negotiated contracts with the Haitian
government for electricity for Haiti, including negotiating financing
arrangements with U.S. aid agencies, Caribbean banks and Haitian government
officials. From 1993 through 1995, he served as Chief Financial Officer of the
Fort Thomas Group of Companies, a business which ran supervision of hotel
financial activities, the preparation of reports for offshore investors, and the
preparation of real estate investment programs St. Kitts. From 1987 to 1993, Mr.
Thomas served as Chief Executive Officer of Metropolitan Financial Services
Inc., a company specializing in tax advantaged investments, real estate and
financial brokerage services.
JOHN DE LUCA has been Vice-President of Sales and Marketing and a director
of TeleHub since its formation in May 1998, and has served as Vice President -
Sales and Marketing and as director of the Company since the TeleHub
Transaction. From March 1997 to May 1998, Mr. De Luca was director of
collections at HFC Household Finance Corporation in Montreal, Quebec. From July
1990 to March 1997, Mr. De Luca was director of operations at Axxsys Solutions
Inc. in Montreal, Quebec. From 1996 to the present, Mr. De Luca has also
participated in Dawson College's call center program in Montreal, Quebec.
DAVID B. CORNSTEIN, a co-founder of the Company, has been a director of
the Company since its inception and served as Chairman of the Board from
September 1994 to February 4, 1999. Since February 1, 1999, Mr. Cornstein has
served as Chairman Emeritus of the Board of Finlay Enterprises, Inc. and from
May 1993 until his retirement from day-to-day involvement with Finlay
Enterprises effective January 1, 1999, served as its Chairman of the Board. Mr.
Cornstein has also served as a director of Finlay Enterprises and its
wholly-owned subsidiary, Finlay Fine Jewelry Corporation, since their inception
in December 1988. Mr. Cornstein is a Principal of Pinnacle Advisors Limited,
which has served as a consultant to Finlay Enterprises since February 1999. From
December 1988 to January 1996, Mr. Cornstein served as President and Chief
Executive Officer of Finlay Enterprises, and from December 1985 to December
1988, he served as President, Chief Executive Officer and a director of a
predecessor of Finlay Enterprises. Finlay Enterprises, through its subsidiary
Finlay Fine Jewelry Corporation, operates over 1,100 leased fine jewelry
departments in major department stores throughout the United States and in
France, England and Germany.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors.
B. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities an Exchange Commission
and to furnish the Company with copies of such reports. Based solely on its
review of the copies of such forms furnished to the Company by such reporting
persons and on the written representations from such reporting persons that no
reports on Form 5 were required, the Company believes that during the fiscal
year ended January 30, 1999 all of the reporting persons complied with their
section 16(a) filing requirements.
20
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual compensation paid to David F.
Miller, the Company's former president for services rendered during the last
three fiscal years. No other executive officer of the Company or TeleHub earned
an annual salary and bonus that exceeded $100,000 during fiscal 1998.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------- --------------------- ---------
OTHER
ANNUAL RESTRICTED ALL OTHER
COMPEN- STOCK LTIP COMPEN-
SATION AWARD(S) OPTIONS/ PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS $ $ $ SARS (#) $ $
- --------------------------- ---- ---------- ------- ------- ---------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David F. Miller (1),
Former President 1998 -0- -0- -0- -0- -0- -0- -0-
1997 -0- -0- -0- -0- -0- -0- -0-
1996 -0- -0- -0- -0- 100,000/-0- -0- -0-
<FN>
(1) Mr. Miller resigned as President in September 1998. Mr. Miller was not
compensated other than actual expenses incurred while serving as President.
</FN>
</TABLE>
COMPENSATION OF DIRECTORS
The Company's non-management directors, together with Mr. Bruce Young, are
entitled to receive $1,000 per meeting of the Board of Directors attended. In
addition, each of such directors is also entitled to receive 20,000 shares of
Common Stock. In addition, nonemployee directors are also entitled to receive
options under the Company's 1994 Nonemployee Directors' Stock Option Plan. See
"Executive Compensation--1994 Nonemployee Directors' Stock Option Plan."
OPTION/SAR GRANTS TABLE DURING FISCAL 1998
The following table shows information concerning stock options granted
during the year ended January 30, 1999 for the individual shown in the Summary
Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE OR BASE
(#) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
--------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
David F. Miller, -0- N/A N/A N/A
Former President
</TABLE>
21
<PAGE>
OPTION/SAR EXERCISES DURING FISCAL 1998 AND YEAR-END OPTION VALUES
No stock options were exercised by any of the Company's executive officers
during the Fiscal year-ended January 30, 1999. The following table shows
information concerning stock option values as of January 30, 1999 for the
individual shown in the Summary Compensation Table.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT JANUARY 30, IN-THE-MONEY OPTIONS AT
1999(#) JANUARY 30, 1999($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------- ---------------------------------- -------------------------
David F. Miller (1) 100,000/-0- -0-/-0-
(1) Does not include additional warrants to purchase shares granted to Mr.
