SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2003
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 number - 0-2564
TELESOURCE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-3738614
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
860 Parkview Boulevard 60148
(Address of principal executive offices) (Zip code)
(630) 620-4787
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 |_|
There were 15,000,000 shares of common stock, par value $0.01 per share,
of Telesource International, Incorporated outstanding as of May 15, 2003
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act rules 12b-2 of the Act). Yes |_| No |X|
TELESOURCE INTERNATIONAL, INC.
TABLE OF CONTENTS
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements: 1
Condensed Consolidated Balance Sheets -
March 31, 2003 and December 31, 2002 2
Condensed Consolidated Statements of Operations -
three months ended March 31, 2003 and 2002 3
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 2003 and 2002 4
Notes to Condensed Consolidated Financial Statements 6 - 15
Item 2. Management's Discussion and Analysis of 16 - 19
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures
PART II. Other Information
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 20
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements which follow have been prepared
by Telesource International, Incorporated ("the Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Although certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to such rules and regulations, the Company believes that the disclosures are
adequate to make the information presented not misleading. The statements
reflect all adjustments which are, in the opinion of management, necessary for a
fair presentation of the results for the periods presented. All such adjustments
are of a normal and recurring nature unless specified otherwise. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's latest Annual Report on Form 10-K.
This Quarterly Report on Form 10-Q, and in particular the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section in Part I, contains forward-looking statements concerning future
operations and performance of the Company. Forward-looking statements are
subject to market, operating and economic risks and uncertainties that may cause
the Company's actual results in future periods to be materially different from
any future performance suggested herein. Factors that may cause such differences
include, among others: increased competition, increased costs, changes in
general market conditions, changes in the regulatory environment, changes in
anticipated levels of government spending on infrastructure, and changes in loan
relationships or sources of financing. Such forward-looking statements are made
pursuant to the Safe Harbor Provisions of the Private Securities Litigation
Reform Act of 1995.
1
TELESOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 2003 and December 31, 2002
March 31, December 31,
Assets 2003 2002
------------ ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 351,781 244,723
Accounts receivable 6,655,077 3,818,268
Current portion of net investment in sales-type lease 1,656,158 1,617,840
Costs and estimated earnings in excess of billings 4,748,925 5,448,663
Prepaid expenses and other current assets 350,956 261,379
------------ ------------
Total current assets 13,762,897 11,390,873
Net investment in sales-type lease - long term 10,832,882 11,261,571
Property, plant, and equipment, net 2,703,581 2,317,617
Other assets 185,386 190,274
------------ ------------
Total assets $ 27,484,746 25,160,335
============ ============
Liabilities and Stockholders' Deficit
Current liabilities:
Current portion of long-term debt $ 19,600,000 20,700,000
Accounts payable 4,506,538 3,879,364
Accounts payable - related party 5,171,105 3,736,283
Accrued expenses 2,647,231 3,320,338
Billings in excess of costs and estimated earnings 129,955 --
Other current liabilities -- 125,000
------------ ------------
Total current liabilities 32,054,829 31,760,984
Long-term debt 12,250,000 14,000,000
Convertible preferred stock: authorized 10,000,000 shares:
issued and outstanding none and 2,000,000 shares
at March 31, 2003 and December 31, 2002, respectively -- 3,000,000
------------ ------------
Total liabilities 44,304,829 48,760,984
------------ ------------
Stockholders' deficit:
Convertible preferred stock: authorized 10,000,000 shares:
issued and outstanding 4,666,666 shares and none
at March 31, 2003 and December 31, 2002, respectively 7,000,000 --
Common stock, $0.01 par value. Authorized 50,000,000 shares,
issued and outstanding 15,000,000 shares 150,000 150,000
Additional paid-in capital 5,797,225 5,797,225
Accumulated deficit (29,624,402) (29,431,981)
Accumulated comprehensive loss -
foreign currency translation (142,906) (115,893)
------------ ------------
Total stockholders' deficit (16,820,083) (23,600,649)
Commitments and contingencies (note 8)
------------ ------------
Total liabilities and stockholders' deficit $ 27,484,746 25,160,335
============ ============
See accompanying notes to condensed consolidated financial statements
2
TELESOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (unaudited)
Three months ended March 31, 2003 and 2002
2003 2002
------------ ------------
Revenues:
Construction revenues $ 5,444,994 4,447,751
Construction revenues - related party -- 421,969
Service fees - power generation plant 277,536 243,432
Sales, net -- 249,582
Sales, net - related party -- 1,589
Rental income 246,117 1,935
Finance lease revenue 299,629 334,523
------------ ------------
Gross revenues 6,268,276 5,700,781
Costs and expenses:
Construction costs 4,290,382 3,917,846
Operation and maintenance costs -
power generation plant 217,792 336,274
------------ ------------
Gross profit 1,760,102 1,446,661
------------ ------------
Operating expenses:
Salaries and employee benefits 488,099 440,660
Occupancy and equipment 60,569 87,108
General and administrative 1,008,442 1,179,426
------------ ------------
Total operating expenses 1,557,110 1,707,194
------------ ------------
Operating income (loss) 202,992 (260,533)
------------ ------------
Other income (expense):
Interest income -- 2
Interest expense (429,177) (458,177)
Other income, net 33,764 5,110
------------ ------------
Total other expense (395,413) (453,065)
------------ ------------
Loss before income taxes (192,421) (713,598)
