UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from July 1 to September 30, 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
incorporation or organization) Identification No.)
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 October 17th, 2005, 86,029,786 shares of Common Stock of the issuer were
outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELEPLUS ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2005
(ALL NUMBERS ARE IN USD)
ASSETS
Current assets
Cash $ 1,032,746
Trade Accounts Receivables ( Net of allowance for bad debts of 26,633) 1,196,264
Accrued and other accounts receivable 968,223
Inventories 505,463
Prepaid expenses 651,851
------------
Total current assets 4,354,547
Property and equipment, net 1,184,580
Goodwill 12,841,019
Deferred financing 1,783,515
Fees 3,284
------------
Other assets $ 20,166,945
============
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 3,255,648
Accrued expenses 1,268,124
Accrued acquisition obligations (note 3) 1,646,987
Note Payable Acquisition (note 4) 318,400
Unearned Revenue 537,721
------------
Total current liabilities 7,026,880
------------
Promissory Note , net (note 6) 5,625,000
------------
Accrued acquisition obligations (note 3) 5,115,192
------------
SHAREHOLDERS' EQUITY:
Class A Preferred Stock , $.001 par value, 10,000,000 shares authorized , 2,000,000
Issued and outstanding
Common stock, $.001 par value, 150,000,000 shares authorized, 86,029,786 2,000
shares issued and outstanding 86,029
Additional paid in capital 5,608,063
Accumulated deficit (3,283,675)
Accumulated other comprehensive income (12,544)
------------
Total Shareholders' Equity 2,399,873
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 20,166,945
============
See accompanying summary of accounting policies
and notes to condensed consolidated financial statement
TELEPLUS ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL NUMBERS ARE IN USD)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
------------ ------------ ---------- ---------
Net revenues $ 6,805,832 $ 3,339,948 13,224,631 8,184,034
Cost of revenues 4,791,798 2,346,772 9,236,964 6,011,000
------------ ------------ ---------- ---------
Gross Margin 2,014,034 993,176 3,987,667 2,173,034
General, administrative & selling 1,930,157 1,158,610 4,811,239 2,857,557
------------ ------------ ---------- ---------
Income (loss) before interest,
Income taxes, depreciation and
amortization 83,877 (165,434) (823,572) (684,523)
------------ ------------ ---------- ---------
Depreciation of property and
Equipment 139,345 57,552 329,274 151,949
Amortization of deferred financing 1,890 140,321
Interest expense 141,337 -- 231,378 `
------------ ------------ ---------- ---------
Income (loss) before income taxes (198,695) (222,986) (1,524,545) (836,472)
Provision for income taxes -- -- -- --
------------ ------------ ---------- ---------
Net income (loss) (198,695) (222,986) (1,524,545) (836,472)
Net income (loss) per share (0.00) (0.00) (0.02) (0.01)
Weighted average share
Outstanding 80,681,289 67,021,039 76,303,117 66,718,436
See accompanying summary of accounting policies
and notes to condensed consolidated financial statement
TELEPLUS ENTERPRISES, INC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2005
(ALL NUMBERS IN USD)
Accumulated
Additional Accumulated Other
Common stock Paid-in Deficit Comprehensive
Shares Amount Capital Income Total
Balance December 31,
2004 68,917,904 68,917 2,127,421 (1,759,130) 428 437,636
Comprehensive Loss:
Net loss (1,524,545) (1,524,545)
Foreign currency
transaction (12,972) (12,972)
----------
Comprehensive Loss: (1,537,517)
----------
Issuance of common stock
in connection with
conversion of
convertible
debentures, net 4,966,808 4,967 450,384 455,351
Issuance of common
stock in
connection with the
raising of Company
financing , net 9,629,032 9,629 2,538,960 2,548,589
Issuance of common
stock to directors 180,000 180 55,420 55,600
Issuance of common
stock to settle a
lawsuit 50,000 50 10,950 11,000
Issuance of common
stock
in connection with
the acquisition of 800,503 800 247,356 248,156
Telizon Inc
Issuance of common
stock in connection
with acquisition of
freedom phone lines 964,706 965 327,035 328,000
Issuance of common
stock in connection
with raising of debt
and capital, net 520,833 521 84,270 84,791
Cost of financing
Activities (233,733) (233,733)
---------- ------ -------- --------- ------ --------
Balance per Sept
30,2005 86,029,786 86,029 5,608,063 (3,283,675) (12,544) 2,399,873
See accompanying summary of accounting policies
