UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
Commission file number 000-49628
TELEPLUS WORLD, CORP. |
| (Exact Name of Registrant as Specified In Its Charter) |
NEVADA | 90-0045023 |
(State or Other Jurisdiction of
Incorporation or Organization) | (I.R.S. Employer
Identification No.) |
4960 NW 165th Street, Unit B24, Miami Lakes Florida 33014 |
| (Address of Principal Executive Offices) (Zip Code) |
(305) 624-5714 |
| (Registrant's Telephone Number, Including Area Code) |
Securities registered under Section 12(b) of the Act
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d0 of the act.
Yes o No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed 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 such filing requirements for the past 90 days.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in rule 12-b-2 of the Exchange Act. (Check One):
Large Accelerated Filer o Accelerated Filer o Non-accelerated Filer o Smaller Reporting Company x
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
The aggregate market value of the registrants voting and non-voting common equity held by non-affiliates computed by reference to the average bid and ask price of such common equity as of June 29, 2007, was approximately $4,400,000.
The number of shares of common stock outstanding as of March 17, 2008 was 212,864,562.
Documents Incorporated by Reference: NONE
TABLE OF CONTENTS
| PART I | | | | |
| | | | | |
| Item 1. | | Description of Business | | 1 |
| | | | | |
| Item 2. | | Description of Property | | 7 |
| | | | | |
| Item 3. | | Legal Proceedings | | 7 |
| | | | | |
| Item 4. | | Submission of Matters To A Vote Of Security Holders | | 8 |
| | | | | |
| PART II | | | | |
| | | | | |
| Item 5. | | Market for Common Equity and Related Stockholder Matters | | 9 |
| | | | | |
| Item 6. | | Selected Financial Data | | 14 |
| | | | | |
| Item 7. | | Management’s Discussion and Analysis | | 14 |
| | | | | |
| Item 8. | | Financial Statements | | 18 |
| | | | | |
| Item 9. | | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | | 19 |
| | | | | |
| Item 9A. | | Controls and Procedures | | 19 |
| | | | | |
| PART III | | | | |
| �� | | | | |
| Item 10. | | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16 (a) of the Exchange Act | | 21 |
| | | | | |
| Item 11. | | Executive Compensation | | 24 |
| | | | | |
| Item 12. | | Security Ownership of Certain Beneficial Owners and Management | | 25 |
| | | | | |
| Item 13. | | Certain Relationships and Related Transactions | | 27 |
| | | | | |
| Item 14. | | Principal Accountant Fees and Services | | 27 |
| | | | | |
| Item 15. | | Exhibits and Reports on Form 8-K | | 29 |
| | | | | |
| SIGNATURES | | | | 30 |
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes,” “may,” “will,” “should,” “could,” “plans,” “estimates,” and similar language or negative of such terms. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we do not know whether we can achieve positive future results, levels of activity, performance, or goals. Actual events or results may differ materially. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances taking place after the date of this document.
Part I
Item 1. Description of Business
Business Development
Teleplus World, Corp (the “Company”), (TLPE.OB), is a diversified North American company that is a leading provider of telecommunications products and services. The Company’s wholly owned subsidiaries include Telizon, Inc., a reseller of landline, long distance, internet and specialized telecom financial management services to small and mid size businesses and Avenue Reconnect and Freedom Phone Lines, providers of landline and long distance services to targeted residential markets. Teleplus websites include www.telizon.biz, www.elitemail,ca, www.freedomphonelines.com, www.netreach.ca and www.nophone.ca among others. The Company has offices in Miami, Florida and Barrie, Ontario.
The Company was originally incorporated in Nevada as Terlingua Industries, Ltd. on April 16, 1999. This company was formed to engage in online marketing and distribution of organic herbal supplements internationally. Terlingua Industries, Ltd. changed its name on January 27, 2000 to HerbalOrganics.com, Inc.
In March 2003, the Company declared a 10:1 forward stock split. In October 2003, the Company declared a 2.375:1 forward stock split. The effects of the stock split have been retroactively reflected in this report unless otherwise stated.
In September 2003, the Company formed a wholly-owned foreign subsidiary, Teleplus Retail Services, Inc. (“Retail”), a Canadian corporation formed under the laws of the province of Quebec. Retail, in October 2003, acquired a significant amount of assets from, and assumed certain liabilities of, 3577996 Canada, Inc., a Canadian Business Corporation (“3577996”) relating to 3577996’s TelePlus Consumer Services business.
Immediately following the Company’s acquisition of 3577996, in October 2003, Visioneer Holdings Group, Inc. (“Visioneer”) acquired control of the Company. Visioneer and 3577996 were controlled by the same shareholders.
For accounting purposes, the transaction was treated as an acquisition of HealthOrganics.com, Inc. and a recapitalization of 3577996 with accounting treatment similar to that used in a reverse acquisition. 3577996 emerged as the accounting acquirer and the results of its operations carryover. The Company acquired $11,327 in cash and assumed $700 in liabilities as a result of the transaction. Additionally, the Company changed its name to Teleplus Enterprise, Corp.
Post-reverse merger, the Company is a provider of wireless and telecommunications services in Canada and the United States of America. The Company’s products include prepaid and postpaid wireless, landline, long distance and Internet services. The Company distributes their products through their websites, third party websites, select distributors in Canada and the United States of America, and through a variety of direct marketing initiatives.
The Company acquired Keda Consulting Corp., a North American telecommunications industry management consulting service company on April 1, 2005; 1523813 Ontario Limited (Freedom Phone Lines), a Bell Canada reseller of landline and long distance services on April 15, 2005; Avenue Reconnect, Inc. a reseller of landline and long distance services and Internet service provider on June 1, 2005; and Telizon, Inc. and 1500536 Ontario, Inc. (One Bill, Inc.), a reseller of landline and long distance service and Internet service provider on July 15, 2005.
On January 13, 2006, Retail, filed in Canada a Notice of Intention to Make a Proposal Under the Bankruptcy and Insolvency Act (Canada) (the “Act”). This was done to divest the Company of its retail division. As a result, Retail was deemed to have made an assignment of its assets to its creditors under the Act and discontinued its operations as of February 12, 2006. The retail operations are no longer a segment of the Company’s business for the year ended December 31, 2006.
On December 29, 2005 the Company purchased certain assets of Star Number, Inc., a wholly-owned subsidiary of InPhonic, Inc., related to its Liberty Wireless business, including customer lists, the "Liberty Wireless" brand and SNI's rights under certain agreements, the whole effective as of December 31, 2005. The purchased assets have been used and will continue to be used to sell pre-paid and post-paid wireless telecommunications services under the name "Liberty Wireless".
In February, 2006, the Company completed its transition from retail operations to wireless and telecom services reselling.
On June 21, 2006, the Company purchased all the issued and outstanding shares of Maximo Impact, Inc. (“Maximo”), a Cleveland, Ohio based company, under certain agreements, the whole effective as of that date. Maximo specializes in marketing and distribution as a Mobile Virtual Network Operator (“MVNO”) in the United States of America. As part of this transaction, Maximo launched its own wireless brand called MX Mobile which caters to mass merchandisers, general retailers and c-channel retailers calling on convenience stores and gas stations.
On October 24, 2006 the Company changed its corporate name to Teleplus World, Corp.
In December, 2007, the Company announced the intent to sell or close the wireless operations in the U.S. operated by its wholly owned subsidiary Teleplus Wireless, Corp (“Teleplus Wireless”). On December 21, 2007 the Company advised its shareholders that the Company has decided to exit the MVNO (Mobile Virtual Network Operator) business segment (the "MVNO Segment") operated by its Liberty Wireless and Maximo Impact brands. Market conditions for this segment of the Company's operations have become adverse in the last few months making it difficult for the Company to turn a profit in the MVNO Segment. Notwithstanding the Company's efforts over the last few months to improve the performance of the MVNO Segment the Company does not believe it will turn a profit in that segment in the foreseeable future. Company intends to focus its efforts on its core telecommunication service which represents the bulk of the company's revenues, is profitable and provides good cash flows to fund ongoing operations. Exiting the MVNO Segment (which has been operating at a loss) will improve the Company's profitability and cash flow although it will reduce the Company's annual revenues by about $4.5 million dollars. The Company intends to move quickly in the divestiture and/or closure of the MVNO Segment.
On January 15, 2008 the Company completed the sales of substantially all the assets of the wireless operations in the U.S. to COZAC, LLC. The assets included customer lists, assumed airtime contracts, trade names, domain names, logo, marketing reports and customer collateral. The purchase price payable by purchaser to vendor for the purchased assets is satisfied by the purchaser assuming the liabilities as of the date of this agreement under the Sprint agreement, the MVNO Sherpa agreement, and the assumption of liabilities owed to the vendor “People Support”.
Growth
The Company is a diversified Canadian leading provider of telecommunications products and services. The Company’s products and services include landline, long distance, internet and specialized telecom financial management services to small and mid size businesses and landline and long distance services to targeted residential markets. The company expects to grow organically through the increase of its customer base.
In addition to accelerate growth the Company made the following acquisitions:
| | · | Keda Consulting Corp., a North American telecommunications industry management consulting service company on April 1, 2005 specializing in business development, sales and marketing and operations. Following this acquisition, Keda Consulting Corp. changed its name to TelePlus Connect Corp. and their management took over the operations of the Company’s prepaid landline and long distance telephone service operations; |
| | · | 1523813 Ontario Limited (Freedom Phone Lines), a Bell Canada reseller of landline and long distance services on April 15, 2005 headquartered in Ontario, Canada which services over 3,300 customers in the Ontario area, generating approximately $2,500,000 in annual revenues; |
| | · | Avenue Reconnect, Inc. a reseller of landline and long distance services and Internet service provider on June 1, 2005 headquartered in Windsor, Ontario which services over 2,000 residential users primarily in Ontario, generating approximately $1,100,000 in annual revenues; and |
| | · | Telizon, Inc. and 1500536 Ontario, Inc. (One Bill, Inc.), a reseller of landline and long distance service and Internet service provider on July 15, 2005 headquartered in Ontario, Canada which services over 18,000 commercial and residential lines in the Ontario area, generating approximately $12,000,000 in annual revenues. |
Current estimates place the “unbanked “ or “prepaid” market in North America at 9.5% of total households and the market size is estimated at over $ 1 billion.
Principal Products and Services
The Company is a diversified Canadian leading provider of telecommunications products and services. The Company’s products and services include landline, long distance, internet and specialized telecom financial management services to small and mid size business and landline and long distance services to targeted residential markets.
Distribution
We distribute our products through our websites, third party websites, select distributors and through a variety of direct marketing initiatives.
Market Overview - Telecom
The Canadian communications service industry, including telecommunications services and broadcast distribution, accounts for approximately 3% of GDP.
Canada’s telecom environment is fully privatized, with the government having no holding an any telecom carrier. Operators within the Canadian market are described as either incumbents or competitors. The large incumbents include Bell Canada, TELUS, Bell-Aliant, MTS and SaskTel. Small incumbents serve mostly municipal areas generally located in less densely populated areas. Competitors include facilities-based competitors, non-facilities-based resellers, cable companies and more recently utility telcos such as Toronto Hydro Telco.
The traditional fixed-line market remains dominated by the incumbents, while the wireless sector remains dominated by Bell Mobility, TELUS Mobility and Rogers Wireless. However, due to the introduction of competing service providers and competing services, the incumbents’ share of total industry revenues has steadily been declining. This decline is kept in check largely due to their strong growth in wireless and broadband revenues.
Total telecommunications services revenues amounted to $36.1 billion in 2006, a 4.5% increase on 2005. A similar annual growth rate, of around 5 % is estimated for 2008 and 2009.
Broadband and wireless revenues continue to demonstrate a trend of strong growth, with increases of approximately 18% and 15% respectively during 2007. Long distance revenues on the other hand continued to decline steeply by over 7%. Local and access line revenues have remained stagnant at approximately $9.3 billion since 2003. Wireless revenues surpassed local and access revenues in 2004 and the gap continued to widen through 2005 to 2007. As a result of increasing competition, the industry witnessed further consolidation which should continue through 2008..
As the telecommunications sectors move increasingly towards IP-based networks, the telecommunications and broadcasting sector have begun to converge, with a move towards a triple play model of services. The distinction between a telephone company and broadcaster is becoming increasingly blurred. Government policy and regulation is starting to appropriately recognize these convergence trends, such that further regulatory reforms are anticipated in 2008/09.
Market Overview - Wireless
Since the late 1990’s, wireless subscriber growth rates have been steadily declining, as penetration levels rise. Growth rates have declined from approximately 35% during 1999 to approximately 9% in 2007. By September 2007 Canada’s subscriber numbers had reached 19.3 million, a penetration rate of around 60%, a rate significantly lower than most of its OECD counterparts. Notably, Canada’s wireless penetration figures are approximately 15-20% lower than those of the USA. Thus while slowing subscriber growth is to be expected as penetration approaches saturation, Canada still has significant room for further growth before saturation levels are reached.
Despite slowing wireless subscriber growth, wireless revenue growth remains strong. Revenue growth is being underpinned by increasing use of data and content services such as SMS and MMS messaging, browsing and downloading. Thus while overall wireless revenues grew by 15% for 2007, data revenues grew by a resounding 50%. With increasing subscriber numbers and minutes of use, voice revenue growth remained healthy, at around 11% for basic voice and 17% for ling distance voice. However, growth rates will continue to be driven by data and content services as networks become more advanced to allow for greater use of such services.
Management Team
Our senior management is led by Marius Silvasan, our President and Chief Executive Officer, and Cris M. Neely, our Chief Financial Officer. Other members of our management team include senior level executives who have extensive experience in management, business development, marketing, sales and customer support. In addition to our management team, we believe we have assembled a highly capable and active Board of Directors.
Sales and Marketing
Sales
We execute our sales strategy either by interacting directly with the potential customer (direct sales), or indirectly through independent sales consultants
We manage all customer opportunities in projects where our sales and technical resources are deployed. The projects are initiated either through direct contacts with the customer, through our strategic sales consultants or through customer inquiries generated through marketing activities.
Marketing
We employ a coordinated marketing strategy which includes initiatives such as direct lead generation, public relations, direct marketing campaigns and customer relationship management. This gives us numerous alternatives in regards to marketing messages and competitive positioning. Regardless of the competitive environment, we feel confident going to the target market with business proposals that will provide low cost solutions.
The marketing strategy will be a combination of different marketing initiatives. We plan to implement this strategy on a business-to-business marketing philosophy, which is targeted to build a mutually advantageous long-term relationship with the customer. This calls for knowing the customer enough to deliver relevant solutions in a timely manner and meeting their specific needs.
We plan to build value through marketing based assets, such as brand, customer and employee relationships and intellectual capital. We aim to effectively employ and manage solutions that create value to the customer through our intellectual capital and that minimize the requirement for capital asset investment.
Intellectual Property
Teleplus holds the following trademarks:
| | · | In Canada: SimplySellular trademark granted January 7, 2005; |
Need For Government Approval
Teleplus needs the following government approvals to operate:
| | · | Section 214 authorization |
Employees
Teleplus has a total of 45 employees, most of which are employed on a full-time basis.
Financing Activities
On July 3, 2007, Teleplus World, Corp. (the “Company”) entered into a certain Securities Purchase Agreement (“SPA”) with Yorkville Advisors (formerly Cornell Capital Partners, LP) (“YA” and together with the Company, the “Parties”) pursuant to which the Company issued to YA, Three Million Dollars ($3,000,000) in secured convertible debentures (the “Debentures”). The Debentures were fully funded on July 3, 2007. The Debentures are convertible, in whole or in part, at any time and from time to time before maturity at the option of the holder at the lower of (a) $0.035 or (b) ninety-five percent (95%) of the lowest volume weighted average price of common stock for twenty (20) trading days immediately preceding the conversion date. Beginning on August 2, 2007, and continuing on the first Trading Day of each calendar month thereafter, the Company shall make mandatory redemptions (“Mandatory Redemption”) consisting of outstanding principal. The principal amount of each Mandatory Redemption shall be equal to $100,000 per calendar month, until all amounts owed under this Debenture have been paid in full. The Debentures have a term of three (3) years, piggy-back registration rights and accrue interest at a rate equal to twelve percent (12%) per year. The Debentures are secured by certain pledged assets of the Company. The Parties have also entered into an Investor Registration Rights Agreement, pursuant to which the Company has agreed, if required by YA, to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, and applicable state securities laws.
