United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD .
-----------
COMMISSION FILE NO. 0-26563
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VSOURCE, INC.
(Exact Name of Small Business Issuer in its Charter)
Nevada 95-3538903
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5740 Ralston Street, Suite 110
Ventura, CA 93003
-------------------------------- -----
(Address of principal executive office) Zip Code
Issuer's telephone number: (805) 677-6720
Interactive Buyers Network International, Ltd.
(Former name if changed from last report)
---------------
Check whether the Issuer (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 [ ] NO [X].
The aggregate market value of the voting common equity held by non-affiliates
computed by reference to average bid and ask price of such common equity, as of
January 3, 2000 is $211,540,000. On this date approximately 12,263,000
shares were held by non-affiliates.
As of January 3, 2000, the Issuer had 15,849,648 shares of its $.01 par value
common stock outstanding.
Transitional Small Business Disclosure Format: YES [ ] NO [X]
1
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Form 10-QSB
PART I
Item 1 - Financial Statements
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<CAPTION>
Vsource, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
ASSETS
OCTOBER 31, JANUARY 31,
1999 1999
---------------- ---------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash $ 158,030 $ 59,937
Accounts receivable - 3,590
---------------- ---------------
TOTAL CURRENT ASSETS 158,030 63,527
---------------- ---------------
PROPERTY AND EQUIPMENT
Furniture and fixtures 215,676 64,588
Software 8,899 8,899
---------------- ---------------
224,575 73,487
Less: accumulated depreciation 75,713 50,920
---------------- ---------------
PROPERTY AND EQUIPMENT, NET 148,862 22,567
---------------- ---------------
OTHER ASSETS
Prepaid rent 3,750 37,500
Employee receivables 120,861 68,027
Intangible assets, net of accumulated amortization 626,235 922,875
Other assets 1,100 1,757
---------------- ---------------
TOTAL OTHER ASSETS 751,946 1,030,159
---------------- ---------------
TOTAL ASSETS $ 1,058,838 $ 1,116,253
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 300,175 $ 49,222
Accrued liabilities 50,751 77,785
Convertible notes payable - related parties - 857,200
---------------- ---------------
TOTAL CURRENT LIABILITIES 350,926 984,207
DEFERRED REVENUE - 3,250
---------------- ---------------
TOTAL LIABILITIES 350,926 987,457
---------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value
5,000,000 shares authorized,
- 0 - shares issued and outstanding - -
Common stock, $.01 par value,
50,000,000 shares authorized,
and 15,553,805 issued and outstanding on October 31, 1999
11,401,451 issued and outstanding on Jan. 31, 1999 155,538 114,014
Additional paid-in capital 7,960,382 4,296,392
Accumulated deficit (7,229,210) (4,281,610)
---------------- ---------------
886,710 128,796
Less: notes receivable - related parties (178,798) -
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 707,912 128,796
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,058,838 $ 1,116,253
================ ===============
</TABLE>
See Notes to Consolidated Financial Statements
2
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<TABLE>
<CAPTION>
Vsource, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
OCTOBER 31, OCTOBER 31,
1999 1998 1999 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 2,230 $ 11,055 $ 10,215 $ 52,757
------------ ------------ ------------ ------------
Operating expenses:
General and administrative expenses 226,745 142,197 803,742 445,937
Research and development 1,034,021 276,027 2,154,073 865,641
------------ ------------ ------------ ------------
1,260,766 418,224 2,957,815 1,311,578
------------ ------------ ------------ ------------
Net loss $(1,258,536) $ (407,169) $(2,947,600) $(1,258,821)
============ ============ ============ ============
Basic weighted average number of
common shares outstanding 14,339,164 10,740,307 13,296,009 10,715,839
============ ============ ============ ============
Net loss per common share
Basic $ (0.09) $ (0.04) $ (0.22) $ (0.12)
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
3
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<TABLE>
<CAPTION>
Vsource, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE
MONTHS ENDED
OCTOBER 31,
1999 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net loss $(2,947,600) $(1,258,821)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation & amortization 322,090 181,702
Beneficial conversion feature 241,753 157,285
Issuance of stock, stock options, and debt for services,
expense reimbursements and accrued interest 647,839 150,295
Changes in:
Accounts receivable 3,590 -
Prepaid expenses - 21,036
Prepaid rent 33,750 -
Other assets 281 (8,651)
Accounts payable 250,953 19,220
Deferred revenue (3,250) (23,393)
Accrued liabilities (27,034) 53,628
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (1,477,628) (707,699)
CASH FLOWS FROM (TO) INVESTING ACTIVITIES
Advances to employees (52,833) -
Purchase of equipment (151,088) -
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (203,921) -
------------ ------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of issuance costs of $10,000 1,749,942 -
Proceeds from borrowings 29,700 687,010
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,779,642 687,010
------------ ------------
NET INCREASE (DECREASE) IN CASH 98,093 (20,689)
CASH, BEGINNING OF PERIOD 59,937 55,406
------------ ------------
CASH, END OF PERIOD $ 158,030 $ 34,717
============ ============
Supplemental disclosure of cash flow information is as follows:
Income taxes $ 1,600 $ 1,600
============ ============
</TABLE>
Supplemental disclosure of non-cash investing and financing transactions:
Issuance of common stock in connection with following transactions:
On June 1, 1998, the Company issued $1,186,555 of common stock in
connection with the acquisition of Wpg.Net, Inc.
