HEURISTIC DEVELOPMENT GROUP INC
8-K, 1999-11-12
COMPUTER PROGRAMMING SERVICES
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<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 8-K
                                 CURRENT REPORT

     Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

                   Date of Report (Date of earliest reported)

                                October 29, 1999
                       -----------------------------------

                            Virtual Communities, Inc.
                       -----------------------------------
             (Exact name of registrant as specified in its chapter)

                                    Delaware
                            -------------------------
                 (State or other jurisdiction of incorporation)

                                    01-12637
                            -------------------------
                            (Commission File Number)

                                   95-4491750
                               -------------------
                        (IRS Employer Identification No.)

                            589 8th Avenue 7th Floor
                            New York, New York 10018
                          -----------------------------
                    (Address of principal executive offices)

                                      10018
                         ------------------------------
                                   (Zip Code)

                                 (212) 931 8600
                                -----------------

              (Registrant's telephone number, including area code)

                        Heuristic Development Group, Inc.
                        1219 Morningside Drive, Suite 102
                        Manhattan Beach, California 90266
           ----------------------------------------------------------
          (Former name or former address, if changed since last report)
<PAGE>

Item 1. Changes in Control of Registrant.

On October 29, 1999, Virtual Communities, Inc. ("VCI") merged with and into HDG
Acquisition Sub, Inc., a wholly owned subsidiary of Heuristic Development Group,
Inc. ("HDG"). Previously, on June 3, 1999, HDG and VCI entered into a Plan and
Agreement of Merger (the "Merger") that was subsequently amended on September 8,
1999. VCI shareholders approved the merger by means of a Consent of Shareholders
dated as of October 26, 1999 and HDG shareholders approved the merger at HDG's
Annual Meeting held on the same date.

In connection with the Merger, HDG changed its name to Virtual Communities, Inc.
and began trading its securities (former symbol: IFIT) on the NASDAQ Small Cap
Market on Monday, November 1, 1999 under the symbols: "VCIX" for the common
stock, "VCIXU" for the Units, "VCIXW" for the Class A Warrants and "VCIXZ" for
the Class B warrants. As a result of the Merger, VCI shareholders received 1.151
shares of HDG common stock for each share of VCI common stock held by them.
After the Merger, there were a total of 14,075,382 shares of the Company
outstanding. HDG's Board of Directors and management resigned and were replaced
with VCI's Board of Directors and management. Following the Merger, VCI
shareholders control HDG, holding 88.6% of the Common Stock of the Company with
HDG shareholders holding 11.4%.

Share Ownership of Management and Certain Stockholders

The following table sets forth, as of November 10, 1999, information as to: (a)
the beneficial ownership of VCI common stock by (i) each person serving VCI as a
director on such date, (ii) each person who qualifies as a "named executive
officer" as defined in Item 402(a)(2) of Regulation S-B under the Exchange Act,
and (iii) all of such directors and executive officers of VCI as a group; and
(b) each person known to VCI as having beneficial ownership of more than 5% of
VCI common stock.

                      [Report Continues on Following Page]
<PAGE>

<TABLE>
<CAPTION>

  Name and Address of                              Number of Shares                 Percentage of Shares
   Beneficial Owner(2)                            Beneficially Owned                Beneficially Owned(1)
  --------------------                            ------------------                ---------------------
<S>                                                     <C>                                    <C>
Avi Moskowitz(3)                                        493,779                                3.5%

Peter A. Jacobs(4)                                      187,018                                1.3%

David Morris(5)                                         153,057                                1.1%

Sonja Simon(6)                                           19,184                                 .1%

Michael Harwayne                                              0                                 .0%

Robert J. Levenson & Mira
Levenson(7)                                              47,619                                 .3%

Jonathan Seybold(8)                                     173,464                                1.2%

Allan Dalfen(9)                                           7,000                                0.1%

Fred Lafer                                               47,619                                 .3%

Paul and Hannah Lindenblatt(10)
                                                        830,446                                5.9%

Roth Trust(11)                                        1,981,447                               14.1%

Net Results Holdings, LLC(12)                         1,746,117                               12.4%

Line Holdings Ltd.(13)                                2,780,000                               19.8%

All Directors and Executive Officers
                                                      1,128,740                                8.0%
</TABLE>
- --------
 (1) Percentage of VCI common stock shares beneficially owned is based upon
14,075,382 shares of VCI common stock outstanding following the merger.

 (2) Except as otherwise provided, the address for all beneficial owners is c/o
Virtual Communities, Inc., 589 Eighth Avenue, New York, NY 10018. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, the beneficial owners have sole voting and investment power with
respect to all shares of VCI common stock set forth opposite their names.

 (3) Includes options exercisable for 185,694 shares of VCI common stock
exercisable within 60 days after November 10, 1999. Also includes warrants
exercisable for 161,140 shares of VCI common stock exercisable within 60 days
after November 10, 1999. Does not include 1,981,447 shares of VCI common stock
held by the Roth Trust, of which Mr.
<PAGE>

Moskowitz is a potential beneficiary. Mr. Moskowitz disclaims beneficial
ownership of these shares.

 (4) Includes options exercisable for 19,184 shares of VCI common stock and
warrants exercisable for 3,764 shares of VCI common stock exercisable within 60
days after November 10, 1999.

 (5) Includes options exercisable for 19,184 shares of VCI common stock
exercisable within 60 days after November 10, 1999. Also includes warrants
exercisable for 133,873 shares of VCI common stock exercisable within 60 days
after November 10, 1999. Does not include 798,553 shares of VCI common stock
held by Line Holdings Ltd., which is controlled by a trust of which Mr. Morris
is a potential beneficiary. Also does not include 286,280 shares of VCI common
stock held by Business Systems Consultants Ltd., which is controlled by a trust
of which Mr. Morris is a potential beneficiary. Also does not include warrants
exercisable for 22,667 shares of VCI common stock exercisable within 60 days
after November 10, 1999, held by Line Holdings Ltd., which is controlled by a
trust of which Mr. Morris is a potential beneficiary. Also does not include
warrants exercisable for 226,402 shares of VCI common stock exercisable within
60 days after November 10, 1999, held by Business Systems Consultants Ltd.,
which is controlled by a trust of which Mr. Morris is a potential beneficiary.
Mr. Morris disclaims beneficial ownership of the VCI common stock held by Line
Holdings Ltd. and Business Systems Consultants Ltd., and the warrants to
purchase shares of VCI common stock held by Line Holdings Ltd. and Business
Systems Consultants Ltd. The address for Business Systems Consultants Ltd. is
31-33 Le Pollet Street, Peterport, Guernsey, Channel Islands GY1 4JG. Does not
include warrants exercisable for 144,560 shares of VCI common stock, exercisable
60 days after November 10, 1999.

