UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 000-
WORLDTEQ GROUP INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
=============================================================
Nevada 03-7392107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
30 West Gude Drive, Rockville, Maryland 20850
(Address of principal executive offices) (Zip/Postal Code)
(888) 263-7776
(Telephone Number)
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Check whether the issuer (1) 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 period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
[X] YES [ ] NO
State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date. There were 33,706,190 common stock
shares, par value $0.001, as of April 7, 2004.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . .
Item 1 Financial Statements . . . . . . . . . . . . . . . . . . . . .
Condensed Balance Sheets - September 30, 2003
and December 31, 2002 . . . . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Operations for the Three
and Nine Months Ended September 30, 2003 and
2002 and for the Period from October 12, 2001
(Date of Inception) through September 30,2003 . . . . . . . . . 4
Condensed Statements of Cash Flows for the Nine
Months Ended September 30, 2003 and 2002 and
for the Period from October 12, 2001 (Date
of Inception) through September 30, 2003. . . . . . . . . . . . 5
Notes To Condensed Financial Statements . . . . . . . . . . . . 6
Item 2 Management's Discussion and Analysis. . . . . . . . . . . . . . 7
Item 3 Controls and Procedures . . . . . . . . . . . . . . . . . . . . 9
PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 10
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 10
Item 2 Changes in Securities and Small Business Issuer
Purchases of Equity Security. . . . . . . . . . . . . . . . . . 10
Item 3 Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 10
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . 10
Item 5 Other Information . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 10
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Note Regarding FORWARD-LOOKING STATEMENTS
In addition to historical information, this Report contains forward-looking
statements. Such forward-looking statements are generally accompanied by words
such as "intends," "projects," "strategies," "believes," "anticipates," "plans,"
and similar terms that convey the uncertainty of future events or outcomes. The
forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in ITEM 2 of this
Report, the section entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof and are in all cases subject to the Company's ability to cure its
current liquidity problems. There is no assurance that the Company will be able
to generate sufficient revenues from its current business activities to meet
day-to-day operation liabilities or to pursue the business objectives discussed
herein.
The forward-looking statements contained in this Report also may be impacted by
future economic conditions. Any adverse effect on general economic conditions
and consumer confidence may adversely affect the business of the Company.
WorldTeq Group International, Inc. undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. Factors that could cause actual results or conditions to
differ from those anticipated by these and other forward-looking statements
include those more fully described in the "Risk Factors" section of the
Company's Registration Statement filed with the Securities and Exchange
Commission (the "SEC") on April 20, 2004 on Form 10KSB. In addition, readers
should carefully review the risk factors described in other documents the
Company files from time to time with the Securities and Exchange Commission.
Part I
Financial Information
Item 1. Financial Statement
In the opinion of management, the accompanying unaudited financial statements
included in this Form 10-QSB reflect all adjustments necessary for a fair
presentation of the results of operations for the periods presented. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
WORLDTEQ GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 2004
(unaudited)
-----------
Assets
Current Assets:
Restricted Cash $ 31,807
Accounts Receivable 51,512
Other Current Assets 500
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Total current assets 83,819
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Equipment, net 10,800
Customer base 47,917
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Total assets $ 142,536
=============
Current Liabilities
Convertible note payable to stockholder $ 144,628
Convertible note payable 46,136
Accounts Payable 250,871
Accrued expenses 64,597
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Total current liabilities 506,232
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Commitments and contingencies
Stockholders' Deficit
Convertible preferred stock, $.001 par value,
5,000,000 shares authorized, 911,553 shares
issued and outstanding 911
Common stock, $.001 par value, 100,000,000
shares authorized, 31,705,746 shares issued
and outstanding 31,706
Paid in capital 21,054,542
Retained deficit (21,450,855)
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Total stockholders' deficit (363,696)
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Total liabilities and stockholders' deficit $ 142,536
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WORLDTEQ GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
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Three Months Ended
March 31,
--------------------------
2004 2003
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Sales $ 117,540 $ 382,444
Cost of Sales 82,691 209,060
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Gross profit 34,849 173,384
Selling, general and administrative expenses 314,430 310,211
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Income (loss) from operations (279,581) (136,827)
Interest Expense 2,888 9,706
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Net income (loss) $ (282,469) $ (146,533)
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Basic and diluted income (loss) per share: $ (0.01) $ (0.01)
