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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A*
(Amendment No. 1 to Form 10-QSB)
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: July 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _____________________ to_____________________
Commission File Number: 0-25002
TELEHUBLINK CORPORATION
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(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 59-3200879
------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
24 NEW ENGLAND EXECUTIVE PARK
BURLINGTON, MA 01803
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: (781) 229-1102
N/A
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(Former Name, Former Address, and Former Fiscal Year, if Changed Since
Last Report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At September 13, 1999, there were
18,413,442 shares outstanding of common stock, $.01 par value per share.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
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<PAGE>
TELEHUBLINK CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
------------------------------ ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - January 30, 1999 and July 31, 1999
(unaudited) ............................................................... 3
Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended
July 31, 1999 and the Twenty-Six Weeks Ended July 31, 1999 (unaudited) ...... 4
Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended
July 31, 1999 and the Twenty-Six Weeks Ended July 31, 1999 (unaudited) ...... 5
Notes to Condensed Consolidated Financial Statements ........................ 6
Item 2. Management's Discussion and Analysis or Plan of Operation ........... 11
PART II. OTHER INFORMATION
---------------------------
Item 2. Change in Securities and Use of Proceed ............................. 16
Item 6. Exhibits and Reports on Form 8-K .................................... 16
SIGNATURES .................................................................. 18
* This amended Form 10-QSB is being filed to reflect the restatement of certain
previously reported financial information as more fully described in Note 9 of
Notes to Condensed Consolidated Financial Statements and certain portions of
Part I-Item 2-Management's Discussion and Analysis or Plan of Operation and
Exhibit 27-Financial Data Schedule have been amended to reflect the restatement.
The remaining information in this amended Form 10-QSB has not been updated to
reflect any changes in information that may have occurred subsequent to the date
of the reporting period to which the Form 10-QSB relates. For more recent
information regarding the Company and current developments, reference is made to
the Company's Form 10-KSB as filed on July 19, 2000 and Form 10-QSB/A filed on
July 24, 2000.
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TELEHUBLINK CORPORATION
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JULY 31, JANUARY 30,
1999 1999
(AS RESTATED, SEE NOTE 9)
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 64,463 $ --
Accounts receivable, net 384,597 20,030
Prepaid expenses and other current assets 42,105 87,579
----------- -----------
Total current assets 491,165 107,609
Property and equipment, net 229,719 204,791
Intangible assets, net 199,623 --
Other assets 11,721 27,195
----------- -----------
Total assets $ 932,228 $ 339,595
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 119,311 $ 17,910
Accrued expenses 61,371 44,508
Accrued merger costs 365,000 --
Subordinated convertible debentures, net 21,700 --
Equipment loan 204,438 202,866
Other current payables 93,214 --
----------- -----------
Total current liabilities 865,034 265,284
----------- -----------
Total liabilities 865,034 265,284
----------- -----------
Stockholders' equity:
Common stock 179,734 130,114
Additional paid-in capital 2,550,553 167,419
Deferred compensation (140,500) --
Accumulated deficit (2,522,593) (223,222)
----------- -----------
Total stockholders' equity 67,194 74,311
----------- -----------
Total liabilities and stockholders' equity $ 932,228 $ 339,595
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
TELEHUBLINK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
JULY 31, 1999 JULY 31, 1999
------------ ------------
(AS RESTATED, SEE NOTE 9) (AS RESTATED, SEE NOTE 9)
<S> <C> <C>
Revenues $ 490,245 $ 811,077
Cost of revenues 266,647 468,796
Gross profit 223,598 342,281
Operating expenses:
Operating losses of WEC prior to acquisition 158,000 158,000
Stock based charges 54,100 1,799,290
Selling, general and administrative expenses 275,177 445,532
------------ ------------
Total operating expenses 487,277 2,402,822
Loss from operations (263,679) (2,060,541)
Interest expense (23,100) (24,499)
Interest and other income 83 14,469
------------ ------------
Operating loss $ (286,696) $ (2,070,571)
Charge for pricing modification of warrants (228,800) (228,800)
Net loss available to common stockholders (515,496) (2,299,371)
Basic and diluted net loss per share (0.03) (0.13)
Weighted average common shares of common
stock outstanding 17,873,442 17,752,330
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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TELEHUBLINK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JULY 31 JULY 31
