UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Ammendment No. 1
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from Jan 1 to March 31, 2005
Commission file number 000-49628
TELEPLUS ENTERPRISES, INC.
--------------------------- ----------------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 98-0045023
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7575 TransCanada, Suite 305, St-Laurent, Quebec, Canada H4T 1V6
-----------------------------------------------------------------------
(Address of principal executive offices)
(514) 344-0778
----------------------------------
(Registrant's telephone number)
N/A
---------------------------
(Former name and address)
Check 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. Yes
|X| No |_|
As of May 12, 2005, 73,558,342 shares of Common Stock of the issuer were
outstanding.
EXPLANATORY NOTE: THIS AMENDMENT NO. 1 ON FORM 10-QSB/A TO THE QUARTERLY REPORT
ON FORM 10-QSB OF TELEPLUS ENTERPRISES, INC. FOR THE PERIOD ENDED MARCH 31, 2005
WHICH WAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 2005 IS
BEING FILED TO AMEND CERTAIN DISCLOSURES OF PART I ITEM 1 FINANCIAL STATEMENT IN
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY, NOTE #2 COMMON STOCK, NOTE #3
COMPANY FINANCING AND NOTE #4 CONSOLIDATED STATEMENT OF CASH FLOWS AND IN ITEM 2
CHANGES IN SECURITIES, WHICH SHOULD NOW READ AS CONTAINED HEREIN.
See accompanying summary of accounting policies
and notes to consolidated financial statements.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELEPLUS ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2005
ASSETS
Current assets
Cash $ 696,116
Trade Accounts Receivables 390,765
Other Receivables 30,000
Inventories 941,037
Prepaid expenses 507,587
---------------
Total current assets 2,565,505
Property and equipment, net 1,188,139
Goodwill 1,116,243
Deferred financing Fees 390,828
Other assets 2,763
---------------
Total assets $ 5,263,478
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 1,499,276
Accrued expenses 589,790
Accrued acquisition obligations 359,000
Promissory Note ( note 3) 1,500,000
---------------
Total current liabilities 3,948,066
---------------
Convertible Debenture , net ( note 3) 687,775
---------------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value, 150,000,000
shares authorized, 71,306,598
shares issued and outstanding 71,306
Additional paid in capital 2,897,147
Accumulated deficit (2,330,249)
Accumulated other comprehensive income (10,567)
---------------
Total Shareholders' Equity 627,637
---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,263,478
===============
See accompanying summary of accounting policies
and notes to condensed consolidated financial statements.
TELEPLUS ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three month Ended
March 31
-------------------------------------
2005 2004
-------------------------------------
Net revenues $ 2,958,755 $ 2,382,281
Cost of revenues 1,991,972 1,880,859
------------ ------------
Gross margin 966,783 501,422
General, administrative and selling 1,321,021 814,167
------------ ------------
Income (loss) before interest, income taxes, (354,238) (312,745)
depreciation and amortization ------------ ------------
Depreciation of property and equipment 94,443 39,200
Amortization of intangible assets 78,855 --
Interest expense 43,583 --
------------ ------------
Income (loss) before income taxes (571,119) (351,945)
Provision for income taxes -- ~
------------ ------------
Net income ( loss) (571,119) (351,945)
------------ ------------
Net income (loss) per share $ ( 0.01) $ (0.01)
============ ============
Weighted average shares outstanding: 70,502,960 66,122,500
============ ============
See accompanying summary of accounting policies
and notes to condensed consolidated financial statements.
TELEPLUS ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2005
Accumulated
Additional Other
Common Stock Paid-In Accumulated Comprehensive
------------ Capital Deficit Income Total
Shares Amount
-------------- ------------- ------------ --------------- ---------------- ------------------
Balance,
December 31, 2004 68,917,904 $ 68,917 $2,127,421 $ (1,759,130) $ 428 $ 437,636
Comprehensive
Loss:
Net loss -- -- -- (571,119) -- (571,119)
Foreign currency
translation -- -- -- -- (10,995) (10,995)
Comprehensive
Loss:
~ ~ (582,114)
Issuance of common
stock in connection with
conversion of
convertible debentures, 145,433 145 23,312 -- -- 23,457
net
Issuance of common ~ ~ ~ ~ ~ ~
stock in connection with ~ ~ ~ ~ ~ ~
the raising of Company
financing , -- ~ ~ ~ ~ --
net 2,243,261 2,244 746,414 -- -- 748,658
-------------- -------------- -------------- -------------- -------------- --------------
Balance, ~ ~ ~ ~ ~ ~
March 31, 2005 $ 71,306,598 $ 71,306 $ 2,897,147 $ (2,330,249) $ 10,567) $ 627,637
See accompanying summary of accounting policies
and notes to condensed consolidated financial statements.
TELEPLUS ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
-----------------------------------------
2005 2004
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(571,119) $(351,945)
Adjustments to reconcile net loss to cash provided by
(used in ) operating activities:
Depreciation and amortization 94,443 39,200
Amortization of Intangible Assets 78,855 ~
Changes in assets and liabilities:
Accounts receivable 837,100 990,093
Inventories 138,987 76,489
Prepaid expenses (132,115) (26,220)
Other assets 30,549 (32,514)
Accounts payable (755,604) (904,282)
Accrued expenses (38,872)
--------- ---------
48,370
CASH FLOWS (USED IN)
OPERATING ACTIVITIES (317,776) (160,449)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (43,427) (55,984)
--------- ---------
CASH FLOWS ( USED IN) INVESTING ACTIVITIES (43,427) (55,984)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net ~ 252,448
Proceeds from issuance of promissory note net 685,001
Proceeds from issuance of convertible debentures, net -- ~
--------- ---------
CASH FLOWS (PROVIDED) BY FINANCING ACTIVITIES 685,001 252,448
--------- ---------
Effect of Exchange Rate Changes on Cash (10,995) (4,765)
NET INCREASE (DECREASE) IN CASH
312,803 31,250
Cash, beginning of period 383,313 100,804
--------- ---------
Cash, end of period $ 696,116 $ 132,054
--------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ -- $
========= =========
Net assets acquired in reverse merger $ -- $
========= =========
See accompanying summary of accounting policies
and notes to condensed consolidated financial statements
(a) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
Nature of business. The Company is a vertically integrated provider of wireless
and landline products and services across North America. The Company's retail
division - TelePlus Retail Services, Inc. - owns and operates a national chain
of TelePlus branded stores in major shopping malls, selling a comprehensive line
of wireless and portable communication devices. TelePlus Wireless, Corp.
operates a virtual wireless network selling cellular network access to
distributors in the United States. TelePlus Connect, Corp. is a reseller of
landline and long distance services including internet services. Teleplus was
incorporated in Nevada in January 1999.