 (6) Includes options exercisable for 19,184 shares of VCI common stock
exercisable within 60 days after November 10, 1999. Mother-in-law of Mr.
Moskowitz. Mr. Moskowitz disclaims beneficial ownership of these shares.

 (7) Mr. and Mrs. Levenson's address is 39 Hawthorne Road, Essex Falls, NJ
07021.

 (8) Includes 70,732 shares and warrants for 70,732 shares exercisable within 60
days after November 10, 1999, held by the Seybold Family Trust and options to
purchase 16,000 shares of our Common Stock. Mr. Seybold is a trustee of such
Trust, the beneficiaries of which are his wife and his children. The address of
such trust is P.O. Box 1315 East Sound, Washington 98245. The address of Mr.
Seybold is c/o Virtual Communities, Inc., 589 8th Avenue, New York, New York
10018.

 (9) Includes options to purchase 7,000 shares of our common stock. The address
of such individual is c/o Heuristic Development Group Inc., 1219 Morningside
Drive, Suite 102, Manhattan Beach, CA 90266.

 (10) Sister and brother-in-law of Mr. Moskowitz. Mr. Moskowitz disclaims
beneficial ownership of these shares.
<PAGE>

 (11) The address of the Roth Trust is c/o Line Holdings Ltd., 57-63 Line Wall
Road, Gibraltar.

 (12) Includes warrants exercisable into 72,563 shares of Common Stock held by
an affiliate of Net Results Holdings, LLC exercisable within 60 days after
November 10, 1999 The address of Net Results Holdings, LLC is 151 West 25th
Street, New York, New York 10001.

 (13) Shares are held for the benefit of various trusts including the Roth
Trust. Potential beneficiaries thereof currently have no voting power nor the
power to direct the vote of such shares nor any investment power, including the
power to dispose or direct the disposition of the shares that are held by the
trusts. Potential beneficiaries of the trust do not have the foreseeable right
within 60 days to acquire ownership, voting power and/or investment power over
such securities. Includes warrants exercisable for 22,667 shares of Common Stock
exercisable within 60 days after November 10, 1999, which is controlled by a
trust. The address for Line Holdings Ltd. is 57-63 Line Wall Road, Gibraltar
Line Holdings disclaims beneficial ownership of all such shares which it holds
on behalf of the various trusts.

Item 4. Changes in Registrant's Certifying Accountant.

HDG engaged the firm of Richard A. Eisner & Company, LLP to report upon HDG's
financial statements for fiscal year 1998. VCI engaged the firm of Arthur
Andersen, LLP to report upon VCI's financial statements for fiscal year 1998. At
the annual meeting in October 1999, HDG stockholders ratified the appointment of
Arthur Andersen, LLP as HDG's independent auditors effective upon the Merger
which was a condition to VCI's obligation to consummate the Merger. Richard A.
Eisner & Company, LLP was replaced by vote of the stockholders as the
registrant's certifying accountant effective upon consumation of the merger.

Prior to the merger, HDG had decided to pursue a strategy of an investment in,
or acquisition of, an existing company. HDG's independent auditors qualified
their certifying report for the period for the year ending December 31, 1998 and
for the period from July 20, 1994 through December 31, 1998, under an assumption
that HDG would continue as a going concern. In such reports HDG was reported to
have incurred substantial losses since inception and such losses were expected
to continue during HDG's development stage.

HDG did not have any disagreement with Richard A. Eisner LLP regarding any
matter of accounting principles or practices, financial statement, disclosure or
auditing scope or procedure which disagreement(s), if not resolved to the
satisfaction of such accountants would have caused such firm to make reference
in connection with its reports to the subject matter of the disagreement(s) or
any "reportable events" as defined in Rule 304(a)(v) of Regulation S-K.

The registrant has requested that Richard A. Eisner & Company, LLP furnish it
with a letter addressed to the Commission stating whether it agrees with the
above statements.
<PAGE>

Item 5. Other Events.

New Principal Business. Prior to the Merger, HDG was a development stage company
originally organized to research, develop, design and market fitness-related
products. HDG's primary product was the IntelliFit System, a proprietary
computerized system which generates personalized exercise prescriptions and
tracks and records fitness programs. Due to disappointing acceptance of the
IntelliFit System, HDG management decided to pursue a strategy of investment in
or acquisition of an existing company.

As a result of the Merger on October 29, 1999, VCI became a wholly-owned
subsidiary of HDG. VCI is a Delaware corporation that was organized in 1996 to
develop, acquire and operate online communities on the Web that aggregate and
publish various news, media and entertainment content targeted to specific
demographic groups. VCI currently operates five online communities: Virtual
Jerusalem, Virtual HolyLand, Virtual Ireland, Virtual Italy and Virtual India.
VCI also recently began offering Web site design and development services to Web
site publishers.

VCI's online communities Web are targeted to members of demographic groups with
interests in their historical ethnic backgrounds and who want to share
information with other members with like interests. In June 1997, VCI acquired
substantially all of the assets and outstanding shares of Virtual Jerusalem
Ltd., an Israeli corporation formed by the founders of VCI, that developed and
published an Internet Web site called Virtual Jerusalem. VCI currently operates
five online communities: Virtual Jerusalem (www.virtualjerusalem.com), Virtual
HolyLand,(www.virtualholyland.com) launched in December 1998, Virtual Ireland
(www.virtualireland.com) launched in March 1999, Virtual Italy launched in
October 1999 (www.virtualitaly.com) and Virtual India, launched in November 1999
(www.virtualindia.com).