And note to condensed consolidated financial statement
TELEPLUS ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL NUMBERS ARE IN USD)
Nine Months Ended
September 30,
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES $(1,524,545) $ (836,472)
Net income (loss)
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
Depreciation and amortization 329,274 151,949
Non Cash 2,000
Compensation
Amortization of deferred financing 140,321
Change in assets and liabilities:
Account receivable 416,178 570,373
Inventories 574,561 180,326
Prepaid expenses (218,067) (64,545)
Other assets 30,028 (110,341)
Account payable 136,187 (500,130)
Accrued expenses (48,258) (101,222)
Note Payable Acquisition 318,400 --
Unearned Revenue 138,491 --
----------- -----------
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 294,570 $ (710,061)
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of business (5,135,187) (125,185)
Capital Expenditure (125,376) (185,194)
CASH FLOW (USED IN) INVESTING ACTIVITIES (5,260,563) (310,379)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 618,261
Proceeds from issuance of promissory note net 4,817,555
Proceeds from issuance of convertible debentures, net 642,126
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 4,817,555 1,260,387
Effect of exchange rate changes on cash (12,972) (27,577)
NET INCREASE (DECREASE) IN CASH (161,410) 212,369
Cash acquired from acquisitions 810,843 --
Cash, beginning of period 383,313 100,804
----------- -----------
Cash, end of period 1,032,746 313,173
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ -- --
Net assets acquired in reverse merger $ -- --
TELEPLUS ENTERPRISES, INC.
(a) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
The accompanying condensed unaudited consolidated financial statements of
Teleplus Enterprise, Inc, (the "Company"), have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 1-QSB and Item 310 ( b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management of the Company, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 2005 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005. For further information, refer
to the financial statements and footnotes thereto included in the Company's
annual report on Form - 10KSB for the year ended December 31, 2004.
Nature of business. The Company is a provider of Wireless and Telecom products
and services across North America. TelePlus Connect, Corp. - is a reseller of a
variety of Telecom services including landline, long distance and internet
services. TelePlus Wireless, Corp. - operates a virtual wireless network selling
cellular network access to distributors in the United States. 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 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 $2,672,333 because accrued acquisition obligations of
$1,646,987 have been classified as current liabilities. However $ 359,000 of the
accrued acquisition obligation will be settled by the issuance of common stock.
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.
Teleplus also 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 revenue is
recognized when the customer receives the service.
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 18 months. The deferred financing fees will be amortized over the terms
of the respective debts. The Company incurred $ 140,321 in amortization expense
for the nine months ended September 30, 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 1, 2006, and its adoption will not have a material impact on our
financial position or Results of operations.
In May 2005 , the FASB issued SFAS No. 154 " Accounting Changes and Error
Corrections" ("SFAS No. 154") which supersedes APB Opinion No. 20, " Accounting
Changes" and SFAS No 3 " Reporting Accounting Changes in Interim Financial
Statements". SFAS No. 154 changes the requirements for accounting for and
reporting of changes in accounting principle. The statement requires the
retroactive application to prior periods' financial statements of changes in
accounting principles, unless it is impracticable to determine either the period
specific effects or the cumulative effects of the change. SFAS No. 154 does not
change the guidance for reporting the correction of an error in previously
issued financial Statements or the change in accounting estimate .SFAS No. 154
is effective for accounting changes and Corrections of errors made in fiscal
years beginning after December 15, 2005. The company does not believe SFAS No.
154 will have a significant impact on its consolidated financial position or
results of operations.