In October 2003, Visioneer Holdings Group, Inc. ("Visioneer"), subscribed to
18,050,000 and its partners to 4,512,500 newly issued shares of
Herbalorganics.com, Inc. ("Herbalorganics") and on that same date Visioneer
acquired 23,750,000 shares of Herbalorganics. As a result of the transactions,
Visioneer acquired control of Herbalorganics. In connection with the
transactions Herbalorganics changed its name to Teleplus Enterprises, Inc.
("Teleplus"). After the above transactions, there were 65,312,500 shares of
common stock outstanding. Herbalorganics retained 19,000,000 shares of common
stock.
In October 2003, Teleplus formed a wholly owned subsidiary Teleplus Retail
Services, Inc. ("Retail"), a Quebec, Canada Corporation. Retail acquired certain
assets and assumed certain liabilities from 3577996 Canada, Inc. 3577996 Canada,
Inc. is controlled by the shareholders of Visioneer.
For accounting purposes, this transaction was treated as an acquisition of
Herbalorganics and a recapitalization of 3577996 Canada, Inc. 3577996 Canada,
Inc. is the accounting acquirer and the results of its operations carryover.
Accordingly, the operations of Herbalorganics were not carried over and were
adjusted to $0. In connection with the reverse merger, 3577996 Canada, Inc.
acquired $11,327 in cash and assumed $700 in liabilities.
As shown in the accompanying financial statements, the company has a working
capital deficit of $1,382,561 because the promissory note of $1,500,000 and the
accrued acquisition obligation of $359,000 have been classified as current
liabilities. However the accrued acquisition obligation will be settled by the
issuance of common stock and the company has a Standby Equity Agreement which is
available to repay the promissory note and provide long term financing for the
operations of the company.
Principles of Consolidation
The consolidated financial statements include the accounts of Teleplus' wholly
owned subsidiaries. All significant intercompany transactions and balances have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the balance sheet. Actual results could differ from
those estimates.
Cash and Cash Equivalents
Cash equivalents include highly liquid, temporary cash investments having
original maturity dates of three months or less.
Inventories
Inventories consist of wireless and telephony products and related accessories
and are stated at the lower of cost, determined by average cost method, or
market.
Long-Lived Assets
Property and equipment are stated at cost less accumulated depreciation. Major
renewals and improvements are capitalized; minor replacements, maintenance and
repairs are charged to current operations. Depreciation is computed by applying
the straight-line method over the estimated useful lives of machinery and
equipment (three to seven years). The majority of Teleplus' long-lived assets
are located in Canada. Teleplus performs reviews for the impairment of
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Acquisitions and Business Combinations
The Company accounts for acquisitions and business combinations under the
purchase method of accounting. The Company includes the results of operations of
the acquired business from the acquisition date. Net assets of the companies
acquired are recorded at their fair value at the acquisition date. The excess of
the purchase price over the fair value of net assets acquired are included in
intangible assets in the accompanying consolidated balance sheets.
Intangibles, Goodwill and Other Assets
The Company regularly reviews all of its long-lived assets, including goodwill
and other intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
the Company considers important that could trigger an impairment review include,
but are not limited to, significant underperformance relative to historical or
projected future operating results, significant changes in the manner of use of
the acquired assets or the strategy for the Company's overall business, and
significant negative industry or economic trends. When management determines
that an impairment review is necessary based upon the existence of one or more
of the above indicators of impairment, the Company measures any impairment based
on a projected discounted cash flow method using a discount rate commensurate
with the risk inherent in our current business model. Significant judgments is
required in the development of projected cash flows for these purposes including
assumptions regarding the appropriate level of aggregation of cash flows, their
term and discount rate as well as the underlying forecasts of expected future
revenue and expense. To the extent that events or circumstances cause
assumptions to change, charges may be required which could be material.
The Company adopted SFAS No 142,"Goodwill and Other Intangible Assets". SFAS No.
142 no longer permits the amortization of goodwill and indefinite-lived
intangible assets. Instead, these assets must be reviewed annually (or more
frequently under prescribed conditions) for impairment in accordance with this
statement. If the carrying amount of the reporting unit's goodwill or
indefinite-lived intangible assets exceeds the implied fair value, an impairment
loss is recognized for an amount equal to that excess. Intangible assets that do
not have indefinite lives are amortized over their useful lives.
Revenue Recognition
Teleplus' revenue is generated primarily from the sale of wireless, telephony
products and accessories to end users. Teleplus recognizes revenue when
persuasive evidence of an arrangement exists, delivery has occurred, the sales
price is fixed or determinable, and collectibility is probable.
Teleplus recognizes product sales generally at the time the product is shipped.
Concurrent with the recognition of revenue, Teleplus provides for the estimated
cost of product warranties and reduces revenue for estimated product returns.
Sales incentives are generally classified as a reduction of revenue and are
recognized at the later of when revenue is recognized or when the incentive is
offered. Shipping and handling costs are included in cost of goods sold.
The Company receives co-operation advertising revenue from the telephone
suppliers based on certain requirements to spend the available co-op advertising
allotment. Any amount received under their program is deducted from advertising
expense.
Teleplus' suppliers generally warrant the products distributed by Teleplus and
allow returns of defective products, including those that have been returned to
Teleplus by its customers. Teleplus does not independently warrant the products
that it distributes, but it does provide warranty services on behalf of the
supplier.
Income Taxes
The asset and liability approach is used to account for income taxes by
recognizing deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of assets and liabilities. Teleplus records a valuation allowance to
reduce the deferred tax assets to the amount that is more likely than not to be
realized.
Foreign Currency Translation
The Canadian dollar is the functional currency of Teleplus. Transactions in
foreign currency are translated at rates of exchange rates ruling at the
transaction date. Monetary assets and liabilities denominated in foreign
currencies are retranslated at rates ruling at the balance sheet date. The
resulting translation adjustment is recorded as a separate component of
comprehensive income within stockholders' equity.
Basic and Diluted Net Income (loss) per Share
Net income (loss) per share has been calculated based on the weighted average
number of shares of common stock outstanding during the period. Diluted net
income per share includes the potentially diluted effect of outstanding common
stock options and warrants which are convertible to common shares. Diluted net
loss per Share has not been provided as the effect would be anti - dilutive.
Fair Value of Financial Instruments
The recorded amounts of cash and cash equivalents, accounts receivable,
short-term borrowings, accounts payable and accrued expenses approximate their
respective fair values because of the short maturity of those instruments and
the variable nature of any underlying interest rates. The rates of fixed
obligations approximate the rates of the variable obligations. Therefore, the
fair value of these loans has been estimated to be approximately equal to their
carrying value.