1999 1999
---------- ----------
(AS RESTATED, SEE NOTE 9)(AS RESTATED, SEE NOTE 9)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (286,696) (2,070,571)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 21,240 32,126
Amortization of debt discount 21,700 21,700
Stock-based charges 54,100 1,799,290
Operating losses of WEC prior to acquisition 158,000 158,000
Changes in operating assets and liabilities,
net of impact of business acquisitions:
Accounts receivable (205,494) (364,567)
Prepaid expenses and other current assets 12,258 39,583
Other assets (663) 7,725
Accounts payable (17,494) 106,044
Accrued expenses 8,111 (92,126)
---------- ----------
Net cash used in operating activities 234,938 362,796
---------- ----------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (80,000) (80,000)
Purchases of client databases (50,974) (50,974)
Purchases of property and equipment (8,479) (50,553)
---------- ----------
Net cash used in investing activities (139,453) (181,527)
---------- ----------
Cash flows from financing activities:
Proceeds from issuances of subordinated convertible
debentures 600,000 600,000
Proceeds from issuance of common stock -- 165,214
Advances to WEC (158,000) (158,000)
Proceeds (repayment) of equipment loan, net (5,908) 1,572
---------- ----------
Net cash provided by financing activities 436,092 608,786
---------- ----------
Net increase in cash and cash equivalents 61,701 64,463
Cash and cash equivalents, beginning of period 2,762 --
---------- ----------
Cash and cash equivalents, end of period $ 64,463 64,463
========== ==========
Supplemental disclosure information:
Cash paid during the period for interest $ 1,400 2,799
========== ==========
Non-cash investing and financing activities:
Net liabilities assumed on reverse merger with WAW (See Note 2) $ -- 569,451
========== ==========
Business acquisition:
Fair value of assets acquired $ 148,400 148,400
Issuance of common stock (68,400) (68,400)
---------- ----------
Cash paid $ 80,000 80,000
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
TELEHUBLINK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 31, 1999
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Telehublink Corporation (the "Company") have been prepared in accordance
with the instructions to Form 10-QSB and do not include all of the
information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation have been included. These
unaudited interim financial statements should be read in conjunction with
the Company's Annual Report on Form 10-KSB for the fiscal year ended
January 29, 2000 filed on July 19, 2000.
The unaudited consolidated condensed financial statements have not been
examined by independent accountants in accordance with generally accepted
auditing standards, but in the opinion of management, such financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary to summarize fairly the Company's financial
position and results of operations.
(2) MERGER WITH WHAT A WORLD
On February 4, 1999, What A World!, Inc. ("WAW"), a publicly held "shell
company," acquired all the issued and outstanding capital stock of Tele
Hub Link Corporation ("TeleHub") (the "Company"), a privately held
company organized under the laws of the Province of Ontario, Canada,
engaged in the business of providing teleservices. Pursuant to a Share
Purchase Agreement dated December 21, 1998, WAW acquired all the issued
and outstanding common stock of TeleHub in exchange for an aggregate of
13,011,339 shares of WAW common stock (or 3.9252318 shares of WAW's
common stock for each share of TeleHub common stock) and, as a result
thereof, TeleHub became a wholly owned subsidiary of WAW. In addition, in
connection with the TeleHub transaction, WAW amended its Certificate of
Incorporation in order to change its legal name to TeleHubLink
Corporation.
For accounting purposes, this transaction has been treated as a reverse
acquisition. TeleHub has been deemed the acquiring enterprise for
financial statement purposes, as it received a majority of the voting
interests in the combined enterprise. The SEC staff has taken the
position that a business combination between an operating enterprise and
a "shell company" in which the shell company is the issuer of securities
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and the operating enterprise is determined to be the acquiring enterprise
for financial statement purposes, the transaction should be treated for
financial statement purposes as an issuance of securities by the
operating enterprise. Therefore, the tangible net liabilities of WAW at
the date of the transaction of approximately $207,288 have been recorded
at their fair value with an offset credit to paid-in capital and the
operations of WAW are reflected in the operations of the combined
enterprise from the date of acquisition. In addition, the 1999 financial
statements have been retroactively restated to reflect the number of
shares
TeleHub received in the business combination. Costs related to this
transaction of approximately $362,163 have been charged directly to
paid-in capital. Two directors and principal shareholders of WAW prior to
the acquisition were also shareholders of TeleHub owning, directly and
indirectly, approximately 13% of the outstanding common shares.