Rather than create its own content, VCI's Web sites aggregate comprehensive news
and a variety of interactive and community-building elements selected from
existing online entities (called "content partners") with which VCI enters into
relationships. VCI wraps the content it obtains from these content partners with
additional features and services to create a cohesive Web environment targeted
to a specific demographic profile. In consideration for the use of such content,
VCI provides its content partners with a variety of benefits, including links to
their Web sites, a portion of advertising revenues and interactive Web services
on co-branded pages created by VCI. As a result of its experience in developing
its five online communities and the creation of over one hundred Web sites for
its content partners, VCI began offering its Web site design and development
services to unrelated third party Web site publishers. Although VCI had
historically provided these services only to its content partners in exchange
for access to content, offering these custom services to third parties for a fee
represents a new business for VCI. These services, which VCI offers to its
content partners and other third parties in the form of "modules", include
content management technologies and numerous
<PAGE>

interactive elements described in more detail below. VCI has entered into one
agreement with a third party to date for the provision of these services, and is
currently negotiating with another such third party to provide these services on
a fee basis and has received interest from several other entities for similar
services.

VCI's strategy is to create or acquire Web site communities targeted to affinity
groups that provide "Best of the Web" content, interactive elements, e-commerce
and comprehensive portals to existing Internet sites related to that community.
Initially, VCI's management thought that this strategy would most appeal to
demographic groups who are passionate about issues relating to their community
are focused on their historical backgrounds and homelands, identify with other
members of their community and are interested in the success of their
communities. VCI's management now recognizes that this strategy can be applied
equally as well to Web sites for a specific business discipline, religion,
country or ethnicity. VCI's selects its target groups around which to build or
acquire communities based on their overall size, Internet use and socioeconomic
level. These elements help ensure that the group will be attractive to potential
online advertisers, sponsors and e-commerce vendors. VCI's management thinks
that there is a substantial opportunity to generate revenue from e-commerce and
advertising that is focused on target groups with these characteristics. VCI's
strategy entails aggregating content appearing on disparate Web sites on the
Internet into well-defined online communities targeted to these specific
demographic groups. VCI's management thinks that successful Web site communities
must have the following characteristics: (i) a large target market with at least
2 million Internet users; (ii) appeal to potential e-commerce partners, sponsors
and advertisers; (iii) interest in major events that will draw the attention of
the community (for example, the Millennium for the Christian community); and
(iv) a sufficient number of related content Web sites that will provide VCI with
aggregating potential from which to cull a critical mass of content. In
selecting a large target market, VCI's management thinks that the members of
that demographic group must have the following characteristics: (i) a strong
interest and passion for a topic, including a continued interest in news,
features and related services; and (ii) high Internet usage as determined by
Internet advertisers (e.g., upper middle class, and well-educated). Based on
these characteristics, VCI is currently identifying professional and expatriate
groups in the United States and elsewhere for whom to develop or acquire online
communities. Such virtual expatriate communities may be targeted to members of
the Asian, African and Spanish communities residing in the United States and
other English speaking countries. The contemplated Web sites will deliver news
and information from such expatriates' former homelands, offer features on their
current lifestyles and customs and provide an opportunity to interact with other
community members. Content for such Web communities would be derived from local
and foreign media content partners with which VCI would enter into agreements.

VCI's Revenue Sources. VCI's revenues increased from $402,000 in 1997 to
$819,000 in 1998. VCI recorded revenue of approximately $345,000 for the first
six months of 1999. While advertising revenues contributed
<PAGE>

approximately $512,000 to revenue for 1998 (or 63% of this revenue), and 54% of
first half of 1999 revenues, VCI anticipates that the majority of its revenues
after 1999 will be derived from e-commerce and site design and development
services for third parties. Revenue to date has almost exclusively been
generated by the Virtual Jerusalem site and the license of the first CMS system.
Revenues from Virtual HolyLand and Virtual Ireland are expected to increase in
the fourth quarter 1999 and revenues from Virtual Italy and Virtual India are
expected to commence in 2000.

Web site design and development. In implementing its strategy as discussed
above, VCI has developed five online communities of its own and has designed and
developed Web sites for many of its content partners in exchange for their
content. In addition, to leverage the know-how and technologies VCI obtained in
this process, VCI is offering Web site design and development services to third
party Web publishers on a fee basis. VCI offers these services on a flexible or
"modular" basis, allowing Web site publishers to select individual modules for
their specific needs. To provide these modules to Web site publishers, VCI
sublicenses modules that it previously licensed from Internet service providers
with which it has formed prior relationships, or alters programs that VCI
created for its own online communities. VCI also intends to license additional
modules from entities with whom it is currently in negotiations or from entities
which produce attractive new technologies. In order to deliver its services to
its content partners and potential third party clients using these licensed
technologies, one of VCI's subsidiaries, VCIL, maintains a staff of Web site
designers and programmers who create, update and maintain Web sites. In exchange
for services rendered to its content partners, VCI receives content. In exchange
for services rendered to third parties, VCI plans to charge a one time flat fee
of approximately $250,000 to $300,000, depending upon certain factors such as
the number of modules to be provided, VCI's level of participation in a
particular Web site's advertising and e-commerce revenues and VCI's access to
such site's user registration data. In August 1999, the Company, through a
wholly owned subsidiary established in August 1999 named VCI Community
Solutions, Inc., entered into a web design and development agreement with
Tromaville.com, Inc., a subsidiary of Troma, Inc., a New York company
("Tromaville"), for the provision of certain design, development and maintenance
services for a web site to be produced by VCI on behalf of Tromaville. Pursuant
to the agreement, VCI granted to Tromaville a limited, non-exclusive, worldwide,
perpetual royalty-free, non-transferable license to use the Company's Community
Management Solution ("CMS") which shall be installed on the Tromaville site. VCI
shall provide a variety of CMS elements and certain services for the Tromaville
site. In addition to a web design and development fee, VCI will receive a yearly
maintenance service fee commencing with the second year of the term and a
percentage of advertising and e-commerce revenues derived from the Tromaville
site. In the event Tromaville elects to terminate the agreement, VCI shall be
entitled to a buy-out amount based on a formula that takes into consideration
revenues then derived from the Tromaville site and the number of registered
users of such site.
<PAGE>

Board of Directors. Following the consummation of the merger, HDG's Board of
Directors consists of seven directors elected by HDG stockholders at the annual
meeting on October 26, 1999. All of these directors were nominated by VCI
pursuant to the merger agreement, three of such nominees were former directors
of VCI and two directors were former directors of HDG. Set forth below are the
names of the directors and information concerning their age as of September 15,
1999, positions and offices held with VCI, their principal occupation for at
least the past five years, the date which each such nominee became a director of
VCI and other directorships held by the person in companies filing periodic
reports pursuant to the Securities Exchange Act of 1934.