Concentrations of Credit Risk
Financial instruments which potentially subject Teleplus to concentrations of
credit risk consist primarily of cash, cash equivalents, and trade accounts
receivable. Teleplus maintains its cash and cash equivalents with high quality
financial institutions as determined by Teleplus' 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
Teleplus maintains a broad customer base.
Deferred Financing Fees
Deferred financing fees represents fees paid in connection with the issue of a
convertible debt that runs for a period of 36 months and a promissory note that
runs for 6 months. The deferred financing fees will be amortized over the terms
of the respective debts. The Company incurred $ 78,855 in amortization expense
for the three months ended March 31, 2005.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standard Boards ("FASB") issued
Statements No. 123 (R), Share - Based Payments which will require compensation
costs related to share based payment transactions to be recognized in the
financial statements. As permitted by the predecessor Statement No. 123, we do
not recognize compensation expense with respect to stock options we have issued
because the option price was no greater than the market price at the time the
option was issued. Statement 123(R) will be effective for us in our fiscal
quarter beginning January 1, 2006. We have not completed an evaluation of the
impact of Adopting Statements 123 (R).
In November 2004, the FASB ratified the Emerging Issues Task Force ("EITF")
consensus on Issue 03 -13, "Applying the Conditions in Paragraph 42 of FASB
STATEMENT NO 144, "Accounting for the impairment or Disposal of Long - Lived
ASSETS," in Determining Whether to Report Discontinued Operations, which is
effective for us at the beginning of fiscal 2005. The adoption of the new
pronouncements will not have a material impact on our financial position or
results of operations.
In November 2004, the FASB issued Statement No. 151 Inventory costs, an
amendment of ARB No. 43, Chapter 4 , to clarify that abnormal amounts of idle
facility expense, freight, handling costs and wasted material (spoilage) should
be recognized as current period charges , and that fixed production overheads
should be allocated to inventory based on normal capacity of production
facilities. Statement No. 151 will be effective for our fiscal year beginning
January 1st, 2006, and its adoption will not have a material impact on our
financial position or results of operations.
In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" (the
"Statement"). The Statement establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. The Statement is generally effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of this Statement had no effect on Teleplus' consolidated
financial statements.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46") Consolidation
of Variable Interest Entities, which addresses the consolidation of variable
interest entities ("VIEs") by business enterprises that are the primary
beneficiaries. A VIE is an entity that does not have sufficient equity
investment at risk to permit it to finance its activities without additional
subordinated financial support, or whose equity investors lack the
characteristics of a controlling financial interest. The primary beneficiary of
a VIE is the enterprise that has the majority of the risks or rewards associated
with the VIE. In December 2003, the FASB issued a revision to FIN 46,
Interpretation No. 46R ("FIN 46R"), to clarify some of the provisions of FIN 46,
and to defer certain entities from adopting until the end of the first interim
or annual reporting period ending after March 15, 2004. Application of FIN 46R
is required in financial statements of public entities that have interests in
structures that are commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application for all other types of VIEs is
required in financial statements for periods ending after March 15, 2004. We
believe we have no arrangements that would require the application of FIN 46R.
We have no material off-balance sheet arrangements.
NOTE 2 - COMMON STOCK
The following shares were issued by the company during the first quarter ended
March 31, 2005:
- The Company issued 145,433 shares in connection with the conversion
of convertible debentures.
- The Company issued 2,243,261 common shares in connection with the
raising of Company financing.
STOCK OPTIONS
Pursuant to the Company's stock option plan for employees, the Company granted
7,635,000 stock options in 2004.
Options granted are being accounted for under Accounting Principles Board
Opinion No 25 (APB Opinion No. 25), Accounting for stock Issued to Employees.
All options have been granted at a price equal to or greater that the fair value
of the Company's common stock at the date of the grant.
Had compensation cost for the employee and non - employee director stock options
been determined based on the fair value at the grant date for awards in 2004,
consistent with the provisions of SFAS No. 123, our net loss per share would
have been increased to the pro forma amounts below.
2005
As reported
Net income (loss) $ (571,119)
Pro Forma
Compensation expense nil
Pro forma:
Net income (loss) $ (571,119)
Net income (loss) per share as reported $ ( 0.01)
Pro forma compensation expense per share ( 0.00)
Pro forma earnings (loss) per share $ ( 0.01)
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:
2005
Dividend yield 0%
EXPECTED volatility 9%
Risk free interest rates 3.5%
Expected lives ( years) 3
Options outstanding at March 31, 2005 are summarized as follows:
Number Price Year of Issue Vesting Period Term
1,640,000 .36 2004 Immediately 3 years
225,000 .36 2004 1 Year 3 years
2,180,000 .38 2004 1 Year 3 years
40,000 .40 2004 1 Year 3 years
200,000 .38 2004 2 Years 3 years
50,000 .45 2004 2 Years 3 years
2,500,000 .40 2004 2 Years 3 years
400,000 .40 2004 3 Years 3 years
200,000 .45 2004 4 Years 3 years
200,000 .50 2004 5 Years 3 years
NOTE 3 - COMPANY FINANCING
On July 12, 2004, TelePlus secured a $11,000,000 financing commitment from
Cornell Capital Partners LP. The terms of the transaction call for TelePlus to
receive initial funding in the amount of $1,000,000 payable in three (3)
installments: $ 450,000 payable on closing, $400,000 payable upon filing of a
registration statement and the balance of $150,000 payable upon the registration
statement becoming effective. As part of the transaction the Company also
secured a $10,000,000 commitment under a Standby Equity Agreement. TelePlus can
draw the funds under the Standby Equity Agreement over a 24 month period based
on TelePlus' funding requirements subject to an effective registration with the
SEC witch became effective Oct 1st 2004. The proceeds will be used to finance
existing and future acquisitions, capital expenditures, increases in inventory
and for general working purposes. Agreements pertaining to the financial
arrangements were filed. In connection with the Standby Equity Agreement,
TelePlus issued 258,098 shares of common stock as financing costs.
The convertible debentures of $ 450,000,$ 400,000 and $ 150,000 are secured by
all of the assets and property of the Company, bear interest at 5% per annum and
are repayable on their third year anniversary dates of July 2, 2007, September
1, 2007 and October 1, 2007 respectively. The Company has the option of
converting the principal amounts and all accrued interest before their third
year anniversary dates. As at March 31, 2005 $ 250,000 of the convertible
debentures has been converted into common shares.
The Company received $2,500,000 under two promissory notes of which $1,500,000
was still outstanding as of March 31, 2005. The outstanding balance under the
promissory notes is "unsecured", bears interest at 12% per annum and is
repayable before April 7, 2005. During the three months ended March 31, 2005
$800,000 had been repaid on the amount outstanding under the notes as of Dec 31,
2004 leaving $1,500,000 outstanding as of March 31, 2005.