NOTE 2 - ACQUISTIONS
In April 2005 Teleplus purchased 100% of the issued and outstanding shares of
Freedom Phone Lines Ltd, an Ontario based company.
The total purchase price is estimated to be $ 870,000. The allocation to the
assets acquired and liabilities assumed based on the established fair market
value was estimated as follows:
Cash $ 182,000
Accounts Receivables $ 72,000
Fixed Assets ( net) $ 22,000
Goodwill $ 854,000
Accounts payable $(144,000)
Deferred Revenue $ (45,000)
Accrued Liabilities $ (71,000)
---------
Net assets acquired at fair value $ 870,000
Total Consideration:
964,706 Common shares $ 328,000
Cash $ 542,000
---------
$ 870,000
Management has determined that no amount need to be allocated to other
intangible assets and $854,000 has been allocated to Goodwill. It represents the
excess of the purchase price over the fair value of the net tangible assets
acquired and is not deductible for tax purposes. Goodwill will not be amortized
and will be tested for impairment, at least annually.
The results of operations of Freedom Phone Lines Inc have been included in
Teleplus' consolidated statements of operations since the completion of the
acquisition in April 2005. Results for the periods prior to the acquisitions
were not material to Teleplus and accordingly pro forma results of operations
have not been presented.
In June 2005 Teleplus purchased 100% of the issued and outstanding shares of
Avenue Reconnect Inc., an Ontario based company.
The total purchase price is estimated to be $ 592,000. The allocation to the
assets acquired and liabilities assumed based on the established fair market
value was estimated as follows.
Cash $ 8,000
Accounts Receivable $ 31,000
Other Assets $ 16,000
Fixed Assets ( net) $ 19,000
Goodwill $ 567,000
Accounts Payable $ (49,000)
---------
Net assets acquired at fair value $ 592,000
Total Consideration:
Cash (of which $ 253,000 is payable after July 2005) $592,000
Management has determined that no amount need to be allocated to other
intangible assets and $567,000 has been allocated to Goodwill. Goodwill
represents the excess of the purchase price over the fair value of the net
tangible assets acquired and is not deductible for tax purposes. Goodwill will
not be amortized and will be tested for impairment, at least annually.
The results of operations of Avenue Reconnect Inc have been included in
Teleplus' consolidated statements of operations since the completion of the
acquisition in June 2005. Results of Avenue Reconnect Inc for periods prior to
the acquisition were not material to Teleplus and accordingly pro forma results
of operations have not been presented.
An additional amount of $ 1,542,022 has been allocated to goodwill based on the
selling shareholders earning a minimum of $ 1,542,022 based on the achievements
of Freedom Phone Lines and Avenue Reconnect reaching specific EBITDA over the
next 48 months.
In July 2005 Teleplus purchased 100% of the issued and outstanding shares of
Telizon Inc and One Bill Inc, Ontario based companies.
The total purchase price is estimated to be $ 9,158,000. The allocation to the
assets acquired and liabilities assumed based on established fair market value
was estimated as follows:
Cash $ 618,000
Accounts Receivables $ 1,262,000
Prepaid Assets $ 41,000
Fixed Assets ( Net) $ 109,000
Goodwill $ 8,745,000
Accounts Payables $ (669,000)
Accrued Liabilities $ 595,000)
Unearned Income $ (353,000)
Net assets acquired at fair value $ 9,158,000
Total Consideration:
Cash (of which $ 5,225,000 is $ 9,158,000
Payable after September 2005)
Management has estimated at this time that no amount need to be allocated to
other intangible assets and $8,745,000 has been allocated to Goodwill. It
represents the excess of the purchase price over the fair value of the net
tangible assets acquired and is not deductible for tax purposes. Goodwill will
not be amortized and will be tested for impairment, at least annually.
The results of operations of Telizon Inc and One Bill Inc have been included in
Teleplus consolidated statements of operations since the completion of the
acquisition in July 2005. Results for the periods prior to the acquisition were
material to Teleplus and accordingly pro forma results of operations have been
filed previously.