The Company used a portion of the proceeds from the sale of the Convertible Debentures to pay the final balloon payment to the former shareholders of Telizon Inc. pursuant to the Share Purchase Agreement dated June 30, 2005 between the former shareholders of Telizon and the Company’s subsidiary Teleplus Connect Corp. (“Teleplus Connect”) in the amount of CDN$1,631,776.00 (the “Telizon Payment”). With this final balloon payment, all obligations of the Company and Teleplus Connect are complete and all security agreements, including that certain Secured Promissory Note of July 18, 2005 issued by Teleplus Connect in favor of the former shareholders of Telizon are null and void. Furthermore, the Company also used a portion of the proceeds to pay the final balloon payment to the former shareholders of 1500536 ONTARIO INC ("One Bill") pursuant to the Share Purchase Agreement dated June 30, 2005 between the former shareholders of One Bill and Teleplus Connect in the amount of CDN$168,224.28 (the “One Bill Payment”). With this final balloon payment, all obligations of the Company and Teleplus Connect are complete and all security agreements, including that certain Secured Promissory Note of July 18, 2005 issued by Teleplus Connect in favor of the former shareholders of One Bill are null and void.
The Company used remaining proceeds for general working purposes to grow its wireless business.
In connection with the SPA the Company also issued YA a warrant to purchase 50,000,000 shares of the Company’s common stock at an exercise price of $0.03; a warrant to purchase 30,000,000 shares of the Company’s common stock at an exercise price of $0.05; and issued 4,000,000 restricted shares of the Company’s common stock to YA.
Item 1A Risk Factors
Not Applicable
Item 1B Unresolved Staff Comments
Not Applicable
Item 2. Description of Property
TelePlus currently has in place one lease for its principal office in Miami, Florida and one lease for its office in Barrie, Ontario Canada. TelePlus’ principal office is located in approximately 2,200 square feet of space in Miami, Florida and its Barrie office has approximately 6,410 square feet of leased office space. The Company pays monthly rent of $2,000 and $12,400 in Miami and Barrie, respectively. The Miami office has a lease term of 2 years and the Barrie office has a lease term of 5 years.
Item 3. Legal Proceedings
The following proceedings have been instigated against the Company. The Company does not believe that the following legal proceedings have a materially adverse impact on the Company’s business or on its results of its operations.
Proposed Tax Assessment: 3577996 Canada, Inc. which the Company had acquired substantially all of their assets, is involved in proceedings with the Minister of Revenue of Quebec (“MRQ”). The MRQ has proposed an assessment for the Goods and Services Tax (“GST”) and Quebec Sales Tax (“QST”) of approximately $642,000 (CND $) and penalties of approximately $110,000 (CND $). The proposed tax assessment including penalties is for $322,000 (CND $) for QST and $320,000 (CND $) for GST. In mid to late 2006, the MRQ issued Amended Reassessments after the Company contested. These amounts were reduced (including penalties) to approximately QST $350,000 (CND $) and GST $308,000 (CND $). The Company again contested these Amended Reassessments and believes that certain deductions initially disallowed by the MRQ for the QST are deductible and is in the process of compiling the deductions to the MRQ.
Wrongful Dismissal: A former employee of a subsidiary of the Company, has instigated a claim in Quebec Superior Court in the amount of $90,000 (CND $) against the Company for wrongful dismissal. The Company does not believe the claim to be founded and intends to vigorously contest such claim. The parties are in the discovery stages.
Consulting Fee: On April 13, 2005, a lawsuit was filed in the United States District Court, District of New Jersey (Newark) (Case No. 05-2058) by Howard Salamon d/b/a “Salamon Brothers” (as the plaintiff) against the Company. This matter arises out of an alleged agreement between the plaintiff and the Company. The plaintiff is seeking specific performance of the alleged agreement, monetary damages and a declaratory judgment for the payment of a commission allegedly due to the plaintiff in an amount equal to 10% of all funds received by the Company from YA. The Company has filed a counterclaim against the plaintiff seeking rescission of the alleged agreement and a refund of $100,000 paid by the Company to the plaintiff. The Company believes that this lawsuit is without merit, that the plaintiff’s claims are unfounded and that the Company has good defenses against the claims asserted by the plaintiff. The Company also believes that it has good claims for the rescission of the agreement and for the refund of the amount paid to the plaintiff. The Company intends to contest and defend against the plaintiff’s claims. The foregoing notwithstanding, total liability to the Company, should it lose the lawsuit, could reach a maximum of 10% of all funds received by YA.
Contract Dispute: Former vendor filed a lawsuit in Miami-Dade County, Florida against the Company’s subsidiary, Teleplus Wireless, Corp. for nonpayment of an employment fee in the amount of $14,000. The Company is reviewing the merits of said lawsuit and will vigorously defend the case.
Commissions Dispute: Former telemarketing vendor has filed suit in Miami-Dade County, Florida against the Company’s subsidiary Teleplus Wireless, Corp. alleging non payment of $16,202 in commissions. The Company formally cancelled this agreement and disputes the commissions are owed to vendor and will vigorously defend the case.
Commissions Dispute: Former vendor has filed suit against the Company’s subsidiary Teleplus Wireless, Corp. for non payment of $35,000.00 contingency fee. The Company is reviewing the merits of said lawsuit and will vigorously defend the case.
Breach of Contract: A former vendor of the Company’s subsidiary Teleplus Wireless Corp. has filed a lawsuit in Miami-Dade County, Florida for $110,783.90 for consulting and Investor Relations work performed. The Company does not believe the claim to be founded and intends to vigorously contest such claim.
Item 4. Submissions Of Matters To A Vote Of Security Holders
In September 2007, a majority of the shareholders consented to an amendment to the Company’s Articles of Incorporation to increase the number of shares the Company is authorized to issue to $1.5 billion.
Part II
Item 5. Market For Common Equity and Related Stockholder Matters
“Bid” and “asked” offers for the common stock are listed on the NASDAQ OTC-Bulletin Board published by the National Quotation Bureau, Inc. The Company’s common stock began trading in the first quarter of 2003, under the trading symbol, ‘HBOG”. The symbol was changed to “TLPE” in connection with the Company’s name change on October 10, 2003.
The following table sets forth the high and low bid prices for the Company’s common stock for the periods indicated as reported by the NASDAQ OTC-Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
| | | Bid Prices | |
Quarter Ended | | High | | Low | |
| Fourth Quarter 2007 | | $ | 0.02 | | $ | 0.01 | |
| Third Quarter 2007 | | $ | 0.04 | | $ | 0.02 | |
| Second Quarter 2007 | | $ | 0.13 | | $ | 0.03 | |
| First Quarter 2007 | | $ | 0.11 | | $ | 0.05 | |
| | | | | | | | |
| Fourth Quarter 2006 | | $ | 0.15 | | $ | 0.08 | |
| Third Quarter 2006 | | $ | 0.20 | | $ | 0.14 | |
| | $ | 0.31 | | $ | 0.17 | |
| First Quarter 2006 | | $ | 0.41 | | $ | 0.28 | |
There were 90 holders of record of the common stock as of March 17, 2008. The Company has never paid a cash dividend on its common stock and does not anticipate the payment of a cash dividend in the foreseeable future.
Recent Sales of Unregistered Securities
None.
Changes In Securities.
2004:
In January 2004, we issued 10,000 shares of common stock to an unaffiliated entity in consideration for $10,000.
In February 2004, we issued 25,000 shares of common stock to an unaffiliated entity in consideration for $25,000.
In April 2004, we issued 500,000 shares of common stock to an unaffiliated entity in consideration for $500,000.
On May 14, 2004, we issued 285,000 shares of common stock to the 5 shareholders of Smart Cell following the acquisition of 100% of the issued and outstanding shares of Smart Cell. The value of this transaction was $202,350.
On May 18, 2004, we sold 57,000 shares of common stock in a private placement at $0.10 per share for a total of $5,700.
On June 25, 2004, we issued Yorkville Advisors (“YA”) (formerly “Cornell Capital Partners LP”) 245,193 shares of common stock as a commitment fee under an Equity Distribution Agreement between the Company and YA. The value of these shares were $190,000.
On June 25, 2004, we issued a secured convertible debenture to Yorkville Advisors (“YA”) (formally “Cornell Capital Partners LP” pursuant to a Securities Purchase Agreement. The amount of the secured convertible debenture was $1,000,000.
On June 25, 2004, we issued Newbridge Securities Corporation 12,905 shares of common stock as a placement agent fee. The value of these shares were $10,000.
In October, 2004, we issued 223,664 shares of common stock to YA in connection with the partial repayment of a Promissory Note and Convertible Debenture outstanding. The value of these shares were $100,000.
In November, 2004, we issued 839,642 shares of common stock to YA in connection with the partial repayment of a Promissory Note and Convertible Debenture outstanding. The value of these shares were $300,000.
In December, 2004, we issued 140,000 shares of common stock to the principals of Cellz in connection with the acquisition of Cellz.
In December, 2004, we issued 120,000 shares of common stock to the principals of SmartCell in connection with the acquisition of SmartCell.
In December, 2004, we issued 20,000 shares of common stock to a director of the Company for compensation valued at $2,000.
2005:
In the first quarter of 2005, we issued 2,388,694 shares of common stock to YA in connection with the partial repayment of a Promissory Note and Convertible Debenture outstanding. The value of these shares were $850,000.
In the second quarter of 2005, we issued 6,275,896 shares of common stock to YA in connection with the partial repayment of a Promissory Note and Convertible Debenture outstanding. The value of these shares were $1,100,000.
On March 31, 2005, we issued 964,706 shares of common stock to the principals of Freedom in connection with the acquisition of Freedom valued at $328,000.
On April 5, 2005, we issued 50,000 shares of common stock to its directors for director fees valued at $15,500.
On May 12, 2005, we issued 50,000 shares of common stock to Bondy & Schloss LLP as part of a settlement reached by the Company with Ivan Berkowitz, Michael Rosenbaum and BG Holdings, LLC in relation to a failed financing transaction. The transaction was valued at $11,000.
On May 30, 2005, we issued 187,500 shares of common stock to a third party for services rendered. The transaction was valued at $28,125.
On June 10, 2005, we issued 333,333 shares of common stock to a third party for services rendered. The transaction was valued at $130,000.
On July 15, 2005, we issued 2,500,000 shares of common stock to YA as a fee under the Standby Equity Distribution Agreement, entered into the same day. These shares were valued at $800,000. On December 19, 2005, half of these shares, 1,250,000, valued at $400,000 were returned to the Company.
On August 19, 2005, we issued 60,000 shares of common stock to directors as director fees. The transaction was valued at $19,800.
On September 2, 2005, we issued 800,503 shares of common stock to a third party as a finders’ fee for the acquisition of Telizon. The transaction was valued at $248,156.
On September 29, 2005, we issued 70,000 shares of common stock to directors as director fees. The transaction was valued at $20,300.
On October 28, 2005, we issued 424,000 shares of common stock to various employees for their bonuses. The transaction was valued at $101,760.
On November 7, 2005, we issued 280,000 shares of common stock to a third party as a finders’ fee for the acquisition of Freedom. The transaction was valued at $84,000.
On November 7, 2005, we issued 280,000 shares of common stock to a third party as a finders’ fee for the acquisition of Avenue Reconnect. The transaction was valued at $64,400.
On November 23, 2005, we issued 850,000 shares of common stock to two third parties payment of a variety of consulting services rendered. The transaction was valued at $187,000.
On December 6, 2005, we issued 70,000 shares of common stock to directors as director fees. The transaction was valued at $18,900.
On July 1, 2005, we issued 2,000,000 shares of Class A Preferred stock to Visioneer Holdings Group, Inc. which is beneficially owed by our CEO & Chairman, Marius Silvasan, for services rendered. The Class A Preferred stock entitles the holders to 10 votes each, are not convertible into shares of any other class or series of stock of the Company, are non participating and no dividends can be declared on them.
2006:
The Company issued 12,521,678 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $1,550,000.
May 12, 2006 the Company cancelled 637,500 shares issued to two third parties in connection with a variety of consulting services to be rendered in November, 2005. Shares cancelled when issued were valued at $140,250.
May 17, 2006 the Company issued 150,000 shares of common stock in connection with the acquisition of Freedom Phone Lines as additional consideration. Shares were valued at $39,000.
June 16, 2006 the Company issued 180,000 shares of common stock to directors of the Company for services. Shares were valued at $34,200.
June 16, 2006 the Company issued 280,000 shares of common stock in connection with the acquisition of Cellz which was part of the discontinued operations. Shares were valued at $316,400.
June 16, 2006 the Company issued 57,500 shares of common stock to a non-related third party for services rendered. Shares were valued at $10,925.
July 11, 2006 the Company issued 400,000 shares to YA as a fee in connection with the $3,000,000 debenture entered into with YA on July 28, 2006.
July 31, 2006 the Company issued 20,000,000 shares of stock to Visioneer Holdings in conversion of the 2,000,000 shares of preferred stock.
August 11, 2006 the Company issued 200,000 shares to Rich Stupansky in connection with the acquisition of Maximo Impact, Corp. Shares were valued at $30,000.
November 3, 2006 the Company issued 208,337 shares in connection to bonuses earned by employees. Shares were valued at $27,083.
November 21, 2006 the Company issued 1,633,333 shares to a non-related third party in connection to services rendered. Shares were valued at $179,666.
November 30, 2006 the Company issued 300,000 shares to a non-related third party in connection to services rendered. Shares were valued at $27,000.
November 30, 2006 the Company issued 300,000 shares to a non-related third party in connection to services rendered. Shares were valued at $27,000.
December 7, 2006 the Company issued 535,714 shares to a non-related third party in connection to services rendered. Shares were valued at $48,214.
December 7, 2006 the Company issued 10,000 shares to an employee as compensation. Shares were valued at $900.
December 7, 2006 the Company issued 60,000 shares of common stock to directors of the Company for services. Shares were valued at $5,400.
December 12, 2006 the Company issued 178,571 shares to a non-related third party in connection to services rendered. Shares were valued at $14,285.
2007
January 8, 2007 the Company issued 5,555 shares to an employee in connection with bonus earned. Shares were valued at $445.
January 8, 2007 the Company issued 11,111 shares to an employee in connection with bonus earned. Shares were valued at $890.
January 8, 2007 the Company issued 444,000 shares to a non-related third party in connection to services rendered. Shares were valued at $35,520.
January 30, 2007 the Company issued 1,345,895 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $100,000.
February 22, 2007 the Company issued 1,492,537 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $100,000.
March 5, 2007 the Company issued 3,703,704 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $200,000.
March 21, 2007 the Company issued 1,851,852 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $100,000.
March 28, 2007 the Company issued 454,485 shares in connection with bonuses earned by employees. Shares were valued at $36,359.
April 2, 2007 the Company issued 2,500,000 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $135,000.
April 11, 2007 the Company issued 175,000 shares to its directors for services rendered. Shares were valued at $10,500.
April 12, 2007 the Company issued 2,314,815 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $125,000.
April 26, 2007 the Company issued 106,351 shares to a non-related third party in connection to services rendered. Shares were valued at $5,317.
May 17, 2007 the Company issued 4,166,667 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $170,000.
May 18, 2007 the Company issued 106,351 shares to a non-related third party in connection to services rendered. Shares were valued at $4,254.
July 03, 2007 the Company issued 4,000,000 shares to YA as a fee in connection with the $3,000,000 loan on July 3, 2007. Shares were valued at $160,000.
July 16, 2007 the Company issued 1,470,588 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $35,000
September 12, 2007 the Company issued 1,173,709 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $25,000.
September 26, 2007 the Company issued 2,808,989 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $50,000.
October 11, 2007 the Company issued 2,937,063 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $42,000.
October 22, 2007 the Company issued 325,000 shares to its directors for services rendered. Shares were valued at $6,500.
October 31, 2007 the Company issued 1,280,000 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $16,000.
November 15, 2007 the Company issued 2,916,667 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $35,000.
