UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
THIS FORM 10-Q QUARTERLY REPORT IS
THE SUBJECT OF A FORM 12B-25.
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: AUGUST 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________________________ to
____________________________________________
Commission File Number: 000-14356
VIRTUALSELLERS.COM, INC.
------------------------
(Exact name of registrant as specified in its charter)
Canada 911353658
------ ---------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
Suite 1000 - 120 North LaSalle Street, Chicago, IL 60602
---------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(312) 920-9120
---------------
(Registrant's telephone number, including area code)
Not applicable
--------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
As of September 30, 2000, there were 127,709,132 shares of the Registrant's
Common Shares issued and outstanding.
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
DISCLOSURE
To: The Shareholders of
VirtualSellers.com, Inc.
It is the opinion of management that the interim financial statements for the
quarter ended August 31, 2000 include all adjustments necessary in order to
ensure that the financial statements are not misleading.
Chicago, Illinois /s/ Dennis Sinclair
Date: October 17, 2000 Director of the Company
Consolidated Financial Statements of
VIRTUALSELLERS.COM, INC.
(Expressed in U.S. Dollars)
Three months ended August 31, 2000 and
Six months ended August 31, 2000
(Unaudited)
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VIRTUALSELLERS.COM, INC.
Consolidated Balance Sheets
(Expressed in U.S. dollars)
(Unaudited)
August 31, February 29,
2000 2000
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 1,077,540 $ 447,844
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 495,266 72,029
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 41,575 50,850
Prepaid expenses and advances . . . . . . . . . . . . . . . . 138,435 242,310
------------ -----------
1,752,816 813,033
Capital assets, net (note 3). . . . . . . . . . . . . . . . . 5,201,873 1,926,857
$ 6,954,689 $ 2,739,890
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities. . . . . . . . . . . $ 575,423 $ 693,250
Stockholders' equity:
Common shares, no par value (note 4):
Authorized:
200,000,000 common shares
Issued and outstanding:
127,459,533 shares at May 31, 2000 and 123,001,503
shares at February 29, 2000 . . . . . . . . . . . . . . . . 107,547,332 102,492,038
Shares to be issued (note 2). . . . . . . . . . . . . . . . . 2,700,000 -
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . (103,868,066) (100,445,398)
------------ -------------
6,379,266 2,046,640
$ 6,954,689 $ 2,739,890
See accompanying notes to consolidated financial statements.
On behalf of the Board:
/s/ Dennis Sinclair /s/ Ray Mol
Director Director
</TABLE>
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<TABLE>
<CAPTION>
VIRTUALSELLERS.COM, INC.
Consolidated Statements of Operations and Deficit
(Expressed in U.S. dollars)
(Unaudited)
Three months ended Six months ended
August 31, August 31,
------------------- -----------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues:
Catalogue sales. . . . . . . . . . . . . . . . . . . . . . . . $ 48,683 $ 118,978 $ 165,361 $ 118,978
Call Center transactions . . . . . . . . . . . . . . . . . . . 169,086 78,180 244,892 131,028
Internet consulting services . . . . . . . . . . . . . . . . . 401,873 10,938 606,368 14,488
Internet mall sales
. . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 107,832 42,054 211,882 62,254
--------- ------- --------- ---------
727,474 250,150 1,228,503 326,748
Costs and expenses:
Direct costs (recovery). . . . . . . . . . . . . . . . . . . . 127,593 111,370 288,993 132,260
Selling, general and
administrative expenses. . . . . . . . . . . . . . . . . . . . 2,104,715 1,179,120 3,750,544 1,560,393
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 528,530 31,203 642,349 36,028
--------- --------- --------- -----------
2,760,838 1,321,693 4,681,886 1,728,681
Loss before other income (expense) . . . . . . . . . . . . . . 2,033,364 1,071,543 3,453,383 1,401,933
Other income (expense):
Sale of trade name . . . . . . . . . . . . . . . . . . . . . . - - - 975,000
Gain on sale of CNC and CNT. . . . . . . . . . . . . . . . . . - 146,000 - 146,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . 22,797 70,134 30,715 145,834
------ -------- ------ ----------
22,797 216,134 30,715 1,266,834
Loss for the period. . . . . . . . . . . . . . . . . . . . . . $ 2,010,567 $ 855,409 $3,422,668 $ 135,099
Loss for the period per share. . . . . . . . . . . . . . . . . $ 0.02 $ 0.01 $ 0.03 $ 0.00
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
VIRTUALSELLERS.COM, INC.