NOTE 3 - ACCRUED ACQUISITON OBLIGATIONS
Included in the accrued acquisition obligations is an amount of $1,051,450
payable on an earn-out basis based on the achievement of specific benchmarks by
Freedom Phone Lines Inc. and Avenue Reconnect Inc. A current portion of $308,403
has been recorded as at September 30, 2005.
NOTE 4 - NOTE PAYABLE ACQUISITION
A promissory note was issued in the amount of $ 318,400 to Teleplus Connect
repayable with interest at 2% above the Canadian prime rate. This promissory
note was issued in connection with the acquisition of Avenue Reconnect Inc. and
is secured against all present and acquired property.
NOTE 5 - COMMON STOCK
The following shares were issued by the company during the first nine months
ended September 30, 2005:
The Company issued 4,966,808 common shares in connection with the conversion of
convertible debt.
The Company issued 9,629,032 common shares in connection with the raising of
Company financing.
The Company issued 180,000 common shares to directors of the company.
The Company issued 964,706 common shares in connection with the acquisition of
Freedom Phone Lines.
The Company issued 50,000 common shares in connection with the settlement of a
lawsuit.
The Company issued 520,833 common shares in connection with the raising of debt
and company financing
The Company issued 800,503 in connection with the acquisition of Telizon Inc.
In addition to the common stock the Company also issued 2,000,000 shares of
Class A Preferred shares. The Class A Preferred shares entitle 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
there on.
STOCK OPTIONS
Pursuant to the company's stock option plan for employees, the Company granted
7,635,000 stock options in 2004 and 3,917,500 stock options in 2005.
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) $ (1,526,545)
Pro Forma
Compensation expense 76,000
-------------
Pro forma:
Net income (loss) $ (1,602,545)
-------------
Net income (loss) per share as reported $ (0.02)
Pro forma compensation expense per share (0.00)
-------------
Pro forma earnings (loss) per share $ (0.02)
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 September 30, 2005 are summarized as follows:
Number Price Year of Issued Vesting Period Term
1,640,000 .36 2004 Immediately 3 years
225,000 .36 2004 1 Year 3 years
2,180,000 .38 2004 Immediately 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
932,500 .21 2005 Current year 3 years
100,000 .21 2005 Current year 3 years
1,015,000 .22 2005 Current year 3 years
75,000 .22 2005 1 year 3 years
1,270,000 .23 2005 1 year 3 years
25,000 .24 2005 1 year 3 years
100,000 .22 2005 2 years 3 years
100,000 .23 2005 2 years 3 years
100,000 .23 2005 3 years 3 years
100,000 .24 2005 4 years 3 years
100,000 .25 2005 5 years 3 years
NOTE 6 - 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 $10,000,000 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 September 30, 2005 $ 1,000,000 of the convertible
debentures has been converted into common shares.
The Company received $8,125,000 under three promissory notes of which $5,625,000
was still outstanding as of September 30, 2005. The outstanding balance under
the promissory notes is "unsecured", bears interest at 10% per annum and is
repayable on January 15, 2007. During the nine months ended September 30, 2005
$2,300,000 had been repaid on the original amount of the notes leaving
$5,625,000 outstanding as of September 30, 2005.
NOTE 7 - CONSOLIDATED STATEMENT OF CASH FLOWS
Non cash financing and investing activities during 2005 were as follows:
The Company issued 4,966,808 common shares upon the conversion of debentures
having face value of values of $ 800,000.
The Company issued 9,629,032 common shares in connection with the raising of
Company financing Valued at $ 1,800,000
The Company issued 130,000 common shares to directors having a face value of $
55.600
The Company issued 964,706 common shares in connection with the acquisition of
Freedom Phone Lines having a face value of $328,000.
The Company issued 50,000 common shares in connection with the settlement of a
lawsuit having a face value $11,000.
The Company issued 520,833 common shares in connection with the raising of debt
and company financing having a face value of $84,791
The Company issued 800,503 common shares in connection with the acquisition of
Telizon Inc having a face value of $ 248,156.
The Company issued 2,000,000 Preferred A shares in connection with consulting
fees paid having a face value of $2,000.