Item 6. Selected Financial Data
Not Applicable
Item 7. Management’s Discussion and Analysis of Financial Condition and Results
Overview
In this Section, the Company will discuss the following: (i) results of operations and financial condition for the years ended December 31, 2007 versus December 31, 2006; (ii) liquidity and capital resources; (iii) a discussion of the Company’s risk factors; and (iv) the Company’s critical accounting policies.
Results of Operations and Financial Condition
Years Ended December 31, 2007 versus December 31, 2006
Total Operating Revenues from Continuing Operations
The Company generated $17,380,124 of revenues from continuing operations for the year ended December 31, 2007 as compared to $15,904,049 from continuing operations for the year ended December 31, 2006, an increase of $1,476,075 or 9%. The increase was attributable to the focus placed on executing our business plan in targeting specific niches. The combination of our voice, internet and wireless offerings combined with the execution of our customer service strategy allowed us to better service our clients at a competitive price point. This resulted in an overall increase in the number of customers while closely managing churn.
Total Operating Costs and Expenses from Continuing Operations
Total operating costs and expenses for the year ended December 31, 2007 were $18,042,966 from continuing operations as compared to $17,014,902 from continuing operations for the year ended December 31, 2006. This represented an increase of $1,028,064 or 6%. Of these amounts, $12,384,786 (71% of revenues) and $10,934,915 (69% of revenues), respectively comprised of costs of services, which increased primarily due to higher sales volumes in Teleplus Connect Corp. voice solutions. These costs are reflective of the high cost of acquiring and the initial ramp-up of new customers. We are currently operating with tight cost controls to gain efficiencies in the operation and help mitigate the higher cost of acquiring new customers. The payroll, professional fees and related expenses of $3,737,675 increased 8% as compared to $3,447,978 in 2006. This is due mainly to higher commissions paid to the independent contract sales force which drove the increase in sales. In contrast advertising, marketing and general administrative expense decreased $683,246 or 44% on actual of $891,011 for 2007 as compared to $1,574,257 for 2006.
Depreciation and amortization expenses reached $885,978 in 2007 as compared to $857,013 in 2006 including depreciation on the Company’s fixed assets and amortization on the Company’s intangible assets, thus not including goodwill, and amortization of the Company’s deferred connection charges. The Company determines the fair value of the undiscounted cash flows annually, or sooner if circumstances change and determination is required, to value any impairment on its goodwill, intangible assets and long-lived assets. As of December 31, 2007, the Company has determined that there is no impairment charge. The intangible assets, not including goodwill are currently being amortized over estimated lives ranging from 2 to 20 years.
Other Income (Expense) from Continuing Operations
Included in other income (expense) is amortization of the deferred financing fees paid to Yorkville Advisors (“YA”) (formerly Cornell Capital Partners, LP) in association with the Securities Purchase Agreement and Secured Convertible Debenture entered into with YA on December 13, 2005, July 28, 2006 and July 2, 2007. The amortization charge for the years ended December 31, 2007 and 2006 was $428,669 and $342,108, respectively. The Company incurred a warrant expense of $0 and $182,419 in connection with the raising of capital in 2007 and 2006 respectively. The Company also recognized amortization on the debt discount on the convertible debenture of $3,737.410 and $2,747,485 for the years ended December 31, 2007 and 2006 based on the Effective Interest Method calculation, and recognized a gain on the valuation of its derivative liability of $3,728,661 and $3,527,249 respectively resulting from a decrease in our stock price.
Interest expense was $2,678,434 compared to $2,164,281 for the years ended December 31, 2007 and 2006, respectively. The interest expense is primarily due to the convertible debentures.
Net Income (Loss) from Continuing Operations
The Company reported net income (loss) from continuing operations of $(3,898,074), or $(0.03) per share on a basic and diluted basis for the year ended December 31, 2007 versus $(3,019,897), or $(0.03) per share on a basic and diluted basis for the year ended December 31, 2006. The increase in our loss is primarily attributable to the Company’s charges related to their convertible debenture financing for the year ended December 31, 2007 versus 2006. The operating income (loss) lines in the consolidated statements of operations is believed by management to be the true indicator of the Company’s performance during the period.
Provision for Income Taxes
There was no provision for income taxes for the years ended December 31, 2007 and 2006, respectively. The Company has approximately $8,000,000 of net operating loss carryforward as of December 31, 2007, that the Company has reserved in a full valuation allowance against this deferred tax asset.
Liquidity and Capital Resources
During the year ended December 31, 2007, the balance in cash and cash equivalents decreased by $127,520 from continuing operations.
As of December 31, 2007, the Company had $2,501,122 in current assets primarily consisting of $397,395 in cash and cash equivalents, $1,393,425 in accounts receivable - trade, $369,437 in other accounts receivable, $75,025 in prepaid expenses and other current assets and $265,840 current assets held from discontinued operations, .
As of December 31, 2007, the Company had $21,520,446 in current liabilities primarily consisting of $621,580, in the current portion of accrued acquisition obligations, $6,065,871 in accounts payable and accrued expenses, $1,896,436 in liabilities held by discontinued operations, $5,238,401 in the current portion of convertible debentures, net of discount, and $7,076,598 of derivative liabilities resulting from the Securities Purchase Agreement and Secured Convertible Debenture entered into on December 13, 2005, July 28, 2006 and July 3, 2007. The derivative liability is being converted to equity upon conversion to the Company’s common stock. The balance is adjusted based on market adjustments to fair value on a quarterly basis.
As a result, the Company as of December 31, 2007 has a working capital deficiency of $19,019,324 which includes $7,076,598 of derivative liability that is not expected to have a cash impact.
Cash flow generated from operating activities and proceeds from capital raises are the Company’s primary contributors in reducing the working capital deficiency and fund future operations.
The decrease in cash for the year ended December 31, 2007 of $749,631 was primarily attributable to the net proceeds of debt of $2,675,000, offset by expenditures of cash used to acquire businesses of $3,214,622 and the repayment of $416,687 of debt, the use of cash for capital expenditures of $25,126, and the use of deferred connection charges $131,475.
The decrease in cash for the year ended December 31, 2006 of $1,737,548 was attributable primarily to proceeds of debt of $2,542,577, offset by expenditures of cash used to acquire businesses of $5,253,934, the use of cash for capital expenditures of $144,699 and the use of deferred connection charges $133,611.
Based on our current operating plan, we anticipate using our cash mainly to continue growing the customer base and expand our technology solutions. The main portion of the cash need is for sales activities, operating expenses, cost of sales and a smaller portion for infrastructure improvements.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have experienced recurring operating losses since our inception and our accumulated net deficit is in excess of $15 million. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts or the amounts and classification of liabilities that may be necessary should we be unable to continue as a going concern. The disposition on January 15th 2008 of our wireless assets will help us improve cash flows for 2008. Our telecom operation has historically delivered a stable performance with an increase in sales, number of customers and cash flow since our acquisition of this business in July 2005. While we believe this performance to continue we cannot precisely predict future performance. We believe that available cash resources, together with anticipated revenues from operations could not be sufficient to satisfy our business plan and capital requirements through December 31, 2008. Additional capital may not be available on a timely basis or on acceptable terms, if at all. If we are unable to maintain or obtain sufficient capital, we may be forced to reduce operating expenses, sell business assets or take other actions which could be detrimental to our business operations.
Significant Estimates
Critical accounting polices include the areas where we have made what we consider to be particularly subjective or complex judgments in making estimates and where these estimates can significantly impact our financial results under different assumptions and conditions.
We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Actual results could be different than those estimates.
Recent Accounting Pronouncements
In July 2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes.” This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN No. 48 on January 1, 2007 and this new standard did not have a material impact on our financial statements.
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of SFAS 157 is not expected to have a material impact on the consolidated financial statements.
In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115”, (“FAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. FAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141 (R)”), which replaces SFAS 141. SFAF 141(R) requires assets and liabilities acquired in a business combination, contingent consideration, and certain acquired contingencies to be measured ath their fair values as of the date of acquisition. SFAS 141 (R) also requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. SFAS 141 (R) is effective for fiscal years beginning after December 15, 2008 and will be effective for business combinations entered into after January 1, 2009.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in consolidated Financial Statements, an Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 clarifies the accounting for non-controlling interests and establishes accounting and reporting standards for the non-controlling interest in a subsidiary, including classification as a component of equity. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The company does not currently have any minority interests.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Market Risks
The Company operates in the United States and Canada, each of which has its own currency. This may cause the Company to experience and be exposed to different market risks such as changes in interest rates and currency deviations.
Item 7A. Quantitative and Qualitative disclosures about Market Risk.
Not Applicable
Item 8. Financial Statements.
The financial statements and report of an independent registered certified public accounting firm are included herein immediately following the signature page of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Disclosure Control and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934, or the “Exchange Act,” is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding disclosure.
The Company’s management with the participation of the Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2007. Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective and designed to ensure that material information required to be disclosed by the Company in the reports that if files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and regulations and accumulated and communicated to them as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate “internal control over financial reporting” as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
| (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
Management has used the framework set forth in the report entitled “Internal Control - Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway commission to evaluate the effectiveness of our internal control over financial reporting. Based on its evaluation, our management concluded that there is a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The Company’s material weakness in its internal control over financial reporting relates to the monitoring and review of work performed in the preparation of audit and financial statements, footnotes, and financial data provided to the Company’s registered public accounting firm in connection with the annual audit. All of our financial reporting is carried out by the Chief Financial Officer and Controller. The lack of accounting staff results in a lack of segregation of duties necessary for an effective system of internal control. The material weakness identified did not result in the restatement of any previously reported financial statements for 2007 or any other related financial disclosure, nor does management believe that it had any effect on the accuracy of the Company’s financial statements for the current reporting period.
In order to mitigate this material weakness to the fullest extent possible, all quarterly and annual financial reports are reviewed by the Chief Executive Officer and the Audit Committee for reasonableness. All unexpected results are investigated. At any time, if it appears that any control can be implemented to continue to mitigate such weakness, it is immediately implemented. We intend to implement appropriate procedures for monitoring and review of work performed by our Chief Financial Officer and Controller.
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this annual report.
Part III
Item 10. Directors, Executive Officers, Promoters and Control Persons Compliance with Section 16(A) of the Exchange Act
Directors and Officers
Generally, each of our directors is elected by the stockholders to a term of one year and serves until his or her successor is elected and qualified. Pursuant to the Company’s bylaws, Carlos Cardelle, was appointed as director by a majority of the Board of Directors to fill a vacancy that existed on the Board of Directors. The Board of Directors has no nominating compensation committees. The Directors and Officers of the Company are as follows:
Name | | Age | | Position | | Term |
| | | | | | | |
| Marius Silvasan | | 34 | | Chief Executive Officer and Director | | October 2003 to present |
| | | | | | | |
| Cris M. Neely | | 51 | | Chief Financial Officer and Director | | April 2007 to present |
| | | | | | | |
| Robert B. Krebs* | | 51 | | Chief Financial Officer and Director | | February 2004 to April 2006 |
| | | | | | | |
| Thomas Davis * | | 58 | | Chief Operating Officer and Director | | November 2005 to May 2006 |
| | | | | | | |
| Michael Karpheden | | 45 | | Director | | March 2004 to present |
| | | | | | | |
| Hakan Wretsell | | 46 | | Director | | March 2004 to present |
| | | | | | | |
| Gordon Chow | | 51 | | Director | | August 2005 to present |
| | | | | | | |
| Nicholas Shamy* | | 56 | | Director | | Nov. 2006 to Nov. 2007 |
| | | | | | | |
| Carlos Cardelle | | 34 | | Director | | June 2007 to Present |
Mr. Krebs, Mr. Davis and Mr. Shamy resigned from the Board on April, May and November 2007, respectively
Marius Silvasan, MBA has served as CEO and a Director since October 2003. Prior to joining the Company, Mr. Silvasan held the position of President and Chief Executive Officer for Visioneer Calling Card Inc. and Alliance TeleCard Corp. from 1995 to June 1999. Prior to Visioneer and Alliance, Mr. Silvasan held the position of National Sales Manager for The Home Phone Club from 1990 to 1995. Graduate of the HEC University in Montreal, Mr. Silvasan holds a B.A.C. in business administration and an MBA (2003).
Cris M. Neely, has served as the Company’s Chief Financial Officer and as a Director since April 2006. Prior to joining Teleplus Mr. Neely was the CFO of Siemens Enterprise Networks located in Boca Raton, Florida from 1999 - 2005. He also held various other executive positions with Siemens Enterprise Networks including Senior Vice President Business Transformation, Director Internal Audit, Director of Finance for Wireless Terminals and Area Financial Manager. He has also held management positions with ROLM, IBM and Cisco during his career. After leaving Siemens in 2005, Mr. Neely worked as a consultant for small/medium organizations focusing on SOX compliance, revenue recognition and financial/operational business assessments. Cris holds a Bachelor of Business Administration - Finance degree from the University of Texas at Arlington and an MBA from Amberton University.
Robert Krebs, has served as the Company’s Chief Financial Officer and as a Director since February 2004. Prior to joining the Company, Mr. Krebs worked nine years for GB MICRO Electronics, where he held the position of Vice President of Finance. Prior to GB MICRO, Mr. Krebs held the position of Controller for Future Electronics and Le Chateau retail stores. Mr. Krebs holds a C.A. and a Bachelor of Commerce, both from McGill University. Mr. Krebs is an active member of the Canadian Institute of Chartered Accountants. Mr. Krebs resigned effective April 2007.
Tom Davis, has served as the Company’s Chief Operating Officer since November 2005. Prior to joining the Company, Mr. Davis served as President and Chief Executive Officer of Telizon Inc. from December 2002 until its acquisition by the Company in July 2005. Prior to December 2002, Mr. Davis was Senior Vice President, Customer Operations at Axxent Inc., a Competitive Local Exchange Carrier (CLEC). He has also held senior management and consulting roles at AT & T Canada (consulting), Cam Net Communications (President and COO) and ACC Long Distance (President and CEO). Mr. Davis is a graduate of the Wharton School of Business, University of Pennsylvania with a Bachelor of Science in Economics. Mr. Davis resigned as COO and Director effective May 2007 and remains as President and General Manager of Teleplus Connect Group.
Michael Karpheden has served as a Director of the Company since March 2004. Mr. Karpheden served as CFO of iCurie Lab, based in the UK from September 2004 to January 2008. He has concurrently held this position with positions at other companies discussed below since January 2003. From January 2003 to June 2003, Mr. Karpheden was a Sales Representative for First Investors. From February 2001 to January 2003, Mr. Karpheden held various positions at STRAX, Inc., a leader in the distribution of mobile phones and accessories, based in Miami, FL, that included Chief Operating Officer and VP Finance and Operations. Mr. Karpheden is a veteran in the wireless industry having worked for Ericsson Mobile Phones for a twelve-year period from 1989 to 2001. Mr. Karpheden held many positions at Ericsson including VP of Finance and Logistics, Americas Region and President and CFO/Director of Finance for Ericsson Telecommunications in Moscow, Russia. Mr. Karpheden holds a degree in Business and Management from the University of Lund, in Sweden.
Hakan Wretsell has served as a Director of the Company since March 2004. Mr. Wretsell served as CEO for iCurie Lab based in the UK from September 2004 to January 2008. Between 2000 and 2003, Mr. Wretsell held the position of President for STRAX, Inc. Mr. Wretsell has over sixteen years experience in the wireless industry, fourteen of those with Ericsson where he held the positions of Executive VP and GM, Americas Region and VP Sales and Marketing, Latin America Region. Mr. Wretsell holds a degree in Business and Management from the Universities of Umea, Uppsala and Lund in Sweden.
Gordon Chow, has served as a Director of the Company since August 2005. Mr. Chow currently serves as President of VTech Telecommunications Canada Ltd., where he is responsible for the Telecommunications Products Business in Canada, having established the Canadian operations, of VTech Electronics Canada Ltd. in 1986. In 1987, Mr. Chow was promoted from General Manager to President. Prior to joining VTech, Mr. Chow had his own Management Consulting practice, and held management positions with a real estate development company and a Chartered Accounting firm. Mr. Chow holds a Bachelor of Commerce degree from the University of British Columbia and is a member of the Institute of Chartered Accountants of British Columbia and a member of the Board of Governors of Crofton House School in Vancouver. Mr. Chow has served as a member of the President’s Advancement Council of the British Columbia Institute of Technology and a director of the BCIT Foundation. He was also a member of the Royal Roads University - MBA Advisory Board, and a director of the Canadian Toy Association.