Income tax expense -- --
------------ ------------
Net loss $ (192,421) (713,598)
============ ============
Basic and diluted net loss per share $ (0.01) (0.05)
Weighted average common shares outstanding 15,000,000 15,000,000
See accompanying notes to condensed consolidated financial statements
3
TELESOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Deficit and Comprehensive Income (Loss)
Three months ended March 31, 2003 (unaudited) and for the
years ended December 31, 2002, 2001, and 2000
Preferred stock Common stock
------------------------------ ----------------------------- Additional
Par Par paid-in
Shares value Shares value capital
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1999 -- $ -- 10,000,000 $ 100,000 847,225
Issuance of 3,000,000 shares of
common stock at $1 per share
in satisfaction of trade payables -- -- 3,000,000 30,000 2,970,000
Net loss -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- --
Comprehensive income (loss)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 2000 -- -- 13,000,000 130,000 3,817,225
Exercise of 2,000,000 warrants
for common stock at
$1 per share -- -- 2,000,000 20,000 1,980,000
Net loss -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- --
Comprehensive income (loss)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 2001 -- -- 15,000,000 150,000 5,797,225
Net loss -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- --
Comprehensive income (loss)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 2002 -- -- 15,000,000 $ 150,000 5,797,225
Sale of convertible preferred stock
4,666,666 shares at $1.50 per share 4,666,666 7,000,000 -- -- --
Net loss -- -- -- --
Foreign currency translation
adjustment -- -- -- --
Comprehensive income (loss)
------------- ------------- ------------- ------------- -------------
Balance at March 31, 2003 4,666,666 $ 7,000,000 15,000,000 $ 150,000 5,797,225
============= ============= ============= ============= =============
Accumulated Total
Accumulated Comprehensive comprehensive stockholders'
deficit loss income (loss) deficit
------------- ------------- ------------- -------------
Balance at December 31, 1999 (13,557,508) -- (12,610,283)
Issuance of 3,000,000 shares of
common stock at $1 per share
in satisfaction of trade payables -- -- -- 3,000,000
Net loss (3,742,302) (3,742,302) -- (3,742,302)
Foreign currency translation
adjustment -- (181,057) (181,057) (181,057)
-------------
Comprehensive income (loss) (3,923,359)
------------- ============= ------------- -------------
Balance at December 31, 2000 (17,299,810) (181,057) (13,533,642)
Exercise of 2,000,000 warrants
for common stock at
$1 per share -- -- -- 2,000,000
Net loss (7,245,774) (7,245,774) -- (7,245,774)
Foreign currency translation
adjustment -- 213,147 213,147 213,147
-------------
Comprehensive income (loss) (7,032,627)
------------- ============= ------------- -------------
Balance at December 31, 2001 (24,545,584) 32,090 (18,566,269)
Net loss (4,886,397) (4,886,397) -- (4,886,397)
Foreign currency translation
adjustment -- (147,983) (147,983) (147,983)
-------------
Comprehensive income (loss) (5,034,380)
------------- ============= ------------- -------------
Balance at December 31, 2002 (29,431,981) (115,893) (23,600,649)
Sale of convertible preferred stock
4,666,666 shares at $1.50 per share -- -- -- 7,000,000
Net loss (192,421) (192,421) -- (192,421)
Foreign currency translation
adjustment -- (27,013) (27,013) (27,013)
-------------
Comprehensive income (loss) (219,434)
------------- ============= ------------- -------------
Balance at March 31, 2003 (29,624,402) (142,906) (16,820,083)
============= ============= =============
4
TELESOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2003 and 2002
2003 2002
------------ ------------
Cash flows from operating activities:
Net loss $ (192,421) (713,598)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 102,442 124,738
Changes in assets and liabilities:
Receivables (2,836,809) (1,220,900)
Prepaid expenses and other current assets (89,577) (644,875)
Costs and estimated earnings in excess of billings 829,693 (556,603)
Net investment in sales-type lease 390,371 355,477
Other assets 4,888 93,978
Accounts payable 2,061,997 5,317,357
Accrued expenses (673,107) (734,567)
Income taxes payable -- 3,985
Other liabilities (152,013) 2,655,023
------------ ------------
Net cash provided by (used in) operating activities (554,536) 4,680,015
------------ ------------
Cash flows from investing activities:
Capital expenditures (488,406) (10,536)
------------ ------------
Net cash used in investing activities (488,406) (10,536)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of preferred stock 4,000,000 --
Proceeds from borrowings 7,500,000 9,550,000
Principal Payments on Borrowings (10,350,000) (10,100,000)
------------ ------------
Net cash provided by (used in) financing activities 1,150,000 (550,000)
------------ ------------
Net increase in cash and cash equivalents 107,058 4,119,479
Cash and cash equivalents at beginning of period 244,723 204,752
------------ ------------
Cash and cash equivalents at end of period $ 351,781 4,324,231
============ ============
Supplemental disclosure:
Cash paid during the period for interest $ 736,794 995,281
See accompanying notes to condensed consolidated financial statements.
5
TELESOURCE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2003 and 2002
(unaudited)
1. Description of Business
Telesource International, Inc. ("Telesource" or the "Company") was
incorporated in Delaware in 1994. Telesource was formed in 1994 to facilitate
various intra-corporate activities and, until July 1999, was a wholly owned
subsidiary of Sayed Hamid Behbehani & Sons Co. W.L.L. ("SHBC"), a Kuwait-based
civil, electrical and mechanical construction company. Telesource is an
international engineering and construction company, engaged in constructing
single family homes, airports, radio towers and in the construction and
operation of energy conversion power plants. In Tinian, an island in the
Commonwealth of Mariana Islands (U.S. Territory), the Company operates a diesel
fired electric power generation plant for the sale of electricity to the local
power grid. The Company's facility in Lombard, Illinois, annually handles the
procurement, export and shipping of U.S. fabricated products for use by the
Company's subsidiaries or for resale to customers outside of the mainland.
