SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
May 12, 2000
Date of Report
(Date of Earliest Event Reported)
VHS NETWORK, INC.
(Exact Name of Registrant as Specified in its Charter)
6705 Tomken Road, Unit 12-14
Mississauga, Ontario, Canada
(Address of principal executive offices)
416/366-3571
905/795-9682 (fax)
Registrant's telephone number
EXODUS ACQUISITION CORPORATION
19900 MacArthur Boulevard, Suite 660
Irvine, California 92612
Former name and former address
Florida ________ 65-0656668
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to an Agreement and Plan of Reorganization (the
"Acquisition Agreement") dated May 6, 2000, VHS Network, Inc., ("VHSN" or the
"Company"), a Florida Corporation, acquired all the outstanding shares of common
stock of Exodus Acquisition Corporation ("Exodus"), a California corporation,
from shareholders thereof in an exchange for an aggregate of 500,000 shares of
common stock of VHSN (the "Acquisition"). As a result, Exodus became a wholly
owned subsidiary of VHSN.
The Acquisition was adopted by the unanimous consent of the Board of
Directors of VHSN on May 6, 2000. The Acquisition is intended to qualify as a
reorganization within the meaning of Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended.
Prior to the Acquisition, VHSN had 19,035,268 shares of common stock
issued and outstanding, and 19,535,268 shares issued and outstanding following
the Acquisition.
Upon effectiveness of the Acquisition, pursuant to Rule 12g-3(a) of the
General Rules and Regulations of the Securities and Exchange Commission, VHSN
became the successor issuer to Exodus for reporting purposes under the
Securities Exchange Act of 1934 (the "Act") and elects to report under the Act
effective May 12, 2000.
A copy of the Acquisition Agreement is filed as an exhibit to this Form
8-K and is incorporated in its entirety herein. The foregoing description is
modified by such reference.
(b) The following table contains information regarding the
shareholdings of VHSN's current directors and executive officers and those
persons or entities known to the Company beneficially own more than 5% of its
common stock (giving effect to the exercise of the warrants held by each such
person or entity). Except as noted, each person has sole voting and investment
authority with respect to the Shares indicated.
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<TABLE>
<CAPTION>
Number of shares of Percent of
Common Stock Common Stock
Name Beneficially Owned Beneficially Owned (1)
----- ------------------ ----------------------
<S> <C> <C>
Elwin D. Cathcart 9,270,000(2) 47.4%
President, Chairman, Chief
Executive Officer and Chief
Financial Officer
1400 Dixie Road
Mississauga, Ontario
Canada L5E 3E1
Gang Chai 1,048,502(3) 5.4%
Director, Chief Operating Officer
89 Drewry Avenue
Toronto, Ontario
Canada M2M 1E1
David Smelsky 685,000(4) 3.5%
Director, Secretary
RR#4
Rockwood, Ontario
Canada N0B 2K0
Thomas Roberts 500,000(5) 2.6%
Director
P.O. Box 128
Fayette AL 35555
Forte Management Corp. 2,208,334(6) 11.3%
Buckingham Square, Penthouse
West Bay Road, SMB
P.O. Box 1159GT
West Bay Road, SMB
Grand Cayman, Cayman Islands, BWI
Charles He 1,274,000(7) 6.5%
56 Temperance Street
Suite 501
Toronto, Ontario
M5H 3V5
Qin Lu Chai 1,048,498(8) 5.4%
89 Drewry Avenue
Toronto, Ontario
Canada M2M 1E1
Qing Wang 1,022,000(9) 5.2%
18 Hollywood Avenue
Suite 900
North York, Toronto
Canada M4P 2B1
</TABLE>
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<TABLE>
<CAPTION>
Number of shares of Percent of
Common Stock Common Stock
Name Beneficially Owned Beneficially Owned (1)
----- ------------------ ----------------------
<S> <C> <C>
Tai Xue Shi 1,022,000(10) 5.2%
18 Hollywood Avenue
Suite 900
North York, Toronto
Canada M4P 2B1
Rouge-Mountain Corp. 1,259,993(11) 6.4%
13065 Riverdale Drive NW
Coon Rapids, MN 55448
</TABLE>
(1) The percentages reflected herein are based upon 19,535,268 shares of
the Company's common stock outstanding.
(2) This figure includes 7,900,000 common shares owned by Groupmark
Canada Limited which is a wholly owned corporation of Elwin D.
Cathcart and 370,000 shares of common stock held by and options to
purchase 250,000 shares of common stock granted to Elwin D. Cathcart
at an exercise price of $0.35 per share until December 31, 2000 and
options to purchase 750,000 shares of common stock at an exercise
price of $0.40 per share until December 31, 2002.
(3) This figure includes conversion privileges into 698,502 shares of
common stock. VHSN acquired China eMall Corporation pursuant to a
share exchange agreement wherein the shareholders of China eMall,
including Dr. Chai, received preferred shares of China eMall
Corporation that are exchangeable on a one-for-one basis into common
stock of VHSN.
(4) This figure includes options to purchase 250,000 shares of common
stock granted to Mr. Smelsky at an exercise price of $0.35 per
share, until December 31, 2000 and options to purchase 250,000
shares of common stock at an exercise price of $0.40 per share,
until December 31, 2002.
(5) This figure includes options to purchase 250,000 shares of common
stock granted to Mr. Roberts at an exercise price of $0.35 per share
until December 31, 2000 and options to purchase 250,000 shares of
common stock at an exercise price of $0.40 per share until December
31, 2002.
(6) This figure includes warrants to purchase up to 708,334 shares of
common stock of the Company as follows: 383,334 shares at $0.50 per
share until July 11, 2000; 200,000 shares at $0.60 per share until
August 10, 2000; 125,000 shares at $0.95 per share until October 9,
2000.
(7) This consists of conversion privileges into 1,274,000 shares of
common stock. VHSN acquired China eMall Corporation pursuant to a
share exchange agreement wherein the shareholders of China eMall,
including Dr. Charles He, received preferred shares of China eMall
Corporation that are exchangeable on a one-for-one basis into common
stock of VHSN.
(8) This includes conversion privileges into 698,498 shares of common
stock. VHSN acquired China eMall Corporation pursuant to a Share
Exchange Agreement wherein the shareholders of China eMall,
including Qin Lu Chai, received preferred shares of China eMall
Corporation that are exchangeable on a one-for-one basis into common
stock of VHSN.
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(9) This includes conversion privileges into 672,000 shares of common
stock. VHSN acquired China eMall Corporation pursuant to a Share
Exchange Agreement wherein the shareholders of China eMall,
including Qing Wang, received preferred shares of China eMall
Corporation that are exchangeable on a one-for-one basis into common
stock of VHSN.
(10) This includes conversion privileges into 672,000 shares of common
stock. VHSN acquired China eMall Corporation pursuant to a Share
Exchange Agreement wherein the shareholders of China eMall,
including Tai Xue Shi, received preferred shares of China eMall
Corporation that are exchangeable on a one-for-one basis into common
stock of VHSN.
(11) The principal of Rouge-Mountain Corp. is William John.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The consideration exchanged pursuant to the Acquisition Agreement
was negotiated on an arms-length basis between Exodus and VHSN.
In evaluating VHSN as a candidate for the proposed Acquisition, Exodus
used criteria such as the value of the assets of VHSN, VHSN's ability to compete
in the information technology market, the increased use of the Internet as a
sales market, VHSN's current and anticipated business operations, and VHSN's
business reputation in the e-commerce community. In evaluating Exodus, VHSN
placed a primary emphasis on Exodus' lack of liabilities, simplistic structure
and status as a reporting company under the Section 12(g) of the Act and
Exodus's facilitation of VHSN's becoming a reporting company under the Act.
(b) The Company intends to strengthen its position in the Internet
electronic commerce and smartCARD marketing business by further developing its
World Wide Web technologies and by placing the primary emphasis on Internet
niche properties and products that share the focus and quality specific to the
Company's current lines of businesses. The Company intends to achieve this goal
by enhancing growth at its existing facilities and selectively acquiring
additional Internet properties and customer base.
BUSINESS
The Company
VHS Network, Inc. (the "Company") was incorporated in the State of
Florida on December 18, 1995, as Ronden Vending Corp. On December 24, 1996 the
Company incorporated a wholly owned subsidiary called Ronden Acquisition, Inc. a
Florida corporation. Ronden Acquisition, Inc. then merged with Video Home
Shopping, Inc. (a Tennessee corporation) and filed articles of merger on
December 27, 1996 with Ronden Acquisition, Inc. as the surviving Florida
corporation. Pursuant to this merger all of the shareholders of Video Home
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Shopping, Inc. received in aggregate 10,462,750 shares of common stock of the
Company and employees of Video Home Shopping, Inc. had reserved for them 137,250
shares of the Company for future issuance pursuant to a stock option plan. After
giving effect to this merger, 12,041,000 shares of the Company were issued and
outstanding on a fully diluted basis. At the time, Video Home Shopping, Inc. was
a network marketing and distribution company which offered a wide range of
products and services to consumers through the medium of video tape and after
the merger it was intended that video home shopping be the principal focus of
the Company.
On January 9, 1997, Articles of Merger were filed for th Company as the
surviving corporation of a merger between the Company and its wholly owned
subsidiary Ronden Acquisitions, Inc., completing the forward triangular merger
between Video Home Shopping, Inc., Ronden Acquisition, Inc. and the Company.
On January 9, 1997, Articles of Amendment were filed to change the name
of the Company from Ronden Vending Corp. to VHS Network, Inc. On April 9, 1997
the Company incorporated VHS Acquisition, Inc. as a wholly-owned subsidiary.
In April, 1997 the Company was restructured by way of a reverse short
form merger, by which the Company merged into its wholly-owned subsidiary, VHS
Acquisition, Inc. a Florida corporation. Pursuant to the reverse short form
merger, the sole shareholder of VHS Network Inc. (the Manitoba corporation),
Groupmark Canada Limited, received 8,000,000 common shares of the Company and a
secured promissory note for US$500,000 and thus became the controlling
shareholder of the Company. As a result of the reverse take-over all the former
directors of the Company, except Thomas Roberts, resigned and Elwin D. Cathcart
and David Smelsky were appointed directors of the Company.
On or about April 28, 1997 the Company, under its curren management,
commenced a private placement of its common shares under Rule 504 of Regulation
D promulgated under the Securities Act of 1933, for a maximum aggregate offering
of less than $1,000,000. The Company raised proceeds of $416,492.50 under this
offering.
On November 20, 1997 the board of directors of the Company approved a
reverse stock split of the issued and outstanding common shares on a 20 for 1
basis.
On March 31, 1998 the promissory note payable to Groupmark Canada
Limited in the amount of US$500,000 was converted to 5,000,000 restricted shares
of the Company's common stock. In May, 1998, 1,399,992 restricted shares of
common stock were issued in an arm's length transaction for the purchase of
inventory for resale.
The inventory consists of full color lithographic prints from a
sold-out limited edition release, "The Andover Series" by artist Jim Perleberg.
The Company will be offering these prints for sale through its own website and
other Internet sites.
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On December 21, 1999, the Company commenced a private placement of its
common stock under Rule 504 of Regulation D promulgated under the Securities Act
of 1933 and section 203 (t) of the Pennsylvania Securities Act of 1972. The
Company raised proceeds of $950,000 pursuant to this offering.
A copy of the Private Placement Offering Materials is filed as an
exhibit to this Form 8-K/A and is incorporated in its entirety by reference.