(3) ISSUANCE OF SUBORDINATED CONVERTIBLE DEBENTURES
On July 13, 1999, the Company raised $600,000 through the issuance of
subordinated convertible debentures. The Company sold 24 "Units". Each
unit consisted of a 10% subordinated convertible debenture in the
principal amount of $25,000 due one year from the closing. The number of
shares issuable at the maturity date will be based on a conversion price
of $.50 per share. Interest expense accrues at a rate of 10% per annum
and is payable on the maturity date.
Upon issuance, the total intrinsic value of the embedded conversion
feature of the subordinated convertible debentures was $1,425,000. In
accordance with EITF 98-5, the Company recorded a discount for the
intrinsic value of the embedded conversion feature up to the principal
amount ($600,000) of the issued subordinated convertible debentures. The
Company is amortizing the discount over the one-year life of the
subordinated convertible debentures. For the three month and six month
period ended July 31, 1999, amortization totaling $21,700 has been
included in interest expense.
Any holder who elects to receive payment on the debenture in the form of
shares of common stock will also receive, concurrent with such payment,
redeemable warrants to purchase an aggregate of 50,000 shares of the
Company's common stock at an exercise price of $2.00 per share per unit.
Any holder who elects to receive payment on a debenture in the form of
cash will also receive concurrent with such payment, redeemable warrants
to purchase an aggregate of 6,250 shares of the Company's common stock at
an exercise price of $2.00 per share. The warrants can be exercised at
any time and expire three years from the date of issuance. The warrants
will be redeemable by the Company at any time after issuance, at a price
of $.10 per warrant, upon 30 days notice, provided that the closing bid
quotation of the Company's common stock has exceeded $3.00 for a period
of 30 consecutive days during the period in which the warrants are
exercisable.
One of the Company's directors and a principal shareholder acquired
subordinated convertible debentures totaling $125,000.
(4) STOCK OFFERING
On February 4, 1999, the Company amended its Certificate of Incorporation
to increase the number of authorized shares of its common stock to
50,000,000.
On February 5, 1999, the Company consummated a private placement
financing arrangement pursuant to which it issued 2,593,979 shares of its
common stock at between $.06 and $.09 per share for an aggregate of
$165,214. Proceeds of the financing were used to fund working capital
requirements of the Company and for general corporate
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<PAGE>
purposes. The Company relied upon the exception provided by Section 4 (2)
of the Securities Act of 1933 in connection with the issuance and sale of
its common stock. In connection with this transaction, the Company
recorded a stock-based compensation charge of $1,728,390 for the
difference between the fair value of the Company's common stock issued
and the cash proceeds received.
(5) BUSINESS ACQUISITION
On May 13, 1999, the Company entered into a letter of intent to acquire
all the outstanding shares of wirelessEncryption.com, ("WEC") a privately
held company which is currently in the process of developing advanced
ultra-secure signal processing technology for wireless and Internet
communications as well as other data transmissions. The Chairman of the
Company is a founder and a significant shareholder of WEC. During the
thirteen weeks ended July 31, 1999, the Company advanced $158,000 in the
form of unsecured promissory notes to WEC. Because this was WEC's only
source of financing, the Company recorded these advances as expenses.
On June 16, 1999, the Company acquired the assets of Web Trafic Inc., a
privately held Canadian company for approximately $148,400 which was
comprised of $80,000 in cash and 100,000 shares of the Company's
restricted common stock. The acquisition was accounted for under the
purchase method. Web Trafic Inc. had no operations since its
incorporation on July 24, 1998. Under the Sale of Enterprise Agreement,
the Company acquired the rights to the "iMall Agreement", which among
other things, allows access to sell products on a certain iMall web-site.