NOTE 4 - Consolidated Statement of Cash Flows
Non-cash financing and investing activities during 2005 were as follows:
The Company issued 145,433 common shares upon the conversion of debentures
having a face value of $50,000.
The Company issued 2,243,261 common shares in connection with the raising of
Company financing valued at $ 800,000.
NOTE 5 - Subsequent Events
In April 2005 the Company acquired all the outstanding stock of Freedom Phone
Lines. The Company paid $500,000 in cash and issued 964,706 shares as part of
the total purchase price in connection with this acquisition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH ON THE FORWARD LOOKING STATEMENTS AS A
RESULT OF THE RISKS SET FORTH IN THE COMPANY'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, GENERAL ECONOMIC CONDITIONS, AND CHANGES IN THE ASSUMPTIONS
USED IN MAKING SUCH FORWARD LOOKING STATEMENTS.
OVERVIEW
The Company was originally incorporated in Nevada as Terlingua Industries,
Ltd. on April 16, 1999. The Company's business plan was to engage in online
marketing and distribution of organic herbal supplements in an international
market. On January 27, 2000, the Company changed its name to HerbalOrganics.com,
Inc. ("HerbalOrganics"). Prior to the transactions discussed below, the Company
had not generated any revenues from operations and was considered a development
stage enterprise, as defined in Financial Accounting Standards Board No. 7,
whose operations principally involved research and development, market analysis,
securing and establishing a new business, and other business planning
activities.
On October 10, 2003, Visioneer Holdings Group Inc. ("Visioneer")
subscribed to purchase 18,050,000 restricted, newly issued shares of the
Company's common stock, $.001 par value per share. Also on that same date,
Visioneer purchased 23,750,000 shares of issued and outstanding common stock
from Thomas Whalen, the Company's former Chief Executive Officer. As a result of
the subscriptions and the purchase, control of the Company shifted to Marius
Silvasan, the beneficial owner of Visoneer.
In September 2003, the Company formed a wholly-owned subsidiary, Teleplus
Retail Services, Inc., a Quebec, Canada Corporation ("Teleplus Retail"). In
October 2003, Teleplus Retail purchased substantially all of the assets of
3577996 Canada Inc., a Canada Business Corporation ("3577996"), that related to
3577996's "TelePlus Consumer Services" business.
The Company is a vertically integrated provider of wireless and landline
products and services across North America. The Company's retail division -
TelePlus Retail Services, Inc. - owns and operates a national chain of TelePlus
branded stores in major shopping malls, selling a comprehensive line of wireless
and portable communication devices. TelePlus Wireless, Corp. operates a virtual
wireless network selling cellular network access to distributors in the United
States. TelePlus Connect, Corp. is a reseller of landline and long distance
services including internet services.
MARKETING STRATEGY
Currently there is a good fit between the Company's resources and the
opportunities and threats posed by its external environment. The Company has a
diversified product mix that is complemented with unique accessory offerings.
The Company has prominently displayed, attractive, strategically located retail
outlets, experienced employees and management and strong supplier relations. The
Company believes that growth will to come in three folds.
GROWTH IN CANADA:
The Company through its wholly owned subsidiary TelePlus Retail Services,
Inc. currently operates 39 TelePlus branded stores in three Canadian provinces.
The Company intends to increase to 70 the number of TelePlus branded stores by
2007. These stores are expected to be located in major metro centers. The
Company completed in 2004 acquisition of two companies: SMARTCELL and CELLZ.
The Company through its wholly owned subsidiary TelePlus Connect, Corp. is
offering landline and long distance prepaid services to selected individuals in
Canada who cannot obtain basic telecom services from traditional telecom
carriers. These individuals are often called the unbanked. Current estimates
place the unbanked market in North America at 9.5% of total households and the
market size is estimated at over $1 billion.
To facilitate the rollout of this service the Company acquired 100% of the
shares of Keda Consulting Corp. and Freedom Phones Lines April 1st, 2005. The
Company also signed a definitive agreement to acquire Telizon, Inc. on January
26th 2005.
o Keda Consulting Corp. provides a broad range of management
consulting services to the North American telecommunications
industry, specializing in business development, sales/marketing, and
operations. Following closing of the acquisition Keda, has changed
its name to TelePlus Connect Corp. and Keda's management have taken
over the operations of TelePlus' prepaid landline and long distance
telephone service operations. The Company is expected to benefit
from Keda's and Freedom's management teams which have much
experience in the telecommunications industry. The Company believes
a seasoned and experienced management team, familiar with all
aspects of the rapidly growing and changing telecommunications
business, is a key strategic asset.
o Freedom Phone Lines, headquartered in Ontario, Canada, is a Bell
Canada reseller of landline and long distance services, which
services over 3,300 customers in the Ontario area and generates
yearly revenues of $2.5 million and EBITDA of $0.300 million.
o In January 2005, the Company entered into a definitive agreement to
acquire Telizon, Inc., subject to the Company receiving financing
for the deal. The terms of the acquisition call for the Company to
pay $7.2 million in cash no later than 150 days from January 26,
2005. Telizon is a reseller of landline/long distance services and
also an Internet service provider. Telizon has annual revenues of
$12.0 million and EBITDA of $1.6 million.
GROWTH IN THE UNITED STATES:
TelePlus intends to deploy a private label wireless program under the
"TelePlus" brand name in the US. TelePlus Wireless Corp. ("TelePlus Wireless"),
a wholly-owned subsidiary of TelePlus Enterprises, Inc. initiated deployment of
the Company's MVNO during the month of October. Offering private label wireless
services is commonly referred to as creating a Mobile Virtual Network Operator
("MVNO"). This market was developed first in Europe, where more than 20 MVNO's
can be found. Virgin Mobile of England and Wireless Maingate of Sweden were
among the first group of MVNO's launched in Europe. TelePlus intends to make its
phone available at superstores and vending machines throughout the US.
To facilitate the development and rollout of Teleplus' MVNO service, the
Company announced:
o In November 2004, an agreement with Consumer Cellular for the use of
the AT&T Wireless network, now part of Cingular network, which
called for the network to be the carrier of choice to run TelePlus'
mobile virtual network; and
o In January 2005, a distribution agreement with Mr. Prepaid. The
agreement covers the distribution of Teleplus Wireless services
across the Mr. Prepaid Network. Mr. Prepaid, based in the United
States, supplies a variety of wireless phones, related accessories
and wireless and long distance vouchers to over 700 retail points of
distribution located on the East Coast of the United States.
Additionally, it recently launched its own Mobile Virtual Network
program under the UR MOBILE brand name.