Miller in consideration for Mr. Miller's having entered into a working capital
commitment with the Company in August 1996
1994 STOCK OPTION PLAN
In order to attract, retain and motivate employees (including officers),
directors, consultants and other persons who perform substantial services for or
on behalf of the Company, in November 1994, the Company adopted the 1994 Stock
Option Plan (as amended in 1996, the "Stock Option Plan"), pursuant to which
stock options covering an aggregate of 560,000 shares of the Company's Common
Stock may be granted to such persons. Under the Stock Option Plan, "incentive
stock options" ("Incentive Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, may be granted to employees
(including officers), and non-incentive stock options ("Non-incentive Options")
may be granted to any such employee and to other persons (including directors)
who perform substantial services for or on behalf of the Company. Incentive
Options and Non-incentive Options are collectively referred to herein as
"Options".
The Stock Option Plan is administered by the Board of Directors or, at its
discretion, by a committee appointed by the Board to perform such function (the
"Committee"). The Board of Directors or the Committee is vested with complete
authority to administer and interpret the Stock Option Plan, to determine the
terms upon which Options may be granted, to prescribe, amend and rescind such
interpretations and determinations and to grant Options. The Board of Directors
or the Committee has the power to terminate or amend the Stock Option Plan from
time to time in such respects as it deems advisable, except that no termination
or amendment may materially adversely affect any outstanding Option without the
consent of the grantee, and the approval of the Company's stockholders will be
required in respect of any amendment which would (i) change the total number of
shares subject to the Stock Option Plan or (ii) change the designation or class
of employees or other persons eligible to receive Incentive Options or
Non-incentive Options.
The price at which shares covered by an Option may be purchased pursuant
thereto shall be no less than the par value of such shares and, in the case of
Incentive Options, no less than the fair market value of such shares on the date
of grant. The purchase price of shares issuable upon exercise of an Option may
be
22
<PAGE>
paid in cash or by delivery of shares with a value equal to the exercise price
of the Option. The Company may also loan the purchase price to the optionee, or
guarantee third-party loans to the optionee, on terms and conditions acceptable
to the Board of Directors. The number of shares covered by an Option is subject
to adjustment for stock splits, mergers, consolidations, combinations of shares,
reorganizations and recapitalizations. Options are generally non-transferable
except by will or by the laws of descent and distribution, and in the case of
employees, with certain exceptions, may be exercised only so long as the
optionee continues to be employed by the Company. If the employee dies or
becomes disabled, the right to exercise the Option, to the extent then vested,
continues for specified periods. Non-incentive Options may be exercised within a
period not exceeding 10 years from the date of grant. The terms of Incentive
Options are subject to additional restrictions provided by the Stock Option
Plan.
1994 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
In order to attract and retain the services of non-employee members of the
Board of Directors and to provide them with increased motivation and incentive
to exert their best efforts on behalf of the Company by enlarging their personal
stake in the Company, in November 1994, the Company adopted the 1994 Nonemployee
Directors' Stock Option Plan (the "Directors' Plan"), pursuant to which stock
options covering an aggregate of 40,000 shares of the Company's Common Stock may
be granted to such non-employee directors.
Pursuant to the Directors' Plan, each member of the Board of Directors of
the Company who is not an employee of the Company (or a subsidiary) (a
"Non-employee Director") and who is elected or re-elected as a director of the
Company by the stockholders at any annual meeting of stockholders, will receive,
as of the date of each such election or re-election, options to purchase 2,500
shares of the Company's Common Stock. In addition, Non-employee Directors at the
time of the Offering received options to purchase 2,500 shares of the Company's
Common Stock, and any other future Non-employee Director will receive options to
purchase 2,500 shares of the Company's Common Stock upon his election or
appointment as director. All options granted under the Directors' Plan will be
exercisable at the fair market value of the Company's Common Stock as of the
date of grant. The options granted under the Directors' Plan are to be
Non-incentive Options.
ADDITIONAL OPTIONS
In February 1999, the Company granted to Mr. Patrick Thomas, Chief
Operating Officer and a director of the Company, and Mr. John DeLuca, a Vice
President and director of the Company, options to acquire an aggregate of
200,000 shares of Common Stock and 350,000 shares of Common Stock, respectively.
Such options are exercisable at a price of $.06 per share, and are subject to
time-based and performance-based vesting criteria.
23
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 30, 1999, the beneficial
ownership of shares of Common Stock by (i) each person who is known by the
Company to own more than 5% of the outstanding shares of Common Stock, (ii) each
director of the Company and each executive officer of the Company listed in the
Summary Compensation Table, and (iii) all of the Company's current officers and
directors as a group.
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF
OWNER (1) BENEFICIAL OWNERSHIP (2) PERCENT OF CLASS
- ------------------------------ ------------------------ ----------------
Stanley A. Young 3,864,475(3) 21.6%
Bruce W. Young 2,166,575(4) 12.1%
David B. Cornstein 1,332,082(5) 7.3%
Patrick Thomas 205,054(6) 1.2%
John De Luca -0-(7) *
Carol and David Smith 2,647,150(8) 14.8%
Marc Cornstein 1,099,065(9) 6.2%
All officers and directors as 7,568,186(3)-(7) 41.8%
a group (6 persons)
* Less than one percent
(1) Unless otherwise stated, the address of each person listed is c/o
TeleHubLink Corporation, 24 New England Executive Park, Burlington,
Massachusetts 01803.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Form 10-KSB
upon the exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date of this Form 10-KSB have been
exercised. Unless otherwise noted, the Company believes that all persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
(3) Includes (i) 165,841 shares owned directly by Mr. Stanley Young, (ii)
1,636,241 shares owned by Young Management Group, Inc., a corporation wholly
owned by Mr. Young and of which he is the sole director and officer, (iii)
1,491,588 shares owned by The Young Technology Fund, a general partnership
of which Mr. Young is the general partner, (iv) 268,133 shares owned by Mr.