The Company has allocated the full purchase price to the contract rights
of the iMall Agreement and is amortizing it over a five-year period.
In connection with the acquisition Web Trafic Inc., the Company retained
a management firm operated by the former president of Web Trafic Inc., to
assist the Company in developing its Internet division. Pursuant to the
management agreement, the Company granted options to acquire an aggregate
of 250,000 shares at an exercise price of $.50 per share. The Company is
amortizing the value of the stock option grant to compensation expense
over the period the services are being provided to the Company.
Pro forma financial information of the combined results of
operations of the Company and Web Trafic as if the acquisition had
occurred as of January 30, 1999, after giving effect to certain
adjustments would not differ materially from those presented.
(6) EMPLOYMENT CONTRACT
In February 1999, the Company entered into an employment agreement with
its President and Chief Executive Officer. The employment agreement
includes severance or change in control provisions that provide for
compensation of the greater of two-years base salary or $500,000. Under
the employment agreement, the President and Chief Executive Officer was
granted options to acquire 500,000 shares of the Company's common stock
of which 50% vested immediately and the remaining 50% vest upon
completion of the first full year of employment. The employment agreement
also provides for accelerated vesting of stock options in the event the
Company's common stock meets certain market performance levels.
(7) REDUCTION OF WARRANT EXERCISE PRICE
In May 1998, WAW extended the exercise period of the underlying warrants
from May 17, 1998 to May 17, 2000. On July 6, 1999, the Company's board
of directors approved the reduction of the warrant exercise price from
$5.00 per share to $3.50 for the Company's redeemable warrants. On July
6, 1999 the Company's board of directors approved the reduction of the
exercise price of the underwriter's underlying warrants and the purchase
price of the common stock to $.1015 and $3.50 from $.145 and $5.00,
respectively. In connection with these changes, the Company recorded the
value of the modification of $228,800,
8
<PAGE>
based on the change in the quoted market price of the warrants, as
additional paid-in capital and a direct charge to accumulated deficit.
(8) STOCK OPTION GRANT
In February 1999, the Company granted to the Chief Operating Officer and
a director of the Company, time-based options to acquire an aggregate of
150,000 shares of common stock and performance-based options to acquire
an aggregate of 50,000 shares of common stock, and granted to the Vice
President and director of the Company, time-based options to acquire an
aggregate of 250,000 shares of Common Stock and performance-based options
to acquire an aggregate of 50,000 shares of common stock. All of such
options are exercisable at a price of $.06 per share. The time-based
options vest in equal installments on each of the first three
anniversaries of the date of grant and the performance-based options are
subject to vesting based on the Company's having met certain performance
criteria. In connection with the options, the Company recorded
compensation expense of $43,200 for the thirteen weeks ended July 31,
1999.
(9) RESTATEMENT
The consolidated financial statements for the thirteen weeks ended July
31, 1999 and August 1, 1998 have been restated to reflect various
adjustments to the previously reported financial statements. The
following table sets forth the impact on the consolidated statements of
operations and consolidated balance sheet:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
JULY 31, 1999 AUGUST 1, 1998
----------------------------- ------------------------
AMOUNT AMOUNT
PREVIOUSLY AS RESTATED PREVIOUSLY AS RESTATED
REPORTED REPORTED
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Statement of Operations:
Revenue $ 490,245 $ 490,245 -- --
Cost of revenue 266,647 266,647 -- --
Gross profit 223,598 223,598 -- --
Stock-based charges -- 54,100 -- --
Selling, general and administrative
Expenses 208,477 275,177 21,446 --
Operating losses of WEC prior to
acquisition -- 158,000 -- --
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Other income (expense) (1,317) (23,017) 629 --
Net income (loss) 13,804 (286,696) (20,817) --
Charge for warrant pricing modification -- (228,800) -- --
Net income (loss) available to common
shareholders 13,804 (515,496) -- --
Basic and diluted net loss per share -- (.03) (.01) --
Balance Sheet:
Cash and cash equivalents 64,463 64,463
Total assets 1,250,128 932,228
Accumulated deficit (263,666) (2,522,593)
Total stockholders' equity 89,706 67,194
</TABLE>
The amounts shown as previously reported for the thirteen weeks ended
July 31, 1999 and August 1, 1998 are as reported in the Company's
previously-filed Form 10-QSB. The previously-filed 10-QSB for the quarter
ended July 31, 1999 compared the current operating results of the Company
to the prior operating results of WAW. As a result of the reverse merger,
Telehub has been deemed the acquiring enterprise; therefore, for
financial reporting purposes the second quarter results of fiscal 1998
(August 1, 1998) should have been TeleHub's operating results and not
WAW's operating results. Because TeleHub began its operations on July 31,
1998, there are no operating results to present for the first quarter
ended August 1, 1998.