RECENT BUSINESS DEVELOPMENTS
In December 2004, the Company announced it had signed a definitive
agreement to acquire 100% of the shares of Freedom Phones Lines. Freedom Phone
Lines, headquartered in Ontario, Canada, is a Bell Canada reseller of landline
and long distance services, which serves over 3,300 customers in the Ontario
area and generates yearly revenues of $2.5 million and EBITDA of $0.300 million.
The terms of the acquisition call for the Company to pay $0.480 million in cash
upon closing and issue $0.480 million worth of shares also upon closing to the
shareholders of Freedom. The Company closed the acquisition of Freedom on April
1st, 2005.
In December 2004, the Company announced it had signed a definitive
agreements to acquire 100% of the shares of Keda Consulting Corp. Keda
Consulting Corp. provides a broad range of management consulting services to the
North American telecommunications industry, specializing in business
development, sales/marketing, and operations. Once the acquisition of Keda is
completed, it will change its name to TelePlus Connect Corp. and Keda's
management will take over the operations of TelePlus' prepaid landline and long
distance telephone service operations. The Company is expected to benefit from
Keda's and Freedom's management teams which have much experience in the
telecommunications industry. The Company believes a seasoned and experienced
management team, familiar with all aspects of the rapidly growing and changing
telecommunications business, is a key strategic asset. The terms of the
transaction call for TelePlus to pay the shareholders of Keda on an earn-out
basis up to $16 million based on the achievement by TelePlus Connect of specific
EBITDA benchmarks during the next 48 months. The Company has closed the
acquisition of Keda April 1st 2005.
In January 2005, the Company announced it entered into a definitive
agreement to acquire Telizon, Inc., subject to The Company receiving financing
for the deal. The terms of the acquisition call for the Company to pay $7.2
million in cash no later than 150 days from January 26, 2005. Telizon is a
reseller of landline/long distance services and also an Internet service
provider. Telizon has annual revenues of $12.0 million and EBITDA of $1.6
million.
March 28, 2005 Teleplus received $500,000 from Cornell Capital Partners
LP. These funds were drawn against the $10,000,000 Standby Equity Agreement that
was secured on July 16, 2004.
In April 2005, the Company announced it entered into a definitive
agreement to acquire Canada Reconnect, Inc., Canada's largest reseller of
landline, long distance and Internet prepaid services. The transaction calls for
TelePlus to pay a combination of cash and stock valued at $3.0M to the
shareholders of Canada Reconnect in exchange for 100% of Canada Reconnect's
shares. Canada Reconnect has annual revenues of $5.4 million and EBITDA of $1.0
million and services over 6,000 customers across Canada.
In April 2005, the Company announced it entered into a definitive
agreement to acquire Avenue Reconnect, Inc. The transaction calls for TelePlus
to pay a combination of cash and stock valued at $655k to the shareholders of
Avenue in exchange for 100% of Avenue's shares. Avenue is a reseller of
landline/long distance services and also an Internet service provider. Avenue
has annual revenues of $1.1 million and EBITDA of $200k and services over 2,000
customers.
COMPARISON OF OPERATING RESULTS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2004.
Sales revenues for the quarter ended march 31, 2005 increased $576,474 (or
24%) to $2,958,755 as compared to $2,382,281 for the quarter ended March 31,
2004. The increase in sales revenues was primarily due to the increase the
number of retail outlets versus the previous year.
Cost of revenues for the quarter ended March 31, 2005 increased $111,113
(or 6%) to $1,991,972 as compared to $1,880,859 for the quarter ended March 31,
2004. The increase in cost of revenues was due to the proportionate increase in
overall sales.
Gross profit as a percentage of sales ("gross profit margin") increased to
33% for the quarter ended March 31, 2005 from 21% for the quarter ended March
31, 2004. The increase in gross profit margin was due to the 24% increase in
sales revenues that trumped the 6% increase in cost of revenues.
General, administrative ("G&A") expense for the quarter ended March 31,
2005 increased $506,854 (or 62%) to $1,321,021 as compared to $814,167 for the
quarter ended March 31, 2004. The increase in G&A was due mainly to the increase
in new store locations in 2004, costs incurred in acquisitions and costs
incurred in obtaining new financing.
The Company had a net loss of $571,119 for the quarter ended March 31,
2005 but had a net operating loss of $ 354,238 for such quarter, as compared to
a net loss of $ 351,945 for the quarter ended March 31, 2004 and a net operating
loss of $312,745. The increase in the net loss was mainly due to an increase in
the Company's depreciation and amortization of intangible assets and interest
expenses. The total increase in these expenses was $177,681 for the quarter
ended March 31, 2005.
As of March 31, 2005, the Company had an accumulated deficit of
$2,330,249.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2005, total current assets were $2,565,505 which consisted
of $696,116 of cash, $420,765 of accounts receivable $941,037 of inventories,
and $507,587 of prepaid expenses.
As of March 31, 2005, total current liabilities were $3,948,066 which
consisted of $1,499,276 of accounts payable, 589,790 of accrued expenses,
$359,000 of accrued stock obligations and 1,500,000 of a promissory note. Under
the company's present financing arrangement the promissory note can be repaid
out of net proceeds to be received by the company from its Standby Equity
Agreement.
The Company had negative net working capital at March 31, 2005 of
$1,382,561. The ratio of current assets to current liabilities was 65%.
The Company had a net increase in cash of $312,803 for the three months
period ended March 31, 2005 as compared to a net increase in cash of $31,250 for
the three months ended March 31, 2004. Cash flows from financing activities
represented the Company's principal source of cash for the three months ended
March 31, 2005. Cash flows from financing activities during the three months
period ended March 31, 2005 were $685,001, which came from proceeds from the
issuance of a promissory note. During the three months ended March 31, 2004, the
Company received proceeds from the issuance of common stock in the amount of $
252,448.
During the three months period ended March, 2005, the Company had $317,776
cash used in operating activities as compared to the three months period ended
March 31, 2004, where the Company had $160,449 cash used in operating
activities. The cash used in operating activities for the three months period
ended March 31, 2005 was due to accounts payable that decreased by $755,604,
prepaid expenses that increased by $132,115, and accrued expenses that decreased
by $38,872 which were offset by accounts receivable that decreased by $837,100
inventories that decreased by $138,987, and other assets that decreased by
$30,549. The cash used by operating activities for the three months period ended
March 31, 2004 was due to accounts payable that decreased by $904,282, prepaid
expenses that increased by $26,220, and other assets that increased by $ 32,514
offset by accounts receivables that decreased by $990,093, inventories that
decreased by $76,489 and accrued expenses that increased by $48,370.
Capital expenditures were $43,427 for the three months ended March 31,
2005 as compared to $55,984 for the three months period ended March 31, 2004.