During the nine months ended October 31, 1999, 636,100 stock options
were exercised upon the issuance of notes receivable in the amount of $178,798.
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Vsource, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Principles
------------------------------------------------
Unaudited Interim Financial Information
- ------------------------------------------
The interim consolidated financial statements as of October 31, 1999 have been
prepared by Vsource, Inc. (the Company) pursuant to the rules and regulations
of the Securities and Exchange Commission (the "SEC") for interim financial
reporting. These consolidated statements are unaudited and, in the opinion of
management, include all adjustments (consisting of normal recurring adjustments
and accruals) necessary to present fairly the consolidated balance sheets,
consolidated operating results, and consolidated cash flows for the periods
presented in accordance with generally accepted accounting principles. The
consolidated balance sheet at January 31, 1999 has been derived from the
audited consolidated financial statements at that date. Operating results for
the quarter and nine-month periods ended October 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending January 31,
2000. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted in accordance with the rules and regulations
of the SEC. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements, and accompanying
notes, included in the Company's Registration Statement on Form 10-SB (File No.
- -030326). Certain prior period amounts have been reclassified to conform to the
current period presentation.
Use of Estimates in Preparation of Consolidated Financial Statements
- ----------------------------------------------------------------------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenue, expenses and
disclosure of contingent assets and liabilities to prepare these financial
statements in accordance with generally accepted accounting principles.
Accordingly, actual results may differ from those estimates.
Loss Per Share
- ----------------
Loss per share of common stock is computed using the weighted average number of
common shares outstanding during the period shown. Common stock equivalents are
not included in the determination of the weighted average number of shares
outstanding, as they would be antidilutive.
2. Subsequent Event
-----------------
On or about December 14, 1999, the Company's name change to Vsource, Inc. became
effective in Nevada, its state of incorporation.
5
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's Form
10-SB and the consolidated financial statements for the years ended January 31,
1999 and 1998; and the consolidated financial statements and related notes for
the six month period ended July 31, 1999. The statements in this Quarterly
Report on Form 10-QSB relating to matters that are not historical facts,
including but not limited to statements found in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations", are forward-
looking statements that involve a number of risks and uncertainties. Factors
that could cause actual future results to differ materially from those expressed
in such forward-looking statements include but are not limited to the
uncertainty of the Company's ability to continue as a going concern and need for
additional financing and other risks and uncertainties as discussed in this
Quarterly Report and the Company's Form 10-SB.
Vsource, Inc. (the "Company") creates and markets Internet-based applications
for businesses. An Internet-based application is best described as computer
software and data that reside on a remote server, rather than the user's
computer, where that software and data are accessed over the Internet. The
Company intends to generate fees by licensing its Internet-based applications
for use by businesses. Currently, the Company offers two such applications,
Virtual Source Network and Virtual Source Publisher. Virtual Source Network
may be used by corporate clients to purchase goods and services via the
Internet. Virtual Source Publisher is a do-it-yourself web site builder that
allows a user to establish its own Internet web site. On December 14, 1999
the Company's name change to Vsource, Inc. became effective in Nevada. On
January 4, 2000 the Company's trading symbol changed to VSRC.