Adjustments to the consolidated financial statements for the quarter
ended July 31, 1999 reflect fourth quarter charges recorded by the
Company and are reflected in the Company's fiscal 2000 Form 10-KSB filed
on July 19, 2000. A summary of the significant adjustments that impacted
the previously reported second fiscal quarter results is as follows.
o To record losses of $158,000, in the second fiscal quarter, on the
advances to WEC. (See Note 5)
o To record non-cash stock-based compensation charges of $54,100, in the
second fiscal quarter, in connection with the granting of stock options
to employees and other outside third parties.
o To record amortization of $21,700, in the second fiscal quarter, relating
to the debt discount resulting from the conversion feature of the
subordinated convertible debt. (See Note 3)
o To write-off capitalized organizational costs of $57,000 in the second
fiscal quarter.
o To recognize the impact of warrant pricing modification totaling
$228,800, in the second fiscal quarter. (See Note 7)
o To record a liability for vacation time of $4,400 earned by employees.
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(10) BUSINESS CONCENTRATION
Approximately 94% of revenue for the thirteen weeks ended July 31, 1999
was derived from two customers.
(11) SUBSEQUENT EVENTS
ACQUISITION OF A BUSINESS
On August 20, 1999, the Company acquired all of the assets of Sports and
Entertainment Marketing International, Inc. ("SEMI"), a privately held
Canadian company, of which the former president of Web Trafic Inc. was
also a director and shareholder. The total consideration was $352,500,
which was comprised of $150,000 in cash and 200,000 shares of the
Company's restricted common stock. SEMI is engaged in the development and
production of strategic marketing concepts relating to various sports,
sporting events, shows memorabilia and products. The acquisition was
accounted for under the purchase method, and accordingly, the purchase
price was allocated to the identifiable tangible and intangible assets
based on their estimated fair values. The Company allocated approximately
$11,000 to acquired merchandise and $341,500 to contract and marketing
rights. The Company will amortize the contract and marketing rights over
a five-year period.
SALES OF COMMON STOCK AND WARRANTS
On August 16, 1999, the Company consummated a financing arrangement
pursuant to which it issued 540,000 shares of Common Stock for an
aggregate of $675,000 (the "August 1999 Private Financing). Proceeds of
the financing will be used for potential acquisitions, for the payment of
certain obligations, to fund working capital requirements of the Company,
and for general corporate purposes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
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 (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. As a result of the 1997 Sale and the TeleHub
Transaction, 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.
11
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PLAN OF OPERATION (Restated)
Since the consummation of the TeleHub Transaction, the Company, through its
wholly-owned subsidiary TeleHub, has been primarily 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.
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, the Company has formed a new Internet division which is
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. In June 1999, the Company acquired all of
the assets of Web Trafic Inc., a privately-held company which has acquired the
rights to sell advertising for e-commerce on iMall, one of the leading
e-commerce websites on the Internet with approximately 1,600 merchants. Web
Trafic Inc. serves as an independent Canadian representative for iMall, Inc.,
and intends to market its services through its business listings, classified
ads, referral web pages and portals. In consideration for the Web Trafic Inc.
assets, the Company paid $80,000 in cash, 100,000 shares of the Company's
restricted common stock and in connection with the acquisition, the Company
retained a management firm operated by the former President of Web Trafic Inc.
to assist the Company in developing its Internet division. There can be no
assurance that this acquisition will generate meaningful revenues or profits for
the Company. In addition, the Company will be required to obtain additional
financing in order to fund the development and operational costs of any
companies, including Web Trafic Inc., acquired by the Company. There can also be
no assurance that the Company will be successful in implementing its "HUB"
concept or developing its teleservices operations or Internet-related
businesses.