The Company conducts its operations through three subsidiaries. The
Company's Mariana subsidiary, Telesource CNMI, Inc., handles construction and
management of the Company's energy conversion facilities in the Commonwealth of
Mariana Islands and operates a branch office in Guam to take advantage of future
opportunities. The Company's second subsidiary, Commsource International, is an
international export company that facilitates the purchase of equipment in the
U.S. The Company's third subsidiary, Telesource Fiji, Ltd., handles the
Company's construction activities in Fiji.
Telesource has three main operating segments: construction services,
brokerage of goods and services, and power generation and construction of power
plants. The power generation activities commenced in March 1999.
During 1999, Telesource entered into an agreement for a merger with Sixth
Business Service Group, a registered company with the Securities and Exchange
Commission (SEC) located in Tampa, Florida. Telesource completed the merger with
and into Sixth Business Service Group on September 7, 2001, pursuant to which
merger the stockholders of Telesource received shares of Sixth Business Service
Group in exchange for their shares of Telesource stock. Sixth Business Service
Group is the surviving corporation and after the merger was completed, Sixth
Business Service Group changed its name to Telesource International,
Incorporated. Upon completion of the merger, Telesource made application for
listing its common stock with the NASD and Telesource was approved for listing
on the National Association of Securities Dealers ("NASD") Over The Counter
Bulletin Board in October 2001, under the ticker symbol "TSCI".
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in conformity with accounting principles generally accepted
in the United States of America. Such principles were applied on a basis
consistent with those reflected in the financial statements included in the
Company's 2002 Annual Report on Form 10-K as filed with the Securities and
Exchange Commission. The accompanying financial data should be read in
conjunction with the consolidated financial statements and the notes thereto
contained in the 2002 Annual Report on Form 10-K. In the opinion of management,
the accompanying unaudited condensed consolidated financial statements contain
all adjustments necessary to present fairly the financial position of the
Company as of March 31, 2003, and the results of operations and cash flows for
the three month period then ended. The unaudited condensed consolidated
statements of operations for such interim periods are not necessarily indicative
of results for the full year.
6
TELESOURCE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2003 and 2002
(unaudited)
2. Summary of Significant Accounting Policies, continued
Liquidity and Going Concern
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. During the fiscal years of 2000
through 2002, we experienced significant operating losses with corresponding
reductions in working capital and net worth. As of March 31, 2003, the Company's
current liabilities exceeded its current assets by $18,291,932. The Company
relies heavily on bank financing to support is operations and its ability to
refinance its existing bank debt is critical to provide funding to satisfy the
Company's obligations as they mature. As of March 31, 2003 the Company had total
outstanding debt of $31,850,000 of which $19,600,000 is due in the next twelve
months. As of March 31, 2003 the Company had an accumulated deficit of
$29,624,402 and total stockholders' deficit of $16,820,083.
The Company incurred operating income (loss) of $202,992 and ($260,533) for the
three months ended March 31, 2003 and 2002 and operating losses of $3,118,300,
$4,903,676 and $1,516,103 for the years ended December 31, 2002, 2001 and 2000,
respectively.
Cash provided by (used in) operating activities during the three months ended
March 31, 2003 and 2002 was ($554,536) and $4.6 million, respectively. The cash
used in operating activities was principally due to an increase in accounts
receivable during 2003, which is further attributed to the airport and prison
projects.
Cash used in investing activities was $488,406 for the three months ended March
31, 2003 as compared to net cash used in investing activities of $10,536 for the
same period in 2002. The cash used in investing activities during 2003 is
attributed to capital purchases during 2003 of $488,406 to purchase the bucket
trucks leased on Guam and used in the super typhoon clean up efforts.
Cash provided by financing activities generated $1.2 million for the three
months ended March 31, 2003 as compared to cash used by financing activities of
$550,000 for the same period in 2002. The cash generated by financing came from
additional borrowings and the proceeds from the sale of $4.0 million worth of
preferred stock during 2003.
The Company's net working capital deficiency, total stockholders' deficit,
recurring losses and negative cash flows from operations raise substantial doubt
about the Company's ability to continue as a going concern. To address the going
concern issue, management has implemented financial and operational
restructuring plans designed to improve operating efficiencies, reduce and
eliminate cash losses and position Telesource for profitable operations by also
increasing revenues. Management expects the increase in revenues to be achieved
by securing additional substantial projects during 2003 and through increasing
revenues from existing long term power plant operation and maintenance
agreements as a result of continued expansion on the island of Tinian. However,
no assurance can be given that such increased revenues will be achieved. In the
first quarter of 2003, we improved our working capital position by reducing our
bank debt through the issuance of preferred stock. The financial statements do
not include any adjustments relating to the recoverability of assets and the
classifications of liabilities that might be necessary should we be unable to
continue as a going concern.
Although management believes that the Company will be cash flow positive in 2003
including debt payments, the Company has and expects to continue to seek support
from its principal stockholder, SHBC, for its operations, for working capital
needs, debt repayment, and business expansion as may be required. SHBC has
pledged its continued support of the Company. SHBC has agreed to guarantee or
provide letters of credit covering $33,000,000 of the Company's total debt of
$34,700,000. SHBC has further agreed that any additional funding from SHBC to
the Company will not be due until after March 31, 2004. SHBC is the Company's
majority shareholder.