         Name          Age    Position

 Avi Moskowitz........ 35  Chairman of the Board, CEO and President
 Robert J. Levenson... 55  Director
 Fred S. Lafer........ 70  Director
 Jonathan W. Seybold.. 56  Director
 Allan Dalfen......... 55  Director
 Peter A. Jacobs...... 55  Director
 David Morris......... 29  Director

    Avi Moskowitz founded VCI in August 1996 and served as Chairman of the
Board, Chief Executive Officer, President and Director ever since. In January
1996, Mr. Moskowitz also founded Virtual Communities Israel Ltd. and served as
the entity's sole Director and Chief Executive Officer until May 1999. From 1994
until 1996, Mr. Moskowitz was a principal of NetMedia, Ltd., an Israel Internet
service provider. From 1986 through 1994, Mr. Moskowitz was President of MedPlus
Inc., a New York-based value-added reseller of healthcare software systems. Mr.
Moskowitz attended Yeshiva College of Yeshiva University. Mr. Moskowitz is the
son-in-law of Sonja Simon.

    Robert J. Levenson became a director of HDG upon the consummation of the
Merger. Since 1992, he has been a Director of First Data Corp. ("FDC"), a
company whose shares are listed on the New York Stock Exchange, and an Executive
Vice President of FDC since July 1993. He formerly served as Senior Executive
Vice President, Chief Operating Officer, and Member of the Office of the
President of Medco Containment Services, Inc., a provider of managed care
prescription benefits. Mr. Levenson was a Director of Medco Containment
Services, Inc. from October 1990 until December 1992. From 1985 until October
1990, Mr. Levenson was Group President and Director of ADP. Mr. Levenson is a
director of Vestcom International, Inc., Superior Telecom, Inc. and Emisphere
Technologies, Inc.

   Fred S. Lafer become a director of HDG upon the completion of the Merger.
From 1994 to the present, Mr. Lafer has been President of the Taub Foundation, a
charitable foundation. Prior thereto, until 1996, Mr. Lafer was Senior Vice
President and Secretary of Automatic Data Processing, Inc., a provider of
employer, financial and data services. He is also a member of the Board of
Vestcom International.
<PAGE>

   Jonathan W. Seybold was Chairman of the Board of HDG from July 1994 until the
Merger. Mr. Seybold founded Seybold Seminars, Inc., a company which conducts
large scale, technology-based trade shows and conferences and Seybold
Publications, a company which publishes reports on publishing systems, desktop
publishing and digital data applications, and served as President of the two
companies from 1981 to 1993.

    Allan Dalfen has been a director of HDG since January 1995, Mr. Dalfen has
served as President of Dalfen Corporation, an investment corporation. From
October 1992 to December 1994, Mr. Dalfen served as President and Chief
Executive Officer of Vestro Foods, Inc. and from 1979 to 1992, Mr. Dalfen served
as President and Chief Executive Officer of Weider Health and Fitness. Mr.
Dalfen is currently a director of Vestro Foods, Inc.

   Peter A. Jacobs has been a Director of VCI since April 1998 and became a
Director of HDG upon completion of the merger. Since December 1998, he has been
a director of Hillsdown Holdings PLC, a publicly traded U.K. food and furniture
company, and he has also been Chairman of Hillsdown since March 1999. In
December 1998, Mr. Jacobs became Chairman of Healthcall, Ltd., a doctor's
deputizing service, and in November 1998, he became a director of Bank Leumi
U.K. Since March 1998, Mr. Jacobs has been a director of Allied Domecque, Ltd.,
a U.K.-based food, beverage and spirits company. From May 1991 until August
1999, Mr. Jacobs was Chief Executive Officer of BUPA, the U.K.'s largest private
health care provider and health insurer. Mr. Jacobs received a BSC in Mechanical
Engineering in 1966 and a DMS in Management Studies in 1969 from Aspon
University, Birmingham, England.

   David Morris has been a Director of VCI since April 1998 and became a
director of HDG upon the Merger. Since May 1998, he has been a director of ENG
Ltd., a U.K. computer maintenance company. Since February 1998, he has been a
director of Vanco Ltd., a provider of wide area management network systems.
Since June 1997, Mr. Morris has been an employee of Monhouse Ltd., a U.K.-based
management company and, since June 1998, he has been a director of Monhouse. He
has also been a director of Oldstone Properties, a property
investment/development company since June 1997, and a director of Voyeur Ltd.
and PC Cloths, Ltd., two U.K.-based clothing companies since February 1998. From
1996 through 1997, Mr. Morris restructured closed-end investment trusts for
Brewin Dolphin Ltd., a U.K. stock brokerage firm. From January 1995 to December
1995, Mr. Morris was employed by Net Media Ltd., an Israeli Internet service
provider, partially owned by Mr. Moskowitz. Mr. Morris received a Bachelor of
Arts degree from University of Westminster, London in 1993.

All of the above directors and nominees will hold office from the effective time
until the next annual meeting of the stockholders and until their successors
have been duly elected and qualified. All of the above executive officers will
be elected by and serve at the direction of the Board of Directors of HDG after
the merger.
<PAGE>

Key Personnel. Following the consummation of the merger, the management team of
VCI has begun to serve as management of HDG. The following are officers and key
personnel of HDG following the Merger:

Name                  Age    Position

Avi Moskowitz         35  President and Chief Executive Officer
Michael S. Harwayne.. 29  Vice President of Business Development and
                          Marketing
Sonja Simon.......... 65  Secretary
Deborah Gaines        41  Editorial Director
David L. Kahn........ 43  Executive Vice President--VCIL
Ellen Cohl........... 32  Controller--VCIL

   Michael S. Harwayne joined VCI in February 1999. From 1995 to 1999, Mr.
Harwayne was employed at McKinsey & Company, Inc. where he was an Associate
until 1997, when he was promoted to Engagement Manager. From 1991 to 1993, he
held several positions at the International Data Group, including account
representative and management associate to PC World magazine and circulation
manager of Multimedia World. Mr. Harwayne received a Bachelor of Arts degree,
magna cum laude, from Harvard College in 1991 and received his MBA at Harvard's
Graduate School of Business in 1995.