On April 12, 2000, VHS Network, Inc., acquired all of th issued and
outstanding common stock of China eMall Corporation pursuant to a share exchange
agreement made between VHS Network, Inc., China eMall Corporation, Uphill
Capital Inc., GDCT Investment Inc., Gang Chai, Qin Lu Chai, Qing Wang, Tai Xue
Shi, Charles He and Forte Management Corp. (the "Share Exchange Agreement"). The
common stock of China eMall was held by five individual shareholders and three
corporations. Two of the corporate shareholders, GDCT Investment Limited and
Uphill Capital Inc., were holding companies whose only activities were holding
shares of China eMall. VHS Network, Inc., purchased all the issued and
outstanding shares of GDCT Investment Limited and Uphill Capital Inc., and thus
indirectly acquired the shares of China eMall held by these companies. The
shareholders of GDCT Investment Limited and Uphill Capital Inc., received common
stock in VHS Network, Inc., pursuant to the Share Exchange Agreement. The other
corporate shareholder, Forte Management Corp., received common stock of VHS
Network, Inc., in exchange for its shares of China eMall. All the shareholders
of Chine-eMall who are individuals received Class B Special Shares of China
eMall that are exchangeable on a one for one basis for common stock of VHS
Network, Inc. In total, VHS issued 2,100,000 shares of common stock on closing
and has allotted 4,015,000 shares of common stock for issuance when the Class B
Special Shares are exchanged into shares of common stock of VHS Network, Inc.
A copy of the Share Exchange Agreement is filed as an exhibit to this
Form 8-K/A and is incorporated in its entirety by reference.
RECENT SALES OF UNREGISTERED SECURITIES e
Starting in April, 1997 and continuing into 1998, the Company, under
its current management continued an offering pursuant to Rule 504 of Regulation
D promulgated under the Securities Act of 1933 which would have allowed it to
raise a maximum of $890,000. Each purchaser completed a subscription agreement.
The Company raised a total of $416,492 pursuant to this offering with the
issuance of common shares as follows:
Purchase Number of Shares
-------- ----------------
Tomorrow's Stock Today, Inc. 945,000
Robert Seary 759,000
Dana Sieber 650,000
Thomas Michael Vitucci 700,000
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On May 8, 1998, the Company issued 5,000,000 common shares to Groupmark
Canada Limited based on a price of $0.10 per share in full satisfaction of a
promissory note in the amount of $500,000. The exemption from registration
relied on by the Company is Regulation S promulgated under the Securities Act of
1933, as amended.
On May 14, 1998, the Company issued 1,399,992 common shares to
Rogue-Mountain Corp. in an arm's length transaction for the purchase of
inventory valued at $559,997. The Company relied upon the exemption from
registration provided under Regulation D, Rule 506.
On October 13, 1999 the directors passed a resolution to issue 370,000
common shares to Elwin D. Cathcart and 185,000 common shares to David Smelsky in
lieu of salary as officers of the Company. The Company relied upon the exemption
from registration provided under Regulation D, Rule 506.
On December 20, 1999, the Company issued 150,000 common shares to
Steven Rossi and 350,000 common shares to Kevin Waltzner as payment for
consulting services rendered to the Company pursuant to consulting agreements
dated December 20, 1999, and December 16, 1999, respectively. The exemptions
from registration relied on are provided by Rule 504 of Regulation D,
promulgated under the Securities Act of 1933, as amended and section 203 (t) of
the Pennsylvania Securities Act of 1972, as amended. During the first three
months of 2000 the Company issued 2,083,333 common shares to Paul Winters at
prices of $0.10 and $0.60 for aggregate proceeds of $950,000. The purchaser was
provided with a private placement memorandum, completed an investor
questionnaire and a subscription agreement. This private placement was made in
reliance on the exemption from registration provided by Rule 504 of Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities Act")
and section 203 (t) of the Pennsylvania Securities Act of 1972, as amended. The
issuances of this 504 offering are summarized below:
Purchaser Number of Shares Price
Steven Rossi 150,000 $0.10
Kevin Waltzner 350,000 $0.10
Paul Winters 600,000 $0.10
Paul Winters 1,483,333 $0.60
On April 12, 2000 pursuant to a share exchange agreement for the
acquisition of China eMall Corporation, the Company issued 2,100,000 common
shares and further allotted 4,015,000 common shares for issuance on exchange of
the Class B Special Shares of China eMall for common shares of the Company. The
holders of the Class B Special Shares can exchange any or all of their Class B
Special Shares for common shares of the Company at any time however if any Class
B Special Shares remain issued and outstanding after the expiration of the
earlier of (A) three years from the date on which a Form SB-2 or similar filing
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has been filed with the SEC with respect to the common shares of the Company and
the SEC has reach a position of no further comment, and (B) five years after
which such Exchangeable Shares were issued, then China eMall Corporation may
redeem the Class B Special Shares on payment of one common share of the Company
for each Class B Special Share. The 2,100,000 shares were issued as follows:
Purchaser Number of Shares
--------- ----------------
Gang Chai 350,000
Qin Lu Chai 350,000
Qing Wang 350,000
Tai Xue Shi 350,000
Forte Management Corp. 700,000
The 4,015,000 Class B Special Shares were issued as follows:
Purchaser Number of Shares
--------- ----------------
Gang Chai 698,502
Qin Lu Chai 698,498
Qing Wang 672,000
Tai Xue Shi 672,000
Charles He 1,274,000
In April, 2000 the Company issued 50,000 common shares to Alexander
Stewart for the provision of legal services. The shares were valued at $0.50 and
were issued in reliance upon the exemption from registration under Regulation S.
In April, 2000 the Company completed a private placement with Forte
Management Corp. a non-US investor operating outside the United States for the
issuance of 550,000 common shares and 1,225,000 share purchase warrants for
proceeds of $110,000. The warrants have the following expirations dates and
exercise prices.
Number of Warrants Expiration Date Exercise Price
------------------ --------------- --------------
400,000 June 12, 2000 $0.35
500,000 July 11, 2000 $0.50
200,000 August 10, 2000 $0.60
125,000 October 9, 2000 $0.95
As of the date hereof 250,000 warrants have been exercised for proceeds
of $105,000 to the Company.
In March, 2000 the Company issued 2,500,000 restricted shares of common
stock to Groupmark Canada Limited in satisfaction of $865,868 owed under the
management services agreement between the Company and Groupmark. The Company
relied upon exemptions from registration available under Regulation D, Rule 506
and Regulation S.
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CURRENT OPERATIONS
Over the last two years the Company believes that it has
positioned itself to identify technologies and market opportunities in the
United States, Canada and abroad in Internet and smartCARD loyalty marketing.
The Company currently operates and/or develops two lines of business as follows:
SmartCARD. The Company is developing to engage in the sale of
computer chip- based plastic access cards that utilize the Company's proprietary
smartCARD technology. This technology enables the cards to be used for
identification purposes and as debit or charge cards. The Company intends to
focus its marketing efforts on companies that wish to distribute these cards to
their customers as a reward for their loyalty. Groupmark Canada Limited owns the
registered trade- mark "smartCARD" in Canada and has a pending application in
the United States. Groupmark Canada has granted the Company a license to use the
trademark smartCARD and the know-how related to the sourcing, production,
manufacture and marketing of the chip-based plastic access cards, pursuant to a
License Agreement dated January 1, 2000. The license granted to the Company
allows the Company to manufacture and market smartCARDs worldwide on a
non-exclusive basis for a term of 10 years and to utilize the technology and
other know-how related to smartCARDs in exchange for royalty of 5% of the
Company's wholesale selling price of the product. Under the License Agreement,
the Company must pay the royalty to Groupmark Canada on a quarterly basis based
on income received in each quarter.
A copy of the License Agreement is filed as an exhibit to this
Form 8-K and is incorporated in its entirety herein. The foregoing description
is modified by such reference.
o Competition
There are approximately twelve to fifteen companies
who manufacture chip- based cards, all of which have vast financial, personnel,
marketing and sales resources in comparison with the Company. However, these
companies focus the marketing of these cards for security purposes and debit or
charge cards, whereas the Company will be focusing its marketing of these cards
as a loyalty reward to a company's customers.
o Supplier
The Company's success as a marketer of e-commerce
products depends on its ability to obtain a reliable source of products and then
locate retailers who wish to purchase these products. The Company believes it
can obtain smartCARDS from up to six different suppliers depending on the type
of card that is needed. There are however other suppliers that would be able to
supply the products.
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China eMall
Acquisition. The Company recently acquired all the common
shares of China eMall Corporation, a corporation incorporated pursuant to the
Business Corporations Act (Ontario). China eMall is an e-commerce company that
provides Internet marketing and information services to facilitate trade between
Chinese and western businesses. China eMall's primary focus is to establish an
on-line presence to facilitate the export of Chinese products. Through its
multi-functional portal, Chinese suppliers can post their products and services
in a format that is easy for searching, quoting and tracking, thus giving
western buyers access to multiple suppliers for the best quality and price.
Realizing that there is a difference business culture and
financial systems as between China on the one hand and North America and Europe
on the other hand, China eMall allocates a substantial amount of resources
assisting web-site users in effecting communications between buyers and sellers,
import/export processing, financial transactions and product services. China
eMall's business makes use of Internet technology to speed up the export process
and broaden the sales channels for Chinese goods and services, and more
importantly, brings customers into direct contact with Chinese producers who can
constantly upgrade their products to meet customers' needs. China eMall has an
agreement with Wangfujing Department Store Ltd., the "Wal Mart" of China, as its
prime product supplier. With the tremendous resources and expertise in retail
business, Wangfujing can make the identification, organization and exporting of
Chinese products a lot more efficient and economic.
China eMall has the following goals:
o to provide an online business to business porta for both the suppliers
and purchasers to engage in direct business communications and
transactions;
o to provide critical assistance to both the suppliers and purchasers to
complete the business transactions;
o to offer various China based services to wester customers; and
o to create a market place for China-related good that can attract a broad
range of companies for advertisement.
Market. China is one of the largest economies in the world and is
therefore an important market for the export of consumer goods and services.
International trade has mushroomed during the last decades since China began its
economic reform and started its open door policy to foreign economies. Revenue
from export was close to US$200 billion last year alone. China eMall believes
that capturing a piece of the export market could translate into tremendous
economic value.
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History. China eMall, incorporated on February 5, 1999, was
established by Dr. Gang Chai, and two partners, Dr. Charles He, a computer
expert, and Ms. Qing Wang a veteran Chinese businesswoman. In April, 1999, the
initial China eMall website, based on a software platform Intershop, was built
and began test functioning. In May, 1999, Dr. Chai made initial contact with
Wanfujing Dept. Store Group Ltd. regarding this concept and received a welcoming
response. Other manufacturers contacted were very enthusiastic about joining
China eMall as product suppliers. In August 1999, China eMall signed an initial
supply agreement with Wangfujing. In the mean time, China eMall supplied
personnel to assist in product photo-ampling, scanning and data inputting and an
upgraded version of China eMall's website was built. China eMall continued to
contact more suppliers to broaden its product lines. In November 1999, China
eMall introduced services in addition to its product line and is planning to
focus on marketing and sales of services. On February 12, 2000, all the issued
and outstanding common shares of China eMall were acquired by the Company.
Products - Manufactured Goods. China eMall offers a complete
spectrum of products that are catalogue and organized under twenty categories
that appear on the home page of the website www.china-emall.com as follows:
Agriculture; Apparel; Arts & Crafts; Chemical Industry; Communications &
Transportation; Construction & Decoration; Electronics; Energy & Mineral
Resources; Entertainment; Food; Health & Medicine; Home & Garden; Industrial
Supplies; Jewelry, Clocks & Watches; Office Supplies; Pet Supplies; Security;
Sports; Textiles, Silk; and Toys.