RISK FACTORS
Management Recognizes That We Must Raise Additional Financing To Fund Our
Ongoing Operations And Implement Our Business Plan. The Company requires
additional capital to support strategic acquisitions and its current expansion
plans. The Company currently has in place a revolving credit facility with a
third party. Such facility provides the Company access with up to $10M in
financing based on the Company's needs and subject to certain conditions. Should
the Company not be able to draw down on such credit facility as required this
may require the Company to delay, curtail or scale back some or all of its
expansion plans. Any additional financing may involve dilution to the Company's
then-existing shareholders.
We Are Currently Involved In Legal Proceedings With The Minister Of
Revenue Of Quebec, Canada, The Outcome Of Which Could Have A Material Adverse
Affect On Our Financial Position. 3577996 Canada Inc. a company that TelePlus
retail Services, Inc. acquired certain assets and assumed certain liabilities
from is involved in legal proceedings with the Minister of Revenue of Quebec.
The Minister of Revenue of Quebec has proposed a tax assessment of approximately
$474,000CDN and penalties of approximately $168,000CDN. The proposed tax
assessment is for $322,000CDN for Quebec Sales Tax and $320,000CDN for Goods and
Services Tax. 3577996 believes that certain deductions initially disallowed by
the Minister of Revenue of Quebec for the Quebec Sales Tax are deductible and we
are in the process of compiling the deductions for the Minister of Revenue of
Quebec. It is possible that the outcome of these proceedings could have a
material adverse affect on our cash flows or our results of operations,
Our Inability To Secure Competitive Pricing Arrangements In A Market
Dominated By Larger Retailers With Higher Financial Resources Could Have A
Material Adverse Affect On Our Operations. Profit margins in the wireless and
communication industry are low. Our larger competitors, who have more resources,
have the ability to reduce their prices significantly lower than current prices.
This would further reduce our profit margins. Should such an event occur and
management chose not to offer competitive prices, we could lose our market
share. If we chose to compete, the reduction in profit margins could have a
material adverse effect on our business and operations.
We Have Historically Lost Money And Losses May Continue In The Future,
Which May Cause Us To Curtail Operations. Since 2003 we have not been profitable
and have lost money on both a cash and overall basis. For the quarter ended
March 31, 2005 we incurred a net loss of $571,119 and our accumulated deficit
was 2,330,249 as compared to a net loss of $351,945 for the quarter ended March
31, 2004 and our accumulated deficit was $1,037,105.
Future losses are likely to occur, as we are dependent on spending money
to pay for our operations. No assurances can be given that we will be successful
in reaching or maintaining profitable operations. Accordingly, we may experience
liquidity and cash flow problems. If our losses continue, our ability to operate
may be severely impacted.
We Are Subject To A Working Capital Deficit, Which Means That Our Current
Assets On December 31, 2004 And March 31, 2005, Were Not Sufficient To Satisfy
Our Current Liabilities And, Therefore, Our Ability To Continue Operations could
be at Risk. We had a working capital deficit of $1,382,561 for the quarter ended
March 31, 2005 which means that our current liabilities exceeded our current
assets on March 31, 2005 by $1,382,561 on March 31, 2005.
Current assets are assets that are expected to be converted to cash within
one year and, therefore, may be used to pay current liabilities as they become
due. Our working capital deficit means that our current assets on March 31,
2005, and on December 31, 2004 were not sufficient to satisfy all of our current
liabilities on those dates. If our ongoing operations do not begin to provide
sufficient profitability to offset the working capital deficit, we may have to
raise additional capital or debt to fund the deficit or curtail future
operations.
Our Obligations Under The Secured Convertible Debentures Are Secured By
All of Our Assets. Our obligations under the secured convertible debentures,
issued to Cornell Capital Partners are secured by all of our assets. As a
result, if we default under the terms of the secured convertible debentures,
Cornell Capital Partners could foreclose its security interest and liquidate all
of our assets. This would cease operations.
Our Common Stock May Be Affected By Limited Trading Volume And May
Fluctuate Significantly, Which May Affect Our Shareholders' Ability To Sell
Shares Of Our Common Stock. Prior to this filing, there has been a limited
public market for our common stock and there can be no assurance that a more
active trading market for our common stock will develop. An absence of an active
trading market could adversely affect our shareholders' ability to sell our
common stock in short time periods, or possibly at all. Our common stock has
experienced, and is likely to experience in the future, significant price and
volume fluctuations, which could adversely affect the market price of our common
stock without regard to our operating performance. In addition, we believe that
factors such as quarterly fluctuations in our financial results and changes in
the overall economy or the condition of the financial markets could cause the
price of our common stock to fluctuate substantially. These fluctuations may
also cause short sellers to enter the market from time to time in the belief
that we will have poor results in the future. We cannot predict the actions of
market participants and, therefore, can offer no assurances that the market for
our stock will be stable or appreciate over time. The factors may negatively
impact shareholders' ability to sell shares of our common stock.
Our Common Stock Is Deemed To Be "Penny Stock," Which May Make It More
Difficult For Investors To Sell Their Shares Due To Suitability Requirements.
Our common stock is deemed to be "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934, AS AMENDED. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline. Penny stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the NASDAQ automated quotation system
(NASDAQ listed stock must still have a price of not less than $5.00
per share); or
o In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years) or
$10.0 million (if in continuous operation for less than three
years), or with average revenues of less than $6.0 million for the
last three years.
o Broker/dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny
stocks. Moreover, broker/dealers are required to determine whether
an investment in a penny stock is a suitable investment for a
prospective investor.
We Could Fail To Attract Or Retain Key Personnel, Which Could Be
Detrimental To Our Operations. Our success largely depends on the efforts and
abilities of key executives, including Marius Silvasan, our Chief Executive
Officer, Robert Krebs, our Chief Financial Officer, Kelly McLaren, our Chief
Operating Officer, Jeanne Chan, our Vice President of Procurement and
Operations. The loss of the services of any of the foregoing persons could
materially harm our business because of the cost and time necessary to find
their successor. Such a loss would also divert management attention away from
operational issues. We do not presently maintain key-man life insurance policies
on any of the foregoing persons. We also have other key employees who manage our
operations and if we were to lose their services, senior management would be
required to expend time and energy to find and train their replacements. To the
extent that we are smaller than our competitors and have fewer resources we may
not be able to attract the sufficient number and quality of staff.