Young's wife, and (v) 177,067 shares owned by The SAY Family Limited
Partnership, a limited partnership of which Mr. Young is the general
partner. Mr. Young disclaims ownership of all shares owned by his wife.
Stanley Young is not related to Bruce Young.
(4) Includes (i) 1,891,809 shares owned by Mr. Bruce Young and (ii) 274,766
shares owned by Global Business Consultants Inc., a corporation which is
wholly owned by Mr. Young and of which he serves as President. Bruce Young
is not related to Stanley Young.
24
<PAGE>
(5) Includes (i) 56,000 shares issuable upon exercise of options granted to Mr.
Cornstein under the Company's 1994 Nonemployee Directors' Stock Option Plan
and (ii) 225,000 shares issuable upon exercise of warrants to purchase
Common Stock held by Mr. Cornstein. The address for David Cornstein is c/o
Finlay Enterprises, Inc., 529 Fifth Avenue, New York, New York 10017.
(6) Does not include 200,000 shares issuable upon exercise of options granted to
Mr. Thomas which are not exercisable within 60 days of the date hereof.
(7) Does not include 350,000 shares issuable upon exercise of options granted to
Mr. De Luca which are not exercisable within 60 days of the date hereof.
(8) According to a Schedule 13G dated February 10, 1999 filed with the
Commission by Carol Smith, Mrs. Smith owns 604,044 directly and an
additional 1,099,066 shares as custodian for her minor children. In
addition, David Smith, the husband of Carol Smith, acquired 942,040 shares
from the Company in connection with the Company's February 1999 private
placement of Common Stock. The address for Carol and David Smith is
P.O. Box 2012, Santa Fe, New Mexico, 87504.
(9) According to a Schedule 13G dated February 11, 1999 filed with the
Commission by Mr. Cornstein, all of such shares are owned directly by Mr.
Cornstein. Marc Cornstein is the son of David Cornstein. The address for
Marc Cornstein is 370 East 76th Street, New York, New York 10021.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1993, David B. Cornstein, David F. Miller, the Company's former
President and Secretary and a former director, and Edward J. Munley, a former
director of the Company, each of whom is a founder of the Company, entered into
a stockholders agreement in connection with the formation of the Company,
pursuant to which, among other things, Messrs. Cornstein, Miller, and Munley
purchased 600,000, 600,000 and 800,000 shares of Common Stock of the Company for
a purchase price of $60,000, $60,000 and $80,000, respectively. On September 8,
1994, such individuals, in consideration of the mutual undertakings made by each
of them, contributed an aggregate of 981,875 shares of Common Stock back to the
Company. No other determined or contingent consideration (e.g. performance
payments), current or future, has been or will be paid to any person or
organization in respect of such contribution of shares of Common Stock.
On August 28, 1996, Mr. Miller, Mr. Cornstein, and Hugh H. Jones, Jr.,
another former director of the Company, entered into a commitment to lend the
Company, for working capital purposes, as needed, and to fund the opening of 13
temporary stores, up to an aggregate of $600,000 at an interest rate of 12% per
annum. All amounts outstanding under this working capital commitment were repaid
when due, together with accrued interest thereon, on January 3, 1997. Such loans
had been secured by a first priority lien on substantially all the assets of the
Company. As partial consideration for the working capital commitment, the
Company granted to the lenders warrants to purchase an aggregate of 200,000
shares at an exercise price of $1.00, originally exercisable until August 31,
2001. In addition, the Company granted to the lenders certain demand and
piggyback registration rights relating to the securities underlying such
warrants.
In May 1998, the Company announced that it had extended the exercise
period of its publicly-held Redeemable Common Stock Purchase Warrants from May
17, 1998 to May 17, 2000. Following such action, the Board of Directors also
approved the extension of the warrants issued to Mssrs. Cornstein,
25
<PAGE>
Miller and Jones pursuant to the 1996 working capital commitment from August 31,
2001 to August 31, 2003.
From time to time during the period from September 1997 to February 4,
1999 (the date of the TeleHub Transaction), Mr. Cornstein, who currently serves
as a director or the Company and served as Chairman of the Board of the Company
prior to the TeleHub Transaction, acquired an aggregate of 146,929 shares of
TeleHub's common stock and Mr. Cornstein's son acquired an aggregate of 280,000
shares of TeleHub's common stock (as to which shares Mr. Cornstein disclaimed
beneficial ownership). In connection with the TeleHub Transaction, pursuant to
which each shareholder of TeleHub received 3.9252318 shares of the Company's
Common Stock for each share of TeleHub common stock held, Mr. Cornstein received
an aggregate of 576,530 shares of Common Stock and his son received an aggregate
of 1,099,065 shares of Common Stock (as to which shares Mr. Cornstein disclaimed
beneficial ownership).