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 and disclosure of contingent assets and liabilities at
the date of the financial statements. Additionally, such estimates and
assumptions affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue from construction contracts and construction revenues on power
plants, with the exception of the power plant constructed on Tinian which is
accounted for using the sales-type lease method of accounting as discussed
below, is recognized using the percentage-of-completion method of accounting,
based upon costs incurred and projected costs. Cost of revenue consists of
direct costs on contracts, including labor and materials, amounts payable to
subcontractors, direct overhead costs, equipment expense (primarily
depreciation, maintenance and repairs), interest associated with construction
projects and insurance costs. Contracts frequently extend over a period of more
than one year and revisions in cost and profit estimates during construction are
recognized in the accounting period in which the facts that require the revision
become known. Losses on contracts, if any, are provided in total when
determined, regardless of the degree of project completion. Claims for
additional contract revenue are recognized in the period when it is probable
that the claim will result in additional revenue and the amount can be
reasonably estimated.
The Company accounts for its leasing activities in accordance with the
requirements of Statement of Financial Accounting Standards No. 13, Accounting
for Leases. Revenue associated with the sale of the Tinian power plant
constructed and sold under a sales-type lease, measured as the present value of
noncancelable rents, was recognized in connection with recording the loss on
sale in 1997 and 1998. The Company recognizes finance lease revenue on the
resulting sales-type lease receivable at a constant rate using the interest
method. Service revenues received from operating and maintaining the Tinian
power plant for the duration of the lease are recognized as earned based on
actual kilowatt hours of electricity produced and delivered to the lessee's
customers. To the extent that variable payments based on kilowatt hours of
production exceed the fair value of operation and maintenance services provided,
the Company recognizes such contingent payments as additional finance lease
revenue as they are earned.
The Company also receives variable monthly payments as compensation for
its production of power. The variable payments are recognized based upon power
produced and billed to the customer as earned during each accounting period.
7
TELESOURCE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2003 and 2002
(unaudited)
2. Summary of Significant Accounting Policies, continued
Revenue from the Company's brokering of U.S. fabricated goods is
recognized at the time of shipment. The sales revenues for U.S. fabricated goods
are recognized net of costs of goods sold due to title transferring from the
manufacturer directly to the Company's customer and the risk of loss being borne
by the customer. The Company recognizes management fees and energy sales revenue
in the period in which the commodity is delivered or at the time the work is
performed. Telesource recognizes rental revenue on the accrual basis pursuant to
contractual arrangements between the Company and its customers.
Income Taxes
The net deferred tax asset is fully reserved. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management believes that the valuation allowance
reduces the recognition of deferred tax assets to a level that reflects the
amount that is more likely than not to be realized, considering the tax planning
strategies available to the Company.
New Accounting Pronouncements
In August 2001, FASB issued Statement of Financial Accounting Standards
No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations," which is
effective for our fiscal year beginning January 1, 2003. SFAS 143 addresses
financial accounting and reporting obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS 143
requires, among other things, that the retirement obligations be recognized when
they are incurred and displayed as liabilities on the balance sheet. In
addition, the asset's retirement costs are to be capitalized as part of the
asset's carrying amount and subsequently allocated to expense over the asset's
useful life. The adoption of SFAS 143 did not have a material effect on our
financial statements.
8
TELESOURCE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2003 and 2002
(unaudited)
2. Summary of Significant Accounting Policies, continued
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 requires certain disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also requires that a
guarantor recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. FIN 45 supercedes
FASB Interpretation No. 34, "Disclosure of Indirect Guarantees of Indebtedness
of Others". The disclosure provisions of FIN 45 are effective for financial
statements of both interim and annual periods that end after December 15, 2002
and the initial recognition and measurement provisions are effective on a
prospective basis to guarantees issued or modified after December 31, 2002. The
adoption of FIN 45 did not have an effect on our financial position, results of
operations, or cash flows.
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation -- Transition and
Disclosure -- an amendment of FASB Statement No. 123." SFAS 148 amends SFAS 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Telesource has adopted the disclosure provisions of SFAS 148 and has
included the disclosures herein.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities -- an Interpretation of ARB No.
51." FIN 46 addresses consolidation accounting for certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
FIN 46 is effective immediately for all variable interest entities created or
acquired after January 31, 2003. For variable interest entities created or
acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for
the first interim or annual period beginning after June 15, 2003. The adoption
of FIN 46 did not have an effect on our financial position, results of
operations, or cash flows.
9
TELESOURCE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2003 and 2002
(unaudited)
3. Long-Term Debt and Credit Arrangements
Long-term debt consists of the following at March 31, 2003 and
December 31, 2002:
March 31, December 31,
2003 2002
------------ ------------
The Hongkong and Shanghai Banking Corporation, Limited Advances on $7,500,000
credit line, due in full on March 31, 2003, including interest of 0.5%
above the bank's base lending Rate (4.75% at December 31, 2002) secured by
an irrevocable standby letter of credit for $7,500,000 issued by Al Ahli
Bank of Kuwait, along with three (3) promissory notes valued at $540,000
and a corporate guarantee of Telesource International, Inc. -- 7,500,000
Bent Marketing Limited loan, bearing interest of 7.0% per annum,
unsecured and maturing on December 31, 2003 -- 1,100,000
Bank of Hawaii loan, advances on credit line, due in full on
June 3, 2003, including interest of 1.5% above bank's base rate (4.25% at
March 31, 2003), secured by standby letter of credit for $600,000 issued by
Al Ahli Bank of Kuwait, and guaranteed by
SHBC and a corporate guarantee of Telesource International, Inc. 600,000 600,000
Bank of Hawaii loan, advances on credit line, due in full on
June 3, 2003, including interest of 1.5% above bank's base rate (4.25% at
March 31, 2003), secured by standby letter of credit for $2,000,000 issued
by Al Ahli Bank of Kuwait, and guaranteed by
SHBC and a corporate guarantee of Telesource International, Inc. 1,900,000 1,900,000
Citytrust Bank loan, borrowings on $1,000,000 revolving line of
credit which expires on May 17, 2003. Due in 90 days from date of drawdown
including interest of 9.5% at March 31, 2003 and December 31, 2002, secured
by assignment of specific invoice from billing on West Tinian Airport
Airside improvement project, guaranteed by Telesource International, Inc.