Nicholas Shamy, a founding partner and shareholder of the Company, has throughout his career worked as a Business Development and Management Consultant for presidents and CEOs of small- and mid-size businesses across North America. His focus is on enhancing short-term performance while preparing for long-term sustainable growth. He also specializes in implementing comprehensive incentive programs, aligned with corporate objectives, aimed at attracting, retaining, and rewarding best-in-class employees, managers and executives. Mr. Shamy also served as president and owner of M.S. Shamy Inc., a distribution company. Mr. Shamy is a graduate of Concordia University, Montreal, Quebec, and holds a B.Sc. degree. Mr. Shamy resigned from the Board effective November 2007.
Carlos Cardelle has served as a Director of the company since June 2007. Prior to joining the Board of Directors, Mr. Cardelle was the General Counsel for Teleplus World, Corp. Prior to joining Teleplus World, Corp., Mr. Cardelle was Associate U.S. Counsel for LAN Airlines S.A. (formerly LAN Chile Airlines S.A.) where he acquired seven years of practical experience in business transactions including transactional, financing, Sarbanes-Oxley compliance, regulatory filings and petitions, licensing and trademarks and strategic acquisitions. Mr. Cardelle is member of the Florida Bar and holds a B.A. in political science and a J.D. both from the University of Miami. Mr. Cardelle resigned as General Counsel effective October 2007 and remains as a member of the Board of Directors.
Director Compensation
All Directors of the Company will hold office until the next annual meeting of the shareholders, and until their successors have been elected and qualified. Officers of the Company are elected by the Board of Directors and hold office at the pleasure of the Board. The Company compensates its board members $2,000 director’s meeting attended and 25,000 shares of the Company’s common stock issued per director’s meeting. Each member receives $1000 for serving on a special committee (audit/compensation) per quarter.
Involvement in Legal Proceedings
None of our executive officers or directors have been the subject of any order, judgment, or decree of any court of competent jurisdiction, or any regulatory agency permanently or temporarily enjoining, barring suspending or otherwise limiting him from acting as an investment advisor, underwriter, broker or dealer in the securities industry, or as an affiliated person, director or employee of an investment company, bank, savings and loan association, or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any securities.
None of our executive officers or directors have been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding that is currently pending.
None of our executive officers or directors are the subject of any pending legal proceeding.
Audit Committee
Mr. Karpheden and Mr. Wretsell serve on the Company’s audit committee. The audit committee reports to the Board of Directors regarding the appointment of our independent registered public accounting firm, the scope and results of our annual audit, compliance with our accounting and financial policies and management’s procedures and policies relative to the adequacy of our internal accounting controls.
Compensation Committee
Mr. Chow serves on the Company’s Compensation Committee with oversight of the employee stock option plan. The Compensation Committee reports to the Board of Directors regarding officer and director compensation arrangements, employee stock option plans, policies and programs of the Company and administer the Company’s equity-based compensation plans for all employees.
Section 16 (A) Beneficial Ownership Reporting Compliance
Section 16 (A) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors, executive officers and persons who own more than 10% of a class of the Company’s equity securities which are registered under the Exchange Act to file with the Securities and Exchange Commission initial reports of ownership and reports of changes of ownership of such registered securities. Such executive officers, directors and greater than 10% beneficial owners are required by Commission regulation to furnish the Company with copies of all Section 16 (A) forms filed by such reporting persons.
To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and on representations that no other reports were required, no person required to file such a report, failed to file during fiscal 2007 and 2006.
Code of Ethics
The Board of Directors adopted a Code of Ethics in January 2004, meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. The Company will provide to any person without charge, upon request, a copy of such Code of Ethics.
Item 11. Executive Compensation
Compensation paid to officers and directors is set forth in the Summary Compensation Table below. The Company may reimburse its officers and directors for any and all out-of-pocket expenses incurred relating to the business of the Company.
SUMMARY COMPENSATION TABLE |
| | | | | | | | | | | | |
| | | | | Annual Compensation | | Long-term Compensation | |
Name | | | | | | | | | | Stock | |
and | | | | | | | | Other | | Options | |
Principal Position | | Year | | Salary | | Bonus | | Compensation | | Granted | |
| | | | | | | | | | | | |
| Marius Silvasan | | | 2007 | | $ | 323,603 | | $ | - | | $ | - | | | - | |
| CEO and Director | | | 2006 | | $ | 237,642 | | $ | - | | $ | 3,000 | | | - | |
| | | | 2005 | | $ | 174,409 | | $ | - | | $ | - | | | 3,000,000 | |
| | | | 2004 | | $ | 76,335 | | $ | - | | $ | - | | | 6,000,000 | |
| | | | | | | | | | | | | | | | | |
| Cris Neely | | | 2007 | | $ | 150,000 | | $ | - | | $ | - | | | 2,000,000 | |
| CFO and Director | | | 2006 | | $ | - | | $ | - | | $ | - | | | - | |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information as of March 17, 2008, with respect to the beneficial ownership of the common stock by (i) each director and officer of the Company, (ii) all directors and officers as a group, and (iii) each person known by the Company to own beneficially 5% or more of the common stock:
| | | Title of | | Shares Owned | | % of Ownership | |
Name | | Class | | Beneficially (1) | | Beneficially | |
| | | | | | | | |
| Marius Silvasan | | | Common | | | 56,571,900 | (2) | | 25.36 | % |
4960 NW 165th Street. | | | | | | | | | | |
| Unit B24 | | | | | | | | | | |
| Miami Lakes, FL 33014 | | | | | | | | | | |
| | | | | | | | | | | |
| Nicholas Shamy | | | Common | | | 833,375 | | | 0.40 | % |
4960 NW 165th Street. | | | | | | | | | | |
| Unit B24 | | | | | | | | | | |
| Miami Lakes, FL 33014 | | | | | | | | | | |
| | | | | | | | | | | |
| Cris Neely | | | Common | | | 800,000 | | | 0.36 | % |
4960 NW 165th Street. | | | | | | | | | | |
| Unit B24 | | | | | | | | | | |
| Miami Lakes, FL 33014 | | | | | | | | | | |
| | | | | | | | | | | |
| Thomas Davis | | | Common | | | 675,000 | | | 0.30 | % |
4960 NW 165th Street. | | | | | | | | | | |
| Unit B24 | | | | | | | | | | |
| Miami Lakes, FL 33014 | | | | | | | | | | |
| Michael Karpheden | | | Common | | | 228,000 | | | 0.10 | % |
4960 NW 165th Street. | | | | | | | | | | |
| Unit B24 | | | | | | | | | | |
| Miami Lakes, FL 33014 | | | | | | | | | | |
| | | | | | | | | | | |
| Hakan Wretsell | | | Common | | | 212,000 | | | 0.10 | % |
4960 NW 165th Street. | | | | | | | | | | |
| Unit B24 | | | | | | | | | | |
| Miami Lakes, FL 33014 | | | | | | | | | | |
| | | | | | | | | | | |
| Gordon Chow | | | Common | | | 160,000 | | | 0.07 | % |
4960 NW 165th Street. | | | | | | | | | | |
| Unit B24 | | | | | | | | | | |
| Miami Lakes, FL 33014 | | | | | | | | | | |
| | | | | | | | | | | |
| Carlos Cardelle | | | Common | | | 36,111 | | | 0.02 | % |
4960 NW 165th Street | | | | | | | | | | |
| Unit B24 | | | | | | | | | | |
| Miami Lakes, FL 33014 | | | | | | | | | | |
| | | | | | | | | | | |
| All Officers and Directors as a Group | | | | | | 59,516,386 | | | 26.68 | % |
| | (1) | Applicable percentage of ownership is based on 212,864,562 shares of common stock outstanding, plus 10,200,000 exercisable option shares for a total of 223,064,562 shares of common stock outstanding as of March 17, 2008 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within 60 days as of March 17, 2008 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person. Note that affiliates are subject to Rule 144 and insider trading regulations - percentage computation is for form purposes only. |
| | (2) | Beneficially owned through Visioneer Holdings Group, Inc. |
Cris Neely : options to purchase: (i) 400,0000 shares at an exercise price of $0.07 (US$) that vest on September 26, 2007; (ii) 400,000 shares at an exercise price of $0.08 (US$) that vest on March 26, 2008; (iii) 400,000 shares at an exercise price of $0.10 (US$) that vest on March 26, 2009; (iv) 400,000 shares at an exercise price of $0.12 (US$) that vest March 26, 20010; (v) 400,000 shares at an exercise price of $0.15 (US$) that vest March 26, 2011.
Marius Silvasan: options to purchase: (i) 750,000 shares at an exercise price of $0.21 (US$) that vest on September 1, 2005; (ii) 1,000,000 shares at an exercise price of $0.22 (US$) that vest on December 1, 2005; (iii) 1,250,000 shares at an exercise price of $0.23 (US$) that vest on December 1, 2006; (iv) 1,500,000 shares at an exercise price of $0.36 (US$) that vest December 3, 2004; (v) 2,000,000 shares at an exercise price of $0.38 (US$) that vest June 3, 2005; (vi) and 2,500,000 shares at an exercise price of $0.40 (US$) that vest June 3, 2006.
Tom Davis: options to purchase: (i) 150,000 shares at an exercise price of $0.21 (US$) that vest on May 1, 2006; (ii) 150,000 shares at an exercise price of $0.22 (US$) that vest on November 1, 2006; (iii) 150,000 shares at an exercise price of $0.23 (US$) that vest on May 1, 2007; and (iv) 150,000 shares at an exercise price of $0.24 (US$) that vest on November 1, 2007.
Change in Control
The Company does not anticipate any changes in control of the Company.
Item 13. Certain Relationships and Related Transactions
The Company paid management fees of $323,603 and $237,642 to an entity owned by the majority shareholder for 2007 and 2006, respectively.
(a) Exhibits
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | 32.1 | Certification pursuant to 18 U.S.C. Section 1350 |
| | 32.2 | Certification pursuant to 18 U.S.C. Section 1350 |
(b) Reports on form 8-K
The Company filed the following report on Form 8-K during the year ended December 31, 2007.
| | a. | Form 8-K filed on January 9, 2007 to describe the change in registrant’s certifying accountant. On January 5, 2007 Mintz & Partners was dismissed at the Company’s independent auditors by decision of the Audit Committee of the Board of Directors of the Company. PKF, Certified Public Accountants, a Professional Corporation (“PKF”) was engaged on January 8, 2007 as the principal accountant to audit the consolidated financial statements of the Company. The decision was to change accountants was recommended by the Audit Committee of the Board of Directors of the Company and approved by the Board of Directors. |
| | b. | Form 8-K filed on February 13, 2007 to describe the lawsuit filed by the Company’s subsidiary, Liberty Wireless, Corp. against Mobile Technology Services, LLC (“MTS”) alleging that MTS had breached a number of provisions of the Mobile Virtual Network Enabler (“MVNE” Agreement) Services Agreement between Liberty and MTS. |
| | c. | Form 8-K filed on April 9, 2007 to describe an SEC comment letter dated March 8, 2007 concerning the change in auditors and an open dispute concerning the accounting upon the conversion of debt calculation. The Company applied this adjustment to the operating results for the year ended December 31, 2006 and will determine if amended 10QSB filings will be necessary for the prior June 30th and September 30, 2006 filing quarters and to announce resignation and replacement of CFO. |
| | d. | Form 8-K filed on June 4, 2007 to describe the resignation of the COO and director due to health reasons and announce the replacement of Board of Directors. |
| | e. | Form 8-K filed on June 29, 2007 to announce the appointment of Worldwide Stock Transfer, LLC of Teaneck, New Jersey as the Company’s new stock transfer agent. |
| | f. | Form 8-K filed July 6, 2007 to announce the Company has entered into certain Security Purchase Agreement (SPA) with Yorkville Advisors (“YA”) in the amount of $3,000,000. The Company issued YA $3,000,000 in secured convertible debentures of even date with the SPA and the debentures were fully funded on July 3, 2007. |
| | g. | Form 14C filed October 9, 2007 as preliminary information statement to announce the Company’s intent to increase the authorized shares from 600 million to 1.5 billion. |
| | h. | Form 14C filed September 28, 2007 as definitive information statement to announce the Company’s intent to increase the authorized shares from 600 million to 1.5 billion. |
| | i. | Form 8-K filed on October 19, 2007 to announce the resignation of the General Counsel to pursue other business and professional opportunities. He will continue to serve as a Director on the Company’s Board. |
| | j. | Form S8 filed on October 19, 2007 to supplement the Company’s stock option program with 1.5 billion shares. |
| k. | Form 8-K filed on December 7, 2007 to announce the resignation of Nick Shamy as member of the Board of Directors. |
| l. | Form 8-K filed on December 21, 2007 to announce the decision to exit the wireless business in U.S. through either a sale or closure of the operation. |
| m. | Form 8-K filed on January 24, 2008 to announce the sale of substantially of the wireless assets to Cozac LLC. |
| n. | Form 8-K filed on March 13, 2008 to announce the relocation of the company’s headquarters in Miami Florida. |
Item 15. Principal Accountant Fees and Services
Audit Fees
The aggregate fees billed (or expected to be billed) for each of the fiscal years ended December 31, 2007 and 2006 for professional services rendered by the principal accountant for the audit of the Company’s annual financial statements was $70,000 and $75,000 respectively.
The aggregate fees billed for the fiscal year ended December 31, 2007 for professional services rendered by the principal accountant for the reviews of the Company’s quarterly financial statements included in the Company’s Form 10-QSB’s was $36,000. The aggregate fees billed for other audit related services rendered by the principal accountant was $14,000.
Audit Related Fees
None
Tax Fees
The aggregate fees billed for December 31, 2007 for tax services rendered by the principal accountant was $25,000.
All Other Fees
None
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 this __ day of March 2008.
| | | |
| | TELEPLUS WORLD, CORP. |
|
|
|
| Date: March 28, 2008 | By: | /s/ Marius Silvasan |
| | |
Marius Silvasan Chief Executive Officer |
| | | |
| | | |
| Date: March 28, 2008 | By: | /s/ Cris M. Neely |
| | |
Cris M. Neely Chief Financial Officer |
| | | |
| | | |
| Date: March 28, 2008 | By: | /s/ Michael Karpheden |
| | |
Michael Karpheden Director |
| | | |
| | | |
| Date: March 28, 2008 | By: | /s/ Hakan Wretsell |
| | |
Hakan Wretsell |
| | | Director |
| | | |
| | | |
| Date: March 28, 2008 | By: | /s/ Gordon Chow |
| | |
Gordon Chow Director |
| | | |
| | | |
| Date: March 28, 2008 | By: | /s/ Carlos Cardelle |
| | |
Carlos Cardelle Director |
INDEX TO FINANCIAL STATEMENTS
Teleplus World, Corp
Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
| | | Page | |
| | | | |
Report of Independent Registered Public Accounting Firm | | | F-1 | |
| | | | | |
Financial Statements: | | | | |
| | | | | |
| Consolidated Balance Sheet as of December 31, 2007 and 2006 | | | F-2 | |
| | | | | |
| Consolidated Statements of Operations and Comprehensive Income (Loss) | | | F-3 | |
| for the years ended December 31, 2007 and 2006 | | | | |
| | | | | |
| Consolidated Statement of changes in Shareholders’ Equity (Deficit) for the years | | | F-4 | |
| ended December 31, 2007 and 2006 | | | | |
| | | | | |
| Consolidated Statements of Cash Flows for the years ended December 31, 2007 and 2006 | | | F-5 | |
| | | | | |
Notes to Consolidated Financial Statements: | | | F-7 | |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Teleplus World, Corp.
We have audited the accompanying consolidated balance sheets of Teleplus World, Corp. as of December 31, 2007 and 2006, and the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’ equity (deficit) and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 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 presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teleplus World, Corp. at December 31, 2007 and 2006 and the consolidated results of its operations and cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As described in note 2, at December 31,2007 the Company and its subsidiaries have incurred recurring losses from operations and had a working capital deficit of $19,019,324. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management’s plans in regard to its future operations are also discussed in note 2.