Consolidated Statements of Stockholders' Equity
(Expressed in U.S. dollars)
(Unaudited)
Number of Common
common share Shares to Accumulated
shares amount be issued deficit
<S> <C> <C> <C> <C>
Balance, February 28, 1999. . . . . . . . . . . . . . . . . . $ 77,097,110 $ 95,524,122 $ - $ (95,752,168)
Shares issued during the year:
For employees' and directors'
compensation. . . . . . . . . . . . . . . . . . . . . . . . . 7,541,888 2,496,669 - -
Issued on acquisition of
VirtualSellers. . . . . . . . . . . . . . . . . . . . . . . . 500,000 50,000 - -
Issued on acquisition of Call
Direct. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000 202,716 - -
Exercise of CCAA warrants . . . . . . . . . . . . . . . . . . 495,525 - - -
Conversion of 2000
convertible debentures. . . . . . . . . . . . . . . . . . . . 11,605,000 1,125,835 - -
For services received . . . . . . . . . . . . . . . . . . . . 5,644,335 580,654 - -
For cash pursuant to private
placements. . . . . . . . . . . . . . . . . . . . . . . . . . 18,668,837 2,590,493 - -
Shares returned and
cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . (51,191) - - -
Issued on acquisition of
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 87,000 - -
Share issue costs . . . . . . . . . . . . . . . . . . . . . . - (165,451) - -
Loss for the year . . . . . . . . . . . . . . . . . . . . . . - - - (4,693,230)
-----------------------------------------------------------------------------------------------------------------------
Balance, February 29, 2000. . . . . . . . . . . . . . . . . . 123,001,504 102,492,038 - (100,445,398)
Shares issued during the period:
Exercise of CCAA warrants . . . . . . . . . . . . . . . . . . 1,170,060 - - -
For cash pursuant to private
placements. . . . . . . . . . . . . . . . . . . . . . . . . . 1,693,340 4,233,350 - -
For employees' and directors'
compensation. . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 200,000 - -
For settlement of debt. . . . . . . . . . . . . . . . . . . . 16,224 8,112 - -
Share issue costs (note 4). . . . . . . . . . . . . . . . . . - (450,000) - -
Loss for the period . . . . . . . . . . . . . . . . . . . . . - - - (1,412,101)
-----------------------------------------------------------------------------------------------------------------------
Balance, May 31, 2000 . . . . . . . . . . . . . . . . . . . . 126,881,128 106,483,500 - (101,857,499)
Shares issued during the period
For employees' and directors'
compensation. . . . . . . . . . . . . . . . . . . . . . . . . 315,000 602,600 - -
For settlement of debt. . . . . . . . . . . . . . . . . . . . 33,405 11,232 - -
For cash pursuant to private
placements. . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 75,000 - -
Issued on acquisition of
Sullivan Park (note 2). . . . . . . . . . . . . . . . . . . . 200,000 375,000 - -
Loss for the period . . . . . . . . . . . . . . . . . . . . . - - - (2,010,567)
Shares to be issued on
acquisition of Sullivan
Park (note 2) . . . . . . . . . . . . . . . . . . . . . . . . - - 2,700,000 -
-----------------------------------------------------------------------------------------------------------------------
Balance, August 31, 2000. . . . . . . . . . . . . . . . . . . $127,459,533 $107,547,332 $2,700,000 $(103,868,066)
Total
<S> <C>
Balance, February 28, 1999. . . . . . . . . . . . . . . . . . $ (228,046)
Shares issued during the year:
For employees' and directors'
compensation. . . . . . . . . . . . . . . . . . . . . . . . . 2,496,669
Issued on acquisition of
VirtualSellers. . . . . . . . . . . . . . . . . . . . . . . . 50,000
Issued on acquisition of Call
Direct. . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,716
Exercise of CCAA warrants . . . . . . . . . . . . . . . . . . -
Conversion of 2000
convertible debentures. . . . . . . . . . . . . . . . . . . . 1,125,835
For services received . . . . . . . . . . . . . . . . . . . . 580,654
For cash pursuant to private
placements. . . . . . . . . . . . . . . . . . . . . . . . . . 2,590,493
Shares returned and
cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . -
Issued on acquisition of
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 87,000
Share issue costs . . . . . . . . . . . . . . . . . . . . . . (165,451)
Loss for the year . . . . . . . . . . . . . . . . . . . . . . (4,693,230)
---------------------------------------------------------------------------
Balance, February 29, 2000. . . . . . . . . . . . . . . . . . 2,046,640
Shares issued during the period:
Exercise of CCAA warrants . . . . . . . . . . . . . . . . . . -
For cash pursuant to private
placements. . . . . . . . . . . . . . . . . . . . . . . . . . 4,233,350
For employees' and directors'
compensation. . . . . . . . . . . . . . . . . . . . . . . . . 200,000
For settlement of debt. . . . . . . . . . . . . . . . . . . . 8,112
Share issue costs (note 4). . . . . . . . . . . . . . . . . . (450,000)
Loss for the period . . . . . . . . . . . . . . . . . . . . . (1,412,101)
---------------------------------------------------------------------------
Balance, May 31, 2000 . . . . . . . . . . . . . . . . . . . . 4,626,001
Shares issued during the period
For employees' and directors'
compensation. . . . . . . . . . . . . . . . . . . . . . . . . 602,600
For settlement of debt. . . . . . . . . . . . . . . . . . . . 11,232
For cash pursuant to private
placements. . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
Issued on acquisition of
Sullivan Park (note 2). . . . . . . . . . . . . . . . . . . . 375,000
Loss for the period . . . . . . . . . . . . . . . . . . . . . (2,010,567)
Shares to be issued on
acquisition of Sullivan
Park (note 2) . . . . . . . . . . . . . . . . . . . . . . . . 2,700,000
---------------------------------------------------------------------------
Balance, August 31, 2000. . . . . . . . . . . . . . . . . . . $ 6,379,266
See accompanying notes to consolidated financial statements.
</TABLE>
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<CAPTION>
VIRTUALSELLERS.COM, INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
(Unaudited)
Three months ended Six months ended
August 31, August 31,
-------------------- ------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Cash provided by (used in):
Operating activities:
Net income (loss) for the year . . . . . . . . . . . . . . . $ (2,010,567) $ (855,409) $(3,422,668) $(135,099)
Items not involving cash:
Non-cash compensation
expense. . . . . . . . . . . . . . . . . . . . . . . . . . . 602,600 579,831 802,600 579,831
Non-cash services and
purchases. . . . . . . . . . . . . . . . . . . . . . . . . . 11,232 259,612 19,344 364,433
Depreciation and amortization. . . . . . . . . . . . . . . . 528,530 31,203 642,349 36,028
Change in non-cash operating
working capital:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . 75,078 (24,083) (331,103) (106,230)
Prepaid expenses and
advances . . . . . . . . . . . . . . . . . . . . . . . . . . 59,103 (427,510) 103,875 (424,672)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . (500) (36,494) 9,275 (36,494)
Accounts payable and
accrued liabilities. . . . . . . . . . . . . . . . . . . . . (308,464) 196,983 (178,725) 66,707
----------- --------- ----------- ----------
(1,042,988) (275,867) (2,355,053) 344,504
Investing activities:
Acquisition of equipment . . . . . . . . . . . . . . . . . . (651,090) (722,087) (876,849) (741,687)
Cash acquired on acquisition . . . . . . . . . . . . . . . . 3,248 - 3,248 -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12,527 - -
--------- ---------- --------- ----------
(647,842) (709,560) (873,601) (741,687)
Financing activities:
Issuance of common shares
for cash . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000 417,159 4,308,350 849,759
Share issue costs. . . . . . . . . . . . . . . . . . . . . . - - - -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . - - (450,000) 7,376
------- ------- ---------- ---------
75,000 417,159 3,858,350 857,135
Foreign currency effect on cash. . . . . . . . . . . . . . . - 43,303 - 35,927
Increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . . . . . . (1,615,830) (524,965) 629,696 495,879