Note 8 - RELATED PARTY TRANSACTIONS
During the quarter ended September 30, 2005 the Company issued 2,000,000 Class A
Preferred shares as a bonus for services rendered to an entity owned by the
majority shareholder.
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 provider of Wireless and Telecom products and services
across North America. This is done through three wholly owned subsidiaries.
TelePlus Connect, Corp. - is a reseller of a variety of Telecom services
including landline, long distance and internet services. TelePlus Wireless,
Corp. - operates a virtual wireless network selling cellular network access to
distributors in the United States. 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.
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 come in three folds.
GROWTH IN CANADA:
The Company through its wholly owned subsidiary TelePlus Retail Services,
Inc. currently operates 24 TelePlus branded stores in two Canadian provinces.
All stores are located in enclosed shopping malls 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 (a) Keda Consulting Corp. and Freedom Phones Lines April 1st, (b)
Avenue Reconnect, Inc June 1st and (c) Telizon Inc. in July 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 Avenue Reconnect, Inc., headquartered in Windsor, Canada, is a
reseller of landline, long distance and internet prepaid services to
over 2,000 residential users primarily in Ontario, area and
generates yearly revenues of $1.1 million and EBITDA of $0.200
million.
o Telizon Inc, headquartered in Ontario, Canada, is a reseller of
landline and long distance services as well as internet service
provider. Telizon currently services over 18,000 commercial and
residential lines in the Ontario area. 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;
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 $0.328 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 transaction calls for TelePlus to pay a total consideration of
$8.6M to the shareholders of Telizon in exchange of 100% of the Telizon shares.
$3.3M is to be paid on closing, $1.93M 12 months after closing and $1.45M 24
months after closing, the remaining balance of $1.93M is being paid in 24
monthly payments of $80.6k per month. 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. The Company obtained the
required financing to close the transaction on July 15th 2005. Once the
financing was obtained the Company closed the acquisition of Telizon.
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 Avenue Reconnect, Inc. The transaction calls for TelePlus
to pay a combination of cash and stock valued at $565k 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. The Company closed the acquisition of Avenue on June 1st, 2005.
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.
On July 15, 2005, TelePlus entered into an Equity Distribution Agreement
with Cornell Capital Partners, dated as of July 15, 2005. Pursuant to the Equity
Distribution Agreement, TelePlus may, at its discretion, periodically sell to
Cornell Capital Partners shares of TelePlus' common stock for a total purchase
price of up to $35 million. For each share of common stock purchased under the
Equity Distribution Agreement, Cornell Capital Partners will pay TelePlus 98% of
the lowest volume weighted average price of TelePlus' Company's common stock as
quoted by Bloomberg, LP on the Over-the-Counter Bulletin Board or other
principal market on which TelePlus' common stock is traded for the five days
immediately following the notice date. The price paid by Cornell Capital
Partners for TelePlus' stock shall be determined as of the date of each
individual request for an advance under the Equity Distribution Agreement.
Cornell Capital Partners will also retain 5% of each advance under the Equity
Distribution Agreement. The amount of each cash advance is limited to $2,000,000
per five consecutive trading days after the advance notice is provided to
Cornell Capital Partners, with no cash advance occurring within seven trading
days of a prior advance.
Upon the execution of the Equity Distribution Agreement, Cornell Capital
Partners received as a one-time commitment fee 2,500,000 shares of TelePlus'
common stock and two warrants to purchase 20,000,000 shares of TelePlus' common
stock. Each warrant entitles the holder thereof to purchase 10,000,000 shares of
TelePlus' common stock. The first warrant for 10,000,000 shares of TelePlus'
common stock has an exercise price equal to $0.38 or as adjusted under the terms
of the warrant. The second warrant for 10,000,000 shares of TelePlus' common
stock has an exercise price equal to $0.25 or as adjusted under the terms of the
warrant. The warrants expire three years from July 15, 2005.