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS - NINE MONTHS
ENDED OCTOBER 31, 1999, COMPARED TO THE NINE MONTHS ENDED OCTOBER 31, 1998:
REVENUE
For the nine months ended October 31, 1999, Revenue was $10,215, down $42,542
(80.6%) from $52,757 during the nine months ended October 31, 1998. This
decrease results from the Company's decision, early in the 1999 fiscal period,
to discontinue the annual subscription program relative to its previous version
of Virtual Source Network. It also reflects the fact that the new Internet
version of Virtual Source Network has not yet begun to generate revenue for the
Company. Further, the Company's Virtual Source Publisher has not generated
revenue to date.
GENERAL AND ADMINISTRATIVE EXPENSES
For the nine months ended October 31, 1999, General and Administrative Expenses
were $803,742, up $357,805 (80.2%) from $445,937 during the nine months ended
October 31, 1998. This increase was caused primarily by increased executive
staff, added expenses associated with Wpg.net, Inc., acquired in June of 1998,
as well as higher interest expense.
RESEARCH AND DEVELOPMENT
For the nine months ended October 31, 1999, Research and Development Expenses
were $2,154,073, up $1,288,432 (148.8%) from $865,641 during the nine months
ended October 31, 1998. This increase was caused primarily by significant
increase in development effort associated with the Company's Internet version of
Virtual Source Network. These costs included heavy use of independent
contractors, as well as the addition of highly paid technical employees in its
Seattle office. The Company does no work that would be considered pure
research, or basic research.
NET LOSS
For the nine months ended October 31, 1999, the Net Loss was ($2,947,600), up
($1,688,779) (134.2%) from ($1,258,821) during the nine months ended October 31,
1998. This increase is a result of significantly increased General and
Administrative Expenses, as well as significantly increased Research and
Development Expense, as described above.
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC
For the nine months ended October 31, 1999, the Basic Weighted Average Common
Shares Outstanding were 13,296,009, up 2,580,170 (24.1%) from 10,715,839 for the
nine months ended October 31, 1998. This increase resulted primarily from the
issuance of 2,095,787 shares upon conversion of all remaining convertible notes,
the issuance of 636,100 shares upon exercise of stock options, as well as the
issuance of shares in return for cash invested in the Company. The shares
issued upon conversion of the remaining convertible notes were issued at the
end of the period used for averaging purposes, and therefore had a
proportionately smaller impact on the average.
NET LOSS PER COMMON SHARE - BASIC
The Basic Net Loss Per Common Share for the nine months ended October 31, 1999
was ($0.22) per share, up ($0.10) per share (83.3%) from a loss of ($0.12) per
share for the nine months ended October 31, 1998. This increase reflects the
$1,688,779 increase in the Net Loss, partially offset by the 2,580,170 share
increase in basic weighted average outstanding common shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPEATIONS - THREE MONTHS
ENDED OCTOBER 31, 1999, COMPARED TO THE THREE MONTHS ENDED OCTOBER 31, 1998:
REVENUE
For the three months ended October 31, 1999, Revenue was $2,230, down $8,825
(79.8%) from $11,055 during the three months ended October 31, 1998. This
decrease results from the Company's decision, early in the 1999 fiscal period,
to discontinue the annual subscription program relative to its previous version
of Virtual Source Network. It also reflects the fact that neither Virtual Source
Publisher, nor the new Internet version of Virtual Source Network, have yet
begun to generate revenue for the Company.
GENERAL AND ADMINISTRATIVE EXPENSES
For the three months ended October 31, 1999, General and Administrative Expenses
were $226,745, up $84,548 (59.5%) from $142,197 during the three months ended
October 31, 1998. This increase was caused primarily by increased executive
staff, as well as higher interest expense.
RESEARCH AND DEVELOPMENT
For the three months ended October 31, 1999, Research and Development Expenses
were $1,034,021, up $757,994 (274.6%) from $276,027 during the three months
ended October 31, 1998. This increase was caused primarily by
6
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significant increase in development effort associated with the Company's
Internet version of Virtual Source Network. These costs included heavy use of
independent contractors, as well as the addition of highly paid technical
employees in its Seattle office. The Company does no work that would be
considered pure research, or basic research.