/s/ PKF
Certified Public Accountants
A Professional Corporation
New York, New York
March 26, 2008
TELEPLUS WORLD, CORP. |
CONSOLIDATED BALANCE SHEETS |
DECEMBER 31, 2007 AND 2006 |
| | | IN US$ | |
| | 2007 | | 2006 | |
ASSETS | | | | | |
| | | | | | |
| Current Assets: | | | | | |
| Cash and cash equivalents | | $ | 397,395 | | $ | 1,147,026 | |
| Accounts receivable, net - trade | | | 1,393,425 | | | 1,173,451 | |
| Other accounts receivable | | | 369,437 | | | 151,290 | |
| Prepaid expenses and other current assets | | | 75,025 | | | 186,079 | |
| Current Assets held from discontinued operations | | | 265,840 | | | 507,031 | |
| | | | | | | | |
| Total Current Assets | | | 2,501,122 | | | 3,164,877 | |
| | | | | | | | |
| Fixed assets, net of depreciation | | | 692,210 | | | 668,103 | |
| Fixed assets, net of depreciation from discontinued operations | | | 0 | | | 93,276 | |
| | | | | | | | |
| Total Fixed Assets | | | 692,210 | | | 761,379 | |
| | | | | | | | |
| Other Assets: | | | | | | | |
| Intangible assets, net | | | 6,052,250 | | | 5,721,011 | |
| Goodwill | | | 9,581,787 | | | 8,878,404 | |
| Deferred financing fees, net of amortization | | | 692,535 | | | 894,348 | |
| Deferred connection charges, net of amortization | | | 272,404 | | | 171,662 | |
| Deferred income taxes | | | 42,159 | | | 35,493 | |
| Other Assets held from discontinued operations | | | 900,000 | | | 1,843,571 | |
| | | | | | | | |
| Total Other Assets | | | 17,541,135 | | | 17,544,489 | |
| | | | | | | | |
| TOTAL ASSETS | | | 20,734,467 | | | 21,470,745 | |
| | | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | | | | | | | |
| | | | | | | | |
| LIABILITIES | | | | | | | |
| Current Liabilities: | | | | | | | |
| Accounts payable and accrued expenses | | $ | 6,065,871 | | $ | 3,520,095 | |
| Current portion of accrued acquisition obligations | | | 621,580 | | | 2,790,297 | |
| Current portion of convertible debentures, net of discount | | | 5,238,401 | | | 72,033 | |
| Unearned revenue | | | 621,557 | | | 515,207 | |
| Derivative liability | | | 7,076,598 | | | 7,807,739 | |
| Liabilities held by discontinued operations | | | 1,896,439 | | | 2,241,272 | |
| | | | | | | | |
| Total Current Liabilities | | | 21,520,446 | | | 16,946,643 | |
| | | | | | | | |
| Long-term Liabilities: | | | | | | | |
| Accrued acquisition obligations, net of current portion | | | 1,660,094 | | | 2,302,703 | |
| Convertible debentures, net of discount | | | 1,750,723 | | | 3,812,858 | |
| | | | | | | | |
| Total Long-term Liabilities | | | 3,410,817 | | | 6,115,561 | |
| | | | | | | | |
| Total Liabilities | | | 24,931,263 | | | 23,062,204 | |
| | | | | | | | |
| SHAREHOLDERS' EQUITY (DEFICIT) | | | | | | | |
| Class A Preferred stock, $0.001 Par Value; 10,000,000 shares | | | | | | | |
| authorized | | | 0 | | | 0 | |
| Common stock, $0.001 Par Value; 1,500,000,000 shares authorized | | | | | | | |
| and 158,371,756 shares in 2007, | | | | | | | |
| and 122,781,419 shares in 2006 issued and outstanding, | | | 158,372 | | | 122,782 | |
| Additional paid-in capital | | | 9,410,039 | | | 7,487,827 | |
| Accumulated deficit | | | (15,242,042 | ) | | (9,278,046 | ) |
| Accumulated other comprehensive income | | | 1,476,835 | | | 75,978 | |
| | | | | | | | |
| Total Shareholders' Equity (Deficit) | | | (4,196,796 | ) | | (1,591,459 | ) |
| | | | | | | | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | | | 20,734,467 | | | 21,470,745 | |
The accompanying notes are an integral part of the consolidated financial statements.
TELEPLUS WORLD, CORP. |
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) |
FOR THE YEARS ENDED DECEBMER 31, 2007 AND 2006 |
| | | IN US$ | |
| | | 2007 | | 2006 | |
| | | | | | |
| OPERATING REVENUES | | | | | |
| Revenues | | $ | 17,380,124 | | $ | 15,904,049 | |
| | | | | | | | |
| OPERATING COSTS AND EXPENSES | | | | | | | |
| Costs of services (exclusive of depreciation and amortization) | | | 12,384,786 | | | 10,934,915 | |
| Payroll, professional fees and related expenses | | | 3,737,675 | | | 3,447,978 | |
| Advertising and marketing expenses | | | 233,911 | | | 693,066 | |
| Office rent and expenses | | | 143,516 | | | 200,739 | |
| Other general and administrative expenses | | | 657,100 | | | 881,191 | |
| Depreciation and amortization | | | 885,978 | | | 857,013 | |
| | | | | | | | |
| Total Operating Expenses | | | 18,042,966 | | | 17,014,902 | |
| | | | | | | | |
| OPERATING INCOME (LOSS) | | | (662,842 | ) | | (1,110,853 | ) |
| | | | | | | | |
| OTHER INCOME (EXPENSE) | | | | | | | |
| | | | | | | | |
| Amortization of deferred finance fees | | | (428,669 | ) | | (342,108 | ) |
| Warrant expense | | | 0 | | | (182,419 | ) |
| Amortization of debt discount | | | (3,737,410 | ) | | (2,747,485 | ) |
| Interest expense | | | (2,678,434 | ) | | (2,164,281 | ) |
| Gain (loss) on debt extinguishment | | | (119,380 | ) | | 0 | |
| Gain (loss) on derivative liability | | | 3,728,661 | | | 3,527,249 | |
| | | | | | | | |
| Total Other Income (Expense) | | | (3,235,232 | ) | | (1,909,044 | ) |
| | | | | | | | |
| NET INCOME (LOSS) BEFORE PROVISION | | | | | | | |
| FOR INCOME TAXES | | | (3,898,074 | ) | | (3,019,897 | ) |
| Provision for Income Taxes | | | 0 | | | 0 | |
| | | | | | | | |
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS | | | (3,898,074 | ) | | (3,019,897 | ) |
| NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS | | | (2,065,922 | ) | | 321,123 | |
| | | | | | | | |
| NET INCOME (LOSS) | | | (5,963,996 | ) | | (2,698,774 | ) |
| | | | | | | | |
| NET INCOME (LOSS) PER BASIC SHARES | | | | | | | |
| From continuing operations | | $ | (0.03 | ) | $ | (0.03 | ) |
| From discontinued operations | | $ | (0.01 | ) | $ | - | |
| | | $ | (0.04 | ) | $ | (0.03 | ) |
| | | | | | | | |
| NET INCOME (LOSS) PER DILUTED SHARES | | | | | | | |
| From continuing operations | | $ | (0.03 | ) | $ | (0.03 | ) |
| From discontinued operations | | $ | (0.01 | ) | $ | - | |
| | | $ | (0.04 | ) | $ | (0.03 | ) |
| | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF COMMON | | | | | | | |
| SHARES OUTSTANDING - BASIC | | | 142,046,123 | | | 98,452,457 | |
| | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF COMMON | | | | | | | |
| SHARES OUTSTANDING - DILUTED | | | 2,483,016,038 | | | 296,848,568 | |
| | | | | | | | |
| COMPREHENSIVE INCOME (LOSS) | | | | | | | |
| Net income (loss) | | $ | (5,963,996 | ) | $ | (2,698,774 | ) |
| Other comprehensive income (loss) | | | | | | | |
| Currency translation adjustments | | $ | 1,400,857 | | $ | 164,564 | |
| Comprehensive income (loss) | | $ | (4,563,139 | ) | $ | (2,534,210 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
TELEPLUS WORLD, CORP, |
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) |
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 |
| | | | | | | | | | | | | | | Accumulated | | | |
| | | | | | | | | | | Additional | | | | Other | | | |
| | | | | | | | | | | Paid-in | | Accumulated | | Comprehensive | | | |
| | | Preferred Stock | | Common Stock | | Capital | | Deficit | | Income(Loss) | | Total | |
| | | Shares | | Amount | | Shares | | Amount | | Amount | | Amount | | Amount | | Amount | |
| | | | | | | | | | | | | | | | | | |
Balance December 31, 2005 | | | 2,000,000 | | $ | 2,000 | | | 86,403,786 | | $ | 86,404 | | $ | 4,097,891 | | $ | (6,579,272 | ) | $ | (88,586 | ) | $ | (2,481,563 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued in connection with acquisitions of Cellz, Freedom Phone Lines and Maximo Impact | | | | | | | | | 630,000 | | | 630 | | | 384,770 | | | | | | | | | 385,400 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued in conversion of convertible debentures, net | | | | | | | | | 12,521,678 | | | 12,522 | | | 2,180,080 | | | | | | | | | 2,192,602 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued in connection with raising of capital, net | | | | | | | | | 400,000 | | | 400 | | | 20,180 | | | | | | | | | 20,580 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares cancelled in connection with raising of capital for 2005 | | | | | | | | | (637,500 | ) | | (638 | ) | | 638 | | | | | | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued to directors | | | | | | | | | 240,000 | | | 240 | | | 39,360 | | | | | | | | | 39,600 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued in exchanged for Class A Preferred Shares | | | (2,000,000 | ) | | (2,000 | ) | | 20,000,000 | | | 20,000 | | | (18,000 | ) | | | | | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for emloyee compensation | | | | | | | | | 218,337 | | | 218 | | | 27,765 | | | | | | | | | 27,983 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Vesting of employee stock options | | | | | | | | | | | | | | | 108,215 | | | | | | | | | 108,215 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares and warrants issued for services rendered | | | | | | | | | 3,005,118 | | | 3,006 | | | 646,928 | | | | | | | | | 649,934 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2006 | | | | | | | | | | | | | | | | | | (2,698,774 | ) | | 164,564 | | | (2,534,210 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance December 31, 2006 | | | 0 | | | 0 | | | 122,781,419 | | | 122,782 | | | 7,487,827 | | | (9,278,046 | ) | | 75,978 | | | (1,591,459 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued in conversion of convertible debentures, net | | | | | | | | | 29,962,485 | | | 29,962 | | | 1,670,039 | | | | | | | | | 1,700,001 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash redeemption of convertible debenture | | | | | | | | | | | | | | | (40,325 | ) | | | | | | | | (40,325 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued in connection with raising of capital, net | | | | | | | | | 4,000,000 | | | 4,000 | | | 156,000 | | | | | | | | | 160,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued to directors | | | | | | | | | 500,000 | | | 500 | | | 16,500 | | | | | | | | | 17,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for emloyee compensation | | | | | | | | | 471,150 | | | 471 | | | 37,222 | | | | | | | | | 37,693 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Vesting of employee stock options | | | | | | | | | | | | | | | 38,341 | | | | | | | | | 38,341 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares and warrants issued for services rendered | | | | | | | | | 656,702 | | | 657 | | | 44,435 | | | | | | | | | 45,092 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2007 | | | | | | | | | | | | | | | | | | (5,963,996 | ) | | 1,400,857 | | | (4,563,139 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance December 31, 2007 | | | 0 | | | 0 | | | 158,371,756 | | | 158,372 | | | 9,410,039 | | | (15,242,042 | ) | | 1,476,835 | | | (4,196,796 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
TELEPLUS WORLD, INC |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 |
| | | IN US$ | |
| | | 2007 | | 2006 | |
| | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net (loss) from operations | | | (5,963,996 | ) | | (2,698,774 | ) |
| | | | | | | | |
| Adjustments to reconcile net (loss) to net cash provided by operating activities: | | | | | | | |
| Depreciation and amortization | | | 256,270 | | | 247,176 | |
| Amortization of intangible assets | | | 779,151 | | | 743,110 | |
| Goodwill impairment | | | 843,571 | | | 0 | |
| Accretion of interest expense | | | 1,579,474 | | | 1,061,214 | |
| Loss on extinguishment on debt | | | 119,381 | | | 0 | |
| Issuance of common shares for compensation | | | 99,784 | | | 188,808 | |
| Employee compensation for stock options | | | 38,340 | | | 108,215 | |
| Amortization of deferred finance fees | | | 428,669 | | | 342,108 | |
| Warrants issued to raise capital | | | 0 | | | 182,418 | |
| Amortization of convertible debt discount | | | 3,737,410 | | | 2,747,485 | |
| (Gain) on derivative liability | | | (3,728,661 | ) | | (3,527,249 | ) |
| | | | | | | | |
| Changes in assets and liabilities | | | | | | | |
| (Increase) decrease in accounts receivable - trade | | | (225,137 | ) | | 748,847 | |
| (Increase) decrease in other accounts receivable | | | (195,071 | ) | | (66,744 | ) |
| (Increase) decrease in income tax receivable | | | (6,228 | ) | | 33,467 | |
| (Increase) decrease in inventory | | | 48,875 | | | 74,627 | |
| (Increase) decrease in prepaid expenses and other current assets | | | 286,005 | | | (314,388 | ) |
| (Decrease) increase in accounts payable and accrued expenses | | | 2,437,841 | | | 2,050,699 | |
| (Decrease) increase in unearned revenue | | | (131,535 | ) | | (449,010 | ) |
| (Decrease) increase in receivable from intercompany | | | 0 | | | (146,517 | ) |
| | | | | | | | |
| Total adjustments | | | 6,368,139 | | | 4,024,266 | |
| | | | | | | | |
| Net cash provided by operating activities | | | 404,143 | | | 1,325,492 | |
| | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | |
| Acquisitions of business | | | (3,214,622 | ) | | (5,253,934 | ) |
| Acquisitions of fixed assets | | | (25,126 | ) | | (144,699 | ) |
| (Increase) in deferred connection charges | | | (131,475 | ) | | (133,611 | ) |
| | | | | | | | |
| Net cash (used in) investing activities | | | (3,371,223 | ) | | (5,532,244 | ) |
| | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITES | | | | | | | |
| Payments of finance fees | | | (325,000 | ) | | (43,420 | ) |
| Proceeds from convertible debenture (Net) | | | 0 | | | 2,542,577 | |
| Proceeds from new convertible debenture | | | 3,000,000 | | | 0 | |
| Repayment of debt | | | (416,687 | ) | | 0 | |
| | | | | | | | |
| Net cash provided by financing activities | | | 2,258,313 | | | 2,499,157 | |
| | | | | | | | |
| Effect of foreign currency | | | (40,864 | ) | | (29,953 | ) |
| | | | | | | | |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | | $ | (749,631 | ) | $ | (1,737,548 | ) |
| CASH AND CASH EQUIVALENTS -BEGINNING OF YEAR | | | 1,147,026 | | | 2,884,574 | |
| CASH AND CASH EQUIVALENTS - END OF YEAR | | | 397,395 | | | 1,147,026 | |
| | | | | | | | |
| CASH PAID DURING THE PERIOD FOR: | | | | | | | |
| Interest expense | | $ | 113,701 | | $ | 11,406 | |
The accompanying notes are an integral part of the consolidated financial statements.