Internet Services. One distinctive feature of China eMall
business model is that the company offers a broad range of China based services
and opportunities such as high tech projects, legal services and translation
services. The service aspect will be the main emphasis of China eMall's
offerings and revenue generator. The following services are offered:
Business Information Services:
o Macro- and micro- economy of China;
o Update of various sectors of industry and business opportunities;
o Special industrial reports for individual companies ;
o Posting of government services Government policies, laws and
regulations;
o Update of the changes of government's administration system Investment
projects from various levels of government;
o Engineering projects from various levels of government; and
o Other available projects from the government.
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Professional services:
o Construction and Engineering services for projects abroad;
o Business consulting for western companies; and
o Technical and labor exchange, including providing
technical personnel and skillful workers.
Financial services:
o Services for companies to get listed in foreign stock
exchanges; and
o Financing, including stocks and loans, training of
financial personnel.
Other services:
o Traveling services for both Chinese and Foreigners;
o Immigration;
o Studying abroad; and
o Investment abroad.
Business Strategy. China eMall's management intends to establish a major
e-commerce center to link China and Western business markets using the following
strategies:
Short Term
o Selecting entry products from brand suppliers as a base
for the initial establishment;
o Outsourcing exporting duties to suppliers and importing
duties to importing agencies. China eMall will mainly
coordinate the process in order to fulfill its supply side
objective. China eMall believes that this will ensure a
variety and quality of goods and timely delivery of
products to customers;
o Building up marketing and sales infrastructure by
establishing a sales force and by acquiring a few existing
exporting businesses for the initial sales and customer
base, as well as experts in related fields. China eMall
will expand the sales side by providing wider ranges of
products in each category, streamlining the
exporting/importing process, and building the marketing
and sales infrastructure;
o Identifying and establishing services that many Western
companies are anxious to access and are of immediate
values to those companies. In the near future, China eMall
will focus on services such as business consulting,
traveling and translation; and
o Through active marketing, trying to establish China eMall
as a brand e-commerce name in North America to increase
viewers.
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Long Term
o Broadening product bases to have a ful chain of merchandise for
customers outside of China;
o Increasing the proportion of retail purchases;
o Expanding services offered as China eMall is established and
accepted by Western customers; and
o Starting to host Chinese business on China eMall's web site by
renting out web space as well as offering web service to provide
China eMall's Chinese tenants with more standard web pages.
Marketing Strategies. China eMall intends to use various marketing channels to
build up its name and obtain market shares for its products and services such as
the following:
Internet Marketing
o China eMall will actively post its web site to various search
engines and advertise its site in the most popular portals or
other popular web sites to attract the maximum numbers of
visitors.
Business-Business
o Easy to realize at lower costs as ther are only a limited number
of businesses compared to individual consumers and marketing can
be done through posting to various business associations and other
distributors.
Business-Government
o Western government may want to help it companies for China related
business and governments may provide special channels for various
reasons.
Other Channels
o The acquisition of China eMall by the Company gives China eMall an
immediate advantage through broadcasting news releases; and o
Professional marketing companies will also be hired to do
traditional media marketing.
Competition. The business of China eMall Corporation competes with the
traditional export market including wholesalers and distributors as well as with
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other Internet wholesalers and distributors, such as the meetChina.com. This
industry hosts a number of well-established competitors including national,
regional and local companies within and outside China possessing greater
financial, marketing, personnel and other resources than China eMall. There is
no assurance that the China eMall will be able to market or sell its products if
faced with direct product and services competition from these larger and more
established wholesalers and distributors.
TRADEMARKS AND PATENTS
The Company has no registered or pending patents and trademarks.
PROPERTY
Since September 1999, the Company's principal executive office is
located at 6705 Tomken Road, Unit 12-14 Mississauga, Ontario, Canada, a 1,200
square foot facility for which it pays rent on a month to month basis of $10.00
per square foot per year or $1,000 per month. All operations including system
development, control and maintenance are performed at this facility. The Company
shares the facility with Groupmark Canada Limited. The Company believes these
facilities are adequate for its operations for the foreseeable future.
China-eMall maintains its office at 56 Temperance St. Toronto, Canada.
China e-Mall shares the premises with another tenant on a month to month basis
at the annual rent of $18,000 or $1,500 per month. It is the Company's intention
to find suitable accommodation where VHSN could house both smartCARD operation
and China e-Mall operation at the same facility.
The principal offices of Exodus are as set forth in a copy of the
Exodus Form 10-SB.
LITIGATION
There is no outstanding litigation in which the Company is involved and
the Company is unaware of any pending actions or claims against it. The Company
is aware that the Internal Revenue Service subpoenaed records from its transfer
agent. Through telephone conversations with the IRS the Company has been
informed that the investigation is focused on a director of a corporation that
merged with the Company.
EMPLOYEES
The Company has 5 full time employees and one part time employee. All
employees are employed and paid by Groupmark and their services are provided to
VHS as needed and billed through the Groupmark-VHS management services
agreement.
15
<PAGE>
DESCRIPTION OF SECURITIES
The Company has an authorized capitalization of 100,000,000 shares of
common stock, $.001 par value per share, of which 19,035,268 shares have been
issued and are outstanding, and 25,000,000 shares of preferred stock, $.001 par
value per share, of which no shares are issued and outstanding. Exodus is
authorized to issue 50,000,000 shares of common stock, 5,000,000 of which are
issued and outstanding, all 5,000,000 shares of Exodus are owned by the Company.
Common Stock. Each common share entitles the holder thereof to one vote on each
matter with respect to which shareholders have the right to vote, to fully
participate in all shareholder meetings, and to share ratably in the net assets
of the corporation upon liquidation or dissolution, but each such share shall be
subject to the rights and preferences of the preferred shares. Subject to the
preferences of any Preferred Stock that may be issued in the future, the holders
of Common Stock are entitled to receive such dividends as may be declared by the
Board of Directors. All outstanding shares of Common Stock are fully paid and
non-assessable.
Preferred Shares. Subject to the provisions of the Articles of Incorporation and
limitations prescribed by law, the Board of Directors has the authority to issue
up to 25,000,000 shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
right, dividend rates, conversion rates, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, which may be superior to those of
the Common Stock, without further vote or action by the shareholders. There will
be no shares of Preferred Stock outstanding upon the filing of the Form 8-K and
the Company has no present plans to isue any Preferred Stock.
Dividends. Dividends, if any, will be contingent upon the Company's revenues and
earnings, if any, capital requirements and financial conditions. The payment of
dividends, if any, will be within the discretion of the Company's Board of
Directors. The Company presently intends to retain all earnings, if any, for use
in its business operations and accordingly, the Board of Directors does not
anticipate declaring any dividends prior to a business combination.
TRANSFER AGENT
Florida Atlantic Stock Transfer, Inc., Tamarac, Florida, acts as
transfer agent for the Common Stock of the Company.
MARKET FOR THE COMPANY'S SECURITIES
The Company has been a non-reporting publicly traded company with
certain of its securities exempt from registration under the Securities Act of
16
<PAGE>
1933 pursuant to Rule 504 of Regulation D of the General Rules and Regulations
of the Securities and Exchange Commission. Until May __, 2000, the Company's
common stock was traded on the NASD OTC Bulletin Board under the symbol VHSN.
The Nasdaq Stock Market has implemented a change in its rules requiring all
companies trading securities on the NASD OTC Bulletin Board to become reporting
companies under the Securities Exchange Act of 1934. The Company's Shares are
currently trading only in the pink sheets.
The Company was required to become a reporting company by the close of
business on May 17, 2000. VHSN acquired all the outstanding shares of Exodus to
become successor issuer to it pursuant to Rule 12g-3 in order to comply with the
reporting company requirements implemented by the Nasdaq Stock Market.
The following table represents the high and low bid prices for the
Company's common stock:
Closing Bid
-----------
Quarter High $ Low $
------- ------ -----
1998
----
First Quarter 1.03 0.13
Second Quarter 3.25 0.31
Third Quarter 3.44 1.50
Fourth Quarter 2.16 0.44
1999
----
First Quarter 0.88 0.16
Second Quarter 0.59 0.13
Third Quarter 0.27 0.06
Fourth Quarter 0.20 0.12
2000
----
First Quarter 2.00 0.03
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Groupmark Canada Limited, the controlling shareholder of the Company
that is wholly owned by Elwin D. Cathcart, a director of the Company, provides
executive management personnel and services to the Company, pursuant to the
Management Services Agreement between Groupmark Canada Limited and VHS Network,
Inc. under which all personnel services for VHSN are paid by Groupmark and are
provided to VHSN as needed and billed through the Management Services Agreement.
During the fiscal year ended December 31, 1998 the Company accrued a debt of
US$672,000 payable to Groupmark Canada Limited for management fees, and during
17
<PAGE>
the nine months ended September 30, 1999 the Company accrued a debt of
US$336,000 payable to Groupmark Canada Limited for such services.
A copy of the Management Services Agreement is filed as an exhibit to
this Form 8-K and is incorporated in its entirety herein. The foregoing
description is modified by such reference.
Dr. Gang Chai's service is provided to the Company through G.D.
Consulting and Investment Company pursuant to the Consulting Service Agreement
between G.D. Consulting and Investment Company (the "Consultant"), Dr. Chai and
the Company. Pursuant to the Consulting Service Agreement, the Company agrees to
pay to the Consultant during the term of this Agreement for the services of Dr.
Chai for a monthly fee of CDN $7,833.34, plus applicable goods and services tax,
payable on the first day of each month for the term of the Consulting Service
Agreement, the initial term of which is one year.
A copy of the Consulting Services Agreement is filed as an exhibit to
this Form 8-K and is incorporated in its entirety herein. The foregoing
description is modified by such reference.
MANAGEMENT
The Executive officers of the Company are as follows:
Name Age Title
---- --- -----
Elwin Cathcart 73 Chairman and Chief
Executive Officer, Chief
Executive Officer, Director
Thomas Roberts 64 Director
Gang Chai 41 Chief Operating Officer,
Director
David Smelsky 42 Secretary, Director
ELWIN D. CATHCART has been Chairman and Chief Executive Officer of the
Company since April 1997. Mr. Cathcart also serves as Chairman and Chief
Executive Officer of Groupmark Canada Limited over the last 5 years, a private
marketing company specializing in direct mail service products which he founded
in 1970. From 1970 to 1972, Mr. Cathcart also served as President of the
Canadian Direct Mail Marketing Association, a Toronto based company he helped
found in 1969, and where he continues to serve in an advisory capacity as a Life
Member. From 1960 to 1970, Mr. Cathcard served as National Sales Manager for
Canada and then became National Sales Manager for the United States for a
private, direct mail marketing company known as R.L. Polk & Co., located in
Detroit, Michigan. Mr. Cathcart has served on the board of several public
companies including Equity Investment Corp., a financial marketing company;
18
<PAGE>
TelSoft Mobile Data Inc., a company which purchased priority software for
Motorola. The Equity Group, a holding company for Equity Investments Corp. and
TelSoft Mobile Data Inc.; and Pacific Gold Corp., a west coast mining company.
Mr. Cathcart attended Riverdale College from 1942 to 1943 and received a
Bachelors Degree in Industrial Design from Ontario College of Aft in 1950.
THOMAS ROBERTS has been a director of the Company since April 1997. For
the past 37 years he has been an accountant in private practice. Mr. Roberts
attended Albersom Graughon College and the University of Alabama Birmingham
in1954 and 1955, respectively.