   Sonja Simon was a director of VCI from September 1996 to the date of the
Merger and has been secretary of VCI since 1996. From 1991 to 1994, Mrs. Simon
was a data processing consultant for FYI Systems in the New York area, providing
services to Simon & Schuster. From 1994 to 1996, she was a consultant for Parsee
Information Corp., providing services to Citibank, N.A. and since 1997 has
provided computer consulting services to Chase Manhattan Bank through Global
Computer Associates, Inc., a privately held company based in New York. Prior
thereto, Ms. Simon worked for IBM in engineering and sales for over 30 years.
Ms. Simon is the mother-in-law of Avi Moskowitz.

   Deborah Gaines joined VCI as Editorial Director in November 1999. Before
joining VCI, Ms. Gaines served as Managing Editor for the Hearst magazine group
at Women.com from 1998-99, spearheading the launch of new sites for Redbook and
Good Housekeeping. From 1997-98, she was Managing Editor of iVillage: The
Women's Network. She has also held editorial positions at Money magazine and
Baby magazine, and written about travel for the New York Post, Ladies' Home
Journal, Modern Bride and others. Ms. Gaines graduated from Yale University and
has an M.A. in literature from Columbia University

    David L. Kahn has been the Executive Vice President of one of VCI's
subsidiaries, Virtual Communities Israel Ltd. since October 1996. From 1990 to
1996, Mr. Kahn was an associate of Corrine Davar Property Consultants, a
Jerusalem real estate firm. Mr. Kahn received a Bachelors Degree in Political
Science from Yeshiva University, New York in 1978 and a J.D. Degree from
Benjamin N. Cardozo School of Law, New York in 1981.
<PAGE>

   Ellen Cohl became the Controller of VCIL in August 1997. From 1995 through
1997, she was a Senior Auditor with Luboshitz Kasierer & Co., the Israeli
affiliate of Arthur Andersen & Co., the accountants for VCI, VCIL and VCIIP.
During 1994, Mrs. Cohl was a Special Project Leader at Deloitte & Touche LLP,
New York. From July 1992 through April 1994 she was a Senior Auditor with Bank
Leumi Trust Company. Mrs. Cohl is a Certified Public Accountant and received a
Bachelor of Science Degree from New York University in 1988, and a Masters
Degree in Business Administration from Baruch College, The City University of
New York in 1995.

There are no family relationships among any of the directors or executive
officers other than between Mr. Moskowitz and Ms. Simon, who is Mr. Moskowitz's
mother-in-law.

Employees and Facilities. VCI, together with its Israeli subsidiaries, Virtual
Communities Israel Ltd. ("VCIL") and V.C.I. Internet Properties Ltd. ("VCIIP"),
employ 64 full-time employees, 39 of whom are located in VCIL's offices in
Jerusalem, Israel, 2 of whom are located in VCIIP's offices in Eli, Israel, and
23 of whom are based in VCI's offices in New York, New York. Over the next
several months, VCI intends to retain approximately 10 additional persons for
VCIL's Jerusalem office where such personnel will be engaged in Web site
production, programming, editorial services, client services and administration.

   VCI's Web site servers are housed in server parks in Herndon, Virginia and in
New York, New York where they receive 24-hour maintenance and back-up services
pursuant to an agreement with Frontier Global, Inc.

   The offices of VCI and VCI's Israeli subsidiaries, VCIL and VCIIP, are
located at 589 Eighth Avenue, New York, New York 10018, Jerusalem Technology
Park, Jerusalem, Israel 91481 and Yishuv Eli 37, Eli, Israel 44828,respectively.

Amendment of Certificate of Incorporation. As a result of the filing of the
certificate of merger, HDG's certificate of incorporation was amended and
restated to change its name to "Virtual Communities, Inc." and to increase the
number of authorized shares of HDG's stock to 45,000,000 shares of common stock
and 5,000,000 shares of preferred stock. The amended and restated certificate of
incorporation is HDG's certificate of incorporation until changed or amended as
provided therein or by applicable law.

Amendment of By Laws. The existing bylaws of HDG provided that the bylaws may be
altered, amended or repealed by majority vote of the Board of Directors or by
the stockholders at an annual meeting or a special meeting called for that
purpose. A condition to the obligation of VCI to consummate the merger was that
the HDG stockholders approve and adopt an Amended and Restated Bylaws of HDG in
substantially the form set forth in Exhibit XII to the merger agreement,
effective upon the effective time of the merger.
<PAGE>

Number of Directors. The amended and restated bylaws provide that the number of
directors may be not less than three nor more than nine.

Stockholder Proposal and Nomination Procedure. The amended and restated bylaws
provide that at any annual meeting of stockholders, only such business shall be
conducted as shall have been: (i) specified in the notice of the meeting given
by or at the direction of the HDG Board; (ii) otherwise properly brought before
the meeting by or at the direction of the HDG Board; or (iii) otherwise properly
brought before the annual meeting by a stockholder. The stockholder must give
notice of the business proposed to be brought before the annual meeting to the
secretary of HDG not less than forty-five (45) days nor more than seventy-five
(75) days prior to the date on which HDG first mailed its proxy materials for
the previous year's annual meeting of shareholders (or the date on which HDG
mails its proxy materials for the current year if during the prior year HDG did
not hold an annual meeting or if the date of the annual meeting was changed more
than thirty (30) days from the prior year). A stockholder's notice to HDG's
secretary must describe each matter the stockholder proposes to bring before the
annual meeting, the name and record address of the stockholder proposing such
business, the class and number of shares of HDG which are beneficially owned by
the stockholder, and any material interest of the stockholder in such business.