NET LOSS
For the three months ended October 31, 1999, the Net Loss was ($1,258,536), up
($851,367) (209.1%) from ($407,169) during the three months ended October 31,
1998. This increase is primarily a result of significantly increased Research
and Development Expense during the 1999 period.
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC
For the three months ended October 31, 1999, the Basic Weighted Average Common
Shares Outstanding were 14,339,164, up 3,598,857 (33.5%) from 10,740,307 for the
three months ended October 31, 1998. This increase resulted primarily from the
issuance of 2,095,787 shares upon conversion of all remaining convertible demand
notes, the issuance of 636,100 shares upon exercise of stock options, and the
issuance of shares in return for cash invested in the Company (737,493 shares in
the first quarter of fiscal 2000, and 395,156 shares in the third quarter of
fiscal 2000).
NET LOSS PER COMMON SHARE - BASIC
The Basic Net Loss Per Common Share for the three months ended October 31, 1999
was ($0.09) per share, up ($0.05) per share (125%) from a loss of ($0.04) per
share for the three months ended October 31, 1998. This increase reflects the
$851,367 increase in the Net Loss, partially offset by the 3,598,867 share
increase in basic weighted average outstanding common shares for the period.
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION - AT OCTOBER 31, 1999,
COMPARED TO JANUARY 31, 1999:
CASH
On October 31, 1999 Cash totaled $158,030, up $98,093 (163.7%) from $59,937 at
January 31, 1999. This increase reflects $1,749,942 proceeds of sale of common
shares in private transactions during the nine months ended October 31, 1999,
less the funds used for operations during that period. A total of $560,201 was
received from the sale of common shares during the quarter ended October
31, 1999.
ACCOUNTS RECEIVABLE
On October 31, 1999 Accounts Receivable were zero, down $3,590 (100%) from
$3,590 at January 31, 1999. This decline reflects the Company's decision,
early in fiscal 1999, to discontinue marketing the previous version of Virtual
Source Network while the new Internet version was in development. As of
October 31, 1999, neither Virtual Source Publisher, nor the Internet version of
Virtual Source Network, has begun to generate new accounts receivable.
TOTAL CURRENT ASSETS
On October 31, 1999 Total Current Assets totaled $158,030, up $94,503 (148.8%)
from $63,527 at January 31, 1999. This increase primarily reflects the
increase in Cash described above.
FURNITURE AND FIXTURES
On October 31, 1999 Furniture and Fixtures totaled $215,676, up $151,088
(233.9%) from $64,588 at January 31, 1999. This increase primarily reflects
the addition of equipment and furniture needed for the new office facilities in
Seattle, Washington.
SOFTWARE
On October 31, 1999 Software totaled $8,899, unchanged from January 31, 1999.
ACCUMULATED DEPRECIATION
On October 31, 1999, Accumulated Depreciation totaled $75,713, up $24,793
(48.7%) from $50,920 at January 31, 1999. This increase reflects the addition
of normal depreciation expense for the nine months ended October 31, 1999.
PROPERTY AND EQUIPMENT, NET
On October 31, 1999, Property and Equipment, Net totaled $148,862, up $126,295
(559.6%) from $22,567 at January 31, 1999. This increase reflects the addition
of $151,088 to Furniture and Fixtures, as described above, less the $24,793
increase in Accumulated Depreciation during the same period.
PREPAID RENT
On October 31, 1999, Prepaid Rent totaled $3,750, down $33,750 (90.0%) from
$37,500 at January 31, 1999. This decrease reflects nine months utilization of
7
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free rent obtained by the Company, relative to its Ventura, California office,
as part of its earlier settlement with its landlord. The rental value of $3,750
per month, was accounted for as prepaid rent following the settlement. The
Company has extended its current lease, and will begin to pay rent, in cash, at
the rate of $3,750 per month.
EMPLOYEE RECEIVABLES
On October 31, 1999, Employee Receivables totaled $120,861, up $52,834 (77.7%)
from $68,027 at January 31, 1999. This increase results from expense advances
to employees who travel extensively on behalf of the Company. Travel has
increased significantly in conjunction with the Company's increased marketing
efforts.
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION
On October 31, 1999, Intangible Assets, Net were $626,235, down $296,640 (32.1%)
from $922,875 at January 31, 1999. This decrease results from the amortization
expense of $296,640 recorded during the nine months ended October 31, 1999.