GANG CHAI received his Bachelor and Master degrees in geoscience from
China University in 1987 and 1985 respectively. After moving to Canada in 1987,
Dr. Chai went to the University of Toronto and received a Ph.D. in economic
geology in 1992. Dr. Chai had worked for private Canadian companies and both the
Ontario and Federal governments prior to founding China eMall. In addition to
his duties on the board of VHSN and China eMall, Dr. Chai also sits on the board
of McVicar Minerals Ltd. (CDNX, Canada) which he founded in 1997 and currently
acts as the CEO of the company.
DAVID SMELSKY has been the Secretary and a director of the Company
since April 1997. He was the Chief Financial Officer of Groupmark from November
1994 to October 1999. Since October 1999 he has been the Manager of Finance and
Administration for Halton Hills Hydro Commission. Mr. Smelsky received his
certification as Certified Management Accountant from the Society of Management
Accountants of Ontario in 1985.
EXECUTIVE COMPENSATION
Elwin Cathcart, Chairman and CEO, and David Smelsky, Secretary, receive
no salary. The Company issued 370,000 and 185,000 shares of Common Stock to Mr.
Cathcart and Mr. Smelsky in lieu of salary for their services to the Company
1999.
19
<PAGE>
<TABLE>
<CAPTION>
Compensation Table For 1997, 1998 and 1999
Name and
Principle Stock
Position Year Salary Bonus Options
-------- ---- ------ ----- -------
<S> <C> <C> <C> <C>
Elwin D. Cathcart, CEO 1997 $0.00 $0.00 250,000 shares
1998 $0.00 $0.00 750,000 shares
1999 $0.00 $0.00 0 shares
David J. Smelsky, CFO 1997 $0.00 $0.00 250,000 shares
1998 $0.00 $0.00 250,000 shares
1999 $0.00 $0.00 0 shares
</TABLE>
<TABLE>
<CAPTION>
Options in Last Two Fiscal Years
Number Exercise or Expiration
Name Securities Options Base Price Date
---- ------------------ ---------- ---------
<S> <C> <C> <C>
Elwin D. Cathcart 250,000 $0.35 December 31, 2001
750,000 $0.40 December 31, 2002
David J. Smelsky 250,000 $0.35 December 31, 2001
250,000 $0.40 December 31, 2002
Thomas B. Roberts 250,000 $0.35 December 31, 2001
250,000 $0.40 December 31, 2002
</TABLE>
The Company does not provide any health, dental or life insurance to
its employees.
20
<PAGE>
RISK FACTORS
LIMITED HISTORY OF OPERATIONS; HISTORY OF LOSSES. The Company and its
subsidiaries have only a limited history of operations with periods of net
operating losses. During year ended December 31, 1999, the Company experienced a
loss from its operations in the amount of $453,877. The Company experienced a
net loss of $816,446 on revenues of $0 for the year ended December 31, 1998. The
Company experienced a net loss of $14,833 on $0 revenue for the year ended
December 31, 1997. The Company continued to operate at a loss during the first
three months of 2000, with a net loss of $103,727 on revenues of $0. The
Company's operations are subject to the risks and competition inherent in the
establishment of a relatively new business enterprise in a competitive field of
Internet start-up companies. There can be no assurance that future operations
will be profitable. Revenues and profits, if any, will depend upon various
factors, including market acceptance of its concepts, market awareness, its
ability to expand its electronic commerce business, reliability and acceptance
of the Internet commerce, and general economic conditions. There is no assurance
that the Company will achieve its expansion goals and the failure to achieve
such goals would have an adverse impact on it.
ADVERSE ECONOMIC CONDITIONS OR A CHANGE IN GENERAL MARKET PATTERNS. A
weak economic environment could adversely affect the Company sales and
promotional efforts. General economic conditions impact Internet based and
related commerce and demand and interest for the Company's Internet services may
decline at any time, especially during recessionary periods. The Company's
operating results have fluctuated in the past, and are expected to continue to
fluctuate in the future, due to a number of factors, many of which are outside
the Company's control. These factors include (i) the Company's ability to
attract new customers at a steady rate, manage its inventory mix and the mix of
products offered meet certain pricing targets, liquidate its inventory in a
timely manner, maintain gross margins and maintain customer satisfaction, (ii)
the availability and pricing of merchandise from vendors, (iii) product
obsolescence and pricing erosion, (iv) consumer confidence in encrypted
transactions in the Internet environment, (v) the timing, cost and availability
of advertising on other entities' Web sites, (vi) the amount and timing of costs
relating to expansion of the Company's operations, (vii) the announcement or
introduction of new types of merchandise, service offerings or customer services
by the Company or its competitors, (viii) technical difficulties with respect to
consumer use of the Company's Web sites, (ix) delays in revenue recognition at
the end of a fiscal period as a result of shipping or logistical problems, (x)
delays in shipments as a result of strikes or other problems with the Company's
delivery service providers or the loss of the Company's credit card processor,
(xi) the level of merchandise returns experienced by the Company, and (xii)
general economic conditions and economic conditions specific to the Internet and
electronic commerce. As a strategic response to changes in the competitive
environment, the Company may from time to time make certain service, marketing
or supply decisions or acquisitions that could have a material adverse effect on
the Company's quarterly results of operations and financial condition. The
Company also expects that in the future, like other retailers, it may continue
to experience seasonality in its business.
21
<PAGE>
RELIANCE ON FUTURE ACQUISITIONS STRATEGY. The Company expects to
continue to rely on acquisitions as a component of its growth strategy. The
Company regularly engages in evaluations of potential target candidates,
including evaluations relating to acquisitions that may be material in size
and/or scope. There is no assurance that the Company will continue to be able to
identify potentially successful companies that provide suitable acquisition
opportunities or that the Company will be able to acquire any such companies on
favorable terms. Also, acquisitions involve a number of special risks including
the diversion of management's attention, assimilation of the personnel and
operations of the acquired companies, possible loss of key employees. There is
no assurance that the acquired companies will be able to successfully integrate
into the Company's existing infrastructure or to operate profitably. There is
also no assurance given as to the Company's ability to obtain adequate funding
to complete any contemplated acquisition or that such acquisition will succeed
in enhancing the Company's business and will not ultimately have an adverse
effect on the Company's business and operations.
LOSS OF THE COMPANY KEY EMPLOYEES MAY ADVERSELY AFFECT GROWTH
OBJECTIVES. The Company success in achieving its growth objectives depends upon
the efforts of Elwin Cathcart, Chairman and Chief Executive Officer of the
Company since its inception as well as other key management personnel. Their
experience and industry-wide contacts significantly benefit the Company. The
loss of the services of these individuals could have a material adverse effect
on the Company business, financial condition and results of operations. There is
no assurance that the Company will be able to maintain and achieve its growth
objectives should it lose any of its key management members' services.
COMPETITION FROM LARGER AND MORE ESTABLISHED COMPANIES MAY HAMPER
MARKETABILITY. The competition in the Internet and electronic commerce industry
is intense. The Company's smartCard business competes with approximately 12 to
15 companies all of which manufacture chip-based cards and have possess more
financial, personnel, marketing and sales resources than the Company. However,
these companies are focusing their marketing of these cards for security
purposes and debit or charge cards, whereas the Company will be focusing its
marketing of these cards as a loyalty reward to a company's customers.
The business of China eMall Corporation competes with the traditional
export market including wholesalers and distributors as well as with other
Internet wholesalers and distributors, such as the midChina.com. This industry
hosts a number of well-established competitors, including national, regional and
local companies within and outside China possessing greater financial,
marketing, personnel and other resources than China eMall. There is no assurance
that the Company will be able to market or sell its products if faced with
direct product and services competition from these larger and more established
wholesalers and distributors.
22
<PAGE>
FAILURE TO ATTRACT QUALIFIED PERSONNEL. A change in labor market
conditions that either further reduces the availability of employees or
increases significantly the cost of labor could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's business is dependent upon its ability to attract and retain highly
trained and qualified technical personnel and corporate management. There is no
assurance that the Company will be able to employ a sufficient number of
qualified training personnel in order to achieve its growth objectives.
VOTING CONTROL BY THE OFFICERS AND DIRECTORS OF THE COMPANY'S
COMMON STOCK. The Company's executive officers and directors beneficially own
substantially all of the outstanding shares of Common Stock. Mr. Cathcart owns
over 47.4% of the outstanding shares of Common Stock. The Company's officers and
directors currently are, and in the foreseeable future will continue to be, in a
position to control the Company by being able to nominate and elect the
Company's Board of Directors. The Board of Directors establishes corporate
policies and has the sole authority to nominate and elect the Company's officers
to carry out those policies. Prospective investors therefore will have limited
participation in the Company's affairs.
NO DIVIDENDS. The Company has never paid any cash or other dividends on
its Common Stock. Payment of dividends on the Common Stock is within the
discretion of the Board of Directors and will depend upon our earnings, our
capital requirements and financial condition, and other factors deemed relevant
by the Board. For the foreseeable future, the Board intends to retain future
earnings, if any, to finance the Company's business operations and does not
anticipate paying any cash dividends with respect to the Common Stock.
INELIGIBILITY FOR LISTING ON NASDAQ. The Nasdaq Stock Market has
implemented a change in its rules ("Eligibility Rules") requiring all companies
trading securities on the NASD OTC Bulletin Board to become reporting companies
under the Securities Exchange Act of 1934. Under the Eligibility Rules, the
Company is required to become a reporting company by the close of business on
May 17, 2000. Although the Company has acquired all the outstanding shares of
Exodus to become successor issuer to it pursuant to Rule 12g-3 in order to
comply with the reporting company requirements implemented by the Nasdaq Stock
Market, no assurance exists that the Company will be deemed in compliant of the
Eligibility Rule by the OTCBB in time to meet the May 17, 2000 deadline. In the
event the Company is not deemed to meet the Eligibility Rules prior to the May
17, 2000 deadline, its securities could be delisted. Any such delisting could
cause a precipitous decline in the market price of the Company's Common Stock,
if any, and adversely affect their liquidity.
ISSUANCE OF FUTURE SHARES MAY DILUTE INVESTOR SHARE VALUE. The Articles
of Incorporation, as amended, of the Company authorizes the issuance of
100,000,000 shares of common stock and 25,000,000 shares of preferred stock. The
23
<PAGE>
future issuance of all or part of the remaining authorized common stock and/or
all or part of the preferred stock may result in substantial dilution in the
percentage of the Company's common stock held by the its then existing
shareholders. Moreover, any common stock issued in the future may be valued on
an arbitrary basis by the Company. The issuance of the Company's shares for
future services or acquisitions or other corporate actions may have the effect
of diluting the value of the shares held by investors, and might have an adverse
effect on any trading market, should a trading market develop for the Company's
common stock.
PENNY STOCK REGULATION. Penny stocks generally are equity securities
with a price of less than $5.00 per share other than securities registered on
certain national securities exchanges or quoted on the Nasdaq Stock Market,
provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system. The Company's
securities may be subject to "penny stock rules" that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the "penny stock rules" require the delivery, prior
to the transaction, of a disclosure schedule prescribed by the Commission
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements must be
sent disclosing recent price information on the limited market in penny stocks.
Consequently, the "penny stock rules" may restrict the ability of broker-dealers
to sell the Company's securities. The foregoing required penny stock
restrictions will not apply to the Company's securities if such securities
maintain a market price of $5.00 or greater. There can be no assurance that the
price of the Company's securities will reach or maintain such a level.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation and Bylaws provide that the
Company shall indemnify any person, who was or is a party to a proceeding by
reason of the fact that he is or was a director or officer of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, and may indemnify any person, who was or is a party to a proceeding
by reason of the fact that he is or was an employee or agent of the Corporation
or is or was serving at the request of the Corporation as an employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with such proceeding if he acted in good faith and in a manner
he reasonably believed to be or not opposed to the best interests of the
Company, in accordance with, and to the full extent permitted by law.