In April 1999, the Company established its central headquarters in a
facility located at 24 New England Executive Park, Burlington, MA, which the
Company shares with Young Management Group, Inc. ("YMG"), an affiliate of
Stanley A. Young, the Chairman of the Company. YMG leases approximately 4,000
square feet of office space at such location and the Company expects to utilize,
on a month to month basis, up to 1,500 square feet thereat, at a cost of
approximately $1,500 per month.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
A. (1) The following financial statements of the Company and the reports
thereon of Kirkland, Russ, Murphy, & Tapp dated April 2, 1999 are being
filed as part of this Annual Report on Form 10-KSB.
Independent auditors' reports.
Balance Sheet as of January 30, 1999.
Statements of Operations for the year ended February 1, 1997 and for the
year ended January 30, 1999.
Statements of Stockholders Equity for the year ended February 1, 1997
and for the year ended January 30, 1999.
Statements of Cash Flows for the year ended February 1, 1997 and for the
year ended January 30, 1999.
Notes to Financial Statements
The financial statements of TeleHub have been filed with the Securities
and Exchange Commission as part of the Company's Current Report on Form
8-K filed with the Commission on February, 19, 1999, as amended by the
Company's Current Report on Form 8-K/A as filed with the Commission on
April 20, 1999, and are incorporated by reference herein.
(2) The following exhibits are filed as part of this report (exhibits
marked with an asterisk have been previously filed with the Commission
as indicated and are incorporated herein by this reference):
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of Registrant, as amended (incorporated by
reference from Exhibit 1.1 of the Registrant's Registration Statement on Form
SB-2 (Commission No.33-84774), as filed with the Securities and
Exchange Commission (the"SB-2")).
3.2 By-Laws of Registrant (incorporated by reference to Exhibit 3.2 of the SB-2).
3.2.A Restated By-Laws of Registrant (incorporated by reference to
Exhibit 3.2A of the SB-2).
4.1 Form of Certificate for Common Stock (incorporated by reference to Exhibit
4.1 of the SB-2).
4.2 Public Warrant Agreement between the Registrant, American Stock Transfer &
Trust Company and Whale Securities Co., L.P. (incorporated by reference to
Exhibit 4.2 of the SB-2).
4.3 Form of Public Warrant Certificate (incorporated by reference to Exhibit 4.3
of the SB-2).
4.4 Underwriter's Warrant Agreement (incorporated by reference to Exhibit 4.4 of
the SB-2).
10.1 Share Purchase Agreement dated as of December 21, 1998, as amended
as of January 11, 1999, between the Registrant, Tele Hub Link
Corporation ("TeleHub"), and the shareholders of TeleHub.
(incorporated by reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form S-4
(Commission No.333-69435)).
10.2 Agreement among the Registrant, Edward J. Munley, David B. Cornstein, David
Miller and the other parties thereto, dated as of July 21, 1993, together
with amendments to said Agreement (incorporated by reference to Exhibit 10.1
of the SB-2).
10.3 Employment Agreement with Edward J. Munley dated as of November 8,
1994 (incorporated by reference to Exhibit 10.3 of the SB-2).
10.4 1994 Stock Option Plan (incorporated by reference to Exhibit 10.12 of the
SB-2).
10.5 1994 Nonemployee Directors' Stock Option Plan (incorporated by
reference to Exhibit 10.12 of the SB-2).
10.6 Letter agreement dated October 3, 1994 by and among the Registrant, David B.
Cornstein, David F. Miller and Edward J. Munley (incorporated by reference to
Exhibit 10.17 of the SB-2).
10.7 Agreement dated as of September 8, 1994 by and among the Registrant, Edward
J. Munley, David B. Cornstein and David F. Miller in respect of contribution
of shares to the Registrant (incorporated by reference to Exhibit 10.19 of
the SB-2).
10.8 Form of Seasonal Secured Revolving Note dated August 28, 1996 in favor of
each of David B. Cornstein, Hugh H. Jones, Jr. and David F. Miller.
(incorporated by reference to the Registrant's Form 10-Q for the Quarter
ended August 3, 1996 as filed September 17, 1996 (the "Third Quarter 1996
10-Q")).
10.9 Form of Warrant and Registration Agreement dated as of August 28, 1996 in
favor of each of David B. Cornstein, Hugh H. Jones, Jr. and David F. Miller.
(incorporated by reference to the Third Quarter 1996 10-Q).
10.10 Asset Purchase Agreement dated as of March 7, 1997 between the Registrant and
Natural Wonders, Inc. (incorporated by reference to the Registrant's Form
10-KSB for the fiscal year ended February 1, 1997 as filed May 16,
1997 (the "Fiscal 1996 10-KSB")).
10.11 Management Agreement dated March 7, 1997 between the Registrant and
Natural Wonders, Inc. (incorporated by reference to the Fiscal 1996
10-KSB).
10.12 Form of Non Competition Agreement dated March 7, 1997 by David B.
Cornstein and David F. Miller (incorporated by reference to the
Fiscal 1996 10-KSB).
10.13 General Security Agreement dated as of June ___, 1998 between
TeleHub and AT&T Canada Long Distance Services Company.
(incorporated by reference to the Registrant's Form S-4/A as filed
January 13, 1999.)
10.14 Business Long Distance Special Flat Rate Service Agreement between
TeleHub and AT&T Canada Long Distance Services Company.
(incorporated by reference to the Registrant's Form S-4/A as filed
January 13, 1999.)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11 Statement re Computation of Per Share Earnings (not required because the
relevant computations can be clearly determined from material
contained in the financial statements included herein).