Substantially all of the Intangible Asset value relates to the excess of
consideration paid, over the book value of assets acquired, in the acquisition
of Wpg.Net, Inc. in June of 1998.
OTHER ASSETS
On October 31, 1999, Other Assets were $1,100, down $657 (37.4%) from $1,757 at
January 31, 1999. This change was not material to the Company.
TOTAL ASSETS
On October 31, 1999, Total Assets were $1,058,838, down $57,415 (5.1%) from
$1,116,253 at January 31, 1999. This change was primarily a result of
increased cash ($98,093), and increased Property and Equipment, Net ($126,295),
which was more than offset by reduced Intangible Assets, Net ($296,640).
ACCOUNTS PAYABLE
On October 31, 1999, Accounts Payable were $300,175, up $250,953 (509.8%) from
$49,222 at January 31, 1999. This change was a result of increased amounts
due independent contractors involved in development of the Internet version of
Virtual Source Network, as well as amounts due International Business Machines
(IBM) relative to their work on the Virtual Source Network user training
program.
ACCRUED LIABILITIES
On October 31, 1999, Accrued Liabilities were $50,751, down $27,034 (34.8%)
from $77,785 at January 31, 1999. This reduction resulted primarily from
conversion of the Company's Convertible Notes Payable, and elimination of the
associated interest expense accrual.
CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
On October 31, 1999, Convertible Notes Payable were zero, down $857,200 (100%)
from $857,200 at January 31, 1999. These notes were converted into 2,095,787
shares of the Company's common stock.
TOTAL CURRENT LIABILITIES
On October 31, 1999 Total Current Liabilities totaled $350,926, down $633,281
(64.3%) from $984,207 at January 31, 1999. This reduction reflects the
conversion of Convertible Notes Payable ($857,200), partially offset by the
increase in Accounts Payable ($250,953) described above.
DEFERRED REVENUE
On October 31, 1999 Deferred Revenue was zero, down $3,250 (100%) from $3,250 at
January 31, 1999. This decline represents previously deferred subscription
revenue, which was recognized as revenue during the period. Further, as a
result of the Company's decision to discontinue marketing its business
applications on a subscription basis, no new deferred revenue was generated
during the period.
TOTAL LIABILITIES
On October 31, 1999 Total Liabilities were $350,926, down $636,531 (64.5%) from
$987,457 at January 31, 1999. This reduction reflects primarily the conversion
of Convertible Notes Payable ($857,200), partially offset by the increase in
Accounts Payable ($250,953) described above.
COMMON STOCK, $0.01 PAR VALUE
On October 31, 1999 Common Stock totaled $155,538, up $41,524 (36.4%) from
$114,014 at January 31, 1999. This increase reflects the issuance of 4,152,354
new common shares during the period, of which 2,095,787 were issued to holders
of the Convertible Notes Payable, 636,100 shares were issued upon exercise
of stock options May 15, 1999, and substantially all of the remaining
shares were issued in return for cash invested in the Company.
8
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ADDITIONAL PAID-IN-CAPITAL
On October 31, 1999, Paid-In-Capital totaled $7,960,382, up $3,663,399 (85.3%)
from $4,296,392 at January 31, 1999. This increase reflects the value (in
excess of par) of the new common shares during the period, of which 2,095,787
were issued to holders of the Convertible Notes Payable, 636,100 shares were
issued upon exercise of stock options, with the remaining shares primarily
having been issued in return for cash invested in the Company.
ACCUMULATED DEFICIT
On October 31, 1999, the Accumulated Deficit was ($7,229,210), up ($2,947,600)
(68.8%) from ($4,281,610) at January 31, 1999. This change resulted from the
Net Loss of ($2,947,600) during the nine months ended October 31, 1999.
NOTES RECEIVABLE - RELATED PARTIES
On October 31, 1999, Notes Receivable - Related Parties totaled $178,798, up
$178,798 (100%) from zero at January 31, 1999. These notes are receivable
from officers who exercised stock options during the period. The Company's
stock option program provides several alternative methods of paying for shares
acquired through exercise of stock options, and one of those alternatives is to
provide a demand note payable to the Company, in the amount of the purchase.