24
<PAGE>
PROJECTIONS AND FORWARD-LOOKING STATEMENTS
This 8-K contains statements regarding matters that are not historical
facts and constitute forward-looking statements within the meaning of Section
27A of the Act and Section 21E of the Securities Exchange Act of 1934. These
statements often refer to the Company's future plans, projections, objectives,
expectations and intentions and the assumptions underlying or relating to these
statements. These statements are generally identified by reference to such words
as "expects," "anticipates," "hopes," "plans," "intends," "believes" and similar
expressions evidencing future intentions. Because the outcome of the events
described in such forward-looking statements is subject to risks and
uncertainties and in the nature of projections or predictions of future events
which may not occur, actual results may differ materially from those expressed
in or implied by such forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are based
upon reasonable assumptions, it can give no assurances that its expectations
will be achieved. The level of future revenues of the Company, and its
profitability, if any, are impossible to accurately predict due to uncertainty
as to possible changes in economic, market and other circumstances. Certain of
the factors that could cause actual results to differ from the Company's
expectations are set forth in these Risk Factors. Prospective investors are
urged to consent with their own advisors with respect to any revenue, financial,
business and other projections contained herein.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Successor Issuer Election.
Pursuant to Rule 12g-3(a) of the General Rules and Regulations of the
Securities and Exchange Commission, upon effectiveness of the Acquisition, the
Company became the successor issuer to Exodus for reporting purposes under the
Securities Exchange Act of 1934 and elects to report under the Act effective May
12, 2000.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Tim T. Chang, the President and Chief Executive Officer and one of two
directors of Exodus, resigned as an officer and director, as part of a change of
control of Exodus on May 6, 2000. Patrick R. Boyd, the only other Director and
the Secretary and Chief Financial Officer of Exodus also resigned as part of the
acquisition of Exodus on May 6, 2000. There are no disputes with Messrs. Boyd or
Chang. Elwin Cathcart was appointed the sole director and the President, CEO,
Secretary and CFO of Exodus upon the resignation of Messrs. Chang and Boyd.
25
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The Company is required to file additional financial statements by
amendment hereto not later than 60 days after the date that this Current Report
on Form 8-K must be filed. The audited financial statements of Exodus and the
financial statements of the Company are attached herewith.
<PAGE>
VHS NETWORK, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 and 1998
<PAGE>
VHS NETWORK, INC.
Consolidated Financial Statements
December 31, 1999 and 1998
C O N T E N T S
---------------
Independent Auditor's Report F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Shareholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors VHS NETWORK, Inc.
We have audited the accompanying consolidated balance sheets of VHS NETWORK,
Inc., a Florida Corporation, as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of VHS Network, Inc.,
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/Berg & Company, LLP//
------------------------
BERG & COMPANY, LLP March 29, 2000 1.
F-1
<PAGE>
VHS NETWORK, INC.
Consolidated Balance Sheets
As of December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
Cash $ 533 $ 18,191
Receivables -- 11,000
Inventory 559,997 559,997
----------- -----------
Total current assets 560,530 589,188
----------- -----------
Prepaids and Deposits 67,774 67,774
----------- -----------
Total assets $ 628,304 $ 656,962
=========== ===========
LIABILITIES
Accounts payable $ 64,867 $ 40,842
Accrued expenses 37,000 --
----------- -----------
Total current liabilities 101,867 40,842
----------- -----------
Notes payable -- --
Notes payable, related party 1,645,868 1,331,674
Reserve for loss contingencies 350,000 350,000
----------- -----------
1,995,868 1,681,674
----------- -----------
Total liabilities 2,097,735 1,722,516
----------- -----------
SHAREHOLDERS' EQUITY
Common stock: 100,000,000 shares
authorized; 10,929,435 and
10,429,435 issued and outstanding,
respectively 10,929 10,429
Preferred stock: 25,000,000 shares
authorized; none issued or
outstanding -- --
Additional paid-in-capital 1,651,168 1,601,668
Accumulated deficit (3,131,528) (2,677,651)
----------- -----------
Total shareholders' equity (1,469,431) (1,065,554)
----------- -----------
Total liabilities and shareholders' equity $ 628,304 $ 656,962
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
VHS NETWORK, INC.
Consolidated Statements of Operations
for the years ended December 31, 1999 and 1998
1999 1998
----------- -----------
Income:
Sales $ -- $ --
----------- -----------
Operating Expenses:
Agency fees 9,190 21,634
Consulting fees 52,833 53,253
General and administrative 686 50,413
Management fees 336,000 672,000
Professional fees 18,168 16,647
Other -- 2,767
Non-recurring expense 37,000 --
----------- -----------
Total operating expenses 453,877 816,714
----------- -----------
Other (Income) and Expenses:
Interest (income) and expense -- 328
Other (income) and expense, net -- (596)
----------- -----------
Total other (income)
and expense -- (268)
----------- -----------
Net loss before taxes 453,877 816,446
----------- -----------
Income taxes -- --
----------- -----------
Net loss $ 453,877 $ 816,446
=========== ===========
Net loss per common share - Basic $ 0.042 $ 0.122
=========== ===========
Weighted average number of
common shares - Basic 10,929,435 6,716,582
=========== ===========
Net loss per common share - Diluted $ 0.040 $ 0.112
=========== ===========
Weighted average number of
common shares - Diluted 11,241,517 7,303,850
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VHS NETWORK, INC.
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Preferred
Stock Stock Additional Accumulated
Shares Amount Shares Amount paid-in-capital Deficit Total
----------- ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 1,240,721 $ 1,241 -- $ -- $ 214,859 $(1,861,205) $(1,645,105)
----------- ----------- ----------- ------------ ----------- ----------- -----------
Sale of stock 2,788,722 2,789 -- -- 333,211 -- 336,000
Conversion of debt 5,000,000 5,000 -- -- 495,000 -- 500,000
Acquisition of inventory 1,399,992 1,399 -- -- 558,598 -- 559,997
Net loss -- -- -- -- -- (816,446) (816,446)
----------- ----------- ---------- ------------ ----------- ----------- -----------
Balance December 31, 1998 10,429,435 10,429 -- -- 1,601,668 (2,677,651) (1,065,554)
----------- ----------- ---------- ------------ ----------- ----------- -----------
Common stock issued for services 500,000 500 -- -- 49,500 -- 50,000
Net loss -- -- -- -- -- (453,877) (453,877)
----------- ----------- ---------- ------------ ----------- ----------- -----------
Balance December 31, 1999 10,929,435 $ 10,929 -- $ -- $ 1,651,168 $(3,131,528) $(1,469,431)
=========== =========== ========== ============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VHS NETWORK, INC.
Consolidated Statements of Cash Flows
for the years ended December 31, 1999 and 1998
1999 1998
----------- -----------
Net income (loss) $ (453,877) $ (816,446)
Depreciation and amortization -- --
----------- -----------
Net use of cash from operations $ (453,877) $ (816,446)
----------- -----------
Cash flow from operating activities:
Changes in assets and liabilities
Inventory $ -- $ (559,997)
Receivables 11,000 (11,000)
Prepaids and deposits -- (67,774)
Accounts payable 24,025 33,668
Accrued expenses 37,000 --
----------- -----------
Cash flow generated by (used in)
operating activ$ties (381,852) $(1,421,549)
----------- -----------
Cash flow from investing activities: $ -- $ --
Net cash generated by (used in)
investing activi$ies -- $ --
----------- -----------
Cash flow from financing activities:
Borrowings under notes payable $ 314,194 $ 43,685
Notes payable, related party -
converted to stock -- 500,000
Offering costs -- --
Issuance of common stock for services 50,000 --
Inventory acquired for common stock -- 559,997
Proceeds from sale of stock -- 336,000
----------- -----------
Net cash generated by (used in)
financing activi$ies 364,194 $ 1,439,682
----------- -----------
(17,658) 18,133
Balance at beginning of year 18,191 58
----------- -----------
Balance at end of year $ 533 $ 18,191
=========== ===========
Supplementary disclosure:
Cash paid for interest $ -- $ --
----------- -----------
Cash paid for taxes $ -- $ --
----------- -----------
Conversion of notes payable into
common stock $ -- $ 500,000
----------- -----------
----------- -----------
Common stock issued for services $ 50,000 $ --
----------- -----------
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
1. NATURE OF OPERATIONS
Company History
---------------
VHS Network, Inc. (the "Company") was incorporated in the State of
Florida on December 18, 1995 as Ronden Vending Corp. On December 24,
1996, the Company incorporated a wholly owned subsidiary called Ronden
Acquisition, Inc. a Florida corporation. Ronden Acquisition, Inc. then
merged with Video Home Shopping, Inc. (a Tennessee corporation), and
Ronden Acquisition, Inc. was the surviving Florida Corporation. In
1996, Video Home Shopping, Inc. was a network marketing and
distribution company which offered a wide range of products and
services to consumers through the medium of video tape, however, after
the merger the Company decided not to continue with the network
marketing and distribution operations of Video Home Shopping, Inc. of
Tennessee.
On January 9, 1997, articles of merger were filed for the Company as
the surviving corporation of a merger between the Company and its
wholly owned subsidiary Ronden Acquisitions, Inc. This step completed
the forward triangular merger between Video Home Shopping, Inc., Ronden
Acquisition, Inc. and the Company.
On January 9, 1997, articles of amendment were filed to change the name
of the Company from Ronden Vending Corp. to VHS Network, Inc. On April
9, 1997, the Company incorporated VHS Acquisition, Inc. as a wholly
owned subsidiary.
In April 1997, the Company was restructured by way of a reverse
take-over involving its wholly owned subsidiary, VHS Acquisition, Inc.
a Florida company, and VHS Network Inc., a Manitoba and Canadian
controlled private corporation. Pursuant to the reverse take-over, the
sole shareholder of VHS Network Inc., Groupmark Canada Limited,
received 400,000 shares of the Company's common stock and a secured
promissory note for US$500,000 and became the controlling shareholder
of the Company. In 1998, the promissory note for $500,000 was converted
into 5,000,000 common shares.
On April 12, 2000, the Company acquired all the outstanding common
shares of China eMall Corporation, an Ontario private company. This
represents a 100% voting interest in China eMall Corporation.
F-6
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
1. NATURE OF OPERATIONS (continued)
Operations
----------
During 1999, the Company has been repositioning itself to identify
technologies and market opportunities in the United States, Canada and
abroad in Internet and electronic commerce interactive media, and
SmartCARD loyalty marketing. The Company will operate and/or develop
two lines of business as follows:
China eMall Corporation ("China eMall"): Through its acquired
subsidiary, China eMall Corporation, an Ontario, Canada corporation,
the Company provides Internet marketing and information services to
facilitate trade between Chinese and western businesses. The Company's
primary focus will be to establish an on-line presence to facilitate
the export of Chinese products. Through its multi-functional portal,
Chinese suppliers can post their products and services in a format that
is easy for searching, quoting and tracking, and that gives a western
buyer access to multiple suppliers for the best quality and price, and
direct communication. Realizing the difference in business culture and
financial systems, China eMall will allocate substantial amount of
resources in assisting in the communications, export/import processing,
financial transaction and product services. China eMall's business will
make use of Internet technology to speed up the export process and
broaden the sales channels for Chinese goods and services, and more
importantly, bring customers into direct contact with Chinese producers
who can constantly upgrade their products to meet customers' needs.
China eMall has an agreement with Wangfujing Department Store Ltd., a
large Chinese retailer, as its prime product supplier.