22 Subsidiaries of the Registrant
27 Financial Data Schedule (For SEC Use Only)
99 Financial Statements of TeleHub, including Auditor's Report,
Statement of Earnings and Deficit, Balance Sheet, Changes in
Financial Position, Notes to the Financial Statements, and Pro
Forma financial Information, including ProForma Combined Balance
Sheet and Pro Forma Combined Statement of Operations. (incorporated
by reference to the Registrant's Form 8-K as filed February 19,
1999, as amended on the Form 8-K/A as filed April 20, 1999.)
</TABLE>
B. On December 29, 1998, the Company filed a Current Report on Form 8-K
with the Securities and Exchange Commission pursuant to which the
Company announced that the Company had entered into the Share Purchase
Agreement with TeleHub and its shareholders.
Subsequent to January 30, 1999, the Company filed with the Securities
and Exchange Commission on February 19, 1999 a Current Report on Form
8-K and filed on April 20, 1999 a Current Report on Form 8-K/A, both
regarding the consummation of the acquisition by the Company of all the
issued and outstanding stock of TeleHub.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TeleHubLink Corporation.
By: /s/ BRUCE W. YOUNG 5/14/99
------------------------------ ---------------
Bruce W. Young Date
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ BRUCE W. YOUNG 5/14/99
- ---------------------------------------------------------- -----------------
Bruce W. Young, President Chief Executive Officer, and Date
Director
/s/ STANLEY A. YOUNG 5/14/99
- ---------------------------------------------------------- -----------------
Stanley A. Young, Chairman of the Board and Director Date
/s/ PATRICK THOMAS 5/14/99
- ---------------------------------------------------------- -----------------
Patrick Thomas, Chief Operating Officer, Secretary and Date
Director
/s/ JOHN De LUCA 5/14/99
- ---------------------------------------------------------- -----------------
John De Luca, Vice-President, Sales and Marketing and Date
Director
/s/ DAVID B. CORNSTEIN 5/14/99
- ---------------------------------------------------------- -----------------
David B. Cornstein, Director Date
29
<PAGE>
WHAT A WORLD!, INC.
FINANCIAL STATEMENTS
JANUARY 30, 1999 AND JANUARY 31, 1998
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
What A World!, Inc.:
We have audited the accompanying balance sheet of What A World!, Inc. (a
Delaware corporation) as of January 30, 1999 and January 31, 1998 and the
related statements of operations and accumulated deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of What A World!, Inc. as of
January 30, 1999 and January 31, 1998 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring operating losses, the Board of
Directors' unanimous approval of the sale of substantially all of the Company's
operating assets, the speculative nature of the post-sale business and the
uncertainty of the merged company's (subsequent to January 30, 1999) ability to
produce sufficient operating funds (see Note 7), and the lack of liquidity and
financing raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Kirkland, Russ, Murphy & Tapp
April 2, 1999
<PAGE>
<TABLE>
<CAPTION>
WHAT A WORLD!, INC.
BALANCE SHEETS
JANUARY 30, 1999 AND JANUARY 31, 1998
ASSETS
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 445 130,713
Prepaid expenses 5,891 6,873
----------- -----------
Total current assets 6,336 137,586
Equipment, net 1,000 2,500
----------- -----------
$ 7,336 140,086
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
Current liabilities:
Accounts payable 4,643 30,000
Accrued expenses 67,000 60,950
Current maturities on capital lease
obligations 1,981 1,518
----------- -----------
Total current liabilities 73,624 92,468
Capital lease obligations -- 1,849
----------- -----------
Total liabilities 73,624 94,317
Stockholders' equity (deficit):
Common stock, $.01 par value; 50,000,000
shares authorized, 2,118,125 shares
issued and outstanding
at January 30, 1999 21,181 21,181
Additional paid-in capital 4,538,782 4,538,782
Accumulated deficit (4,626,251) (4,514,194)
----------- -----------
Net stockholders' equity (deficit) (66,288) 45,769
----------- -----------
$ 7,336 140,086
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
WHAT A WORLD!, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED JANUARY 30, 1999 AND JANUARY 31, 1998
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
Continuing operations:
General and administrative expenses $ 112,057 214,904
----------- -----------
Loss from continuing operations (112,057) (214,904)
Discontinued operations:
Loss from discontinued operations -- (508,186)
Loss on disposal of assets and adjustment
to net realizable value of accounts
payable and capital lease obligations -- (393,741)
----------- -----------
Net loss (112,057) (1,116,831)
Accumulated deficit, beginning of year (4,514,194) (3,397,363)
----------- -----------
Accumulated deficit, end of year $(4,626,251) (4,514,194)
=========== ===========
Net loss from continuing operations per weighted
average common and common equivalent
share - basic and diluted $ (.05) (.10)
Net loss from discontinued operations per
weighted average common and common
equivalent share - basic and diluted -- (.24)
Net loss on disposal of assets and adjustment
to net realizable value of accounts payable
and capital lease obligations per weighted
average common and common equivalent share -
basic and diluted -- (.19)
----------- -----------
Net loss per weighted average common and
common equivalent share - basic and diluted $ (.05) (.53)
=========== ===========
Weighted average common and common equivalent
shares outstanding - basic and diluted $ 2,118,125 2,118,125
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
WHAT A WORLD!, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 30, 1999 AND JANUARY 31, 1998
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
Cash flows from operating activities:
Net loss $ (112,057) (1,116,831)
Adjustments to reconcile net loss to net cash and
cash equivalents:
Depreciation and amortization 1,500 118,000
Loss on write down to net realizable value of
accounts payable and capital lease
obligations -- 393,741
Changes in operating assets and liabilities:
Decrease in inventories -- 198,015
Decrease in prepaid expenses and other
current assets 982 41,178
Decrease in other assets -- 14,812
Decrease in accounts payable (25,357) (1,076,938)
(Decrease) increase in accrued expenses 6,050 (196,829)
---------- ----------
Net cash used in operating
activities (128,882) (1,624,852)
Cash flows from investing activities:
Proceeds from Sale Agreement -- 517,795
Redemption of certificate of deposit -- 100,000
---------- ----------
Net cash provided by investing
activities -- 617,795
Cash flows from financing activities:
Payments made on capital lease obligations (1,386) (156,419)
---------- ----------
Net cash used in financing activities (1,386) (156,419)
---------- ----------
Net decrease in cash and cash
equivalents (130,268) (1,163,476)
Cash and cash equivalents, beginning of year 130,713 1,294,189
---------- ----------
Cash and cash equivalents, end of year $ 445 130,713
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 359 10,186
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 30, 1999 AND JANUARY 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
What A World!, Inc. (Company) was a mall-based unique gift specialty retailer.