TELEPLUS WORLD, INC. |
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) |
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 |
| | | IN US$ | |
| | 2007 | | 2006 | |
| | | | | | |
SUPPLEMENTAL NONCASH INFORMATION: | | | | | | | |
| | | | | | | | |
| Conversion of debentures into 29,962,486 shares of common stock in 2007, | | | | | | | |
| 12,521,678 in 2006 | | | 1,133,000 | | | 1,550,000 | |
| Issued 4,000,000 shares of common stock to Yorkville Advisor | | | | | | | |
| in connection with a $3,000,0000 convertible debt issued July 2007 | | | | | | | |
| 400,000 shares to Yorkville Advisor | | | | | | | |
| in connection with a $3,000,0000 convertible debt issued July 2006 | | | 160,000 | | | 64,000 | |
| Issued 500,000 shares of common stock to directors of Company | | | | | | | |
| for services rendered in 2007, 240,000 in 2006 | | | 17,000 | | | 39,600 | |
| Issued 471,150 shares of common stock for | | | | | | | |
| employee compensation in 2007, 218,337 in 2006 | | | 37,692 | | | 27,983 | |
| Issued 656,702 shares in 2007 for services renders in 2007, | | | | | | | |
| 3,005,118 shares of common stock and 4,100,000 warrants | | | | | | | |
| to non-related third parties in 2006 | | | 45,092 | | | 649,933 | |
| Issued 630,000 shares of common stock in connection | | | | | | | |
| with company acquisitions in 2006 | | | 0 | | | 385,400 | |
| Issued 20,000,000 shares of common stock in exchange for | | | | | | | |
| 2,000,000 Class A preferred shares in 2006 | | | 0 | | | 20,000 | |
| Reduction of Goodwill and Accrued Acquisition obligation | | | 0 | | | 844,075 | |
The accompanying notes are an integral part of the consolidated financial statements.
Teleplus World, Corp.
Notes to Consolidated Financial Statements
December 31, 2007
Note 1 - Organization
Organization
Teleplus World, Corp (the “Company”), (TLPE.OB), is a diversified North American company that is a leading provider of telecommunications products and services. The Company’s wholly owned subsidiaries include Telizon, Inc., a reseller of landline, long distance, internet and specialized telecom financial management services to small and mid size businesses and Avenue Reconnect and Freedom Phone Lines, providers of landline and long distance services to targeted residential markets. Teleplus websites include www.telizon.biz, www.elitemail,ca, www.freedomphonelines.com, www.netreach.ca and www.nophone.ca among others. The Company has offices in Miami, Florida and Barrie, Ontario.
The Company is a provider of wireless and telecommunications services in Canada and the United States of America. The Company’s products include prepaid and postpaid wireless, landline, long distance and Internet services. The Company distributes their products through their websites, third party websites, select distributors in Canada and the United States of America, and through a variety of direct marketing initiatives.
The Company acquired Keda Consulting Corp., a North American telecommunications industry management consulting service company on April 1, 2005; 1523813 Ontario Limited (Freedom Phone Lines), a Bell Canada reseller of landline and long distance services on April 15, 2005; Avenue Reconnect, Inc. a reseller of landline and long distance services and Internet service provider on June 1, 2005; and Telizon, Inc. and 1500536 Ontario, Inc. (One Bill, Inc.), a reseller of landline and long distance service and Internet service provider on July 15, 2005.
On January 13, 2006, Retail, filed in Canada a Notice of Intention to Make a Proposal Under the Bankruptcy and Insolvency Act (Canada) (the “Act”). This was done to divest the Company of its retail division. As a result, Retail was deemed to have made an assignment of its assets to its creditors under the Act and discontinued its operations as of February 12, 2006. The retail operations are no longer a segment of the Company’s business for the year ended December 31, 2006.
On June 21, 2006, the Company purchased all the issued and outstanding shares of Maximo Impact, Inc. (“Maximo”), a Cleveland, Ohio based company, under certain agreements, the whole effective as of that date. Maximo specializes in marketing and distribution as a Mobile Virtual Network Operator (“MVNO”) in the United States of America. As part of this transaction, Maximo launched its own wireless brand called MX Mobile which caters to mass merchandisers, general retailers and c-channel retailers calling on convenience stores and gas stations.
In February, 2006, the Company completed its transition from retail operations to wireless and telecom services reselling.
On October 24, 2006 the Company changed its corporate name to TelePlus World, Corp.
In December, 2007, the Company announced the intent to sell or close the wireless operations in the U.S. On December 21, 2007 the Company advised its shareholders that the Company has decided to exit the MVNO (Mobile Virtual Network Operator) business segment (the "MVNO Segment") operated by its Liberty Wireless and Maximo Impact brands. Market conditions for this segment of the Company's operations have become adverse in the last few months making it difficult for the Company to turn a profit in the MVNO Segment. Notwithstanding the Company's efforts over the last few months to improve the performance of the MVNO Segment the Company does not believe it will turn a profit in that segment in the foreseeable future. The Company intends to focus its efforts on its core telecommunication service which represents the bulk of the company's revenues, is profitable and provides good cash flows to fund ongoing operations. Exiting the MVNO Segment (which has been operating at a loss) will improve the Company's profitability and cash flow although it will reduce the Company's annual revenues by about $4.5 million dollars. The Company intends to move quickly in the divestiture and/or closure of the MVNO Segment.
On January 15, 2008 the Company completed the sale of substantially all the assets of the wireless operations in the U.S. to COZAC, LLC. The assets included customer lists, assumed airtime contracts, trade names, domain names, logo, marketing reports and customer collateral. The purchased price payable by purchaser to vendor for the purchased assets is satisfied by the purchaser assuming the liabilities as of the date of this agreement under the Sprint agreement, the MVNO Sherpa agreement, and the assumption of liabilities owed to the vendor “People Support”.
Note 2 - Summary of Significant Accounting Policies
Risk Related to the Company’s Business
These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have experienced recurring operating losses since our inception and our accumulated net deficit is in excess of $15 million. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts or the amounts and classification of liabilities that may be necessary should we be unable to continue as a going concern. The disposition on January 15th 2008 of our wireless assets will help us improve cash flows for 2008. Our telecom operation has historically delivered a stable performance with an increase in sales, number of customers and cash flow since our acquisition of this business in July 2005. While we believe this performance to continue we cannot precisely predict future performance. We believe that available cash resources, together with anticipated revenues from operations could not be sufficient to satisfy our business plan and capital requirements through December 31, 2008. Additional capital may not be available on a timely basis or on acceptable terms, if at all. If we are unable to maintain or obtain sufficient capital, we may be forced to reduce operating expenses, sell business assets or take other actions which could be detrimental to our business operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Significant Estimates
Critical accounting polices include the areas where we have made what we consider to be particularly subjective or complex judgments in making estimates and where these estimates can significantly impact our financial results under different assumptions and conditions.
We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Actual results could be different than those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents.
Discontinued Operations
The Company has followed Statement of Financial Accounting Standard No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets”. Accordingly, the Company recognized as discontinued operations the results from the retail and wireless divisions that have been abandoned or sold. The Company has also written down the assets relating to the retail and wireless divisions to their respective fair values (see note 8).
Goodwill and Other Intangible Assets
Under SFAS No. 142, “Goodwill and Other Intangible Assets”. (“SFAS 142”), goodwill and other indefinite-lived intangible assets are no longer amortized but instead are reviewed for impairment annually and on an interim basis if events or changes in circumstances between annual tests indicate that an asset might be impaired. Under SFAS 142, indefinite-lived intangible assets are tested for impairment by comparing their fair values to their carrying values. Testing for impairment of goodwill is a two-step process. The first step requires the Company to compare the fair value of its reporting units to the carrying value of the net assets of the respective reporting units, including goodwill. If the fair value of the reporting unit is less than the carrying value, goodwill of the reporting unit is potentially impaired and the Company then completes Step 2 to measure the impairment loss, if any. The second step requires the calculation of the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit. If the implied fair value of goodwill is less then the carrying amount of goodwill, an impairment loss is recognized equal to the difference. Intangible assets that do not have indefinite lives are amortized over their useful lives. The goodwill and other intangible assets increased in 2007 from 2006 based on the fluctuation in the conversion rate of the Canadian to U.S. currency.
Revenue Recognition
The Company recognizes revenue through the resale of residential and commercial telephone lines. The resale of long distance revenues are recorded at the time of customer usage based upon minutes of use. Basic monthly charges for business and residential customers are billed in advance and recorded as unearned revenue and recognized upon the customer receiving the service.
Accounts Receivable
The Company conducts business and extends credit based on an evaluation of the customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The criteria for allowance provision are determined based on historical experience and the Company’s assessment of the general financial conditions affecting its customer base. If the Company’s actual collections experience changes, revisions to the allowance may be required. At December 31, 2007 and 2006, the Company has an accounts receivable allowance of $41,397 and $28,934 respectively.
Income Taxes
The Company accounts for income taxes utilizing the liability method of accounting. Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.
Currency Translation
The Company’s reporting currency is the U.S. dollar. The functional currency of the Company’s U.S. subsidiary is the U.S. dollar, while the functional currency of its Canadian subsidiary is the Canadian dollar. The Company translates income and expense amounts of its Canadian subsidiary at average exchange rates for the year, and translates assets and liabilities of its Canadian subsidiary at year-end exchange rates and equity at historical rates. The Company records these translation adjustments as accumulated other comprehensive income (loss).
Comprehensive Income
The Company complies with Statement of Financial Accounting Standards No, 130, “Reporting Comprehensive Income,” (SFAS No. 130). SFAS No. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income includes gains and losses on foreign currency translations.
Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of information that historically has not been recognized in the calculation of net income (loss).
Deferred Connection Charges
Deferred connection charges are costs incurred in setting up new commercial telephone lines. The Company amortizes deferred connection charges over five years. The determination of the useful life is based on the average life that the telephone line is provided by the Company. As of December 31, 2007, the deferred connection charges are $272,404. Amortization of the deferred connection charges for the years ended December 31, 2007 and 2006 are $57,553 and $44,426, respectively.
Deferred Financing Fees
Deferred financing fees represents fees paid in connection with the issuance of convertible debentures. The fees are being amortized over a period of three years, the life of the financial instrument. As of December 31, 2007, the deferred financing fees are $692,535 Amortization of the deferred finance fees for the years ended December 31, 2007 and 2006 are $428,669 and $342,108, respectively.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and trade accounts receivable. The Company maintains its cash and cash equivalents with highly quality financial institutions as determined by the Company’s management. To reduce risk of trade accounts receivable, ongoing credit evaluations of customers’ financial condition are performed, guarantees or other collateral may be required, and the Company maintains a broad customer base.
Fair Value of Financial Instruments (other than Derivative Financial Instruments)
The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. For the convertible debentures, fair value approximates the face value of the remaining principle amount of the debentures.
Convertible Instruments
The Company reviews the terms of convertible debt and equity securities for indications requiring bifurcation, and separate accounting, for the embedded conversion feature. Generally, embedded conversion features where the ability to physical or net-share settle the conversion option is not within the control of the Company are bifurcated and accounted for as a derivative financial instrument. (See Derivative Financial Instruments below). Bifurcation of the embedded derivative instrument requires allocation of the proceeds first to the fair value of the embedded derivative instrument with the residual allocated to the debt instrument. The resulting discount to the face value of the debt instrument is amortized through periodic charges to the amortization of debt discount using the Effective Interest Method.
Derivative Financial Instruments
The Company generally does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants or options to acquire common stock and the embedded conversion features of debt that are indexed to the Company’s common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. These derivative financial instruments are indexed to an aggregate of 2,324,669,915 shares of the Company’s common stock as of December 31, 2007 and are carried at fair value of $7,076,598.
Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.
Advertising Costs
The Company expenses the costs associated with advertising as incurred. Advertising expenses are included in the consolidated statements of operations for the years ended December 31, 2007 and 2006.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are machinery and equipment with estimated useful lives ranging between three and seven years; business software with estimated useful lives ranging between three and ten years; and leasehold improvements with an estimated useful life of five years.
When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized. Deduction is made for retirements resulting from renewals or betterments.
Impairment of Long-Lived Assets
Long-lived assets, primarily fixed assets and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company does not perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.
Earnings (Loss) Per Share of Common Stock
Basic net earnings (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) includes additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents will not be included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented. For the year ended December 31, 2007 these common stock equivalents are derived from stock options of 10,200,000, warrants of 149,100,000 and convertible debentures of 2,483,016,038.
Stock-Based Compensation
The Company complies with Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of SFAS 123R include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans.
Recent Accounting Pronouncements
In July 2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes.” This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN No. 48 on January 1, 2007 and this new standard did not have a material impact on our financial statements.
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of SFAS 157 is not expected to have a material impact on the consolidated financial statements.
In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115”, (“FAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. FAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141 (R)”), which replaces SFAS 141. SFAF 141(R) requires assets and liabilities acquired in a business combination, contingent consideration, and certain acquired contingencies to be measured ath their fair values as of the date of acquisition. SFAS 141 (R) also requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. SFAS 141 (R) is effective for fiscal years beginning after December 15, 2008 and will be effective for business combinations entered into after January 1, 2009.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in consolidated Financial Statements, an Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 clarifies the accounting for non-controlling interests and establishes accounting and reporting standards for the non-controlling interest in a subsidiary, including classification as a component of equity. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The company does not currently have any minority interests.
NOTE 3 - FIXED ASSETS
Fixed assets as of December 31, 2007 and 2006 were as follows:
| | | Estimated | | | | | |
| | | Useful | | | | | |
| | | Lives(Years) | | 31-Dec-07 | | 31-Dec-06 | |
| | | | | | | | |
| | | | | | | | |
Equipment | | | 5 | | | 217,497 | | | 183,112 | |
Furniture and Fixture | | | 7 | | | 143,709 | | | 94,905 | |
Business Software | | | 3-10 | | | 980,216 | | | 765,390 | |
Computer Hardware | | | 5 | | | 423,835 | | | 314,915 | |
Leasehold Improvement | | | 5 | | | 34,573 | | | 25,647 | |
| | | | | | | | | | | |
| | | | | | | 1,799,830 | | | 1,383,969 | |
| | | | | | | | | | | |
Less: accumulated depreciation | | | | | | 1,107,619 | | | 715,866 | |
| | | | | | | | | | | |
Fixed Assets, net | | | | | | 692,210 | | | 668,103 | |
There was $149,274 and $169,476 charged to continuing operations for depreciation expense during the years ended December 31, 2007 and 2006 respectively.
NOTE 4 - CONVERTIBLE DEBENTURES AND DERIVATIVE LIABILITY
On July 12, 2004, the Company secured an $11,000,000 financing commitment from Yorkville Advisors. The terms of the transaction called for the Company to receive initial funding in the amount of $1,000,000 payable in three (3) installments: $450,000 payable at closing; $400,000 payable upon the filing of a registration statement and the remaining $150,000 payable upon the registration statement becoming effective, which occurred October 1, 2004.
The convertible debentures were secured by all of the Company’s assets, bearing interest at 5% per annum, repayable on their third anniversary dates of July 12, 2007, September 1, 2007, and October 1, 2007, respectively. The Company had the option of converting the principal amounts and all accrued interest before these maturity dates, and has converted the entire amount to common shares.
As part of the transaction, the Company secured a $10,000,000 Standby Equity Distribution Agreement (“SEDA”). The Company could draw these funds under the SEDA over a 24-month period upon the effective registration. The proceeds of the SEDA were used to finance existing and future acquisitions, capital expenditures, increases in inventory and general working capital. The Company issued 258,098 shares of its common stock in connection with the SEDA as financing costs.
The Company received $8,125,000 under three promissory notes. The Company received the initial promissory note of $2,000,000 in the fourth quarter of 2004; the second promissory note of $500,000 was received in the first quarter of 2005; and a third promissory note of $5,625,000 was received in July 2005. The first and second promissory notes were repaid, and the third promissory note was restructured under a new financing agreement dated December 13, 2005.
On December 13, 2005, the Company entered into a certain Securities Purchase Agreement (“SPA”) with Yorkville Advisors (“YA”), pursuant to which YA was issued $9,225,000 in secured convertible debentures dated December 13, 2005 under the SPA. Under the SPA, the Company and YA entered into various agreements as described below. The convertible debentures are convertible in whole or in part, at any time and from time to time before maturity at the option of the holder at the lesser of $0.275 or ninety-five percent (95%) of the lowest volume weighted price of the common stock for the thirty trading days immediately preceding such conversion date. The convertible debentures which are secured by certain pledged assets of the Company have a term of three (3) years, have piggy-back registration rights and accrue interest at a rate of ten percent (10%) per annum. In connection with the convertible debentures, the Company issued 1,250,000 shares of common stock as financing fees. The amount funded included the restructuring of the third promissory note funded in July 2005 of $5,625,000 plus interest of $225,000 plus an additional funding of $3,375,000.