============ ============
Weighted Average Shares Outstanding 31,139,524 21,630,000
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WORLDTEQ GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS
----------------------------------
(unaudited)
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Three Months Ended
March 31,
------------------------
Cash Flows Used in Operating Activities 2004 2003
------------------------
Net Income (Loss) $ (282,469) $ (146,533)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 6,549 9,843
Stock option expense 220,000 -
Change in:
Accounts Receivable (19,283) 10,328
Other Current Assets - (5,560)
Accounts Payable 6,922 27,929
Accrued Expenses 20,925 16,011
Deferred Revenue - (21,983)
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Net Cash Used In Operating Activities (47,356) (109,965)
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Cash Flows Used In Investing Activities
Purchases of customer base (50,000) -
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Cash Flows Provided By Financing Activities
Proceeds from shareholder note payable - 80,015
Exercise of stock options 100,000 -
Payments on note payable (2,644) (50)
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Net cash from financing activities 97,356 79,965
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Net Change in Cash - (30,000)
Cash - beginning of year - 85,000
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Cash - End of Quarter $ - $ 55,000
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WORLDTEQ GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
March 31, 2004
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The interim financial statements and summarized notes included herein were
prepared in accordance with accounting principals generally accepted in the
United States of America for interim financial information, pursuant to rules
and regulations of the Securities and Exchange Commission. Because certain
information and notes normally included in complete financial statements
prepared in accordance with accounting principals generally accepted in the
United States of America were condensed or omitted pursuant to such rules and
regulations, it is suggested that these financial statements be read in
conjunction with the Consolidated Financial Statements and the Notes thereto,
included in Worldteq's Report 10KSB filed April 19, 2004. These interim
financial statements and notes hereto reflect all adjustments that are, in the
opinion of management, necessary for a fair statement of results for the interim
periods presented. Such financial results should not be construed as necessarily
indicative of future results.
STOCK BASED COMPENSATION:
The Company accounts for its employee stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees. Worldteq granted options to purchase 2,350,000 shares of common
stock to two employees during the three months ending March 31, 2004. All
options begin vesting six months after the date issued, February 25, 2004, and
vest 1/36 each month thereafter, have an exercise price of $.13 per share and
expire 10 years from the date of grant.
The following table illustrates the effect on net loss and net loss per share if
Cybertel had applied the fair value provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
Three Months Ended
March 31,
------------------------
2004 2003
----------- -----------
Net loss available to common $ (282,469) $ (146,533)
stockholders, as reported
Less: stock based compensation
determined under fair value
based method - -
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Pro forma net loss $ (282,469) $ (146,533)
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Basic and diluted net loss per share
As reported $ (0.01) $ (0.01)
=========== ===========
Pro forma $ (0.01) $ (0.01)
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NOTE 2 - COMMON STOCK
During the three months ended March 31, 2004, Worldteq issued 2,000,000 shares
of common stock to consultants resulting in $220,000 of expense. The expense was
calculated using the black scholes pricing model with the following assumptions:
Volatility of 161%, 1 year life, 0% dividend yield and a 3% discount rate.
During the quarter ended March 31, 2004, preferred stockholders converted
144,000 shares of preferred stock into 144,000 shares of common stock.
NOTE 3 - CUSTOMER BASE
During the three months ended March 31, 2004, Worldteq purchased a customer base
from a third party for $50,000 cash. The customer base is being amortized over
48 months.
Item 2. Management's Discussion and Analysis
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the financial statements, related
notes, and other detailed information included elsewhere in this Form 10QSB.
Certain information contained below and elsewhere in this Form 10QSB, including
information regarding our plans and strategy for our business, are
forward-looking statements. See "Note Regarding Forward-Looking Statements."
Our business plan for the next twelve months is to demonstrate the efficacy of
our product candidate in animal models. It is necessary for us to establish
evidence of efficacy of our approach in order to advance to subsequent
milestones.
Overview
The Company is a switch-less and facilities-based provider of Internet protocol
and traditional fiber-based communications services, including voice and data,
along with toll free and related services. We market our services to groups
specializing in specific ethnic demographics, residential communities located in
major metropolitan areas, associations, network marketing organizations, and
multi-level-marketing organizations (MLM's). Our goal is to become a leading
provider of payroll services and communication services, including voice, data
and Internet services to our targeted markets, comprised of affinity
communities. We provide our services through a flexible network of owned,
contracted facilities and resale arrangements. We have an extensive network
available to us of IP gateways, international gateways, and domestic switches.