Similarly, any stockholder desiring to nominate a person to stand for election
to the Board of Directors must make a written nomination to the Secretary of HDG
not less than 45 days nor more than 75 days prior to the date on which HDG first
mailed its proxy materials for the previous year's annual meeting of
shareholders (or the date on which HDG mails its proxy materials for the current
year if during the prior year HDG did not hold an annual meeting or if the date
of the annual meeting was changed more than thirty (30) days from the prior
year). The notice must set forth (a) as to each person whom the stockholder
proposes to nominate for election as a director, (i) the name, age, business
address, and residence address of the nominee, (ii) the principal occupation or
employment of the nominee, (iii) the class and number of shares of HDG which are
beneficially owned by the nominee, and (iv) any other information about the
nominee that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Rule 14a under the Exchange Act; and (b) as to
the stockholder giving notice, (i) the name and record address of the
stockholder, and (ii) the class and number of shares of the company beneficially
owned by the stockholder.

Special Meetings of Stockholders. The amended and restated bylaws provide that
special meetings of the stockholders may be called by the Chairman of the Board,
the President or by a majority of the HDG Board of Directors.

Approval and Adoption of the 1999 Stock Incentive Plan. Pursuant to the merger
agreement, a condition to the obligation of VCI to consummate the Merger was the
approval by HDG's Board and stockholders of a 1999 HDG Stock Incentive Plan.
This Plan was drafted for VCI instead of HDG because following the merger HDG
changed its name to VCI. Accordingly,
<PAGE>

all references to the surviving corporation are to VCI. The following summary of
the 1999 Stock Incentive Plan is subject in its entirety to the specific
language of the 1999 Stock Incentive Plan.

General Description. The 1999 Stock Incentive Plan was approved by the Board of
Directors on September 11, 1999. The purposes of the 1999 Stock Incentive Plan
are to give VCI's employees and others who perform substantial services for to
VCI an incentive, through ownership of its common stock, to continue in service
to VCI, and to help VCI compete effectively with other enterprises for the
services of qualified individuals. The 1999 Stock Incentive Plan permits the
grant of "incentive stock options" ("ISOs") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") only to employees of
VCI or any of its parent or subsidiary corporations. Awards other than ISOs may
be granted to employees, directors and consultants. The 1999 Stock Incentive
Plan provides for the grant of (i) shares, (ii) options, stock appreciation
rights ("SARs") or similar rights with an exercise or conversion privilege at a
fixed or variable price related to the Common Stock and/or the passage of time,
the occurrence of one or more events, or the satisfaction of performance
criteria or other conditions, or (iii) any other security with the value derived
from the value of the Common Stock of VCI (collectively, the "Awards"). Such
Awards include, without limitation, options, SARs, sales or bonuses of
restricted stock, dividend equivalent rights ("DERs"), performance units
("Performance Units") or performance shares ("Performance Shares").

Number of Shares Reserved. The number of shares reserved for issuance under the
1999 Stock Incentive Plan is 1,000,000 shares, plus an annual increase to be
added on the first day of VCI's fiscal year beginning in 2001 equal to two
percent (2%) of the number of shares outstanding as of such date or a lesser
number of shares determined by the Plan's administrator (the "Administrator").
Of the number of shares reserved for issuance, the maximum aggregate number of
shares available for grant of ISOs is 900,000 shares, plus an annual increase to
be added on the first day of VCI's fiscal year beginning in 2001 equal to the
lesser of (x) 1,000,000 shares, (y) two percent (2%) of the number of shares
outstanding as of such date, or (z) a lesser number of shares determined by the
Administrator. The shares to be issued pursuant to Awards may be authorized, but
unissued, or reacquired Common Stock. Limiting the annual increase to no more
than 1,000,000 shares per fiscal year is designed to permit the inclusion of
ISOs within the types of Awards that may be issued under the 1999 Stock
Incentive Plan pursuant to the formula for determining the maximum aggregate
number of shares available for issuance under the 1999 Stock Incentive Plan. The
Board of Directors recommends this amendment as a means by which the
Compensation Committee can plan on an annual basis for an allocation of ISOs
among other types of Awards sufficient to meet VCI's anticipated requirements
for attracting and retaining employees.

   Administration. The 1999 Stock Incentive Plan is administered, with respect
to grants to directors, officers, consultants, and other employees, by the
Administrator of the 1999 Stock Incentive Plan, defined as the Board or a
committee designated by the Board. The
<PAGE>

committee is constituted in such a manner as to satisfy applicable laws,
including Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended ("Rule 16b-3"). With respect to Awards subject to Code Section 162(m),
the committee will be comprised solely of two or more Outside directors as
defined under Code Section 162(m) and applicable tax regulations. For grants of
Awards to individuals not subject to Rule 16b-3 and Code Section 162(m), the
Board of Directors may authorize one or more officers to grant such Awards.

   Amendment and Termination. The Board may at any time amend, suspend or
terminate the 1999 Stock Incentive Plan. To the extent necessary to comply with
applicable provisions of federal securities laws, state corporate and securities
laws, the Code, the rules of any applicable stock exchange or national market
system, and the rules of any foreign jurisdiction applicable to Awards granted
to residents therein, VCI will obtain stockholder approval of any amendment to
the 1999 Stock Incentive Plan in such a manner and to such a degree as required.
The 1999 Stock Incentive Plan will terminate in July 2009 unless previously
terminated by the Board of Directors.

   Other Terms. Stock options granted under the 1999 Stock Incentive Plan may be
either ISOs under the provisions of Section 422 of the Code, or non- qualified
stock options. ISOs may be granted only to employees of VCI or any of its parent
or subsidiary corporations. Awards other than ISOs may be granted to employees,
directors and consultants. Under the 1999 Stock Incentive Plan, Awards may be
granted to such employees, directors or consultants who are residing in foreign
jurisdictions as the Administrator may determine from time to time.