In relation with the Equity Distribution Agreement, we have also entered
into a Placement Agent Agreement, dated as of July 15, 2005, with Newbridge
Securities Corporation. Upon execution of the Placement Agent Agreement,
Newbridge Securities Corporation received, as a one-time placement agent fee,
27,027 shares of TelePlus' common stock in an amount equal to $10,000 divided by
the volume weighted average price of TelePlus' shares, as quoted on Bloomberg,
LP, as of July 15, 2005.
On July 15, 2005, we also entered into a Securities Purchase Agreement
with Cornell Capital Partners. Pursuant to the Securities Purchase Agreement,
Cornell Capital Partners purchased secured convertible debentures to Cornell
Capital Partners in the original principal amount of $5,625,000. The debentures
have an 18-month term and accrue annual interest of 10%. The $5,625,000 under
the debentures was disbursed to TelePlus within five days of the execution of
the Securities Purchase Agreement. The debentures may be redeemed by TelePlus at
any time, in whole or in part. If on the date of redemption, the closing price
of TelePlus' common stock is greater than the conversion price in effect,
TelePlus shall pay a redemption premium of 20% of the amount redeemed in
addition to such redemption. The debentures are also convertible at the holder's
option at a conversion price equal to $0.285, which may be adjusted pursuant to
the terms of the Secured Convertible Debentures. The debentures are secured by
substantially all the assets of TelePlus.
COMPARISON OF OPERATING RESULTS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 2004.
Sales revenues for the quarter ended September 30, 2005 reached $6,805,832
as compared to $3,339,948 for the quarter ended September 30, 2004. This
represents a 104% increase over the previous year. The increase in sales was due
mainly to the revenues captured from companies recently acquired and same store
retail sales versus the previous year.
Cost of revenues for the quarter ended September 30, 2005 increased to
$4,791,798 as compared to $2,346,772 for the quarter ended September 30, 2004.
This represents a 104% increase over the previous year. 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") for the
quarter ended September 30, 2005 was 30% as compared to 30% for the quarter
ended September 30, 2004. The company incurred an increase in gross margin from
the new acquisitions which was offset by lower gross margins in the retail
division thereby resulting in the same gross margin percentage of 30% from the
quarter ended September 30, 2005 and September 30, 2004.
General, administrative ("G&A") expense for the quarter ended September
30, 2005 increased to $1,930,157 as compared to $1,158,610 for the quarter ended
September 30, 2004. The increase in G&A was due mainly to the recently completed
acquisitions.
The Company had a net loss of $198,695 for the quarter ended September 30,
2005, as compared to a net loss of $222,986 for the quarter ended September 30,
2004. The decrease in net loss is due mainly to the increase in operating income
from the newly acquired companies offset by an increase in the Company's
depreciation, interest, and amortization expense of intangible assets. The total
increase in these expenses was $225,020 reaching $282,572 for the quarter ended
September 30, 2005 as compared to $57,552 for the quarter ended September 30,
2004.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 2004.
Sales revenues for the nine months ended September 30, 2005 reached
$13,224,631 as compared to $8,184,034 for the nine months ended September 30,
2004. This represents a 62% increase over the previous year. The increase in
sales was due mainly to the revenues captured from companies recently acquired
and same store retail sales versus the previous year.
Cost of revenues for the nine months ended September 30, 2005 reached
$9,236,964 as compared to $6,011,000 for the nine months ended September 30,
2004. This represents a 54% increase over the previous year. The increase in
cost of revenues was due to the increase in overall sales.
Gross profit as a percentage of sales ("gross profit margin") for the nine
months ended September 30, 2005 was 30% as compared to 27% for the nine months
ended September 30, 2004. The increase in gross profit margin is mainly due to
increased gross margin from the companies acquired during the year.
General, administrative ("G&A") expense for the nine months ended
September 30, 2005 reached $4,811,239 as compared to $2,857,577 for the nine
months ended September 30, 2004. The increase in G&A was due mainly to the
recently completed acquisitions and financing costs.