and one of its officers. 600,000 600,000
Commercial Bank of Kuwait loan, due in full on March 31, 2004,
including interest of 3.35% per annum, secured by an irrevocable standby
letter of credit for $7,500,000 issued by Al Ahli Bank of
Kuwait and guaranteed by SHBC. 7,500,000 --
10
TELESOURCE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2003 and 2002
(unaudited)
3. Long-Term Debt and Credit Arrangements, continued
March 31, December 31,
2003 2002
------------ ------------
Kuwait Real Estate Bank loan advances on $3,000,000 credit line, due in
installments of $1,000,000 on June 11, 2003, $1,000,000 on
December 11, 2003 and $1,000,000 on April 11, 2004, including interest of
4.56%. The loan is guaranteed by Sayed Hamid Behbehani and Sons Co., WLL. 3,000,000 3,000,000
Commercial Bank of Kuwait loan, due in installments, including interest,
from February 18, 2002 through November 23, 2005. The note bears
interest at LIBOR plus 3%. The loan is guaranteed by Sayed Hamid
Behbehani and Sons Co., WLL. Should the Company default on an
installment payment, the entire loan and accrued interest become
due and payable. 18,250,000 20,000,000
------------ ------------
Notes payable to banks 31,850,000 34,700,000
Less current portion 19,600,000 20,700,000
------------ ------------
Total long-term debt $ 12,250,000 14,000,000
============ ============
11
TELESOURCE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2003 and 2002
(unaudited)
4. Shareholders' Equity
On March 6, 2003, Telesource received the second tranche of funds due from
Al Soor for the purchase of the preferred stock sold under a subscription
agreement executed by Telesource and Al-Soor on December 9, 2002, whereby
Al Soor agreed to purchase 4,000,000 shares of newly designated series A
convertible preferred stock, at a purchase price of $1.50 per share of
series A convertible preferred stock or a total amount of $6,000,000.
Al-Soor purchased and paid for 2,000,000 shares of preferred stock in
December 2002 and has now purchased the total amount of subscribed
preferred stock.
On March 31, 2003, Telesource and Al Soor agreed to restructure the
Certificate of Designation underlying the preferred stock sold to Al Soor
in December of 2002. The restructure provided for the elimination of the
collateral provided to Al Soor, elimination of the redemption feature (the
preferred stock was to have been redeemed by payment of $6.0 million to Al
Soor by the Company at maturity in March 2008, provided that Al Soor had
not converted the preferred stock prior to maturity), added a provision to
allow the Company to force a conversion of the preferred stock to common
stock from January 1, 2008 to March 31, 2008, and increased the coupon
rate for dividends from 6.0% to 6.5%.
On March 20, 2003, Telesource sold 666,666 shares of preferred stock to
two investors, Listex and Wellspoint Financial for a total sum of
$1,000,000, which was received on March 20, 2003. The terms of the
preferred stock sold to Listex and to Wellspoint Financial match the terms
and conditions of the revised agreement with Al-Soor. Upon conversion of
the preferred stock, Telesource will be required to pay any unpaid
accumulated dividends.
On March 31, 2003, 15,000,000 shares of the Company's common stock were
issued and outstanding. In January 2002, Telesource agreed to issue
warrants to SHBC for the option to purchase of 1,000,000 shares of
Telesource's common stock at an exercise price of $3.00 per share in
connection with SHBC's agreement to provide a standby letter of credit to
Telesource to be used to secure financing with The Hongkong Shanghai
Banking Corporation Limited. These warrants will expire on December 31,
2003.
12
TELESOURCE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2003 and 2002
(unaudited)
5. Comprehensive Loss
Comprehensive loss for the three months ended March 31, 2003 and 2002 is
as follows:
Three Months
Ended March 31,
---------------------
2003 2002
--------- --------
Net loss $(192,421) (713,598)
Other comprehensive loss
Foreign currency translation adjustment (27,013) --
--------- --------
Comprehensive loss $(219,434) (713,598)
========= ========
6. Computation of Net Loss Per Share
In accordance with the disclosure requirements of "SFAS 128", a
reconciliation of the numerator and denominator of basic and diluted
earnings per share is provided as follows:
Three Months Ended March 31 2003 2002
------------ ------------
NUMERATOR - BASIC AND DILUTED LOSS PER SHARE
Net loss $ (192,421) $ (713,598)
============ ============
DENOMINATOR - BASIC EARNINGS PER SHARE
Weighted average common stock outstanding 15,000,000 15,000,000
============ ============
Basic loss per share $ (0.01) $ (0.05)
============ ============
DENOMINATOR - DILUTED EARNINGS PER SHARE
Weighted average common stock outstanding 15,000,000 15,000,000
============ ============
Diluted loss per share $ (0.01) $ (0.05)
============ ============
The computation of diluted loss per share for the three months ended March
31, 2003 and 2002 does not include shares from potentially dilutive
securities as the assumption of conversion or exercise of these securities
would have an antidilutive effect on loss per share.