Through our subsidiary WorldTeq Corporation we provide agents, associations, and
businesses with opportunities to generate revenues by supplying those
associations, individuals, and businesses with Internet technology and
communications solutions and services. Our products and services enable the
agents and affinity groups to offer their members, customers and others a
variety of revenue producing solutions and services without making large
investments in technology, infrastructure or staff. The principal products and
services which we offer are:
- Long Distance Service
- Toll Free Products
- Financial Services / Corporate Payroll Solutions
- Billing Services
- Web site creation and design; and
- Web site hosting.
Recent Developments
In the first quarter of 2004, WorldTeq has continued developing MonEcard, our
financial services product. Currently, we have 3 contracts/customers of our
MonEcard product along with over 50 prospective companies. In addition, during
the first quarter, we further began developing our new subsidiary, MundoTeq,
Inc., which is our Spanish Internet web portal.
Financial Condition
We have limited financial resources after our restructuring. We have eliminated
non-productive assets and pared down our workforce to reduce overhead, we sold
one of our subsidiaries which reduced our debt by nearly $400,000. We have
little long-term debt. Although our operating cash flow was negative in the
first quarter of 2004, we believe it may be positive for the year. We raised
$100,000 of capital through the exercise of warrants in 2003, which was used to
greatly reduce both long and short-term debts during WorldTeq's restructuring
phase. In 2003, we financed $154,887 negative operating cash flow with $150,524
in key shareholder loans and contributions to capital. As our base continues to
grow each month, slowly we hope we can reduce our reliance on any single
customer. In addition, our new billing system provides us with improved
tracking ability for receivables and a reduced occurrence of billing errors.
Results of Operations
Total sales for the first quarter 2004 was $117,540 as compared to $382,444 for
the quarter ended March 31, 2003, a 70% decrease. This was largely due to the
sale of Networld Online which included the reorganization of the company that
included the discontinuation of unprofitable business segments, such as the
wholesale telecommunications business and the sale of a subsidiary during the
year, Networld. The company concentrated its efforts during the first three
quarters of the year on automating back office processes to allow us to greatly
reduce monthly expenses. Additionally, we spent most of the year developing new
products that should be much more profitable. We created new plans and refocused
our sales efforts from residential long distance to business long distance. We
began the early stages of developing MundoTeq, a Spanish Internet web portal and
the development of our own proprietary VOIP network. As a result of the change
of focus, our telecommunications revenue accounted for 70% of our total revenue
for 2003.
Our net loss for the quarter ending March 31, 2004 was $282,469 or $.01 per
share, as compared to $146,533 for the same period in 2003, an increase of 50%
over the period ending March 31, 2003. Our increase in net loss was primarily
associated with the expensing of options issued to consultants totaling
$220,000
Selling, general and administrative expenses for the first quarter of fiscal
2004 were $94,065 (excluding the non-cash stock compensation expense) as
compared to $310,211 for the same quarter in fiscal 2003. This decrease of 70%
was primarily attributable to a decrease in general and administrative expenses.
The decrease in general and administrative costs was primarily attributable to a
reduction of workforce and outsourcing of many of the sales functions.
Additionally, because of our reorganization efforts in WorldTeq Corporation and
the automation of our back office we were able to greatly decrease our monthly
expenses. We do anticipate a continued increase in 2004 due to the fact we are
launching new products in 2004. While costs will be kept to a minimum because of
our back office automation, we are expecting additional costs with our new
MundoTeq and VoIP products. These new costs will be directly related to new
revenues.
Cost of sales for the first quarter of fiscal 2004 was $82,692 as compared to
$209,060 for the same quarter in fiscal 2003. This decrease of 60% was primarily
attributable to efficiencies in our sales organization, but also lower sales.
Our bad debt expense for first quarter 2004 totaled $0.
Interest expense dropped by 70% to $2,888 and depreciation expense dropped 55%
and totaled $4,466 for the period ending March 31, 2004.
Liquidity and Capital Resources
Net cash used in operating activities for the period ended March 31, 2004 and
2003 was $47,356 and $109,965 respectively. As of March 31, 2004, we had
restricted cash of $31,807. Net cash used in operating activities for the period
ended March 31, 2004 was primarily the result of a net loss and a decrease in
accounts payable offset by recognition of deferred offering costs. Net cash used
in operating activities for the period ended March 31, 2003 was primarily the
result of a net loss offset by an increase in accounts payable.