The Company's assortment of products generally targeted customers who have an
active interest in nature, the outdoors and science. The Company opened its
first store in August 1993 and had 12 permanent stores in operation at February
1, 1997, which were located in major regional malls. Ten of those stores were
located in Florida and one store each was located in New York and New Jersey.
(b) DISCONTINUED OPERATIONS AND SUBSEQUENT SALE OF OPERATIONS
SALE OF OPERATIONS
In February 1997, the Company's Board of Directors approved the sale of
substantially all of the Company's operating assets and to discontinue the
Company's retail business.
The Company operated its chain of mall-based specialty gift retail stores until
March 10, 1997. On March 7, 1997, the Company and Natural Wonders, Inc. (the
Buyer) entered into an Asset Purchase Agreement (Sale Agreement) pursuant to
which the Company agreed, subject to stockholder approval, to transfer to the
Buyer substantially all of its operating assets (including specified
inventories, fixed assets and tangible personal property, intangible personal
property and contract rights and store leases) in consideration for the payment
by Buyer of approximately $500,000 in cash, subject to certain adjustments, and
the assumption by the Buyer of certain liabilities (including the Company's
store leases) (Sale). In addition, in order to immediately implement the
benefits of the Sale Agreement (and to reduce operating losses which were
continuing to be incurred by the Company), the Company and the Buyer entered
into an agreement, effective March 10, 1997 through the closing of the Sale
Agreement, pursuant to which the Buyer began to operate the Company's specialty
retail gift business. The Buyer agreed to fund certain costs, expenses and
liabilities associated with the operation of the Company during the term of such
agreement. On May 22, 1997, the stockholders approved the sale transaction and
the Sale was completed.
(continued)
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
DISCONTINUED OPERATIONS REPORTING
As a result of the sale on May 22, 1997, the results of What A World!, Inc. for
all years presented are reported in the accompanying reclassified statements of
operations and accumulated deficit under discontinued operations. During fiscal
year 1996, the Company wrote down certain assets of the retail operation to the
net realizable values and the cost of disposing these operations. In addition,
in the first quarter of fiscal year 1997 the Company revalued its estimate of a
majority of its accounts payable and capital lease obligation balances reducing
the balances to reflect the realizable value of the total debt based on the
Company's negotiation of debt concessions from its debtors.
Upon closing of the Sale Agreement, the Company has been paying its remaining
liabilities and obligations with available cash and the proceeds of the Sale
Agreement. The Company has since become an acquisition vehicle to effect
acquisitions, whether by merger, exchange of capital stock, acquisition of
assets, or other similar business combination with an operating business. Since
the closing of the sale transaction, the Company's ability to meet its general
and administrative cost obligations has become limited, and the Company does not
have an operating business to generate income and may have limited excess cash,
if any, upon paying its vendors and other liabilities. There is no assurance
that funds will be available from any source, particularly in light of the
Company's anticipated financial condition, to effect any such business
combinations.
Total revenues related to discontinued operations for the years reported on in
the statements of operations and accumulated deficit were $-0- and $1,640,151
for the years ended January 30, 1999 and January 31, 1998, respectively.
(c) FISCAL YEAR
The years ended January 30, 1999 and January 31, 1998 were 52-week years.
(d) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and investments with original
maturities of less than three months.
(continued)
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(e) EQUIPMENT
Equipment is stated at cost. Depreciation is computed using the straight-line
method over the estimated useful life of the asset. The asset acquired under the
capital lease obligation is amortized over the lesser of the useful life of the
asset or the lease term. Maintenance and repairs of equipment are expensed as
incurred, and major improvements are capitalized. Upon retirement, sale or other
disposition of equipment, the cost and accumulated depreciation are eliminated
from the accounts, and any gain or loss is charged or credited to operations.