The Company had a net loss of $1,524,545 for the nine months ended
September 30, 2005, as compared to a net loss of $836,472 for the nine months
ended September 30, 2004. The increase in net loss is due mainly to the non
recurring costs associated with (a) an inventory write-down, (b) additional
financing and acquisition costs, (c) costs associated with the consolidation of
the retail division, and (e) increase in the Company's depreciation and
amortization expense of intangible assets. The total increase in these expenses
was $549,024 reaching $700,973 for the nine months ended September 30, 2005 as
compared to $151,949 for the nine months ended September 30, 2004.
As of September 30, 2005, the Company had an accumulated deficit of
$3,283,675.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES:
As of September 30, 2005, total current assets were $4,354,547 which
consisted of $1,032,746 of cash, $2,164,487 of accounts receivable, net of an
allowance for doubtful accounts, $505,463 of inventories, and $651,851 of
prepaid expenses.
As of September 30, 2005, total current liabilities were $7,026,880 which
consisted of $3,255,648 of accounts payable, $1,268,124 of accrued expenses and
$1,646,987 of accrued acquisition obligations, $318,400 of a note payable on
acquisitions and $537,721 of unearned revenue.
The Company had negative net working capital at September 30, 2005 of
$2,672,333. The ratio of current assets to current liabilities was 62%.
The Company had a net increase in cash of $649,433 for the nine months
period ended September 30, 2005 as compared to a net increase in cash of
$212,369 for the nine months ended September 30, 2004. The net cash increase
consisted of a net increase in cash of $810,843 from acquisitions offset by a
net decrease of $161,410 from the company's business activities. Cash flows from
financing activities and operations represented the Company's principal source
of cash for the nine months ended September 30, 2005. Cash flows from financing
activities during the nine months period ended September 30, 2005 were
$4,817,555 which came from promissory notes. During the nine months ended
September 30, 2004, the Company received proceeds of $ 1,260,387 from the
issuance of common stock and convertible debenture.
During the nine months period ended September 30, 2005, the Company had
$294,570 cash provided from operating activities as compared to the nine months
period ended September 30, 2004, where the Company had $710,061 cash used in
operating activities. The cash provided from operating activities for the nine
months period ended September 30, 2005 was due to accounts receivables that
decreased by $416,178, inventories that decreased by $574,561, other assets that
decreased by $30,028, accounts payable that increased by $136,187, notes payable
on acquisitions that increased by $318,400, and unearned revenue that increased
by $138,491, which were offset by prepaid expenses that increased by $218,067
and accrued expenses that decreased by $48,258. The cash used by operating
activities for the nine months period ended September 30, 2004 was due to
accounts receivable that decreased by $570,373, inventories that decreased by
$180,326, which were offset by prepaid expenses that increased by $64,545, other
assets that increased by 110,341, accounts payable that decreased by $500,130
and accrued expenses that decreased by 101,222.
Capital expenditures were $125,376 for the nine months period ended
September 30, 2005 as compared to $185,194 for the nine months period ended
September 30, 2004.
Cash used for acquisition of business totaled $5,135,187 for the nine
months ended September 30, 2005 as compared to $ 125,185 for the nine months
period ended September 30, 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 $35M 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
September 30, 2005 we incurred a net loss of $1,524,545 and our accumulated
deficit was $3,283,675 as compared to a net loss of $836,472 for the quarter
ended September 30, 2004 and our accumulated deficit was $1,521,632.
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 September 30, 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 $2,674,333 at September 30, 2005 which means
that our current liabilities exceeded our current assets on September 30, 2005
by $2,672,333.
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 September 30,
2005 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:
|X| With a price of less than $5.00 per share;
|X| That are not traded on a "recognized" national exchange;
|X| 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
|X| 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.
|X| 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:
|X| our ability to retain existing clients and customers;
|X| our ability to attract new clients and customers at a steady rate;
|X| our ability to maintain client satisfaction;
|X| the extent to which our products gain market acceptance;
|X| the timing and size of client and customer purchases;
|X| introductions of products and services by competitors;
|X| price competition in the markets in which we compete;
|X| our ability to attract, train, and retain skilled management,
|X| the amount and timing of operating costs and capital expenditures
relating to the expansion of our business, operations, and
infrastructure; and
|X| 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: |X| issue stock that would dilute
our current stockholders' percentage ownership; |X| incur debt; |X| assume
liabilities; |X| incur amortization expenses related to goodwill and other
intangible assets; or |X| 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:
|X| integration of the operations of the acquired business and its
technologies or products;
|X| unanticipated costs;
|X| diversion of management's attention from our core business;
|X| adverse effects on existing business relationships with suppliers
and customers;
|X| risks associated with entering markets in which we have limited
prior experience; and
|X| 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.