TOTAL STOCKHOLDERS' EQUITY
On October 31, 1999, Total Stockholders' Equity was $707,912, up $579,116
(449.6%) from $128,796 at January 31, 1999. This change resulted primarily
from the increases in Common Stock and Paid-In Capital ($3,704,923 combined),
offset by the Net Loss of ($2,947,600) during the nine months ended October 31,
1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no revenue at this time, other than small amounts of interest
income, and certain non-recurring items. While the Company expects to generate
revenue in the future, it is currently entirely dependent on investor funds. At
October 31, 1999, the Company had cash balances totaling $158,030, primarily as
a result of its private placement of common stock in April 1999 and other
private investments made through October 31, 1999. Between July 1, 1999 and
October 31, 1999 $1,749,942 was raised through the sale of common stock, net of
cost approximating $10,000. In addition, in November 1999, an additional
$550,000 has been raised as the result of common stock and convertible notes
issued to six individuals in private transactions. Management expects those
funds to last through February 2000. The Company has prepared a private
placement memorandum offering up to 2 million shares of common stock at $2.50
per share in order to raise up to $5 million. The private placement memorandum
was issued on December 1, 1999. The Company is having conversations with several
funding sources and several firm commitments have been made. There can be no
assurances that the offering will be fully funded, but current indications
are that the full $5 million will be raised. The Company is also considering
increasing the size of the offering to $6,000,000 or more.
The Consolidated Statements of Cash Flows for the nine months ended October 31,
1999, and nine months ended October 31, 1998, show that net losses were
($2,947,600) and ($1,258,821), respectively, with the issuance of stock for
cash ($1,749,942, net of costs approximating $10,000) and notes for cash
($29,700) in the nine months ended October 31, 1999, partially offsetting the
cash requirement. A non-cash accounting entry of $324,093 offsetting a
similar entry for compensation expense, required by Statement of Financial
Accounting Standards #123, Accounting for Stock-Based Compensation, as issued
by the Financial Accounting Standards Board, is shown as an increase in
Paid-in-Capital. This did not offset any cash requirement directly or
indirectly, and there was no such cash or other consideration paid as
compensation in the period. These entries in compliance with Statement of
Financial Accounting Standards #123 had no impact on cash flows for any period.
RESEARCH AND DEVELOPMENT FOR THE FISCAL YEAR ENDED JANUARY 31, 2000
During the fiscal year ended January 31, 2000, it is expected that approximately
$3,000,000 will be spent on product development. The Company does not expect to
expend any resources in basic research. Additional work is being done to
enhance the present system. Enhancements will make the system more flexible,
and allow additional options for the user to modify portions of the system to
better meet the unique needs of each particular user's business. Other
enhancements will add new capabilities to the system in the future. No
assurance can be given that the Company will have the resources necessary to
conduct this product development.
IMPACT OF Y2K
GENERAL DESCRIPTION OF THE Y2K ISSUE
The Y2K issue is the result of computer hardware and software language which
utilizes two digits rather than four digits to define the applicable year. As a
result, some of the Company's software and hardware may have software or
embedded chips which fail to distinguish between 1900 and 2000 or do not
recognize the year at all. This could disrupt the Company's operations,
including a temporary inability to process transactions or engage in normal
business activities. Failure of customer and supplier computer systems could
impact revenues and deliveries of key supplies or services. The Company cannot
predict with certainty the nature or likelihood of such impacts.
9
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STATE OF READINESS
Management believes that all of the Company's internally used computers are Y2K
compliant and does not anticipate that it will experience a material adverse
impact to its operations, liquidity or financial condition related to systems
under its control. Virtual Source Network and Virtual Source Publisher were
developed to be Y2K compliant, and do not represent a risk for users. The
Company's servers are housed in a facility especially designed for mission-
critical computers, and the managers of that facility have assured the Company
that all systems and services under the control of the facility managers are
Y2K compliant. Each of the Company's business partners, including Analytics,
PricewaterhouseCoopers, and IBM, are Y2K compliant. The Company and its business
partners use Microsoft software that is Y2K compliant. The Company cannot be
sure that all outside organizations, beyond its control, which may impact the
Company's operations, will be Y2K compliant by December 31, 1999. If outside
organizations beyond the control of the Company are not compliant on time, or if
the Company or its business partners or clients experience unanticipated Y2K
problems of their own, the Y2K issue could have a material impact on the
operations of the Company. The material impact could include delay of the
receipt of revenue by the Company and increase the need for additional
financing. There can be no assurance that the Company's efforts will be adequate
to address unanticipated Y2K problems. Failure to adequately address Y2K
problems may have materially adverse consequences for the Company.