Cash and cash equivalents,
beginning of period. . . . . . . . . . . . . . . . . . . . . 2,693,370 1,096,607 447,844 75,763
Cash and cash equivalents,
end of period. . . . . . . . . . . . . . . . . . . . . . . . $ 1,077,540 $ 571,642 $ 1,077,540 $ 571,642
Non-cash transactions and supplemental disclosures - note 7.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
VIRTUALSELLERS.COM, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Three months ended August 31, 2000 and
Six months ended August 31, 2000
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
These unaudited interim consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America. Except as disclosed in note 17 of the Company's annual audited
consolidated financial statements as at February 29, 2000, these principles do
not differ materially from accounting principles generally accepted in the
Canada.
The unaudited interim consolidated financial statements presented to
shareholders as at August 31, 1999 and for the three months then ended and the
audited consolidated financial statements presented to shareholders as at
February 28, 1999 and for the years ended February 28, 1999 and 1998 were
prepared under Canadian generally accepted accounting principles and reported in
Canadian dollars. A reconciliation from Canadian GAAP to US GAAP was included
in the notes to the consolidated financial statements. During fiscal 2000, the
Company became a domestic issuer for Securities and Exchange Commission
reporting requirements and consequently, the Company changed its financial
statement presentation from Canadian GAAP and Canadian dollars to US GAAP and US
dollars. These changes have been retroactively applied and prior periods
presented restated in accordance with US GAAP and US dollars as the reporting
currency.
These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All subsidiaries were acquired from unrelated
parties and have been accounted for using the purchase method. Their results of
operations have been included from the respective effective dates of
acquisition. All significant intercompany balances and transactions have been
eliminated.
Canadian subsidiaries United States subsidiaries
--------------------- --------------------------
Canadian-American Communications Inc. Northnet Telecommunications Inc.
Canadian Northstar Transmission Systems Ltd. eCommerce Solutions Inc.
Preferred Telemanagement Inc. ("PTI")
CAM-NET Cellular Inc.
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(b) Net income (loss) per common share:
Basic net income (loss) per common share is computed based on the weighted
average number of common shares outstanding during the period, which were are
follows:
2000 126,518,993
1999 85,926,555
Diluted earnings per share has not been presented as the impact of outstanding
convertible securities would be to reduce the loss per share.
2. ACQUISITION OF THE BUSINESS OF SULLIVAN PARK, LLC:
On May 19, 2000, and amended on June 1, 2000, the Corporation entered into an
agreement with Sullivan Park to acquire the net assets of Sullivan Park for
$2,700,000, payable no later than May 19, 2001 in common shares of
Virtualsellers based on the closing market price of the Vitualsellers common
shares. These shares are to be registered and issued in one instalment on the
earlier of (i) May 19, 2001 and (ii) date at which the shares are registered.
In addition, the Company entered into an employment agreement with the managing
member of Sullivan Park whereby the managing member will receive a monthly
salary of $10,000 and 200,000 common shares of Virtualsellers as a signing
bonus. Virtualsellers can terminate the employment agreement by giving three
months written notice. As the Corporation acquired control over the net assets
of Sullivan Park, the acquisition if accounted for using the purchase method.
The purchase price is allocated to the identifiable assets acquired and
liabilities assumed based upon their fair values at the effective date. The
residual balance is allocated to goodwill.