SmartCARD: The Company is developing computer chip-based plastic access
cards that utilize proprietary SmartCARD technology, which is licensed
from Groupmark Canada Limited, a related party. This technology enables
the cards to be used for identification purposes and as debit or charge
cards. The Company intends to focus its marketing efforts on companies
that wish to distribute these cards to their customers as a reward for
their loyalty. Groupmark Canada Limited owns the registered trademark
"SmartCARD" in Canada and has a pending application in the United
States. Groupmark Canada has granted the Company a license to use the
trademark "SmartCARD." Pursuant to the terms of the license agreement,
the Company will pay to Groupmark a royalty of 5% of net sales of
products using the SmartCARD trademark and technology.
F-7
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The
following is a summary of the significant accounting policies followed
in the preparation of these consolidated financial statements.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and all of its subsidiary companies. Intercompany accounts and
transactions have been eliminated on consolidation.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of cash on hand and cash deposited
with financial institutions, including money market accounts, and
commercial paper purchased with an original maturity of three months or
less.
Concentration of Cash
---------------------
The Company at times maintains cash balances in accounts that are not
fully federally insured. Uninsured balances as of December 31, 1999
were $533.
Inventories
-----------
Inventories are stated at the lower of cost (first in, first out
method) or market.
Property and Equipment
----------------------
Property and equipment are stated at cost or, in the case of leased
assets under capital leases, at the present value of future lease
payments at inception of the lease. Major improvements that materially
extend the useful life of property are capitalized. Depreciation is
calculated on a straight-line basis over the estimated useful lives of
the various assets, which range from three to seven years. Leasehold
improvements and leased assets under capital leases are amortized over
the life of the asset or the period of the respective lease using the
straight-line method, whichever is the shortest. Expenditures for
repairs and maintenance are charged to expense as incurred.
F-8
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based Compensation
------------------------
The Company accounts for its stock-based compensation plan based on
Accounting Principles Board ("APB") Opinion No. 25. In October 1995,
the Financial Accounting Standards Board ("FASB") issued SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company has determined
that it will not change to the fair value method and will continue to
use APB Opinion No. 25 for measurement and recognition of any expense
related to employee stock based transactions.
Income Taxes
------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Income taxes are provided for the tax
effects of transactions reported in the consolidated financial
statements and consist of deferred taxes related to differences between
the basis of assets and liabilities for financial and income tax
reporting. The deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will be either
taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes are also recognized for operating losses that
are available to offset future taxable income.
Foreign Currency Translation
----------------------------
Transactions are translated into the functional currency at the
exchange rates in effect at the time the transactions occur. Exchange
gains and losses arising on translation are included in the operating
results for the year.
Revenue
-------
Sales are recorded for products upon shipment of product to customers
and transfer of title under standard commercial terms.
F-9
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Comprehensive Income
--------------------
In 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set
of financial statements. Comprehensive income consists of net income
and unrealized gains (losses) on available for sale marketable
securities and is presented in the consolidated statements of
shareholders' equity and comprehensive income. SFAS No. 130 requires
only additional disclosures in the consolidated financial statements
and does not affect the Company's financial position or results of
operations. The Company does not have elements of comprehensive income
for the years ended December 31, 1999 and 1998.
Income (loss) per common share
------------------------------
Income (loss) per common share is computed on the weighted average
number of common or common and common equivalent shares outstanding
during each year. Basic Earnings-per-Share ("EPS") is computed as net
income (loss) applicable to common stockholders' divided by the
weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options, warrants, and other
convertible securities when the effect would be dilutive.
Long-lived assets
-----------------
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, the Company reviews the carrying value of its long-lived
assets and identifiable intangibles for possible impairment whenever
events or changes in circumstances indicate the carrying amount of
assets to be held and used may not be recoverable.
F-10
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
----------------
The preparation of the financial statements in conformity with
generally accepted accounting principles necessarily requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting periods.
Actual results could significantly differ from those estimates.
Recently Issued Accounting Pronouncements
-----------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires recognition
of all derivative financial instruments as either assets or liabilities
in consolidated balance sheets at fair value and determines the method
(s) of gain/loss recognition. The FASB issued SFAS No. 137, "Deferral
of the Effective Date of FASB Statement No. 133" in June 1999 to defer
the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. The Company will adopt SFAS No. 133 in 2000 and we are
currently assessing the effect that it may have on our consolidated
financial statements.
3. INVENTORIES
On April 29, 1998, the Company acquired approximately 32,000 sets of
printed art reproductions. Each set consists of four full-color prints
from "The Andover Series" by artist Jim Perleberg. Each image has a
title narrative printed in the margin and is re-signed, in the plate,
by the artist.
The Company acquired these sets of prints in exchange for 1,399,992
shares of its common stock valued at $559,997. Starting in May 2000,
the Company will be offering these prints for sale through its own web
site and other Internet web sites.
F-11
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
4. INCOME TAXES
No provision for federal and state taxes has been recorded for the
years ended December 31, 1999 and 1998, since the Company incurred net
operating losses for these years.
The provision for income taxes does not differ from the amounts
recorded for financial versus tax purposes.
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
components of net deferred income tax assets and liabilities are as
follows:
Federal State
----------- -----------
Deferred income tax assets:
Net operating loss carryforwards $ 1,047,719 $ 169,484
Non-deductible reserve (119,000) (19,250)
Valuation allowance (928,719) (150,234)
----------- -----------
Net deferred tax asset -- --
----------- -----------
Deferred income tax liabilities: -- --
----------- -----------
Net assets $ -- $ --
=========== ===========
Due to the uncertainty surrounding the realization of deferred tax
assets, the Company has recorded a valuation allowance against its net
deferred tax asset. The Company has loss carryforwards of approximately
$928,719 from continuing operations, which may be used to offset future
United States income taxes and which begin to expire in 2015.
F-12
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
5. STOCKHOLDERS' EQUITY
Common Stock
------------
Starting in April 1997, the Company, under its current management,
commenced a private placement of its common shares under Rule 504 of
Regulation D promulgated under the Securities Act of 1933, for a
maximum aggregate offering of $890,000. The Company raised proceeds of
$416,492 under this offering of which $336,000 was raised in 1998. This
offering concluded in 1998.
On March 31, 1998, the promissory note payable to Groupmark Canada
Limited for US$500,000 was converted to 5,000,000 restricted common
shares of the Company. Mr. Elwin Cathcart, CEO of the Company, is the
sole shareholder in Groupmark Canada Limited.
In May 1998, 1,399,992 restricted common shares were issued in a
transaction for the purchase of inventory for resale.
6. STOCK OPTIONS
In 1998, the Company granted stock options to two executive officers
and a member of the board. The stock options were non-qualified stock
options. The options were granted at the fair market value of the stock
as determined by the Board of Directors. Stock options were granted to
purchase a total of 1,250,000 common shares at $0.40 per share. The
options are immediately vested and expire on December 31, 2002.
The Company has adopted only the disclosure provisions of SFAS No. 123.
It applies APB Opinion No. 25 and related interpretations in accounting
for its stock option plan. Accordingly, no compensation cost has been
recognized for its stock option plan other than for options issued to
F-13
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
6. STOCK OPTIONS (continued)
outside third parties. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for
awards under this plan consistent with the methodology prescribed by
SFAS No. 123, the Company's net loss and loss per share would be
reduced to the pro forma amounts indicated below for the years ended
December 31:
1999 1998
------------ -------------
Net loss
As reported $ (453,877) $ (816,714)
Pro forma $ (453,877) $ (1,212,964)
Basic and diluted loss per
common share
Basic:
As reported $ (0.04) $ (0.12)
Pro forma $ (0.04) $ (0.18)
Diluted:
As reported $ (0.04) $ (0.11)
Pro forma $ (0.04) $ (0.17)
Options are granted at prices are equal to the current fair value of
the Company's common stock at the date of grant. The vesting period is
usually four years or related to the length of the consulting contract
period.
The fair value of these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions: 1999: dividend yield of 0%; expected
volatility of 120%; risk-free interest rate of 6.0%, and expected life
of 4 years; 1998: dividend yield of 0%; expected volatility of 120%;
risk-free interest rate of 5.3%, and expected life of 4 years; 1997:
dividend yield of 0%; expected volatility of 120%; risk-free interest
rate of 6.0%, and expected life of 4 years.
F-14
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
6. STOCK OPTIONS (continued)
A summary of the status of the Company's stock option plan as of
December 31, 1999 and 1998 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Exercise Exercise
1999 price 1998 price
---- ----- ---- -----
<S> <C> <C> <C> <C>
Balance at beginning of year 2,000,000 $0.36 750,000 $ 0.30
Granted - 1,250,000 0.40
Exercised - -
------------ ------------
Forfeited/Cancelled - -
Outstanding at year end 2,000,000 $0.36 2,000,000 $ 0.36
Options exercisable at year end 2,000,000 $0.36 2,000,000 $ 0.36
Weighted average fair value
of options granted during the year $0.00 $0.31
------------ ------------
</TABLE>
The remaining contractual life for options granted to purchase 750,000
shares of common stock is 24 months. The remaining contractual life for
options granted to purchase 1,250,000 shares of common stock is 36
months.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
F-15
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
7. RELATED PARTY TRANSACTIONS
Groupmark Canada Limited
------------------------
In 1997, the Company entered into a management service agreement with
Groupmark Canada Limited ("Groupmark"), of which the Chairman and Chief
Executive Officer of the Company is the sole shareholder. Under this
agreement, Groupmark provides the Company all management, daily
administrative functions, financial and business advisory services.
Groupmark was also contracted to assist in the technological
development of the "SmartCARD." Contractually, charges for these
services are not to exceed $56,000 per month.
Amounts due Groupmark pursuant to this management service agreement as
of December 31, 1999 and 1998 are $1,645,868 and $1,331,674,
respectively. Groupmark has the option to accept payment by way of the
Company's common stock at fair market value in lieu of cash.
Transactions with Corporate Officers and Directors
--------------------------------------------------
In 1998, the Company granted to the Chairman and Chief Executive
Officer of the Company stock options to purchase 750,000 common shares
at $0.40 per share. The Company granted to the Chief Financial Officer
of the Company stock options to purchase 250,000 common shares at $0.40
per share. The Company granted to a member of the Board of Directors of
the Company stock options to purchase 250,000 common shares at $0.40
per share.
8. COMMITMENTS AND CONTINGENCIES
Legal
-----
The Company is not currently aware of any legal proceedings or claims
that the Company believes will have, individually or in the aggregate,
a material adverse effect on the Company's financial position or
results of operations.
F-16
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
8. COMMITMENTS AND CONTINGENCIES (continued)
Video Home Shopping, Inc., a Tennessee Corporation
--------------------------------------------------
In December 1996, the Company merged Video Home Shopping, Inc., a
Tennessee corporation. Subsequent to the merger, the new management of
the Company decided not to continue with the business operations of
Video Home Shopping, Inc. In consideration of the closure of Video Home
Shopping, Inc., the Company continues to maintain a reserve for
potential loss contingencies from these operations of $350,000.
In December 1999, the company entered into a stipulated judgment in the
amount of $37,000 for a liability on a promissory note issued by Video
Home Shopping, Inc. The amount is reflected in the statement of
operations as a non-recurring expense.
Going Concern Uncertainties
---------------------------
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company
has experienced recurring operating losses and negative cash flows from
operations. The Company's continued existence is dependent upon its
ability to increase operating revenues and/or raise additional equity
financing.
In view of these matters, management believes that actions presently
being taken to expand the Company's operations and to continue its
web-site development activity provide the opportunity for the Company
to return to profitability. The continued focus on strategic
technological investments will improve the Company's cash flow,
profitability, and ability to raise additional capital so that it can
meet its strategic objectives.