7. Stock Options
The Company accounts for its fixed plan stock options under the intrinsic
value-based method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations. As such, compensation expense would be recorded
on the date of grant and amortized over the period of service only if the
current market value of the underlying stock exceeded the exercise price.
No stock-based employee compensation cost is reflected in net earnings, as
each option granted under these plans had an exercise price equal to the
market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net earnings if the Company
had applied fair value recognition provision of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation, including a
straight-line recognition of compensation costs over the related vesting
periods for fixed awards:
Three Months Ended
--------------------------------
March 30, 2003 March 31, 2002
-------------- --------------
Net loss as reported $ 192,421 $ 713,598
Deduct: Total stock-based employee
compensation expense determined under
the fair value based method for all awards
Pro forma net loss 10,703 22,465
---------- ----------
$ 203,124 $ 736,063
========== ==========
Loss per share:
Basic and diluted - as reported $ 0.01 $ 0.05
Basic and diluted - pro forma $ 0.01 $ 0.05
8. Commitments and Contingent Liabilities
The Company is involved in various litigation proceedings arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's financial position, results of operations or liquidity.
13
TELESOURCE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2003 and 2002
(unaudited)
9. Business Segment Information
Telesource has three operating segments: power generation and construction
of power plants, trading and construction services. The power generation
and construction of power plants segment includes sales-type lease
revenues recognized. There were no material amounts of transfers between
segments. Any intersegment revenues have been eliminated. The following
table sets forth certain segment information for the periods indicated:
For the Three Months Ended
March 31, 2003
-----------------------------------------------------------------------
Power Generation and
Construction of
Power Plants Trading Construction Total
-------------------- ------------ ------------ ------------
Revenue $ 577,165 -- 5,691,111 6,268,276
Interest income -- -- -- --
Interest expense 429,177 -- -- 429,177
Depreciation and amortization 1,031 6,052 95,359 102,442
Net income/(loss) 146,951 (5,586) (333,792) (192,421)
Total capital expenditures -- -- -- --
Total assets 14,199,965 3,586,601 9,698,180 27,484,746
For the Three Months Ended
March 31, 2002
------------------------------------------------------------------------
Power Generation and
Construction of
Power Plants Trading Construction Total
-------------------- ------------ ------------ -------------
Revenue $ 577,955 250,361 4,872,465 5,700,781
Interest income -- -- 2 2
Interest expense 447,948 -- 10,229 458,177
Depreciation and amortization 1,031 4,576 119,131 124,738
Net income/(loss) 225,641 (283,874) (655,365) (713,598)
Total capital expenditures -- -- 10,536 10,536
Total assets 14,309,987 3,504,695 11,926,034 29,740,716
The basis used to attribute revenues to individual countries is based upon
where the services are provided.
The power generation segment includes revenues from the Company's power
station on Tinian, Commonwealth of Northern Mariana Islands in the amount
of $277,536 and $243,432 for the three months ended March 31, 2003 and
2002, respectively.
14
9. Business Segment Information:
Trading revenues generated by the Company's Guam office were $0 and
$249,582 for the three months ended March 31, 2003 and 2002, respectively.
All other revenues recognized within the trading segment for the three
months ended March 31, 2003 and 2002 were earned in the Company's location
in Lombard, Illinois.
Construction revenues of $343,765 were recognized within the Republic of
Palau for the three months ended March 31, 2003. No such revenues were
recognized in the Republic of Palau for the three months ended March 31,
2002. All other revenues within the construction segment for the three
months ended March 31, 2003 and 2002 were earned in the Commonwealth of
Northern Marianna Islands.
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Company's unaudited
condensed consolidated financial statements and the notes thereto included
elsewhere herein.
Results of Operations for the three months ended March 31, 2003 compared to the
three months ended March 31, 2002
Revenues
Construction Revenues. Construction revenues increased 11.8% to $5.4 million
from $4.9 million for the three months ended March 31, 2003 compared to March
31, 2002. The growth is due in part to our efforts broaden our customer base
along with expanding the type of projects sought after for the construction
segment. Related party construction revenues from Retsa were none and 8.7% of
total construction revenues for the three months ended March 31, 2003 and 2002,
respectively. Telesource has two significant construction contracts currently
underway: the West Tinian Airport expansion on the island of Tinian and the
Adult Correctional Facility on the island of Saipan. Revenues on the West Tinian
Airport recognized during the three months ended March 31, 2003 and 2002,
respectively, were $1.9 million and $4.1 million. Revenues recognized on the
Adult Correctional Facility during the three months ended March 31, 2003 and
2002, respectively, were $3.1 million and none.
Service Fees - Power Generation Plant. Service fees - power generation plant
increased 14.0% to $277,536 from $243,432 for the three months ended March 31,
2003. The growth in service fees - power generation plant is due to growth in
demand for power on the island of Tinian. The growth is principally a result of
an expansion to the local power distribution network which connected additional
customers and increased power consumption by the radio relay broadcast station
on Tinian.
Sales Revenues. Sales revenues net of costs, including related party sales,
decreased to none from $251,171 for the three months ended March 31, 2003. Sales
revenues are not expected to be a significant component of revenues for the
foreseeable future.
Rental Income. Rental income increased to $246,117 from $1,935 for the three
months ended March 31, 2003. The growth in rental income is the result of a
short term lease of seven bucket trucks to a public utility on Guam in
connection with clean up efforts on a super typhoon which struck Guam in
December 2002. The short term lease of the bucket trucks was completed in April
2003. Rental income is also not expected to be a significant component of
revenues for the foreseeable future.