Details of the acquisition are as follows:
<TABLE>
<CAPTION>
<S> <C>
Net assets acquired:
Cash . . . . . . . . . . . . . . . . . . $ 3,248
Accounts receivable. . . . . . . . . . . 92,134
Fixed assets . . . . . . . . . . . . . . 21,379
Goodwill . . . . . . . . . . . . . . . . 3,019,137
----------
3,135,898
Accounts payable and accrued liabilities 60,898
Net assets acquired. . . . . . . . . . . $3,075,000
</TABLE>
<PAGE>
2. ACQUISITION OF THE BUSINESS OF SULLIVAN PARK, LLC (CONTINUED):
Consideration:
Shares to be issued under acquisition agreement $ 2,700,000
Shares to be issued under employment agreement 375,000
$ 3,075,000
<TABLE>
<CAPTION>
3. CAPITAL ASSETS, NET:
Accumulated Net book
AUGUST 31, 2000 Cost depreciation value
<S> <C> <C> <C>
Office equipment . . . $ 870,543 $ 233,561 $ 636,982
Computer hardware. . . 1,771,608 385,797 1,385,811
Computer software. . . 138,797 31,663 107,134
Leasehold improvements 346,536 42,132 304,404
Goodwill . . . . . . . 3,019,137 251,595 2,767,542
------------------------------------------------------------------
$ 6,146,621 $ 944,748 $5,201,873
Accumulated. . . . Net book
FEBRUARY 29, 2000. . . Cost depreciation value
Office equipment . . . $ 886,016 $ 153,031 $ 732,985
Computer hardware. . . 958,275 99,918 858,357
Computer software. . . 126,603 27,882 98,721
Leasehold improvements 262,564 25,770 236,794
------------------------------------------------------------------
$ 2,233,458 $ 306,601 $1,926,857
</TABLE>
4. SHARE CAPITAL:
(a) Authorized:
200,000,000 common stock without par value
150,000,000 class A preference stock without par value
150,000,000 class B preference stock without par value
(b) Commitments to issue common shares:
The Company has committed to issue 13,000,000 shares to former creditors under a
reorganization plan as disclosed in note 3. As at August 31, 2000, 9,849,022
(February 29, 2000 - 8,678,862) shares have been issued to creditors leaving an
outstanding commitment to issue 3,150,978 (February 29, 1999 - 4,321,138)
shares.
<PAGE>
4. SHARE CAPITAL (CONTINUED):
(c) Warrants and options:
At August 31, 2000, the Company has 361,710 share purchase warrants outstanding
which expire on April 26, 2001. Each warrant entitles the holder to purchase
one common share for Cdn. $1.50. The Company also has 1,000,000 share purchase
warrants outstanding which expire on June 30, 2001. Each warrant entitles the
holder to purchase one common share for Cdn. $1.00. A new one year hold period
will commence on the shares issued as a result of the exercise of these
warrants. The Company also has 77,255 warrants outstanding which expired on
September 8, 2000. Each warrant entitles the holder to purchase one common share
for no additional consideration. These warrants were issued to creditors of
CallDirect to settle outstanding indebtedness. The Company has 100,000
stock options outstanding at an exercise price of $1.28, expiring January 31,
2001. These options were originally granted in fiscal 1997.
5. SEGMENTED INFORMATION:
The Company has three operating segments - a call center division, a catalogue
division ("CallDirect") and an e'commerce division ("Virtualsellers.com"). The
call center and e'commerce segments are located in the United States and the
catalogue segment is located in British Columbia, Canada.