On July 28, 2006, the Company entered into a second SPA with Yorkville Advisors (“YA”) pursuant to which the Company issued to YA $3,000,000 in secured convertible debentures dated as of July 28, 2006. The debentures were fully funded on July 28, 2006, are convertible, in whole or in part, at any time from time to time before maturity at the option of the holder at the lesser of (a) $0.20 or (b) 90% of the lowest volume weighted average price of common stock for thirty trading days immediately preceding the conversion date. The Company has the option to redeem a portion or all of the amounts outstanding under the debentures prior to the maturity date of the debentures. The debentures have a term of three years, piggy-back registration rights and accrue interest at a rate equal to ten percent (10%) per year. The debentures are secured by certain pledged assets of the Company. The parties have also entered into an Investor Registration Rights Agreement, pursuant to which the Company has agreed, if required by YA, to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations there under, and applicable state securities laws.
In connection with the SPA, the Company also issued YA the following warrants to purchase shares of common stock:
| | c) | 10,000,000 at $0.15; and |
On July 3, 2007, the Company entered into a third Securities Purchase Agreement ("SPA") with Yorkville Advisors (“YA”) pursuant to which the Company issued to YA Three Million Dollars ($3,000,000) in secured convertible debentures (the "Debentures"). The Debentures were fully funded on July 3, 2007. The Debentures are convertible, in whole or in part, at any time and from time to time before maturity at the option of the holder at the lower of (a) $0.035 or (b) ninety-five percent (90%) of the lowest volume weighted average price of common stock for twenty (20) trading days immediately preceding the conversion date. Beginning on August 2, 2007, and continuing on the first Trading Day of each calendar month thereafter, the Company shall make mandatory redemptions ("Mandatory Redemption") consisting of outstanding principal. The principal amount of each Mandatory Redemption shall be equal to $100,000 per calendar month, until all amounts owed under this Debenture have been paid in full. The Debentures have a term of three (3) years, piggy-back registration rights and accrue interest at a rate equal to twelve percent (12%) per year. The Debentures are secured by certain pledged assets of the Company. The Parties have also entered into an Investor Registration Rights Agreement, pursuant to which the Company has agreed, if required by YA, to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, and applicable state securities laws.
In connection with the SPA the Company also issued YA a warrant to purchase 50,000,000 shares of the Company's common stock at an exercise price of $0.03; a warrant to purchase 30,000,000 shares of the Company's common stock at an exercise price of $0.05; and issued 4,000,000 restricted shares of the Company's common stock to YA.
Through December 31, 2007 $2,683,000 of the debt has been converted to equity and $416,687 has been repaid. Accordingly, as of December 31, 2007, the Company has $12,125,313 outstanding in convertible debentures. During the year ended December 31, 2007, $1,133,000 of convertible debentures were converted into 29,962,486 shares of common stock.
Secured Convertible Debenture. The Company entered into a secured convertible debenture in the principal amount of $9,225,000 dated December 13, 2005 and due December 13, 2008. The debenture carries an interest rate of 10%. The Company has an option to redeem a portion or all amounts outstanding under the amended and restated convertible debenture upon three days advance written notice. The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium of twenty percent (20%) of the principal amount being redeemed plus accrued and unpaid interest. The Company may not redeem more than $1,500,000 during any fifteen (15) consecutive trading days.
Under the terms of the convertible debenture so long as any principal amount or interest is owed, the Company cannot, without the prior consent of YA (i) issue or sell any common or preferred stock with or without consideration, (ii) issue or sell any preferred stock, warrant, option, right, contract or other security or instrument granting the holder thereof the right to acquire common stock with or without consideration, (iii) enter into any security instrument granting the holder of security interest in any of the Company’s assets or (iv) file any registration statement on Form S-8, except for a registration statement on Form S-8 registering up to 2,000,000 shares of common stock under an Employee Stock Option Plan. Under the terms of the convertible debenture there are a series of events of default, including failure to pay principal and interest when due, the Company’s common stock ceasing to be quoted for trading or listing on the OTCBB and shall not again be quoted or listed for trading within five days trading days of such listing, the Company being in default of any other debentures that the Company has issued to YA.
Investor Registration Rights Agreement. On December 13, 2005 the Company entered into an investor registration rights agreement with YA. Under the terms of the registration rights agreement the Company was obligated to register on Form SB-2 or any other applicable form the shares of its common stock issuable to YA upon conversion of at least 235,000,000 shares of common stock under the $9,225,000 convertible debenture, 1,250,000 shares of common stock issued under the SEDA and 33,000,000 shares of common stock issued upon the exercise of the warrant shares to be issued under the warrant to YA. The Company filed with the SEC all reports or other documents required under the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended to allow YA to take advantage of Rule 144 under the Securities Act of 1933 (as amended).
Amended and Restated Security Agreement. The Company entered into an amended security agreement dated December 13, 2005 with YA. This agreement amends the agreement entered into on July 15, 2005 between these two parties.
Amended and Restated Pledge and Escrow Agreement. The Company entered into a pledge and escrow agreement dated December 13, 2005 with YA, Visioneer Holding Group, Inc. and David Gonzales, Esq., acting as escrow agent. Under the terms of the pledge and escrow agreement, the Company and Visioneer pledged 30,000,000 of their shares of common stock of the Company to secure the Company’s obligations under the convertible debenture issued to YA. These shares are being held by David Gonzales, Esq., who is a principal with YA. In the event of default under the pledge and escrow agreement, that includes failure of the Company to comply with any of the agreements between themselves and YA, the pledged shares can be sold to cover any of the obligations owed by the Company to YA under the various financing agreements discussed here. The pledged shares shall be returned to the parties upon payment in full of all amounts owed to YA under the convertible debentures.
Warrant. The Company issued a warrant dated December 13, 2005 for 33,000,000 shares of its common stock (subject to adjustment for stock splits, stock dividends and recapitalizations) to YA at exercise prices ranging between $.20 and $0.38 per share. The warrant is exercisable until December 13, 2008. YA cannot exercise the warrant if doing so would cause it to beneficially own in excess of 4.99% of the total issued and outstanding shares of the Company’s common stock unless the exercise is made within sixty days prior to December 13, 2008. The shares issued upon excise of the warrant have piggyback and demand registration rights set forth in the registration rights agreement described above.
Securities Purchase Agreement. The Company entered into a securities purchase agreement dated December 13, 2005 with YA. The securities purchase agreement relates to the $9,225,000 secured convertible debenture described above. In accordance with the securities purchase agreement, the Company agreed to enter into (i) an amended and restated investor registration rights agreement to provide registration rights under the Securities Act of 1933, as amended, for shares of the Company’s common stock that could be issued upon conversion of the amounts owed for principal and interest under the convertible debentures described above, (ii) an amended and restated security agreement to provide a blanket lien against our property as described above, (iii) an amended and restated pledge and escrow agreement under which the Company and Visioneer pledged his shares of the Company’s common stock to YA, and (iv) an amended and restated security agreement among the Company and YA. Under the securities purchase agreement the Company agreed to preserve an adequate number of shares to effect any right of conversion exercised by YA under the warrant and the convertible debenture described above. The Company also agreed to pay Yorkville Advisors Management, LLC, a company affiliated with YA Capital, a fee equal to $342,500.
Amended and Restated Subsidiary Security Agreement. The Company entered into an amended and restated subsidiary security agreement dated December 13, 2005. The material terms of the amended and restated subsidiary security agreement are the same as the security agreement that the Company executed with YA.
Each of the three convertible debentures meet the definition of hybrid instruments, as defined in SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). The hybrid instruments are comprised of a i) a debt instrument, as the host contract and ii) an option to convert the debentures into common stock of the Company, as an embedded derivative. The embedded derivative derives its value based on the underlying fair value of the Company’s common stock. The Embedded Derivative is not clearly and closely related to the underlying host debt instrument since the economic characteristics and risk associated with this derivative are based on the common stock fair value. The Company has separated the embedded derivative from the hybrid instrument and classified the Embedded Derivative as a current liability with an offsetting debit to debt discount, which will be amortized over the term of the debenture based on the effective interest method.
The embedded derivatives do not qualify as a fair value or cash flow hedge under SFAS No. 133. Accordingly, changes in the fair value of the embedded derivative are immediately recognized in earnings and classified as a gain or loss on the embedded derivative financial instrument in the accompanying statements of operations. There was a gain of $3,728,661 and $3,527,249 respectively recognized for the year ended December 31, 2007 and 2006
The Company determines the fair value of the embedded derivatives and records them as a discount to the debt and a derivative liability on the date of issue. The Company recognizes an immediate financing expense for any excess in the fair value of the derivatives over the debt amount.
The allocation of the proceeds of the convertible debenture to the warrants and the conversion feature resulted in discounts to the convertible debenture of $7,779,174, $3,000,000, and $3,000,000 for the $9,225,000, $3,000,000 and $3,000,000 convertible debentures, respectively, on the date of issuance and is being amortized to par using the effective interest method. The amortization for the years ended December 31, 2007 and 2006 amounted to $3,737,410 and $2,747,485, respectively. Additionally, in July 2007 the Company recognized a financing expense of $871,261 representing the excess of the fair value of the derivative instruments in the July 2007 debentures, over the debt proceeds.
Upon conversion of the debt to equity, any remaining unamortized discount is charged to interest expense
The derivative liability at December 31, 2007 is comprised of the following:
i) The embedded derivative associated with the December 2005 $9,225,000 convertible debenture at fair value of $3,607,764; ii) the embedded derivative associated with the July 2006 $3,000,000 convertible debenture at fair value of $1,792,075; iii) the embedded derivative associated with the July 2007 $3,000,000 convertible debenture at fair value of $1,543,279; iv) 33,000,000 warrants issued in conjunction with the $9,225,000 convertible debenture at fair value of $917; v) 30,000,000 warrants issued in conjunction with the July 2006 $3,000,000 convertible debenture at fair value of $2,991; and vi) 80,000,000 warrants issued in conjunction with the July 2007 $3,000,000 convertible debenture at fair value of $129,571
Interest expense on the convertible debentures was $2,678,434 and $2,164,281 for the years ended December 31, 2007 and 2006. Accrued interest at December 31, 2007 is $2,201,868
There was a gain on the derivative liabilities of $3,728,661 and $3,527,249, respectively recognized for the years ended December 31, 2007 and 2006.
The summary of convertible debentures is as follows at December 31, 2007:
| $9,225,000 Convertible Debenture, net of $2,683,000 conversions and | | | |
| unamortized discount of $1,303,599 at 10% interest per annum due December 2008 | | $ | 5,238,401 | |
| | | | | |
| $3,000,000 Convertible Debenture, net of unamortized | | | | |
| discount of $1,649,155 at 10% interest per annum due July 2009 | | | 1,350,845 | |
| | | | | |
| $3,000,000 Convertible Debenture, net of $416,687 redemption and unamortized | | | | |
| discount of 2,183,435 at 12% interest per annum due July 2010 | | | 399,878 | |
| | | | | |
| | | | 6,989,124 | |
| | | | | |
| Less: Current maturities | | | (5,238,401 | ) |
| | | | | |
| Long-term portion | | $ | 1,750,723 | |
| | | | | |
| Maturities over the next three years is as follows: | | | | |
December 31, | | | | |
| | | | | |
| 2008 | | | 7,742,000 | |
| 2009 | | | 4,200,000 | |
| 2010 | | | 183,313 | |
| | | | | |
| | | $ | 12,125,313 | |
NOTE 5- SHAREHOLDERS’ EQUITY
The Company has 1,500,000,000 shares authorized of common stock with a par value of $0.001. As of March 17, 2007, the Company has 212,864,562 shares of common stock issued and outstanding.
During the year ended December 31, 2007 the Company issued the following shares:
January 8, 2007 the Company issued 5,555 shares to an employee in connection with bonus earned. Shares were valued at $445.
January 8, 2007 the Company issued 11,111 shares to an employee in connection with bonus earned. Shares were valued at $890.
January 8, 2007 the Company issued 444,000 shares to a non-related third party in connection to services rendered. Shares were valued at $35,520.
January 30, 2007 the Company issued 1,345,895 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $100,000.
February 22, 2007 the Company issued 1,492,537 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $100,000.
March 5, 2007 the Company issued 3,703,704 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $200,000.
March 21, 2007 the Company issued 1,851,852 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $100,000.
March 28, 2007 the Company issued 454,485 shares in connection with bonuses earned by employees. Shares were valued at $36,359.
April 2, 2007 the Company issued 2,500,000 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $135,000.
April 11, 2007 the Company issued 175,000 shares to its directors for services rendered. Shares were valued at $10,500.
April 12, 2007 the Company issued 2,314,815 shares of common stock to YA in connection with the conversion of convertible debentures in the amount of $125,000.
April 26, 2007 the Company issued 106,351 shares to a non-related third party in connection to services rendered. Shares were valued at $5,317.
May 17, 2007 the Company issued 4,166,667 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $170,000.
May 18, 2007 the Company issued 106,351 shares to a non-related third party in connection to services rendered. Shares were valued at $4,254.
July 03, 2007 the Company issued 4,000,000 shares to YA as a fee in connection with the $3,000,000 loan on July 3, 2007. Shares were valued at $160,000.
July 16, 2007 the Company issued 1,470,588 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $35,000
September 12, 2007 the Company issued 1,173,709 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $25,000.
September 26, 2007 the Company issued 2,808,989 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $50,000.
October 11, 2007 the Company issued 2,937,063 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $42,000.
October 22, 2007 the Company issued 325,000 shares to its directors for services rendered. Shares were valued at $6,500.
October 31, 2007 the Company issued 1,280,000 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $16,000.
November 15, 2007 the Company issued 2,916,667 shares of common stock to YA in connection with conversion of convertible debentures in the amount of $35,000.
Stock Options
As of December 31, 2007, the Company has 10,200,000 stock options issued to employees granted and outstanding. Of these options, 2,000,000 were granted in 2007, 2,485,000 were forfeited in 2007, 2,250,000 were granted in 2006, 3,500,000 were forfeited in 2006 .