We Are Subject to Price Volatility Due to Our Operations Materially
Fluctuating. As a result of the evolving nature of the markets in which we
compete, as well as the current nature of the public markets and our current
financial condition, we believe that our operating results may fluctuate
materially, as a result of which quarter-to-quarter comparisons of our results
of operations may not be meaningful. If in some future quarter, whether as a
result of such a fluctuation or otherwise, our results of operations fall below
the expectations of securities analysts and investors, the trading price of our
common stock would likely be materially and adversely affected. You should not
rely on our results of any interim period as an indication of our future
performance. Additionally, our quarterly results of operations may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside our control. Factors that may cause our quarterly results to
fluctuate include, among others:
o our ability to retain existing clients and customers;
o our ability to attract new clients and customers at a steady rate;
o our ability to maintain client satisfaction;
o the extent to which our products gain market acceptance;
o the timing and size of client and customer purchases;
o introductions of products and services by competitors;
o price competition in the markets in which we compete;
o our ability to attract, train, and retain skilled management,
o the amount and timing of operating costs and capital expenditures
relating to the expansion of our business, operations, and
infrastructure; and
o general economic conditions and economic conditions specific to the
wireless and portable communication device industry.
We May Not Be Able To Compete Effectively In Markets Where Our Competitors
Have More Resources. Many of our competitors have longer operating histories,
larger customer bases, longer relationships with clients, and significantly
greater financial, technical, marketing, and public relations resources than
TelePlus. Based on total assets and annual revenues, we are significantly
smaller than many of our competitors. Similarly, we compete against
significantly larger and better-financed companies in our business. We may not
successfully compete in any market in which we conduct business currently or in
the future. The fact that we compete with established competitors who have
substantially greater financial resources and longer operating histories than
us, enables them to engage in more substantial advertising and promotion and
attract a greater number of customers and business than we currently attract.
While this competition is already intense, if it increases, it could have an
even greater adverse impact on our revenues and profitability.
Our Limited Operating History In Our Industry Makes It Difficult To
Forecast Our Future Results. As a result of our limited operating history, our
historical financial and operating information is of limited value in predicting
our future operating results. We may not accurately forecast customer behavior
and recognize or respond to emerging trends, changing preferences or competitive
factors facing us, and, therefore, we may fail to make accurate financial
forecasts. Our current and future expense levels are based largely on our
investment plans and estimates of future revenue. As a result, we may be unable
to adjust our spending in a timely manner to compensate for any unexpected
revenue shortfall, which could force us to curtail or cease our business
operations.
If We Do Not Successfully Establish Strong Brand Identity In The
Markets We Are Currently Serving, We May Be Unable To Achieve Widespread
Acceptance Of Our Products. We believe that establishing and strengthening our
products is critical to achieving widespread acceptance of our future products
and to establishing key strategic relationships. The importance of brand
recognition will increase as current and potential competitors enter the market
with competing products. Our ability to promote and position our brand depends
largely on the success of our marketing efforts and our ability to provide high
quality products and customer support. These activities are expensive and we may
not generate a corresponding increase in customers or revenue to justify these
costs. If we fail to establish and maintain our brand, or if our brand value is
damaged or diluted, we may be unable to attract new customers and compete
effectively.
Future Acquisitions May Disrupt Our Business And Deplete Our Financial
Resources. Any future acquisitions we make could disrupt our business and
seriously harm our financial condition. We intend to consider investments in
complementary companies, products and technologies. While we have no current
agreements to do so, we anticipate buying businesses, products and/or
technologies in the future in order to fully implement our business strategy. In
the event of any future acquisitions, we may:
o issue stock that would dilute our current stockholders' percentage
ownership;
o incur debt;
o assume liabilities;
o incur amortization expenses related to goodwill and other intangible
assets; or
o incur large and immediate write-offs.
The use of debt or leverage to finance our future acquisitions should
allow us to make acquisitions with an amount of cash in excess of what may be
currently available to us. If we use debt to leverage up our assets, we may not
be able to meet our debt obligations if our internal projections are incorrect
or if there is a market downturn. This may result in a default and the loss in
foreclosure proceedings of the acquired business or the possible bankruptcy of
our business.
Our operation of any acquired business will also involve numerous risks,
including:
o integration of the operations of the acquired business and its
technologies or products;
o nanticipated costs;
o diversion of management's attention from our core business;
o adverse effects on existing business relationships with suppliers
and customers;
o risks associated with entering markets in which we have limited
prior experience; and
o potential loss of key employees, particularly those of the purchased
organizations.
If We Are Unable To Respond To The Rapid Changes In Technology And
Services Which Characterize Our Industry, Our Business And Financial Condition
Could Be Negatively Affected. Our business is directly impacted by changes in
the wireless communications industry. The wireless communication products and
services industry is subject to rapid technological change, frequent new product
and service introductions and evolving industry standards. Changes in technology
could affect the market for our products, accelerate the obsolescence of our
inventory and necessitate changes to our product line. We believe that our
future success will depend largely on our ability to anticipate or adapt to such
changes, to offer on a timely basis, services and products that meet these
evolving standards and demand of our customers, and our ability to manage and
maximize our product inventory and minimize our inventory of older and obsolete
products. We also believe that our future success will depend upon how
successfully our wireless carrier service providers and product vendors are able
to respond to the rapidly changing technologies and products. New wireless
communications technology, including personal communication services and voice
communication over the internet may reduce demand for the wireless communication
devices and services we currently are able to offer through our wireless carrier
service providers. We cannot offer any assurance that we will be able to respond
successfully to these or other technological changes, or to new products and
services offered by our current and future competitors, and cannot predict
whether we will encounter delays or problems in these areas, which could have a
material adverse affect on our business, financial condition and results of
operations.
We Rely In Large Part On Wireless Telecommunications Carriers With Whom We
Have Business Arrangements. Our Success Depends On Our Ability To Meet Our
Obligations To Those Carriers And The Abilities Of Our Wireless
Telecommunication Carriers And Vendors. We depend on a small number of wireless
telecommunications carriers and product manufacturers to provide our retail
customers with wireless services and communication devices. Currently,
approximately 90% of our wireless products and services accounts are dependant
upon arrangements with Telus Mobility and Microcell. Such agreements may be
terminated upon thirty days prior to written notice. Failure to maintain
continuous relationships with these and other wireless communications carriers
and product manufacturers would materially and adversely affect our business,
including possibly requiring us to significantly curtail or cease our
operations. Additionally, wireless telecommunications carriers may sometimes
experience equipment failures and service interruptions, which could, if
frequent, adversely affect customer confidence, our business operations and our
reputation.
Limited Duration of Agreements in Place with Major Wireless Carriers. The
Company's current sales volumes have enabled the Company to build strong
relationships with a variety of wireless and communication partners thus,
minimizing the risks associated with the non-renewal of any of the Company's
agreements.
No Product Exclusivity. The current market consolidation undertaken by the
major wireless carriers limit the Company's risk associated with no product
exclusivity as new retail players can't readily get access to the products and
services offered by the Company.
Price Erosion. The Company is faced with high price elasticity resulting
in the erosion of its margin on certain products. Price wars oftentimes occur in
the industry which have a negative impact on profit margins.