Management raised additional capital subsequent to the year ended
December 31, 1999, and is currently in the process of negotiating
additional equity financing with potential investors. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
F-17
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
December 31, 1999
9. SUBSEQUENT EVENTS
Acquisition of China eMall Corporation
--------------------------------------
On April 12, 2000, the Company completed the acquisition of all
outstanding common shares of China eMall Corporation, ("eMall") an
e-commerce company, through the issuance of 2,100,000 shares of the
Company's common stock, which had a market value of $1,181,250. eMall
has Preferred Stock outstanding that is convertible into 4,015,000
shares of the Company's common stock. The Company has a 100% interest
in the voting stock of China eMall as a result of this transaction. The
Preferred Stock of eMall is non-voting, and it is convertible into the
Company's common stock at the discretion of the holders of eMall
Preferred Stock. The eMall Preferred Stock can be redeemed by the
Company at the earlier of: (a) three years from the date on which a
registration statement for the Common shares of the Company is filed
with the Securities and Exchange Commission in the US; or (b) five
years from the date of issue, (April 12, 2000).
Common Stock Transactions
-------------------------
On April 12, 2000, the Company sold 550,000 shares of its common stock
for $110,000, which included warrants to purchase 1,225,000 shares of
its common stock at exercise prices ranging from $0.35 to $0.95. All
warrants expire on or before 180 days from the date of issuance.
In December 1999, the Company commenced a private placement of its
common shares under Rule 504 of Regulation D promulgated under the
Securities Act of 1933 and section 203 (t) of the Pennsylvania
Securities Act of 1972. Through April of 2000, the Company sold
2,583,333 shares for $1,000,000, completing the full offering.
Acquisition of Exodus Acquisition Corporation
---------------------------------------------
In May 2000, the Company has agreed to merge with Exodus Acquisition
Corporation, a California corporation, and a fully reporting company
under regulation 12(g) of the Securities Exchange Act of 1934. Exodus
has no material assets or liabilities. The Company will exchange
500,000 shares of the Company's common stock for all the outstanding
shares of Exodus Acquisition Corporation. To conclude this transaction,
the Company has incurred $90,000 in acquisition related expenses.
F-18
<PAGE>
VHS NETWORK, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2000
F-19
<PAGE>
VHS NETWORK, INC.
Consolidated Balance Sheets
As of March 31, 2000 and December 31, 1999
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Cash $ 835,021 $ 533
Inventory 559,997 559,997
----------- -----------
Total current assets 1,395,018 560,530
----------- -----------
Furniture and Equipment 18,941 --
Accumulated Depreciation (473) --
----------- -----------
18,468
Prepaids and Deposits 86,288 67,774
----------- -----------
Total assets $ 1,499,774 $ 628,304
=========== ===========
LIABILITIES
Accounts payable $ 54,693 $ 64,867
Accrued expenses 26,620 37,000
----------- -----------
Total current liabilities 81,313 101,867
----------- -----------
Notes payable -- --
Notes payable, related party 825,000 1,645,868
Reserve for loss contingencies 350,000 350,000
----------- -----------
1,175,000 1,995,868
----------- -----------
Total liabilities 1,256,313 2,097,735
----------- -----------
SHAREHOLDERS' EQUITY
Common stock: 100,000,000 shares authorized;
15,620,268 and 10,929,435 issued and outstanding,
respectively 15,520 10,929
Preferred stock: 25,000,000 shares authorized;
none issued or outstanding -- --
Additional paid-in-capital 3,463,196 1,651,168
Accumulated deficit (3,235,255) (3,131,528)
----------- -----------
Total shareholders' equity 243,461 (1,469,431)
----------- -----------
Total liabilities and shareholders' equity $ 1,499,774 $ 628,304
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
VHS NETWORK, INC.
Consolidated Statements of Operations
for the three months ended March 31, 2000 and the year ended December 31, 1999
<TABLE>
<CAPTION>
Three months
ended Year ended
March 31, December 31,
2000 1999
----------------- -----------------
<S> <C> <C>
Income:
Sales $ - $ -
----------------- -----------------
Operating Expenses:
Agency fees 38,679 9,190
Consulting fees - 52,833
General and administrative 10,827 686
Management fees 45,000 336,000
Professional fees 8,043 18,168
Other 747 -
Depreciation expense 473 -
Non-recurring expense - 37,000
----------------- -----------------
Total operating expenses 103,769 453,877
----------------- -----------------
Other (Income) and Expenses:
Interest (income) (98) -
Interest expense 56 -
----------------- -----------------
Total other (income) and expense (42) -
----------------- -----------------
Net loss before taxes 103,727 453,877
----------------- -----------------
Income taxes - -
----------------- -----------------
Net loss $ 103,727 $ 453,877
================= =================
Net loss per common share - Basic $ 0.009 $ 0.042
================= =================
Weighted average number of
common shares - Basic 11,915,352 10,929,435
================= =================
Net loss per common share - Diluted $ 0.008 $ 0.040
================= =================
Weighted average number of
common shares - Diluted 12,864,627 11,241,517
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
VHS NETWORK, INC.
Consolidated Statements of Shareholders' Equity
for the three months ended March 31, 2000 and the year ended December 31, 1999
<TABLE>
<CAPTION>
Common Preferred Additional
Stock Stock paid-in- Accumulated
Shares Amount Shares Amount capital Deficit Total
----------- ----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1998 10,429,435 $ 10,429 -- $ -- $ 1,601,668 $(2,677,651) $(1,065,554)
----------- ----------- ------------ ------------ ----------- ----------- -----------
Common stock issued
for services 500,000 500 -- -- 49,500 -- 50,000
Net loss -- -- -- -- -- (453,877) (453,877)
----------- ----------- ------------ ------------ ----------- ----------- -----------
Balance
December 31, 1999 10,929,435 10,929 -- -- 1,651,168 (3,131,528) (1,469,431)
Sale of common stock 2,083,333 2,083 -- -- 947,917 -- 950,000
Conversion of
note payables 2,500,000 2,500 -- -- 863,368 -- 865,868
Common stock issued
for services 7,500 7 -- -- 743 -- 750
Net loss -- -- -- -- -- (103,727) (103,727)
----------- ----------- ------------ ------------ ----------- ----------- -----------
Balance
March 31, 2000 15,520,268 $ 15,519 -- $ -- $ 3,463,196 $(3,235,255) $ 243,460
=========== =========== ============ ============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
VHS NETWORK, INC.
Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and the year ended December 31, 1999
Three months
ended Year ended
March 31, December 31,
2000 1999
--------- ---------
Net income (loss) $(103,727) $(453,877)
Depreciation and amortization 473 --
--------- ---------
(103,254) (453,877)
Cash flow from operating activities:
Changes in assets and liabilities
Receivables $ -- $ 11,000
Prepaids and deposits (18,514) --
Accounts payable (10,173) 24,025
Accrued expenses (10,380) 37,000
--------- ---------
Cash flow generated by (used in)
operating activit$es (142,321) $(381,852)
--------- ---------
Cash flow from investing activities:
Purchase of furniture and equipment $ (18,941) $ --
--------- ---------
Net cash generated by (used in)
investing activities $ (18,941) $ --
--------- ---------
Cash flow from financing activities:
Borrowings under notes payable -
related party $ 45,000 $ 314,194
Issuance of common stock for services 750 50,000
Proceeds from sale of common stock 950,000 --
--------- ---------
Net cash generated by (used in)
financing activities $ 995,750 $ 364,194
--------- ---------
834,488 (17,658)
Balance at beginning of year 533 18,191
--------- ---------
Balance at end of year $ 835,021 $ 533
========= =========
Supplementary disclosure:
Cash paid for interest $ 56 $ --
--------- ---------
Cash paid for taxes $ -- $ --
--------- ---------
Conversion of notes payable into common stock $ 865,868 $ --
--------- ---------
Common stock issued for services $ 750 $ 50,000
--------- ---------
The accompanying notes are an integral part of these financial statements
F-23
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
March 31, 2000
1. NATURE OF OPERATIONS
Company History
---------------
VHS Network, Inc. (the "Company") was incorporated in the State of
Florida on December 18, 1995 as Ronden Vending Corp. On December 24,
1996, the Company incorporated a wholly owned subsidiary called Ronden
Acquisition, Inc. a Florida corporation. Ronden Acquisition, Inc. then
merged with Video Home Shopping, Inc. (a Tennessee corporation), and
Ronden Acquisition, Inc. was the surviving Florida Corporation. In
1996, Video Home Shopping, Inc. was a network marketing and
distribution company which offered a wide range of products and
services to consumers through the medium of video tape, however, after
the merger the Company decided not to continue with the network
marketing and distribution operations of Video Home Shopping, Inc. of
Tennessee.
On January 9, 1997, articles of merger were filed for the Company as
the surviving corporation of a merger between the Company and its
wholly owned subsidiary Ronden Acquisitions, Inc. This step completed
the forward triangular merger between Video Home Shopping, Inc., Ronden
Acquisition, Inc. and the Company.
On January 9, 1997, articles of amendment were filed to change the name
of the Company from Ronden Vending Corp. to VHS Network, Inc. On April
9, 1997, the Company incorporated VHS Acquisition, Inc. as a wholly
owned subsidiary.
In April 1997, the Company was restructured by way of a reverse
take-over involving its wholly owned subsidiary, VHS Acquisition, Inc.
a Florida company, and VHS Network Inc., a Manitoba and Canadian
controlled private corporation. Pursuant to the reverse take-over, the
sole shareholder of VHS Network Inc., Groupmark Canada Limited,
received 400,000 shares of the Company's common stock and a secured
promissory note for US$500,000 and became the controlling shareholder
of the Company. In 1998, the promissory note for $500,000 was converted
into 5,000,000 common shares.
On April 12, 2000, the Company acquired all the outstanding common
shares of China eMall Corporation, an Ontario private company. This
represents a 100% interest in the voting stock of China eMall
Corporation.
F-24
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
March 31, 2000
1. NATURE OF OPERATIONS (continued)
Operations
----------
During 1999, the Company has been repositioning itself to identify
technologies and market opportunities in the United States, Canada and
abroad in Internet and electronic commerce interactive media, and
SmartCARD loyalty marketing. The Company will operate and/or develop
two lines of business as follows:
China eMall Corporation ("China eMall"): Through its acquired
subsidiary, China eMall Corporation, an Ontario, Canada corporation,
the Company provides Internet marketing and information services to
facilitate trade between Chinese and western businesses. The Company's
primary focus will be to establish an on-line presence to facilitate
the export of Chinese products. Through its multi-functional portal,
Chinese suppliers can post their products and services in a format that
is easy for searching, quoting and tracking, and that gives a western
buyer access to multiple suppliers for the best quality and price, and
direct communication. Realizing the difference in business culture and
financial systems, China eMall will allocate substantial amount of
resources in assisting in the communications, export/import processing,
financial transaction and product services. China eMall's business will
make use of Internet technology to speed up the export process and
broaden the sales channels for Chinese goods and services, and more
importantly, bring customers into direct contact with Chinese producers
who can constantly upgrade their products to meet customers' needs.
China eMall has an agreement with Wangfujing Department Store Ltd., a
large Chinese retailer, as its prime product supplier.
SmartCARD: The Company is developing computer chip-based plastic access
cards that utilize proprietary SmartCARD technology, which is licensed
from Groupmark Canada Limited, a related party. This technology enables
the cards to be used for identification purposes and as debit or charge
cards. The Company intends to focus its marketing efforts on companies
that wish to distribute these cards to their customers as a reward for
their loyalty. Groupmark Canada Limited owns the registered trademark
"SmartCARD" in Canada and has a pending application in the United
States. Groupmark Canada has granted the Company a license to use the
trademark "SmartCARD." Pursuant to the terms of the license agreement,
the Company will pay to Groupmark a royalty of 5% of net sales of
products using the SmartCARD trademark and technology.