(f) NET LOSS PER SHARE OF COMMON STOCK
In the fourth quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE (SFAS 128). Under SFAS 128,
basic net loss per share of common stock is computed by dividing income
available to common stockholders by the weighted average number of common shares
actually outstanding during the period. Diluted net loss per share of common
stock presents loss attributable to common shares actually outstanding plus
potential dilutive common shares outstanding during the period. The Company's
options and warrants were not included in computing dilutive net loss per common
stock because their effects were anti-dilutive.
(g) ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(2) EQUIPMENT
Equipment consisted of the following as of January 30, 1999 and January 31,
1998:
JANUARY 30, JANUARY 31, ESTIMATED
1999 1998 USEFUL LIFE
----------- ----------- -----------
Equipment $ 7 ,500 7,500 5 years
-------- ------
Less - accumulated depreciation (6,500) (5,000)
-------- ------
$ 1,000 2,500
======== ======
(continued)
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(3) COMMITMENTS AND CONTINGENCIES
Prior to the Sale on May 22, 1997, the Company leased retail store space and
office space under operating leases set up to expire in various years through
2005. These leases included fixed rent payments that escalated over the term of
the lease and contingent rent payments based on gross sales exceeding certain
thresholds. There were no contingent rent payments for the years ended January
30, 1999 and January 31, 1998.
As a result of the Sale Agreement, the Company agreed to assign their existing
operating leases to the Buyer. The Company received landlord consent for all of
the lease assignments except one, as to which landlord consent for the
assignment was not required; however, certain requirements for lease assignment
were set up by the landlord in the lease contract. The Company, as well as the
Buyer, believes that the Buyer has satisfactorily complied with the landlord's
requirements for assigning this lease obligation. The Company may still be held
liable under these lease obligations should the Buyer default on the assigned
leases.
Approximate minimum future rental payments under these noncancelable operating
leases (exclusive of common area maintenance charges) as of January 30, 1999
were as follows:
ASSIGNED
FISCAL YEAR LEASES
----------- ----------
2000 873,353
2001 910,851
2002 933,620
2003 915,122
2004 721,785
Thereafter 459,002
----------
$4,813,733
==========
(continued)
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(3) COMMITMENTS AND CONTINGENCIES - CONTINUED
Total rent expense, including common area maintenance charges under the
Company's operating leases, was approximately $-0- and $194,000 during the years
ended January 30, 1999 and January 31, 1998, respectively.
Through May 22, 1997, the Company maintained a $100,000 letter-of-credit to
serve as collateral for primarily all of the Company's capital lease
obligations. The letter-of-credit was set up to expire in November 1997,
however, as a result of the Sale the Company's letter-of-credit was no longer
applicable, therefore it was canceled.
Future minimum lease payments under capital lease obligations, together with the
present value of the future minimum lease payments, were as follows as of
January 30, 1999:
FISCAL YEAR
-----------
1999 minimum lease obligation $ 2,172
-------
Less interest (191)
-------
Present value of capital lease obligations $ 1,981
=======
The Company had a $55,000 corporate credit line as of February 1, 1997, to
facilitate employee expenses. The amount outstanding under this line was minimal
as of February 1, 1997 and was included in accounts payable in the accompanying
1997 balance sheet. As a result of the Sale, this corporate credit line was
terminated and repaid.
The Company is not a party or subject to any legal proceedings, other than
claims and lawsuits arising in the ordinary course of business. The Company does
not believe that any such claims or lawsuits will have a material adverse effect
on its financial condition or results of operations.
(4) INCOME TAXES
As of January 30, 1999, the Company had net deferred income tax assets of
approximately $865,000 which was fully offset by a valuation allowance. The vast
majority of net deferred income tax asset (before allocation of the valuation
allowance) consisted of net operating loss (NOL) carryforwards as of January 30,
1999.
As of January 30, 1999, the Company had federal NOL carryforwards of
approximately $2,295,000. Approximately $90,000 of the NOL was associated with
the period January 1, 1995 through January 28, 1995, and can be carried forward
ratably over the next three fiscal years. Approximately $2,205,000 of the NOL
relates to the Company's C corporation periods and can be carried forward
through periods ranging from 2009 to 2014. The benefit of the NOL carryforwards
most likely will not be realized due to the Company's discontinued operations
from the specialty retail business and subsequent change to an acquisition
company after the closing of the sale transaction.
(continued)
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(5) WARRANTS
As of January 30, 1999, the following warrants were outstanding:
<TABLE>
<CAPTION>
AGGREGATE
TITLE OF ISSUANCE AMOUNT OF
OF SECURITY SECURITIES
CALLED FOR BY CALLED FOR BY TERMS OF EXERCISE REDEMPTION
TITLE WARRANTS WARRANTS WARRANTS PRICE PRICE
- ---------------------- ----------------- ------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Redeemable warrants Common 5/17/95-
Stock 1,150,000 5/17/00 $ 5.00 $ 0.10
Underwriters' warrants Common 11/17/95-
Stock 100,000 11/17/99 7.25 -
Underwriters' warrants Redeemable 11/17/95-
Warrants 100,000 11/17/99 .145 -
Directors' warrants Common 8/31/96-
Stock 200,000 8/31/03 1.00 -
---------
Warrants outstanding 1,550,000
=========
</TABLE>
The Redeemable Warrants may be redeemed by the Company, subject to certain
conditions, at $.10 per warrant if the Company's common stock trades for 20
consecutive days at or above $7.50 per share. The Underwriter's Warrants and
Directors' Warrants are not redeemable by the Company. The effect of warrants
outstanding has not been included in the weighted average common and common
equivalent shares outstanding on the accompanying statements of operations and
accumulated deficit, as these warrants would have an antidilutive effect on net
loss per weighted average common and common equivalent share.