   The 1999 Stock Incentive Plan authorizes the Administrator to select the
employees, directors and consultants of VCI to whom Awards may be granted and to
determine the terms and conditions of any Award; however, the term of an
incentive stock option may not be for more than 10 years (or 5 years in the case
of ISOs granted to any grantee who owns stock representing more than 10% of the
combined voting power of VCI or any parent or subsidiary corporation of VCI).
The 1999 Stock Incentive Plan authorizes the Administrator to grant Awards at an
exercise price determined by the Administrator. In the case of ISOs, such price
cannot be less than 100% (or 110%, in the case of ISOs granted to any grantee
who owns stock representing more than 10% of the combined voting power of VCI or
any parent or subsidiary corporation of VCI) of the fair market value of the
Common Stock on the date the option is granted. The exercise price of Awards
intended to qualify as performance-based compensation for purposes of Code
Section 162(m) shall not be less than 100% of the fair market value. The
exercise price is generally payable in cash or, in certain circumstances, with
such documentation as the Administrator and the broker, if applicable, shall
require to effect an exercise of an Award and delivery to VCI of the sale
proceeds required to pay the exercise price, or with shares of Common Stock. The
aggregate fair market value of the Common Stock with respect to any ISOs that
are exercisable for the first time by an eligible employee in any calendar year
may not exceed $100,000.
<PAGE>

   The Awards may be granted subject to vesting schedules and restrictions on
transfer and forfeiture rights in favor of VCI as specified in the agreements to
be issued under the 1999 Stock Incentive Plan. In the event of a Corporate
Transaction or a Change in Control, each as defined in the 1999 Stock Incentive
Plan, each Award which is at the time outstanding under the Plan automatically
will become fully vested and exercisable and be released from any restrictions
on transfer (other than transfer restrictions applicable to ISOs) and forfeiture
rights, immediately prior to the specified effective date of such Corporate
Transaction or Change in Control, for all of the shares at the time represented
by such Award. Effective upon the consummation of a Corporate Transaction, all
outstanding Awards under the Plan shall terminate unless the Awards are, in
connection with the Corporate Transaction, assumed by the successor corporation
or its parent. In the event of a Related Entity Disposition, as defined in the
1999 Stock Incentive Plan, each Award of a grantee who is engaged primarily in
service to that Related Entity which is at the time outstanding under the 1999
Stock Incentive Plan automatically will become fully vested and exercisable and
be released from any restrictions on transfer (other than transfer restrictions
applicable to ISOs) and forfeiture rights, immediately prior to the specified
effective date of such Related Entity Disposition, for all of the shares at the
time represented by such Award.

   Under the 1999 Stock Incentive Plan, ISOs may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised during the lifetime of
the grantee only by the grantee. However, the 1999 Stock Incentive Plan permits
the designation of beneficiaries by holders of ISOs. Other Awards are
transferable to the extent provided in the Award agreement.

   The Administrator may establish one or more programs under the 1999 Stock
Incentive Plan to permit selected grantees the opportunity to elect to defer
receipt of consideration payable under an Award. The Administrator also may
establish under the 1999 Stock Incentive Plan separate programs for the grant of
particular forms of Awards to one or more classes of grantees.

   Certain Federal Tax Consequences. The grant of a non-qualified stock option
under the 1999 Stock Incentive Plan will not result in any federal income tax
consequences to the optionee or to VCI. Upon exercise of a non-qualified stock
option, the optionee is subject to income taxes at the rate applicable to
ordinary compensation income on the difference between the option exercise price
and the fair market value of the shares on the date of exercise. This income is
subject to withholding for federal income and employment tax purposes. VCI is
entitled to an income tax deduction in the amount of the income recognized by
the optionee. Any gain or loss on the optionee's subsequent disposition of the
shares of Common Stock will receive long or short-term capital gain or loss
treatment, depending on whether the shares are held for more than one year
following exercise. VCI does not receive a tax deduction for any such gain. The
maximum marginal rate at which ordinary income is taxed to individuals is
currently 39.6%. The
<PAGE>

maximum rate at which long-term capital gains for most types of property are
taxed is 20%.

   The grant of an incentive stock option under the 1999 Stock Incentive Plan
will not result in any federal income tax consequences to the optionee or to
VCI. An optionee recognizes no federal taxable income upon exercising an
incentive stock option ("ISO") (subject to the alternative minimum tax rules
discussed below), and VCI receives no deduction at the time of exercise. In the
event of a disposition of stock acquired upon exercise of an ISO, the tax
consequences depend upon how long the optionee has held the shares of Common
Stock. If the optionee does not dispose of the shares within two years after the
ISO was granted, nor within one year after the ISO was exercised, the optionee
will recognize a long-term capital gain (or loss) equal to the difference
between the sale price of the shares and the exercise price. VCI is not entitled
to any deduction under these circumstances.

   If the optionee fails to satisfy either of the foregoing holding periods, he
or she must recognize ordinary income in the year of the disposition (referred
to as a "disqualifying disposition"). The amount of such ordinary income
generally is the lesser of (i) the difference between the amount realized on the
disposition and the exercise price, or (ii) the difference between the fair
market value of the stock on the exercise date and the exercise price. Any gain
in excess of the amount taxed as ordinary income will be treated as a long or
short-term capital gain, depending on whether the stock was held for more than
one year. VCI, in the year of the disqualifying disposition, is entitled to a
deduction equal to the amount of ordinary income recognized by the optionee.

   The "spread" under an ISO--i.e., the difference between the fair market value
of the shares at exercise and the exercise price--is classified as an item of
adjustment in the year of exercise for purposes of the alternative minimum tax.

   The grant of restricted stock will subject the recipient to ordinary
compensation income on the difference between the amount paid for such stock and
the fair market value of the shares on the date that the restrictions lapse.
This income is subject to withholding for federal income and employment tax
purposes. VCI is entitled to an income tax deduction in the amount of the
ordinary income recognized by the recipient. Any gain or loss on the recipient's
subsequent disposition of the shares will receive long or short-term capital
gain or loss treatment depending on whether the shares are held for more than
one year and depending on how long the stock has been held since the
restrictions lapsed. VCI does not receive a tax deduction for any such gain.

   Recipients of restricted stock may make an election under Internal Revenue
Code Section 83(b) ("Section 83(b) Election") to recognize as ordinary
compensation income in the year that such restricted stock is granted the amount
equal to the spread between the amount paid for such stock and the fair market
value on the date of the issuance of the stock. If such an election is made, the
recipient recognizes no further
<PAGE>

amounts of compensation income upon the lapse of any restrictions and any gain
or loss on subsequent disposition will be long or short-term capital gain to the
recipient. The Section 83(b) Election must be made within thirty days from the
time the restricted stock is issued.

   The foregoing is only a summary of the current effect of federal income
taxation upon the grantee and VCI with respect to the shares purchased under the
1999 Stock Incentive Plan. Reference should be made to the applicable provisions
of the Code. In addition, the summary does not discuss the tax consequences of a
grantee's death or the income tax laws of any municipality, state or foreign
country to which the grantee may be subject.