Net cash provided by financing activities was $0 for the period ended March 31,
2004. Net cash used in financing activities was $79,965 for the period ended
March 31, 2003. Financing activities for the period ended March 31, 2003 were
attributable to an increase in a payable to a related party and payments on
payable to a related party.
The Company, at March 31, 2004 and March 31, 2003, respectively, had total
assets of approximately $128,579 and $206,510. The decrease in assets related
directly to the sale of Networld.
We believe that, based on current activities and the recent improvement in
business prospects, cash from operations will begin to meet the development
goals of the Company in 2004, although we can give no assurances. A significant
increase in activities, either billable work or work related to new product
development, will require additional resources, which we may not be able to fund
through cash from operations. In circumstances where resources will be
insufficient, the Company will look to other sources of financing, including
debt and/or equity investments.
To meet our growth expectations, we anticipate that we will need to add up to 6
to 8 additional employees in the areas of sales, marketing, and sales support
over the next twelve months. However, we do not see a need to invest further in
our back office infrastructure such as servers, office equipment, and software
to sustain our growth projections for the next 2 years, based on the
infrastructure need for current product offerings.
Off-Balance Sheet Arrangements
------------------------------
The Company does not have any off-balance sheet arrangements with any party.
Critical Accounting Estimates
-----------------------------
There have been no material changes in our critical accounting policies or
critical accounting estimates since XXX nor have we adopted an accounting policy
that has or will have a material impact on our consolidated financial
statements. For further discussion of our accounting policies see Footnote 1
"Summary of Significant Accounting Policies" in this Quarterly Report on Form
10-QSB and the Notes to Consolidated Financial Statements in our Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2003.
ITEM 3. Controls and Procedures
(a) The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, the chief executive officer and the principal financial officer of the
Company concluded that the Company's disclosure controls and procedures were
adequate.
(b) Changes in internal controls. The Company made no significant changes in its
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the chief
executive officer and principal financial officer.
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
Securities
In January 2004, in exchange for services, we issued stock purchase warrants to
XCL Partners, Inc. to purchase 1,000,000 shares of common stock at an exercise
price of $0.15 per share, 1,000,000 shares of common stock at an exercise price
of $0.20 per share, and 2,000,000 shares of common stock at an exercise price of
$0.25 per share. In addition, we also issued a stock purchase warrant to
Chesapeake Group, Inc. to purchase 1,000,000 shares of common stock at an
exercise price of $.25 per share.
In February 2004, we registered 3,350,000 shares under our 2004 Employee Stock
Option Plan on a Form S-8. We granted our CEO, Jeffrey Lieberman an option to
purchase 2,000,000 shares at an exercise price of $0.13 per share. We also
granted our VP of Sales, Brian Rosinski an option to purchase 350,000 shares at
an exercise price of $0.13 per share. For both options, 16.667% of the Shares
subject to the Option shall vest six months after February 25, 2004, and 1/36 of
the Shares subject to the Option shall vest each month thereafter, subject to
the Optionee continuing to be a Service Provider on such dates.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) LIST OF EXHIBITS
List of Exhibits
---------------- -----------------------------------------------------------------------------
3.1 The articles of incorporation of Registrant (incorporated by reference to the
Registrant's Registration Statement on Form 10-SB12G/A filed with the
Commission on November 17, 1999, No. 000-27243).
---------------- -----------------------------------------------------------------------------
3.2 Bylaws of Registrant (incorporated by reference to the Registrant's
Registration Statement on Form 10-SB12G/A filed with the Commission
on November 17, 1999, No. 000-27243).
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31.1 Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002
---------------- -----------------------------------------------------------------------------
32.1 Certification of the Company's Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
---------------- -----------------------------------------------------------------------------
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by the Company during the fiscal
quarter ended March 31, 2003:
None
SIGNATURE
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.
WorldTeq Group International, Inc.
/s/ Jeff Lieberman
-----------------------------
Jeff Lieberman
Chief Executive Officer,
President,
Treasurer, and
Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Jeff Lieberman
-----------------------------
Jeff Lieberman
Chief Executive Officer,
President,
Treasurer, and
Chairman of the Board
Dated: May 17, 2004