F-25
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
March 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The
following is a summary of the significant accounting policies followed
in the preparation of these consolidated financial statements.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and all of its subsidiary companies. Intercompany accounts and
transactions have been eliminated on consolidation.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of cash on hand and cash deposited
with financial institutions, including money market accounts, and
commercial paper purchased with an original maturity of three months or
less.
Concentration of Cash
---------------------
The Company at times maintains cash balances in accounts that are not
fully federally insured. Uninsured balances as of December 31, 1999
were $533.
Inventories
-----------
Inventories are stated at the lower of cost (first in, first out
method) or market.
Property and Equipment
----------------------
Property and equipment are stated at cost or, in the case of leased
assets under capital leases, at the present value of future lease
payments at inception of the lease. Major improvements that materially
extend the useful life of property are capitalized. Depreciation is
calculated on a straight-line basis over the estimated useful lives of
the various assets, which range from three to seven years. Leasehold
improvements and leased assets under capital leases are amortized over
the life of the asset or the period of the respective lease using the
straight-line method, whichever is the shortest. Expenditures for
repairs and maintenance are charged to expense as incurred.
F-26
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
March 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based Compensation
------------------------
The Company accounts for its stock-based compensation plan based on
Accounting Principles Board ("APB") Opinion No. 25. In October 1995,
the Financial Accounting Standards Board ("FASB") issued SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company has determined
that it will not change to the fair value method and will continue to
use APB Opinion No. 25 for measurement and recognition of any expense
related to employee stock based transactions.
Income Taxes
------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Income taxes are provided for the tax
effects of transactions reported in the consolidated financial
statements and consist of deferred taxes related to differences between
the basis of assets and liabilities for financial and income tax
reporting. The deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will be either
taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes are also recognized for operating losses that
are available to offset future taxable income.
Foreign Currency Translation
----------------------------
Transactions are translated into the functional currency at the
exchange rates in effect at the time the transactions occur. Exchange
gains and losses arising on translation are included in the operating
results for the year.
Revenue
-------
Sales are recorded for products upon shipment of product to customers
and transfer of title under standard commercial terms.
F-27
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
March 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Comprehensive Income
--------------------
In 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set
of financial statements. Comprehensive income consists of net income
and unrealized gains (losses) on available for sale marketable
securities and is presented in the consolidated statements of
shareholders' equity and comprehensive income. SFAS No. 130 requires
only additional disclosures in the consolidated financial statements
and does not affect the Company's financial position or results of
operations. The Company does not have elements of comprehensive income
for the three months ended March 31, 2000 and for the year ended
December 31, 1999.
Income (loss) per common share
------------------------------
Income (loss) per common share is computed on the weighted average
number of common or common and common equivalent shares outstanding
during each year. Basic Earnings-per-Share ("EPS") is computed as net
income (loss) applicable to common stockholders' divided by the
weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options, warrants, and other
convertible securities when the effect would be dilutive.
Long-lived assets
-----------------
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, the Company reviews the carrying value of its long-lived
assets and identifiable intangibles for possible impairment whenever
events or changes in circumstances indicate the carrying amount of
assets to be held and used may not be recoverable.
F-28
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
March 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
----------------
The preparation of the financial statements in conformity with
generally accepted accounting principles necessarily requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting periods.
Actual results could significantly differ from those estimates.
Recently Issued Accounting Pronouncements
-----------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires recognition
of all derivative financial instruments as either assets or liabilities
in consolidated balance sheets at fair value and determines the method
(s) of gain/loss recognition. The FASB issued SFAS No. 137, "Deferral
of the Effective Date of FASB Statement No. 133" in June 1999 to defer
the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. The Company will adopt SFAS No. 133 in 2000 and we are
currently assessing the effect that it may have on our consolidated
financial statements.
3. INVENTORIES
On April 29, 1998, the Company acquired approximately 32,000 sets of
printed art reproductions. Each set consists of four full-color prints
from "The Andover Series" by artist Jim Perleberg. Each image has a
title narrative printed in the margin and is re-signed, in the plate,
by the artist.
The Company acquired these sets of prints in exchange for 1,399,992
shares of its common stock valued at $559,997. Starting in May 2000,
the Company will be offering these prints for sale through its own web
site and other Internet web sites.
F-29
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
March 31, 2000
4. INCOME TAXES
No provision for federal and state taxes has been recorded for the
three month period ending March 31, 2000 or for the year ended December
31, 1999, since the Company incurred net operating losses for these
periods.
5. STOCKHOLDERS' EQUITY
Common Stock
------------
In December 1999, the Company commenced a private placement of its
common shares under Rule 504 of Regulation D promulgated under the
Securities Act of 1933 and section 203 (t) of the Pennsylvania
Securities Act of 1972. As of March 31, 2000, the Company has sold
2,583,333 shares for $1,000,000, completing the full offering.
6. STOCK OPTIONS
In 1998, the Company granted stock options to two executive officers
and a member of the board. The stock options were non-qualified stock
options. The options were granted at the fair market value of the stock
as determined by the Board of Directors. Stock options were granted to
purchase a total of 1,250,000 common shares at $0.40 per share. The
options are immediately vested and expire on December 31, 2002.
F-30
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
March 31, 2000
7. RELATED PARTY TRANSACTIONS
Groupmark Canada Limited
------------------------
In 1997, the Company entered into a management service agreement with
Groupmark Canada Limited ("Groupmark"), of which the Chairman and Chief
Executive Officer of the Company is the sole shareholder. Under this
agreement, Groupmark provides the Company all management, daily
administrative functions, financial and business advisory services.
Groupmark was also contracted to assist in the technological
development of the "SmartCARD." Contractually, charges for these
services are not to exceed $56,000 per month.
Amounts due Groupmark pursuant to this management service agreement as
of March 31, 2000 and December 31, 1999 are $825,000 and $1,645,868,
respectively. Groupmark has the option to accept payment by way of the
Company's common stock at fair market value in lieu of cash. In March
2000, Groupmark converted $865,868 of the amounts due it under the
management service agreement into 2,500,000 shares of the Company's
common stock.
8. COMMITMENTS AND CONTINGENCIES
Legal
-----
The Company is not currently aware of any legal proceedings or claims
that the Company believes will have, individually or in the aggregate,
a material adverse effect on the Company's financial position or
results of operations.
Video Home Shopping, Inc., a Tennessee Corporation
--------------------------------------------------
In December 1996, the Company merged Video Home Shopping, Inc., a
Tennessee corporation. Subsequent to the merger, the new management of
the Company decided not to continue with the business operations of
Video Home Shopping, Inc. In consideration of the closure of Video Home
Shopping, Inc., the Company continues to maintain a reserve for
potential loss contingencies from these operations of $350,000.
F-31
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
March 31, 2000
8. COMMITMENTS AND CONTINGENCIES (continued)
Going Concern Uncertainties
---------------------------
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company
has experienced recurring operating losses and negative cash flows from
operations. The Company's continued existence is dependent upon its
ability to increase operating revenues and/or raise additional equity
financing.
In view of these matters, management believes that actions presently
being taken to expand the Company's operations and to continue its
web-site development activity provide the opportunity for the Company
to return to profitability. The continued focus on strategic
technological investments will improve the Company's cash flow,
profitability, and ability to raise additional capital so that it can
meet its strategic objectives.
Management raised additional capital, $950,000 during the three months
ended March 31, 2000, and is currently in the process of negotiating
additional equity financing with potential investors. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
9. SUBSEQUENT EVENTS
Acquisition of China eMall Corporation
--------------------------------------
On April 12, 2000, the Company completed the acquisition of all
outstanding common shares of China eMall Corporation, ("eMall") an
e-commerce company, through the issuance of 2,100,000 shares of the
Company's common stock, which had a market value of $1,181,250. eMall
has Preferred Stock outstanding that is convertible into 4,015,000
shares of the Company's common stock. The Company has a 100% interest
in the voting stock of China eMall as a result of this transaction. The
Preferred Stock of eMall is non-voting, and it is convertible into the
Company's common stock at the discretion of the holders of eMall
Preferred Stock. The eMall Preferred Stock can be redeemed by the
Company at the earlier of: (a) three years from the date on which a
registration statement for the Common shares of the Company is filed
with the Securities and Exchange Commission in the US; or (b) five
years from the date of issue, (April 12, 2000). The operations of eMall
for the three month period ending March 31, 2000 were deminimis.
F-32
<PAGE>
VHS NETWORK, INC.
Notes to Financial Statements
March 31, 2000
9. SUBSEQUENT EVENTS (Continued)
Common Stock Transactions
-------------------------
On April 12, 2000, the Company sold 550,000 shares of its common stock
for $110,000, which included warrants to purchase 1,225,000 shares of
its common stock at exercise prices ranging from $0.35 to $0.95. All
warrants expire on or before 180 days from the date of issuance.
Acquisition of Exodus Acquisition Corporation
---------------------------------------------
In May 2000, the Company has agreed to merge with Exodus Acquisition
Corporation, a California corporation, and a fully reporting company
under regulation 12(g) of the Securities Exchange Act of 1934. Exodus
has no material assets or liabilities. The Company will exchange
500,000 shares of the Company's common stock for all the outstanding
shares of Exodus Acquisition Corporation. To conclude this transaction,
the Company has incurred $90,000 in acquisition related expenses. The
operations of Exodus for the three month period ending March 31, 2000
were deminimis.
F-33
<PAGE>
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable. The Company has a fiscal year ending on December 31.
EXHIBITS
2.1. Agreement and Plan of Reorganization between VHS, Network, Inc. and
Exodus Acquisition Corporation, dated May 6, 2000.
3.1. Articles of Incorporation of VHS Network, Inc., Articles of Merger and
Articles of amendment for VHS Network.
3.2. By-Laws of VHS Network, Inc.
10.1 Share Exchange Agreement between VHS Network, Inc., China eMall
Corporation, Uphill Capital Inc., GDCT Investment Inc., Gang Chai and
Qin Lu Chai, Qing Wang and Tai Xue Shi, Charles He, and Forte
Management Corp. dated April 12, 2000.
10.2 Consulting Services Agreement between VHS Network, Inc., G.C.
Consulting and Investment Corp. and Gang Chai dated March 1, 2000.
10.3 License Agreement between Groupmark Canada Limited and VHS Network,
Inc. dated January 1, 2000.
10.4 Management Services Agreement between Groupmark Canada Limited and VHS
Network, Inc.
10.5 Stephen Rossi Consulting Agreement between VHS Network, Inc., and
Stephen Rossi dated December 20, 2000.
10.6 Agreement and Plan of Merger dated as of December 26, 1996 made among
Ronden Vending Corp., Ronden Acquisition, Inc., Video Home Shopping,
Inc. (a Tennessee corporation), Progressive Media Group, Inc. and
Pamela Wilkerson.
10.7 Agreement and Plan of Merger dated as of December 30, 1996 between
Ronden Vending Corp. and Ronden Acquisition, Inc.
*10.8 Private Placement Offering Materials and Subscription Agreement dated
December 21, 1999.
23.1 Consent of Accountants.
27.1 Financial Data schedule.
(a) VHS Network Financial Statements
(b) Exodus Acquisition Financial Statements
99.1 Form 10SB of Exodus Acquisition Corporation (File No. 33-0893488).
-------------------------
*To be filed by amendment
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
VHS NETWORK, INC.
By /s/ Elwin Cathcart
---------------------
Elwin Cathcart
Chairman and Chief Executive Officer
Dated as of: May 12, 2000
27