| Balance, Janaury 1, 2006 | | | 11,935,000 | |
| | | | | |
| Granted | | | 2,250,000 | |
| Exercised | | | - | |
| Forfeited | | | (3,500,000 | ) |
| | | | | |
| Balance, December 31, 2006 | | | 10,685,000 | |
| | | | | |
| Balance, Janaury 1, 2007 | | | 10,685,000 | |
| | | | | |
| Granted | | | 2,000,000 | |
| Exercised | | | - | |
| Forfeited | | | (2,485,000 | ) |
| | | | | |
| Balance, December 31, 2007 | | | 10,200,000 | |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used in the model:
| | | December 31, | | December 31, | |
| | | 2007 | | 2006 | |
| Dividend yield | | | 0.00 | % | | 0.00 | % |
| Expected volatility | | | 75.00 | % | | 75.00 | % |
| Risk free interest rates | | | 3.50 | % | | 3.50 | % |
| Expected lives (years) | | | 3 | | | 3 | |
| | | Number of | | Exercise | | Date | | Term | | Vesting | |
| | | Options | | Price | | Issued | | Date | | Date | |
| | | | | | | | | | | | |
| | | | 2,000,000 | | $ | 0.38 | | | Nov-04 | | | Jun-08 | | | Jun-05 | |
| | | | 2,500,000 | | $ | 0.40 | | | Nov-04 | | | Jun-09 | | | Jun-06 | |
| | | | 750,000 | | $ | 0.21 | | | Jun-05 | | | Sep-08 | | | Sep-05 | |
| | | | 1,000,000 | | $ | 0.21 | | | Jun-05 | | | Dec-08 | | | Dec-05 | |
| | | | 50,000 | | $ | 0.21 | | | Jun-05 | | | Nov-08 | | | Dec-05 | |
| | | | 50,000 | | $ | 0.21 | | | Jun-05 | | | Nov-08 | | | Dec-05 | |
| | | | 1,250,000 | | $ | 0.23 | | | Jun-05 | | | Dec-09 | | | Dec-06 | |
| | | | 150,000 | | $ | 0.21 | | | Nov-05 | | | May-09 | | | May-06 | |
| | | | 150,000 | | $ | 0.22 | | | Nov-05 | | | Nov-09 | | | Nov-06 | |
| | | | 150,000 | | $ | 0.23 | | | Nov-05 | | | May-10 | | | May-07 | |
| | | | 150,000 | | $ | 0.24 | | | Nov-05 | | | Nov-10 | | | Nov-07 | |
| | | | 400,000 | | $ | 0.07 | | | Mar-07 | | | Sep-10 | | | Sep-07 | |
| | | | 400,000 | | $ | 0.08 | | | Mar-07 | | | Mar-11 | | | Mar-08 | |
| | | | 400,000 | | $ | 0.10 | | | Mar-07 | | | Mar-12 | | | Mar-09 | |
| | | | 400,000 | | $ | 0.12 | | | Mar-07 | | | Mar-13 | | | Mar-10 | |
| | | | 400,000 | | $ | 0.15 | | | Mar-07 | | | Mar-14 | | | Mar-11 | |
| | | | | | | | | | | | | | | | | |
| | | | 10,200,000 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Stock options vested and exerciseable 2007 | | | 8,600,000 | | | | |
| Stock options exerciseable - weighted average price | | $ | 0.25 | | | | |
Warrants
The Company granted 33,000,000 warrants to YA in connection with the SPA entered into December 13, 2005. The warrants expire December 13, 2008. The Company also granted 30,000,000 warrants to YA in connection with the SPA entered into July 28, 2006. These warrants expire July 28, 2009. In addition, the Company issued 2,000,000 warrants for the purpose of trying to raise capital for the Company and 4,100,000 to a consultant of the Company for services rendered. Additionally, the Company issued warrants to Yorkville Advisors in connection with SPA entered into in July 2007 for 50,000,000 and 30,000,000. These warrants expire July 3, 2012. The following is a breakdown of the warrants:
| | | Exercise | | Date | | | |
Warrants | | Price | | Issued | | Term | |
| | 9,000,000 | | $ | 0.25 | | | 12/13/2005 | | | 3 years | |
| | 4,000,000 | | $ | 0.20 | | | 12/13/2005 | | | 3 years | |
| | 10,000,000 | | $ | 0.38 | | | 12/13/2005 | | | 3 years | |
| | 10,000,000 | | $ | 0.25 | | | 12/13/2005 | | | 3 years | |
| | 1,000,000 | | $ | 0.4485 | | | 1/1/2006 | | | 5 years | |
| | 1,000,000 | | $ | 0.6728 | | | 1/1/2006 | | | 5 years | |
| | 5,000,000 | | $ | 0.11 | | | 7/28/2006 | | | 3 years | |
| | 10,000,000 | | $ | 0.13 | | | 7/28/2006 | | | 3 years | |
| | 10,000,000 | | $ | 0.15 | | | 7/28/2006 | | | 3 years | |
| | 5,000,000 | | $ | 0.18 | | | 7/28/2006 | | | 3 years | |
| | 4,100,000 | | $ | 0.15 | | | 9/26/2006 | | | 3 years | |
| | 50,000,000 | | $ | 0.03 | | | 7/3/2007 | | | 5 years | |
| | 30,000,000 | | $ | 0.05 | | | 7/3/2007 | | | 5 years | |
| | 149,100,000 | | | | | | | | | | |
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The following proceedings have been instigated against the Company. The Company does not believe that the following legal proceedings have a materially adverse impact on the Company’s business or on its results of its operations.
The following proceedings have been instigated against the Company. The Company does not believe that the following legal proceedings have a materially adverse impact on the Company’s business or on its results of its operations.
Proposed Tax Assessment: 3577996 Canada, Inc. which the Company had acquired substantially all of their assets, is involved in proceedings with the Minister of Revenue of Quebec (“MRQ”). The MRQ has proposed an assessment for the Goods and Services Tax (“GST”) and Quebec Sales Tax (“QST”) of approximately $642,000 (CND $) and penalties of approximately $110,000 (CND $). The proposed tax assessment including penalties is for $322,000 (CND $) for QST and $320,000 (CND $) for GST. In mid to late 2006, the MRQ issued Amended Reassessments after the Company contested. These amounts were reduced (including penalties) to approximately QST $350,000 (CND $) and GST $308,000 (CND $). The Company again contested these Amended Reassessments and believes that certain deductions initially disallowed by the MRQ for the QST are deductible and is in the process of compiling the deductions to the MRQ.
Wrongful Dismissal: A former employee of a subsidiary of the Company, has instigated a claim in Quebec Superior Court in the amount of $90,000 (CND $) against the Company for wrongful dismissal. The Company does not believe the claim to be founded and intends to vigorously contest such claim. The parties are in the discovery stages.
Consulting Fee: On April 13, 2005, a lawsuit was filed in the United States District Court, District of New Jersey (Newark) (Case No. 05-2058) by Howard Salamon d/b/a “Salamon Brothers” (as the plaintiff) against the Company. This matter arises out of an alleged agreement between the plaintiff and the Company. The plaintiff is seeking specific performance of the alleged agreement, monetary damages and a declaratory judgment for the payment of a commission allegedly due to the plaintiff in an amount equal to 10% of all funds received by the Company from YA. The Company has filed a counterclaim against the plaintiff seeking rescission of the alleged agreement and a refund of $100,000 paid by the Company to the plaintiff. The Company believes that this lawsuit is without merit, that the plaintiff’s claims are unfounded and that the Company has good defenses against the claims asserted by the plaintiff. The Company also believes that it has good claims for the rescission of the agreement and for the refund of the amount paid to the plaintiff. The Company intends to contest and defend against the plaintiff’s claims. The foregoing notwithstanding, total liability to the Company, should it lose the lawsuit, could reach a maximum of 10% of all funds received by YA.
Contract Dispute: Former vendor filed a lawsuit in Miami-Dade County, Florida against the Company’s subsidiary, Teleplus Wireless, Corp. for nonpayment of an employment fee in the amount of $14,000. The Company is reviewing the merits of said lawsuit and will vigorously defend the case.
Commissions Dispute: Former telemarketing vendor has filed suit in Miami-Dade County, Florida against the Company’s subsidiary Teleplus Wireless, Corp. alleging non payment of $16,202.00 in commissions. The Company formally cancelled this agreement and disputes the commissions are owed to vendor and will vigorously defend the case.
Commissions Dispute: Former vendor has filed suit against the Company’s subsidiary Teleplus Wireless, Corp. for non payment of $35,000.00 contingency fee. The Company is reviewing the merits of said lawsuit and will vigorously defend the case.
Breach of Contract: A former vendor of the Company’s subsidiary Teleplus Wireless Corp. has filed a lawsuit in Miami-Dade County, Florida for $110,783.90 for consulting and Investor Relations work performed. The Company does not believe the claim to be founded and intends to vigorously contest such claim.
Operating Lease
The Company has several non-cancelable operating leases, primarily for office space and storage that expire through December 31, 2012 These leases require the Company to pay all operating costs such as insurance and maintenance.
Future minimum lease payments under the non-cancelable leases as of December 31, 2007 are:
Period Ending | | | |
December 31, | | | |
| 2008 | | $ | 160,016 | |
| 2009 | | | 153,473 | |
| 2010 | | | 138,929 | |
| 2011 | | | 131,114 | |
| 2012 | | | 132,570 | |
| | | $ | 716,102 | |
Rent expense for the years ended December 31, 2007 and 2006 was $136,146 and $199,895, respectively.
NOTE 7 - PROVISION FOR INCOME TAXES
Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
At December 31, 2007, deferred tax assets consist of the following:
| Net operating losses | | $ | 5,500,000 | |
| Amortization of goodwill | | | (843,571 | ) |
| Valuation allowance | | | (4,656,429 | ) |
| | | | | |
| | | $ | - | |
At December 31, 2007, the Company had a net operating loss carryforward in the approximate amount of $10,000,000, available to offset future taxable income through 2025. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.
A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the years ended December 31, 2007 and 2006 is summarized as follows:
| | | 2007 | | 2006 | |
| Federal statutory rate | | | (34.0 | )% | | (34.0 | )% |
| State income taxes, net of federal benefits | | | 0.0 | | | 0.0 | |
| Valuation allowance | | | 34.0 | | | 34.0 | |
| | | | 0 | % | | 0 | % |
NOTE 8 - DISCONTINUED OPERATIONS
On January 13, 2006, Retail filed in Canada a Notice of Intention to Make a Proposal Under the Bankruptcy and Insolvency Act (Canada) (the “Act”). This was done to divest the Company of its retail division. As a result, Retail was deemed to have made an assignment of its assets to its creditors under the Act and discontinued its operations as of February 12, 2006. The retail operations will no longer be a segment of the Company’s business for the year ending December 31, 2006. Therefore, the Company reclassified as discontinued operations the operating results of this division.
In December, 2007, the Company announced the intent to sell or close the wireless operations in the U.S. On December 21, 2007 the Company advised its shareholders that the Company has decided to exit the MVNO (Mobile Virtual Network Operator) business segment (the "MVNO Segment") operated by its Liberty Wireless and Maximo Impact brands. Market conditions for this segment of the Company's operations have become adverse in the last few months making it difficult for the Company to turn a profit in the MVNO Segment. Notwithstanding the Company's efforts over the last few months to improve the performance of the MVNO Segment the Company does not believe it will turn a profit in that segment in the foreseeable future. Company intends to focus its efforts on its core telecommunication service which represents the bulk of the company's revenues, is profitable and provides good cash flows to fund ongoing operations. Exiting the MVNO Segment (which has been operating at a loss) will improve the Company's profitability and cash flow although it will reduce the Company's annual revenues by about $4.5 million dollars. On January 15, 2008 the Company completed the sales of substantially all the assets of the wireless operations in the U.S. to COZAC, LLC. The assets included customer lists, assumed airtime contracts, trade names, domain names, logo, marketing reports and customer collateral. The purchased price payable by purchaser to vendor for the purchased assets is satisfied by the purchaser assuming the liabilities as of the date of this agreement under the Sprint agreement, the MVNO Sherpa agreement, and the assumption of liabilities owed to the vendor “People Support”.
The following represents the comparative operating results of these divisions for the years ended December 31, 2007 and 2006 that is reflected as discontinued operations.
| | | Retails | | Wireless | | Total | |
| | | 2007 | | 2007 | | 2007 | |
| | | | | | | | |
| Net Revenues | | | 0 | | | 4,730,055 | | | 4,730,055 | |
| | | | | | | | | | | |
| Cost of Revenues | | | | | | 3,441,876 | | | 3,441,876 | |
| General , Administrative and Selling | | | | | | 2,310,420 | | | 2,310,420 | |
| Enterpise losses from gst/qst assessment | | | 48,103 | | | | | | 48,103 | |
| Depreciation and Amortization | | | | | | 149,444 | | | 149,444 | |
| Interest Expense | | | | | | 2,563 | | | 2,563 | |
| Write Down of Goodwill | | | | | | 843,571 | | | 843,571 | |
| | | | 48,103 | | | 6,747,874 | | | 6,795,977 | |
| | | | | | | | | | | |
| Loss before income taxes | | | (48,103 | ) | | (2,017,819 | ) | | (2,065,922 | ) |
| | | | | | | | | | | |
| Provision for income taxes | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | |
| Net (Loss) Gain on Discontinued Operations | | | (48,103 | ) | | (2,017,819 | ) | | (2,065,922 | ) |
| | | | Retails | | | Wireless | | | Total | |
| | | | 2006 | | | 2006 | | | 2006 | |
| | | | | | | | | | | |
| Net Revenues | | | 290,143 | | | 8,766,297 | | | 9,056,440 | |
| | | | | | | | | | | |
| Cost of Revenues | | | 13,667 | | | 4,616,210 | | | 4,629,877 | |
| General , Administrative and Selling | | | 516,928 | | | 3,428,184 | | | 3,945,112 | |
| Enterpise losses from gst/qst assessment | | | 0 | | | | | | 0 | |
| Depreciation and Amortization | | | | | | 133,273 | | | 133,273 | |
| Interest Expense | | | | | | 11 | | | 11 | |
| Write Down of Assets and Liabilities | | | 27,044 | | | | | | 27,044 | |
| | | | 557,639 | | | 8,177,678 | | | 8,735,317 | |
| | | | | | | | | | | |
| Loss before income taxes | | | (267,496 | ) | | 588,619 | | | 321,123 | |
| | | | | | | | | | | |
| Provision for income taxes | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | |
| Net (Loss) Gain on Discontinued Operations | | | (267,496 | ) | | 588,619 | | | 321,123 | |
The Company will have available loss carryforwards from the remaining business entities of the retail division that have not declared bankruptcy. The Company’s intention is to apply these losses against future profits from its remaining business operations.
Summary of Net Assets (Liabilities) Remaining
| | | Retails | | Wireless | | Total | |
| | | December 31 | | December 31 | | December 31 | |
| | | 2007 | | 2007 | | 2007 | |
ASSETS | | | | | | | |
| | | | | | | | |
| Current Assets | | | | | | | |
| | | | | | | | |
| Accounts receivable, net - trade | | | | | | 70,063 | | | 70,063 | |
| Other accounts receivable | | | 549 | | | 48,407 | | | 48,956 | |
| Inventory | | | | | | 72,380 | | | 72,380 | |
| Prepaid expenses and other current assets | | | | | | 74,441 | | | 74,441 | |
| Total Current Asstes | | | 549 | | | 265,291 | | | 265,840 | |
| | | | | | | | | | | |
| Fixed Assets, net of deprectiation | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | |
| Other Assets | | | 0 | | | 900,000 | | | 900,000 | |
| | | | | | | | | | | |
| Total Assets | | | 549 | | | 1,165,291 | | | 1,165,840 | |
| | | | | | | | | | | |
LIABILTIES | | | | | | | | | | |
| | | | | | | | | | | |
| Accounts payable and accrued expenses | | | 0 | | | 1,852,543 | | | 1,852,543 | |
| Current portion of accrued acquisition obligations | | | | | | 0 | | | 0 | |
| Unearned revenue | | | | | | 43,896 | | | 43,896 | |
| Total Liabilities | | | 0 | | | 1,896,439 | | | 1,896,439 | |
| | | | | | | | | | | |
| Net Assets (Liabilities) Remaining | | | 549 | | | (731,148 | ) | | (730,599 | ) |
| | | Retails | | Wireless | | Total | |
| | | December 31 | | December 31 | | December 31 | |
| | | 2006 | | 2006 | | 2006 | |
ASSETS | | | | | | | |
| | | | | | | | |
| Current Asstes | | | | | | | |
| | | | | | | | |
| Accounts receivable, net - trade | | | | | | 64,902 | | | 64,902 | |
| Other accounts receivable | | | | | | 71,482 | | | 71,482 | |
| Inventory | | | | | | 121,255 | | | 121,255 | |
| Prepaid expenses and other current assets | | | | | | 249,392 | | | 249,392 | |
| Total Current Asstes | | | 0 | | | 507,031 | | | 507,031 | |
| | | | | | | | | | | |
| Fixed Assets, net of deprectiation | | | 0 | | | 93,276 | | | 93,276 | |
| | | | | | | | | | | |
| Other Assets | | | 0 | | | 1,843,571 | | | 1,843,571 | |
| | | | | | | | | | | |
| Total Assets | | | 0 | | | 2,443,878 | | | 2,443,878 | |
| | | | | | | | | | | |
LIABILTIES | | | | | | | | | | |
| | | | | | | | | | | |
| Accounts payable and accrued expenses | | | 69,456 | | | 1,640,032 | | | 1,709,488 | |
| Current portion of accrued acquisition obligations | | | | | | 250,000 | | | 250,000 | |
| Unearned revenue | | | | | | 281,784 | | | 281,784 | |
| Total Liabilities | | | 69,456 | | | 2,171,816 | | | 2,241,272 | |
| | | | | | | | | | | |
| Net Assets (Liabilities) Remaining | | | (69,456 | ) | | 272,062 | | | 202,606 | |
NOTE 9 - SUBSEQUENT EVENTS
TelePlus World, Corp. ("TelePlus" or "Company") advised shareholders on December 21, 2008, of the Company's decision to exit the MVNO (Mobile Virtual Network Operator) business segment (the "MVNO Segment") operated by its Liberty Wireless and Maximo Impact brands. In this regard, effective January 15, 2008, the Company has sold its wireless assets to Cozac LLC for $1.3 million in assumption of liabilities relating to those assets. The Company intends to focus its efforts on its core telecommunication service which represents the bulk of the company's revenues, is profitable and provides good cash flows to fund ongoing operations.