Teleplus also 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 revenue is
recognized when the customer receives the service.
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.
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 inventory 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 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 expenses. 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 the useful lives.
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 loses 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
Finder Fee: This action was brought by Howard Salamon d/b/a "Salamon
Brothers", seeking the sum of $200,000 as a finder's fee for introducing
TelePlus Enterprises, Inc. (TelePlus) to a source of capital. Salamon claims 10%
of the total amount of financing received from Cornell Capital Partners, LP.
TelePlus has answered the Complaint and alleged several affirmative defenses
including the illegality of the alleged "finder's fee agreement" on the grounds
that Salamon is not a registered broker/dealer with either the NASD or SEC and
under well settled law cannot therefore enforce the finder's fee agreement.
Cornell has moved to intervene in the action and opposes Salamon's claim
asserting tortuous interference with a contract as well as seeking a declaratory
judgment. Salamon has made a motion for an attachment of Cornell's funds which
has been opposed by both Cornell and TelePlus and is on for a hearing before
Judge Walls in Newark Federal District Court on August 9, 2005. At such hearing
Salamon's motion for an attachment of Cornell's funds was denied by the court in
full by Judge Walls.
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 third quarter, 2005 we issued 1,783,633 common shares to
Cornell Capital Partners ("Cornell") in connection with the conversion of
convertible debentures.
During the third quarter, 2005 we issued 1,647,617 common shares to
Cornell Capital Partners ("Cornell")
On July 15th, 2005 we issued 2,500,000 shares to Cornell Capital Partners
("Cornell") as a fee under the Standby Equity Distribution agreement signed that
same day.
August 19th, 2005, the Company issued 60,000 common shares to its
directors as payment of director fees.
September 29th, 2005, the Company issued 70,000 common shares to its
directors as payments of director fees.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
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) MATERIAL REPORTS FILED
The Company filed the following report on Form 8-K and 8-K/A during the quarter
for which this report is filed:
(1) Form 8-K filed on July 19, 2005, to describe the financing arrangement
established with Cornell Capital Partners, LP ("Cornell"). Such report included
the description of the transaction and all material terms including the
associated risks. The Company also provided as exhibits the transaction
documents signed with Cornell.
(2) Form 8-K filed on July 20, 2005, to describe the acquisition of
Telizon, Inc. ("Telizon"). 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
exhibits the transaction documents signed with the Telizon principals. Also
included to this 8k was the issuance of 2,000,000 preferred shares to a company
controlled by our CEO, the creation of a Phantom Stock Program and issuance of
certain options to our executives.
(3) Form 8-K filed on September 21, 2005, to announce the appointment of
Gordon Chow to the board of directors of TelePlus.
(4) Form 8-K/A filed on September 22, 2005, as an amended to form 8-k
filed 20 July 2005 to provide the audited financial statements of Telizon, Inc
("Telizon"), recently acquired by TelePlus Connect Corp ("TelePlus Connect"), a
fully owned subsidiary of TelePlus Enterprises, Inc. ("TelePlus"). Also included
in this amendment are pro forma financials between Telizon and TelePlus.
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: November 14, 2005 By: /s/ Marius Silvasan
------------------------
Marius Silvasan
Chief Executive Officer
DATED: November 14, 2005 By: /s/ Robert Krebs
------------------------
Robert Krebs
Chief Financial Officer
DATED: November 14, 2005 By: /s/ Kelly McLaren
------------------------
Kelly McLaren
President & COO