(continued)
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(6) STOCK OPTION PLANS
1994 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In November 1994, the Board adopted the 1994 Non-Employee Directors' Stock
Option Plan (the Directors' Plan), which became effective upon the date of the
Company's initial public offering (Offering), reserving 40,000 unregistered
shares of common stock for issuance under the Directors' Plan. Options under
Directors' Plan vest ratable over three years and may be exercised for ten years
from the grant date. The exercise price per share of each stock option will be
equal to the fair market value of the stock on the date of grant. No options
were granted during the year ended January 30, 1999 and January 31, 1998.
1994 STOCK OPTION PLAN
In November 1994, the Board adopted the 1994 Stock Option Plan (Stock Option
Plan) which became effective upon the effective date of the Offering. The Stock
Option Plan, as amemded, reserves 560,000 unregistered shares of common stock
for issuance under the Stock Option Plan as incentive or non-incentive stock
options. Options under the Stock Option Plan vest ratable between one and five
years as stated and may be exercised for ten years from the grant date. The
exercise price per share of each stock option will be an amount not less than
the par value of such shares and, in the case of incentive options, not less
than the fair market value of such shares on the date of the grant. No options
were granted during the year ended January 30, 1999 and January 31, 1998.
AGGREGATE STOCK OPTION ACTIVITY
The following table summarizes information about the aggregate stock option
activity for the years ended January 30, 1999 and January 31, 1998:
<TABLE>
<CAPTION>
JANUARY 30, 1999 JANUARY 31, 1998
------------------------- -------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 540,000 $ 2.24 540,000 2.24
Granted - - - -
Exercised - - - -
Forfeited - - - -
------- ------ -------- ----
Outstanding, end of year 540,000 $ 2.24 540,000 2.24
======= ====== ======= ====
Options vested, end of year 420,000 $ 2.45 356,667 2.61
======= ====== ======= ====
</TABLE>
(continued)
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(6) STOCK OPTION PLANS - CONTINUED
The following table summarizes information about stock options at January 30,
1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -------------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING PRICE LIFE (YEARS) EXERCISABLE PRICE
- -------------- ----------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.00 70,000 $ 1.00 7 42,000 $ 1.00
1.50 110,000 1.50 7 110,000 1.50
1.68 230,000 1.68 7 138,000 1.68
4.25 80,000 4.25 5 80,000 4.25
5.00 50,000 5.00 5 50,000 5.00
------- ------ ---- ------- ------
540,000 $ 2.24 6.52 420,000 $ 2.45
======= ====== ==== ======= ======
</TABLE>
The effect of options outstanding has not been included in weighted average
common and common equivalent shares outstanding in the accompanying statements
of operations and accumulated deficit, as these options would have an
antidilutive effect on net loss per weighted average common and common
equivalent share.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for its stock option plans under Accounting Principles
Board Opinion No. 25 (APB 25), under which no compensation expense has been
recognized. In October 1995, the FASB issued SFAS No. 123, " Accounting for
Stock-Based Compensation" (SFAS 123), which was effective for fiscal years
beginning after December 15, 1995. SFAS 123 allows companies to continue
following the accounting guidance of APB 25, but requires pro forma disclosure
of net income and earnings per share for the effects on compensation expense had
the accounting guidance of SFAS 123 been adopted. The pro forma disclosures are
required only for options granted in fiscal years beginning after December 15,
1994.
No options were granted during the fiscal years ended January 30, 1999 and
January 31, 1998.
(continued)
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
(7) SUBSEQUENT EVENTS
On February 4, 1999, What A World!, Inc. acquired all of the outstanding common
stock of Tele Hub Link Corporation (TeleHub). For accounting purposes, the
acquisition has been treated as an acquisition of What A World!, Inc. by TeleHub
and as a recapitalization of TeleHub. Pursuant to the February 4, 1999
transaction, What A Word!, Inc. acquired from the TeleHub shareholders all of
the outstanding capital stock of TeleHub, and the Company issued to the TeleHub
shareholders shares of the Company's common stock at a rate of 3.9252318 shares
for each share of common stock of TeleHub and, as a result, TeleHub became a
wholly-owned subsidiary of the Company. The Company's Certificate of
Incorporation was also amended on February 4, 1999 to increase to 50,000,000 the
number of shares of the Company's common stock authorized for issuance by the
Company, and the name of the Company was changed to TeleHubLink Corporation.
Historical financial information and pro forma of TeleHub information is not
presented, since the combination is not a business combination; it is a
recapitalization.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 445
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,336
<PP&E> 7,500
<DEPRECIATION> (6,500)
<TOTAL-ASSETS> 7,336
<CURRENT-LIABILITIES> 73,624
<BONDS> 0
0
0
<COMMON> 21,181
<OTHER-SE> (87,469)
<TOTAL-LIABILITY-AND-EQUITY> 7,336
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 112,057
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (112,057)
<INCOME-TAX> 0
<INCOME-CONTINUING> (112,057)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (112,057)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