A key element of the Company's strategy involves growth through
acquisitions of other companies or assets that would complement or expand the
Company's existing business. On May 13, 1999, the Company entered into a letter
of intent to acquire wirelessEncryption.com, a development stage company which
is working on the development of a product which encrypts data at the signal
level while enhancing signal reception and voice quality. The Company presently
anticipates that it may issue up to 1,000,000 unregistered shares of its common
stock in connection with the acquisition of wirelessEncryption.com and that it
may also issue up to 4,000,000 additional unregistered shares of is common stock
depending upon the satisfaction of certain milestones and other conditions.
Consummation of the transaction is subject to completion of due diligence and
preparation of a definitive purchase agreement and related documentation.
Affiliates of Mr. Stanley Young, Chairman of the Board and a director of the
Company, and members of his family own a substantial equity interest in
wirelessEncryption.com. There can be no assurance that the parties to the
acquisition will enter into a definitive agreement or that, if a definitive
agreement is entered into, the acquisition will be completed or, if completed,
that the acquisition would generate meaningful revenues or profits for the
Company. In addition, if the acquisition is consummated, the Company will be
required to obtain additional financing to fund the development and operational
costs of the acquired company.
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
12
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will link clients with their ultimate customers 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 and retain
skilled technical, marketing and other personnel; successfully expand into the
Internet market and attract and retain significant numbers of clients.
RECENT DEVELOPMENTS
In July 1999, the Company sold a total of 24 units, by means of a private
placement, for gross proceeds of $600,000 (the "July 1999 Private Financing").
Each unit consisted of a 10% subordinated convertible debenture due July 13,
2000 in the principal amount of $25,000. The Company will be required to issue
up to an aggregate of 1,200,000 shares of common stock in the event all of the
debenture holders elect to convert their debentures on the maturity date
thereof. In addition, pursuant to the terms of such offering, the Company will
also be required to issue, on the maturity date of the debentures, warrants to
purchase an aggregate of from 150,000 shares of common stock (if no debenture
holders elect to convert their debentures) to 1,200,000 shares of common stock
(if all debenture holders elect to convert their debentures). A portion of the
proceeds of such financing was used to fund certain cash costs associated with
the acquisition of Web Trafic Inc. and the payment of certain past due
obligations, and the balance is expected to be used to fund additional future
acquisitions, if any, and to fund working capital and general corporate
purposes.
On August 16, 1999, the Company consummated a financing arrangement
pursuant to which it issued 540,000 shares of Common Stock for an aggregate of
$675,000 (the "August 1999 Private Financing). Proceeds of the financing will be
used for potential acquisitions, for the payment of certain obligations, to fund
working capital requirements of the Company, and for general corporate purposes.
In the event the Company consummates the acquisiton of
wirelessEncryption.com, the Company currently intends to invest a portion of the
proceeds of the July 1999 Private Financing and the August 1999 Private
Financing, and may issue additional debt or equity securities, in connection
with such acquisition. However, the Company may elect not to acquire
wirelessEncryption.com and may invest in or acquire additional companies which
may be identified by management. There can be no assurance that any acquisitions
will be completed or, if completed, that any acquisition would generate
meaningful revenues or profits for the Company.
The following discussion relates to the Company for the period ended July
31, 1999 and accordingly reflects 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 (Restated)
As discussed in note 2 to the condensed consolidated financial
statements, as a result of the reverse merger between WAW and TeleHub, TeleHub
has been deemed the acquiring enterprise for financial reporting purposes.
Because TeleHub began its operations on July 31, 1998, there are no operating
results to present for the previous fiscal quarters ended May 2, 1998 and August
1, 1998.