Issuance of a large number of wireless licenses increasing the number of
competitors.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations is based upon our audited financial statements, which have been
prepared in accordance with accounting principals generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of any contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to uncollectible receivable, investment values, income taxes, the
recapitalization and contingencies. We base our estimates on various assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements:
Impairment of Long-Lived Assets
Property and equipment are stated at cost less accumulated depreciation.
Major renewals and improvements are capitalized; minor replacements, maintenance
and repairs are charged to current operations. Depreciation is computed by
applying the straight-line method over the estimated useful lives of machinery
and equipment (three to seven years). The majority of Teleplus' long-lived
assets are located in Canada. Teleplus performs reviews for the impairment of
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Revenue Recognition
Teleplus' revenue is generated primarily from the sale of wireless,
telephony products and accessories to end users. Teleplus recognizes revenue
when persuasive evidence of an arrangement exists, delivery has occurred, the
sales price is fixed or determinable, and collectibility is probable.
Teleplus recognizes product sales generally at the time the product is
shipped. Concurrent with the recognition of revenue, Teleplus provides for the
estimated cost of product warranties and reduces revenue for estimated product
returns. Sales incentives are generally classified as a reduction of revenue and
are recognized at the later of when revenue is recognized or when the incentive
is offered. Shipping and handling costs are included in cost of goods sold.
Teleplus' suppliers generally warrant the products distributed by Teleplus
and allow returns of defective products, including those that have been returned
to Teleplus by its customers. Teleplus does not independently warrant the
products that it distributes, but it does provide warranty services on behalf of
the supplier.
Inventories
Inventories consist of wireless and telephony products and related
accessories and are stated at the lower of cost, determined by average cost
method, or market.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our chief executive
officer and chief financial officer, after evaluating the effectiveness of the
Company's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period
covered by this quarterly report (the "Evaluation Date"), has concluded that as
of the Evaluation Date, our disclosure controls and procedures were adequate and
designed to ensure that material information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act of 1934
is 1) recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms; and 2) accumulated and
communicated to him as appropriate to allow timely decisions regarding required
disclosure..
(b) Changes in internal control over financial reporting. There were no
significant changes in our internal control over financial reporting during our
most recent fiscal quarter that materially affected, or were reasonably likely
to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following proceedings have been instigated against the Company. The
Company does not believe that the following legal proceedings would have a
materially adverse impact on the Company's business or its results of
operations, nevertheless such proceedings are disclosed.
Goods and Services. TelePlus is currently defending an action instigated
against it by one of its suppliers. Such supplier claims that the Company
defaulted on the payment of goods sold by supplier to the Company. The Company
claims that it failed to pay the goods sold by supplier because such goods were
purchased contingent on supplier making available to the Company wireless
network access which supplier failed to provide. The Company is unable to sell
these goods at retail and has attempted, without success, to return the goods to
the supplier. The supplier has refused to take the goods back. Total liability
to the Company, if it losses the claim, may reach a maximum of $20,000.
Proposed Tax Assessment. Teleplus is involved in proceedings with the
Minister of Revenue of Quebec ("MRQ"). The MRQ has proposed an assessment of for
the Goods and Services Tax ("GST") and Quebec Sales Tax ("QST") of approximately
CDN$474,000 and penalties of approximately CDN$168,000. The proposed tax
assessment is for CDN$322,000 for QST and CDN$320,000 for GST. Teleplus 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. It is
possible that cash flows or results of operations could be materially affected
in any particular period by the unfavorable resolution of one or more of these
contingencies.
Wrongful Dismissal: A former employee of TelePlus retail Services, Inc., a
subsidiary of the Company, has instigated a claim in Quebec Superior Court in
the amount of $90,000 against the Company for wrongful dismissal. The Company
doesn't believe the claim to be founded and intends to vigorously contest such
claim. The parties are at discovery stages.
The Company has instigated the following claim against Wal-Mart Canada, corp.:
Wal-Mart Canada, Corp. The Company's subsidiary, TelePlus Management, has
instigated September 23rd, 2004 in the Ontario Superior Court of Justice a
USD$2.3 million claim against Wal-Mart Canada Corp. for breach of agreement.
Parties are at discovery stages.
ITEM 2. CHANGES IN SECURITIES
During the first quarter, 2005 we issued 145,433 common shares to Cornell
Capital Partners ("Cornell") in connection with the conversion of convertible
debentures.
During the first quarter, 2005 we issued 2,243,261 common shares to
Cornell Capital Partners ("Cornell").
March 31st, 2005, the Company issued an aggregate of 964,706 shares of its
common stock, $.001 par value per share which were not registered under the Act
to the Freedom principal in connection with the acquisition of Freedom. The
Company claims an exemption from registration afforded by Section 4(2) of the
Act since the foregoing issuances did not involve a public offering, the
recipients had access to information that would be included in a registration
statement, took the shares for investment and not resale and the Company took
appropriate measures to restrict transfer.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Kelly McLaren, President and COO of the Company was appointed to the
Company's board of directors as of March 24, 2005.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
xhibits
Exhibit No. Description
31.1 Certificate of the Chief Executive
Officer pursuant Section 302 of the
Sarbanes-Oxley Act of 2002 *
31.2 Certificate of the Chief Financial
Officer pursuant Section 302 of the
Sarbanes-Oxley Act of 2002 *
31.3 Certificate of the President and COO
Officer pursuant Section 302 of the
Sarbanes-Oxley Act of 2002 *
32.1 Certificate of the Chief Executive
Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 *
32.2 Certificate of the Chief Financial
Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 *
32.3 Certificate of the President and COO
Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 *
* Filed Herein.
b) REPORTS ON FORM 8-K
The Company filed the following report on Form 8-K during the quarter for which
this report is filed:
(1) Form 8-K filed on January 21, 2005 to advise investors that the
Company dismissed Lopez, Blevin, Bork & Associates (the "Former Accountant") on
January 14th 2005 as the Company's independent auditors and appointed Mintz &
Partners, LLP on that same day as the Company's auditor.
(2) Form 8-K filed on May 4, 2005, to describe acquisition of Freedom
Phone Lines ("Freedom") and Keda Consulting, Inc. ("Keda"). Such report included
the description of (a) the assets acquired, (b) the targets' business, (c) the
purchase price, (d) competitive business conditions and (e) risks. The Company
also provided as an exhibit the stock purchase agreement signed with the Freedom
& Keda principals
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TELEPLUS ENTERPRISES, INC.
DATED: May 13, 2005 By: /s/ Marius Silvasan
--------------------------------------
Marius Silvasan
Chief Executive Officer
DATED: May 13, 2005 By: /s/ Robert Krebs
--------------------------------------
Robert Krebs
Chief Financial Officer
DATED: May 13, 2005 By: /s/ Kelly McLaren
--------------------------------------
Kelly McLaren
President & COO