Finance Lease Revenues. Finance lease revenues decreased 10.4% to $299,629 from
$334,523 for the three months ended March 31, 2003. The decrease is due to the
declining balance of minimum lease payments, which are amortized to give a
constant rate of return.
Expenses
Construction Costs. Total construction costs (includes related party and third
party) increased 9.5% to $4.3 million from $3.9 million for the three months
ended March 31, 2003 compared to March 31, 2002. Construction costs as a
percentage of construction revenues were 78.8% and 80.5% for the three months
ended March 31, 2003 and 2002, respectively. The improved gross margin on
construction is attributed to the prison project and the construction projects
in Palau.
Operations and Maintenance Costs - Power Generation Plant. Operations and
maintenance costs - power generation plant decreased 35.2% to $217,792 from
$336,274 for the three months ended March 31, 2002. The lower costs during 2003
were a direct result of management's cost cutting efforts and were achieved
primarily by reducing payroll expenses to operate the power plant.
16
Salaries and Employee Benefits. Salaries and employee benefits increased 10.8%
to $488,099 from $440,660 for the three months ended March 31, 2003 as compared
to 2002. The increase in salaries and employee benefits is attributed to the new
office in Palau along with additional staffing for the Fiji office.
Occupancy and Equipment. Occupancy and equipment expenses decreased 30.5% to
$60,569 from $87,108 for the three months ended March 31, 2003. Management
initiated steps during 2003 to further reduce occupancy and equipment expense by
reducing the amount of office space required by the Company.
General and Administrative Expenses. General and administrative expenses
decreased 14.5% to $1.0 million from $1.2 million for the three months ended
March 31, 2003 as compared to the same period in 2002. The slight decrease is
attributed to cost cutting measures with significant improvements in reducing
costs related to professional fees, bank service charges and travel expenses.
Other Expense, Net. Other expense decreased 12.7% to $395,413 from $453,065 for
the three months ended March 31, 2003 comparred to March 31, 2002. The decrease
is primarily attributed to declining interest rates which resulted in lower
interest expense for the Company.
Net Loss. Net loss was $192,421 as compared to a net loss of $713,598 for the
three months ended March 31, 2003 and 2002, respectively. The reduction in net
loss during the first quarter of 2003 is attributed primarily to an improved
gross profit and a reduction in general and administrative expenses. During the
three months ended March 31, 2003, Telesource realized a gross profit of $1.8
million as compared to $1.4 million during the same period in 2002. The
improvement in the gross profit of $1.8 million for the three months ended March
31, 2003 is attributed primarily to the construction segment.
Backlog
The following schedule shows a reconciliation of backlog representing the amount
of revenue Telesource International expects to realize from work to be performed
on uncompleted construction contracts accounted for using the
percentage-of-completion method of accounting in progress at March 31, 2003:
Contracts as of December 31, 2002 $17,472,516
New contracts and change orders added during the first
three months of 2003 12,033,711
-----------
29,506,227
Less: Construction revenue for the three months ended
March 31, 2003 5,444,994
-----------
Balance at March 31, 2003 $24,061,233
===========
17
Contractual Obligations and Commercial Commitments
The Company finances it operations through bank borrowings and also leases
certain facilities and equipment under non-cancelable operating leases, which
expire at various dates through 2005. The Company conducts most of its
operations through construction projects and most of the Company's obligations
are related to these construction contracts. Commercial commitments include
accounts payable, accrued expenses, billings in excess of costs and estimated
earnings, income taxes payable and other current liabilities and also includes
bonding requirements for construction projects currently in progress.
Contractual cash obligations and commitments relating to debt and lease payments
are as follows:
Operating Commercial
Debt Leases Commitments
--------------- --------------- ---------------
(in thousands) (in thousands) (in thousands)
Through March 2004 $ 19,600 $ 115 $ 30,828
April 2004 to March 2007 12,250 84 --
Thereafter -- -- --
--------------- --------------- ---------------
Total $ 31,850 $ 199 $ 30,828
=============== =============== ===============
Liquidity and Capital Resources
Since 1994, Telesource International's primary sources of operating funds have
been bank borrowings, contributions of equity capital and profits realized on
projects completed. On March 31, 2003, 15,000,000 shares of Telesource
International's common stock were issued and outstanding.
Cash provided by (used in) operating activities during the three months ended
March 31, 2003 and 2002 was ($554,536) and $4.6 million, respectively. The cash
used in operating activities was principally due to an increase in accounts
receivable during 2003, which is further attributed to the airport and prison
projects.
Cash used in investing activities was $488,406 and $10,536 for the three months
ended March 31, 2003 and 2002, respectively. The cash used in investing
activities during 2003 is attributed to capital purchases of bucket trucks
leased on Guam and used in the super typhoon clean up efforts.
Cash provided by financing activities generated $1.2 million for the three
months ended March 31, 2003 as compared to cash used by financing activities of
$550,000 for the same period in 2002. The cash generated by financing activities
came from additional borrowings and the proceeds from the sale of $4.0 million
worth of preferred stock during 2003.