THIRTEEN AND TWENTY SIX WEEKS ENDED JULY 31, 1999
Net sales for the thirteen weeks ended July 31, 1999 (the "Second Quarter
of Fiscal 2000") were $490,245. Net sales for the twenty-six weeks ended July
31, 1999 were $811,077. The sales were generated from the Canadian call center
business.
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Gross profit for the Second Quarter of Fiscal 2000 was $223,598 or 46.0%
of sales. Gross profit for the first twenty-six weeks of fiscal 2000 was
$342,281 or 42.0% of sales. The increase in gross profit was due to lower cost.
The operating losses of wirelessEncryption.com for the second quarter of
fiscal 2000 represents the write-off of advances from the Company to
wirelessEncryption.com. Interest expense for the second quarter of fiscal 2000
includes amortization totaling $21,700 relating to the discount recorded on the
subordinated convertible debentures plus accrued interest on the subordinated
convertible debentures.
Stock-based charges for the Second Quarter of Fiscal 2000 were $54,100.
These non-cash charges were the result of stock based compensation charges
relating to stock option grants to certain employees and outside third parties
during the quarter.
Selling, general and administrative expenses ("SG&A") was $275,177 in the
Second Quarter of Fiscal 2000 and $445,532 in the first twenty-six weeks of
fiscal 2000. The primary components of SG&A are rent, salaries (including
commissions and fringe benefits), consulting fees, depreciation, travel and
promotion, and corporate overhead expenses (including primarily professional
fees, insurance, administrative salaries).
No provision for income taxes has been recorded for the Second Quarter of
Fiscal 2000 as the Company has incurred net operating losses for tax purposes.
The Company established a full valuation allowance against its deferred tax
assets because we believe it is more likely than not the tax benefits may not be
realized under the criteria established by SFAS No. 109.
LIQUIDITY AND CAPITAL RESOURCES (Restated)
The Company had working capital deficits of approximately $(373,869) and
$(157,675) at July 31, 1999 and January 30, 1999, respectively. 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.
In July 1999, the Company consummated the July 1999 Private Financing,
pursuant to which it sold a total of 24 units, by means of a private placement,
for gross proceeds of $600,000. Each unit consisted of a 10% subordinated
convertible debenture due July 13, 2000 in the principal amount of $25,000. The
Company will be required to issue up to an aggregate of 1,200,000 shares of
common stock in the event all of the debenture holders elect to convert their
debentures on the maturity date thereof. In addition, pursuant to the terms of
such offering, the company will also be required to issue, on the maturity date
of the debentures, warrants to purchase an aggregate of from 150,000 shares of
common stock (if no debenture holders elect to convert their debentures) to
1,200,000 shares of common stock (if all debenture holders elect to convert
their debentures). A portion of the proceeds of such financing was used to fund
certain cash costs associated with the acquisition of Web Trafic Inc. and the
payment of certain past due obligations, and the balance is expected to be used
to fund additional future acquisitions, if any, and to fund working capital and
general corporate purposes.
On August 16, 1999, the Company consummated the August 1999 Private
Financing pursuant to which it issued 540,000 shares of Common Stock for an
aggregate of $675,000. Proceeds of the financing will be used for potential
acquisitions, for the payment of certain obligations, to fund working capital
requirements of the Company, and to use for general corporate purposes.
As described above, the Company currently anticipates that it will
continue 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. 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.
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During the first twenty-six weeks of fiscal 2000, cash increased by
approximately $64,463. The overall increase in cash resulted primarily from the
cash received from the Company's July 1999 Private Financing arrangement.
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 a 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; the
Company 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 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.
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YEAR 2000 COMPLIANCE
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. The likely worst case scenario may be an inability to efficiently
process incoming and outgoing telephone calls at the Company's call center and
to process its daily business for some period of time. The lost reserves, if
any, resulting from a worst case scenario would depend on the time period in
which the failure goes uncorrected and the difficulty of remediating such
failure. Management is currently assessing the need to develop contingency plans
for its call center operations. However, the Company does not currently believe
that such contingency plans will be required due to its use of alternative
technology systems at the Company's call center.