WORST CASE SCENARIO
The worst case scenario for the Company would be the shutting down of the
Internet. Neither Virtual Source Network nor Virtual Source Publisher could
operate and communications for the Company would be severely disrupted. Under
these circumstances, the Company would have no financially feasible alternative
to resume its operations but to wait for the Internet to function again.
PART II - OTHER INFORMATION
Item 2. RECENT SALES OF UNREGISTERED SECURITIES
During the period July 1, 1999 through November 30, 1999, the Company sold
837,884 shares of restricted common stock, and received $1,310,201. No
underwriters were used and no commissions were paid. The sales were private
placements and, in the opinion of counsel, exempt from registration under
Section 4(2) of the Securities Exchange Act of 1934. The transactions did not
involve a public offering. There were twelve offerees and ten purchasers, each
of whom were accredited investors, familiar with the Company and four of
whom are existing shareholders. The investors represented their intention to
acquire the shares for investment purposes only, and not with a view to
resale or distribution, and appropriate stop transfer instructions and
restrictive legends indicating the transfer restrictions were placed on each
stock certificate when issued. Each individual had ample access to the
kind of information from the Company that a registration statement would
include.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 18, 1999, pursuant to a majority written consent of the shareholders
of the Company, the shareholders approved an amendment to the Articles of
Incorporation of the Company in order to change the Company's name to Vsource,
Inc. from Interactive Buyers Network International, Ltd. 7,169,459 shares
(55.9% of those eligible to vote) voted in favor of the amendment. The change
was approved prior to the effective date of the Company's registration statement
on Form 10-SB on November 22, 1999. No proxies were required, nor solicited, in
connection with the vote. No votes were withheld nor cast against the proposal.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VSOURCE, INC.
Date: January 5, 2000
By: /s/ Robert C. McShirley
- -----------------------------------------------
Robert C. McShirley
President and Chief Executive Officer
By: /s/ Samuel E. Bradt
- -----------------------------------------------
Samuel E. Bradt
Chief Financial Officer
11
<PAGE>
INDEX TO EXHIBITS
The Exhibits listed below are filed as part of this Report on
Form 10-QSB.
Exhibit
No. Document
- ------- ---------------------------------------------
2.1* Articles of Incorporation
2.2* Bylaws
2.3 Certificate of Amendment to the Articles of Incorporation
3.1* Specimen Stock Certificate
3.2* Specimen Convertible Demand Note Series 3
3.3* Specimen Convertible Demand Note Series 2
3.4* Specimen Convertible Demand Note
10.1* Stock Purchase and Exchange Agreement
10.2* Option to Purchase Common Stock
27.1 Financial Data Schedule (for SEC use only).
* Previously filed.
12
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
INTERACTIVE BUYERS NETWORK INTERNATIONAL, LTD
The undersigned, being the duty elected, qualified and acting President
and Secretary of Interactive Buyers Network International Ltd., a Nevada
corporation, hereby certify:
1. That the following resolution was adopted by the Board of Directors
of Interactive Buyers Network International Ltd., by unanimous written consent
in accordance with Section 78.325(2) of the Nevada Revised Statutes:
RESOLVED: That, consistent with the Board of Directors motion on September
25, 1999, it is deemed advisable that Article FIRST of the Articles of
Incorporation of Interactive Buyers Network International Ltd. be amended to
read in its entirety as follows:
"FIRST. The name of the corporation is Vsource, Inc."
2. That following the adoption by the Board of Directors of the
foregoing resolution, the amendment to Article FIRST to the Articles of
Incorporation of the corporation was adopted by the stockholders of the
corporation entitled to exercise a majority of the voting power by written
consent in accordance with Section 78.320 of the Nevada Revised Statutes.
3. There are 13,589,752 issued and outstanding shares of stock of the
corporation entitled to vote; 7,896,344 shares were voted in favor of the
amendment and no shares were voted against such amendment.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 14
--
day of December, 1999.
--------
Robert C. McShirley
---------------------
Robert C. McShirley, President
Samuel E. Bradt
-----------------
Samuel E. Bradt, Secretary
<PAGE>
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