Telesource International had a working capital deficit of $18.3 million at March
31, 2003. The deficit is a result of all loans, with the exception of $12.0
million owed on the Commercial Bank of Kuwait credit line, becoming short term
as of March 31, 2003. During 2001, the Company refinanced the $25,000,000 loan
from the Commercial Bank of Kuwait which has principal payments due as follows
as of March 31, 2003:
Payment Date Principal Payment
------------------- -----------------
May 19, 2003 1,750,000
August 19, 2003 1,750,000
November 19, 2003 1,750,000
February 19, 2004 1,750,000
May 19, 2004 1,750,000
August 19, 2004 1,750,000
November 19, 2004 1,750,000
February 21, 2005 1,500,000
May 21, 2005 1,500,000
August 21, 2005 1,500,000
November 23, 2005 1,500,000
-----------
Total $18,250,000
===========
18
Telesource is substantially dependent upon SHBC to provide resources for
operating, working capital, and business expansion. SHBC has either given a
guarantee or provided a letter of credit for a majority of the credit facilities
now in place for Telesource as of March 31, 2003. If Telesource is unable to
make a scheduled payment on one of the credit facilities guaranteed by SHBC or
secured by a standby letter of credit from SHBC, SHBC has committed to provide
the funds necessary to make the payment and will not require repayment from
Telesource until after April 1, 2004.
To address the working capital deficit and reduce its dependence on debt
financing obtained with the support of SHBC, Telesource plans on making some
reductions on existing lines and renewing the credit lines. The amount of the
reductions is dependent upon the amounts of capital raised by Telesource
International within the next twelve months. Telesource sold a total of 4.0
million shares of preferred stock to an investor, Al-Soor Consulting, for a
total of $6.0 million, of which Telesource received $3.0 million in December of
2002 and the last $3.0 million was received in March 2003. In addition to the
sale of preferred stock to Al-Soor Consulting, Telesource also sold 666,666
shares of preferred stock to two investors for a total of $1,000,000 during
March 2003.
While Telesource International believes it has sufficient financing for its
current working capital needs, Telesource is considering bidding on additional
projects in addition to the current backlog. There can be no assurance that
Telesource International's present capital and financing will be sufficient to
finance future operations. Telesource International may seek to raise additional
capital in 2003 through the sale of equity to reduce the existing credit line
borrowings as well as to provide capital needed for growth. There can no
assurance that Telesource will be successful in such efforts. If Telesource
International sells additional shares of common stock to raise funds, the terms
and conditions of the issuances and any dilutive effect may have an adverse
impact on the existing stockholders. If additional financing beyond current
levels becomes necessary, there can be no assurance that the financing can be
obtained on satisfactory terms, if at all. In this event, Telesource
International could be required to restrict its operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Registrant's primary interest rate risk relates to its long-term debt
obligations. As of March 31, 2003 and December 31, 2002, the Registrant had
total debt obligations, including current and long-term obligations, totaling
$31.9 million and $34.7 million, respectively. Of these amounts, fixed rate
obligations totaled $11.1 million and $4.7 million, and variable rate
obligations totaled $20.8 million and $30.0 million, as of March 31, 2003 and
December 31, 2002, respectively. Assuming a 1.0% increase in interest rates on
the Registrant's variable rate obligations, annualized interest expense would
have been approximately $208,000 higher in 2003 and $330,000 higher in 2002
based on the respective outstanding balances on an annualized basis of variable
rate obligations at March 31, 2003 and December 31, 2002. The Registrant has no
interest rate swap or exchange agreements.
None of the Registrant's gross revenues for the three months ended March 31,
2003 and March 31, 2002, respectively, were denominated in currencies other than
the U.S. dollar. All contracts currently underway for the Registrant are
denominated in the U.S. dollar; accordingly, the Registrant has no material
exposure to foreign currency exchange risk. The Registrant has no foreign
currency exchange contracts.
Based on the nature of the Registrant's business, it has no direct exposure to
commodity price risk.
19
Item 4. Controls and Procedures
The Company maintains "disclosure control procedures", as such term is defined
under Exchange Act Rule 13a-14(c) and 15d-14, that are designed to ensure that
information required to be disclosed in the Company's Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to the Company's management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosures. In designing and evaluating the disclosure controls and
procedures, the Company's management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives and the
Company's management necessarily was required to apply its judgement in
evaluating the cost-benefit relationship of possible controls and procedures.
The Company has carried out an evaluation, within the 90 days prior to the date
of filing of this report, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon this evaluation and
subject to the foregoing, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
effective in ensuring that material information relating to the Company is made
known to the Chief Executive Officer and Chief Financial Officer by others
within the Company during the period in which this report was being prepared.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date the Company completed its evaluation.
PART II. Other Information
ITEM 1. LEGAL PROCEEDINGS.
There are no material developments in legal proceedings previously
reported in our Form 10-K for the year 2002 and no new material legal
proceedings have become reportable events during the three months ended
March 31, 2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 99.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Telesource International, Inc.
---------------------------------------
(Registrant)
Date May 19, 2003 /s/ K.J. Semikian
---------------------------------------
K.J. Semikian
President and Chief Executive Officer
May 19, 2003 /s/ Bud Curley
---------------------------------------
Bud Curley
Chief Financial Officer
20
TELESOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, K.J. Semikian, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Telesource
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchanges Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared.
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date") and;
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls, and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ K.J. Semikian
K.J. Semikian
President and Chief Executive Officer
May 19, 2003
21
TELESOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Bud Curley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Telesource
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchanges Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared.
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date") and;
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls, and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Bud Curley
Bud Curley
Vice President and Chief Financial Officer
May 19, 2003
22
Index to Exhibits
Exhibits
- -----------------
99.1 Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code-- Chief Executive
Officer -- Corporation (1)
99.2 Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code-- Chief Financial
Officer -- Corporation (1)
(1) Filed herewith.
23