PART II. OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
In July 1999, the Company sold a total of 24 units, by means of a private
placement, for gross proceeds of $600,000 (the "July 1999 Private Financing").
Each unit consisted of a 10% subordinated convertible debenture on 2000 in the
principal amount of $25,000. Upon maturity of the debentures on July 13, 2000,
holders will be entitled to be paid 100% of the principal amount of each
debenture (plus accrued interest thereon) either in cash or in shares of common
stock of the Company, at the holder's option. The number of shares issuable on
the maturity date of the debentures will be based on a conversion price of $.50
per share (subject to adjustment for stock splits and similar transactions). Any
holder who elects to receive payment on a debenture in the form of shares of
common stock of the Company shall also receive, concurrent with such payment,
redeemable warrants to purchase an aggregate of 50,000 shares of common stock at
an exercise price of $2.00 per share (subject to adjustment) for each $25,000
debenture converted into common stock. Any holder who elects to receive payment
on a debenture in the form of cash shall also receive, concurrent with such
payment, redeemable warrants to purchase an aggregate of 6,250 shares of common
stock at an exercise price of $2.00 per share (subject to adjustment) for each
$25,000 debenture paid in cash. Each warrant will be exercisable for a
three-year period commencing on the date of issuance. A portion of the proceeds
of such financing was used to fund certain cash costs associated with the
acquisition of Web Trafic Inc. and the payment of certain past due obligations,
and the balance is expected to be used to fund additional future acquisitions,
if any, and to fund working capital and general corporate purposes. The
Registrant relied upon the exception provided by Section 4(2) of the Securities
Act of 1933 in connection with the issuance and sale of such securities.
On August 16, 1999, the Company consummated a financing arrangement
pursuant to which it issued 540,000 shares of Common Stock for an aggregate of
$675,000. Proceeds of the financing will be used for potential acquisitions, for
the payment of certain obligations, to fund working capital requirements of the
Company, and to use for general corporate purposes. The Registrant relied upon
the exception provided by Section 4(2) of the Securities Act of 1933 in
connection with the issuance and sale of such securities.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K*
(a) Exhibits:
10.1 Employment Agreement between the Company and Bruce W. Young
10.2 Form of Debenture Issued in July 1999 Private Financing
10.3 Form of Warrants to be issued in connection with July 1999 Private
Financing
10.4 Registration Rights Agreement entered into in connection with July
1999 Private Financing
10.5 Registration Rights Agreement entered into in connection with August
1999 Private Financing Resources
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).
27 Financial Data Schedule (For SEC Use Only)
99.1 Purchase Agreement between the Company and Web Trafic Inc.
99.2 Management Agreement between the Company and Serge Trudeau Resources
* The exhibits were previously filed with the original 10-QSB on
September 14, 1999. New exhibits for 11 and 27 are being filed
with this restated Form 10QSB/A.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
thirteen weeks ended July 31, 1999.
During the twenty-six weeks ending July 31, 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 the TeleHub Transaction.
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SIGNATURES
In accordance with the requirements of the Securities and 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
Date: August 29, 2000 By: /s/ BRUCE W. YOUNG
--------------------- ----------------------------------------
Bruce W. Young
Chief Executive Officer and President
Date: August 29, 2000 By: /s/ Douglas Miller
--------------------- -----------------------------------------
Douglas Miller
Vice President Finance
(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX*
EXHIBIT
NO. DESCRIPTION
------- -----------
10.1 Employment Agreement between the Company and Bruce W. Young
10.2 Form of Debenture Issued in July 1999 Private Financing
10.3 Form of Warrants to be issued in connection with July 1999
Private Financing
10.4 Registration Rights Agreement entered into in connection with
July 1999 Private Financing
10.5 Registration Rights Agreement entered into in connection with
August 1999 Private Financing Resources
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).
27 Financial Data Schedule (For SEC Use Only)
99.1 Purchase Agreement between the Company and Web Trafic Inc.
99.2 Management Agreement between the Company and Serge Trudeau
Resources
* The exhibits were previously filed with the original 10-QSB on
September 14, 1999. New exhibits for numbers 11 and 27 are being
filed with this restated Form 10QSB/A.