   Amended Plan Benefits. As of the date of this Report on Form 8-K, no
executive officer, director and no associates of any executive office or
director, has been granted any options subject to stockholder approval of the
1999 Stock Incentive Plan. The benefits to be received pursuant to the 1999
Stock Incentive Plan amendments by VCI's executive officers, directors and
employees are not determinable at this time.

Fairness of Transaction.

Duff & Phelps, LLC provided a written opinion to HDG's Board of Directors as to
the fairness of the merger to HDG's stockholders from a financial point of view.
The total number of shares of HDG common stock issued in the merger to the
holders of VCI Common Stock was determined by dividing $22,000,000 plus
$1,032,500, the amount of equity capital raised by VCI between June 2, 1999 (the
date as of which the merger agreement was signed) and October 29, 1999, the date
the merger was completed, by a fraction, the numerator of which equaled the
amount of HDG's cash and cash equivalents (times a multiplier that was the
amount of cash and cash equivalents of HDG), and the denominator of which
equaled the number of HDG common shares outstanding immediately prior to the
merger.

The per share conversion ratio was determined by dividing the total number of
shares of HDG common stock issued in the merger by the total number of shares of
VCI common stock which were issued and outstanding immediately prior to the
merger (including for this purpose issued and outstanding VCI preferred stock
assuming conversion into VCI common stock). Accordingly, the number of shares of
HDG common stock issued to holders of VCI common stock in the merger was based
on changes in the relative valuations of VCI and HDG and the relative number of
shares of VCI and HDG which were issued and outstanding at the effective date of
the merger.

Pursuant to an engagement agreement dated May 4, 1999, Duff & Phelps was engaged
by the HDG Board of Directors to render an opinion as to whether the Merger was
fair to the shareholders of HDG from a financial point of view. In rendering the
opinion, it was Duff & Phelps' understanding that HDG would acquire VCI in an
all-stock transaction. HDG's existing common stock and Class A and Class B
warrants would remain outstanding. VCI's shareholders would receive
approximately 11.9 million to 15.4 million shares of HDG common stock
representing
<PAGE>

approximately 88 percent to 91 percent of HDG's common stock after the merger
(assuming no exercise of HDG warrants and options). Duff & Phelps further
understood that the Merger was to be submitted to the shareholders of HDG for
approval at an annual meeting of the HDG stockholders.

Duff & Phelps is a nationally recognized investment banking firm that is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements, and valuations for
corporate and other purposes. Duff & Phelps has previously not provided any
financial advisory services to HDG.

For purposes of its opinion and in connection with its review of the
Proposed Transaction, Duff & Phelps reviewed and analyzed, among other things,
the following: (a) draft of the proxy statement/prospectus dated as of July 12,
1999; (b) the merger agreement dated June 3, 1999; (c) Letter of Intent, Re:
Proposed Merger with Heuristic Development Group, Inc., dated March 31, 1999, as
prepared by Avi Moskowitz, President and Chairman of VCI; (d) Heuristic
Development Group, Inc., A Proposal: The Virtual Communities Business
Combination, dated March 1999, as prepared by Jesup & Lamont Capital Markets,
Inc.; (e) Virtual Communities, Inc., Confidential Information Memorandum, Series
B Preferred Stock, dated April 20, 1999, as prepared by Jesup & Lamont
Securities Corporation; (f) current financial projections for VCI, as prepared
by VCI management; (g) unaudited financial statements for VCI for the three
months ended March 31, 1999, and audited financial statements for VCI for the
years ended December 31, 1997 and 1998; and (h) unaudited financial statements
for HDG for the three months ended March 31, 1999, and audited financial
statements for HDG for the years ended December 31, 1997 and 1998.

Duff & Phelps considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that it deemed
relevant. Duff & Phelps also had discussions with certain officers and employees
of HDG and VCI to review the foregoing as well as other matters it believes
relevant to its analysis.
<PAGE>

Item 7. Financial Statements and Exhibits.

The financial statements required under Item 7 are hereby incorporated herein by
reference to HDG's Registration Statement on Form S-4 Amendment No. 1
(Commission file number 333-87373), filed with the Commission on September 30,
1999.


Exhibits.

     Exhibit No.        Description of document
     -----------        -----------------------

              2.1       Agreement and Plan of Merger between HDG and VCI, dated
                        June 2, 1999 (1)

              2.2       Amendment to Agreement and Plan of Merger between HDG
                        and VCI, dated September 8, 1999 (2)

              3.1       Certificate of Incorporation of HDG, as amended (3)

              3.2       Amended and Restated Bylaws of HDG (4)

            10.23       1999 Stock Incentive Plan (5)

             16.1       Letter re Change in Certifying Accountant

(1) Filed with the Commission as Exhibit 2.1 to HDG's Form 10-Q for the quarter
ended on June 30, 1999, and incorporated herein by reference thereto.

(2) Filed with the Commission as Annex L to HDG's Registration Statement on Form
S-4 Amendment No. 1 (Commission file number 333-87373), filed with the
Commission on September 30, 1999, and incorporated herein by reference thereto.

(3) Filed as Exhibit XI to Appendix A of HDG's Registration Statement on Form
S-4 Amendment No. 1 (Commission file number 333-87373), filed with the
Commission on September 30, 1999, and incorporated herein by reference thereto.

(4) Filed as Exhibit XII to Appendix A to HDG's Registration Statement on Form
S-4 Amendment No. 1 (Commission file number 333-87373), filed with the
Commission on September 30, 1999, and incorporated herein by reference thereto.

(5) Filed with the Commission as Exhibit 10.25 to HDG's Registration Statement
on Form S-4 (Commission file number 333-87373), on September 17, 1999, and
incorporated herein by reference thereto.
<PAGE>

                                   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 hereunto duly authorized.


                                          VIRTUAL COMMUNITIES, INC.


Date:   November 12, 1999              By:  /s/ Avi Moskowitz
        --------------------           ---------------------------------------
                                       Avi Moskowitz,
                                       President and Chief Executive Officer

<PAGE>

Exhibit 16.1


                           To be filed by Amendment




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