2000:
<TABLE>
<CAPTION>
(a) Operating segments:
Call Center Catalogue e'commerce Segment
segment segment segment eliminations Total
<S> <C> <C> <C> <C> <C>
Gross revenue. . . . $ 244,892 $ 165,361 $ 818,250 $ - $ 1,228,503
Segment loss . . . . $ (80,378) $ (35,608) $(1,551,952) $ - $(1,667,938)
Corporate assets . . - - - - (1,754,730)
Loss for the year. . $ (80,378) $ (35,608) $(1,551,952) $ - $(3,422,668)
Segment assets . . . $ 127,565 $ 238,503 $ 5,500,259 $ - $ 5,866,327
Corporate assets . . - - - - 1,088,362
Total assets . . . . $ 127,565 $ 238,503 $ 5,500,259 $ - $ 6,954,689
Equipment additions:
Equipment. . . . . . $ 8,973 $ 773 $ 867,103 $ - $ 876,849
Corporate assets . . - - - - -
$ 8,973 $ 773 $ 867,103 $ - $ 876,849
</TABLE>
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<TABLE>
<CAPTION>
5. SEGMENTED INFORMATION (CONTINUED):
2000 (CONTINUED):
-----------------
(a) Operating segments (continued):
Call Center Catalogue e'commerce Segment
segment segment segment eliminations Total
<S> <C> <C> <C> <C> <C>
Depreciation and amortization
expense:
Equipment . . . . . . . . . . $ 13,866 $ - $ 372,926 $ - $386,792
Goodwill. . . . . . . . . . . - - 251,595 - 251,595
Corporate assets. . . . . . . - - - - 3,962
$ 13,866 $ - $ 624,521 $ - $642,349
</TABLE>
<TABLE>
<CAPTION>
(b) Geographic segments:
United Segment
Canada States eliminations Total
<S> <C> <C> <C> <C>
Gross revenue . . . $165,361 $1,063,142 $ - $1,228,503
Location of assets:
Equipment . . . . . $ 92,545 $2,341,786 $ - $2,434,331
Goodwill. . . . . . - 2,767,542 - 2,767,542
$ 92,545 $5,109,328 $ - $5,201,873
</TABLE>
<TABLE>
<CAPTION>
1999:
----
(a) Operating segments:
Call Center Catalogue e'commerce Segment
segment segment segment eliminations Total
<S> <C> <C> <C> <C> <C>
Gross revenue . . $ 131,028 $ 118,978 $ 76,742 $ - $ 326,748
Segment loss. . . $ (37,846) $ (15,134) $ (410,216) $ - $ (463,196)
Corporate assets. - - - - 328,097
Loss for the year $ (37,846) $ (15,134) $ (410,216) $ - $ (135,099)
Segment assets. . $ 122,819 $ 323,975 $ 1,144,239 $ - $1,591,033
Corporate assets. - - - - 631,137
Total assets. . . $ 122,819 $ 323,975 $ 1,144,239 $ - $2,222,170
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. SEGMENTED INFORMATION (CONTINUED):
1999 (CONTINUED):
-----------------
(a) Operating segments (continued):
Call Center Catalogue e'commerce Segment
segment segment segment eliminations Total
<S> <C> <C> <C> <C> <C>
Equipment additions:
Equipment. . . . . . . . . . . $ - $ - $ 741,687 $ - $741,687
Corporate assets . . . . . . . - - - - -
$ - $ - $ 741,687 $ - $741,687
Depreciation and amortization
expense:
Equipment. . . . . . . . . . . $ 9,686 $ 9,379 $ 16,963 $ - $ 36,028
Corporate assets . . . . . . . - - - - -
$ 9,686 $ 9,379 $ 16,963 $ - $ 36,028
(b) Geographic segments:
United Segment
Canada States eliminations Total
Gross revenue. . . . . . . . . $ 118,978 $ 207,770 $ - $ 326,748
Location of assets:
Equipment. . . . . . . . . . . $ 253,075 $ 792,061 $ - $ 1,045,136
</TABLE>
6. RELATED PARTY TRANSACTIONS:
Included in accounts receivable at August 31, 2000 is $157,739 (February 29,
2000 - $nil) due from employees of the Company. Payments totalling $450,000
were made to the Company's President (and Director) and Concept 10 Inc., a
wholly-owned subsidiary of the Company's President (and Director), during the
six months ended August 31, 2000 (1999 - $nil) for services rendered in
connection with a private placement of common shares.
<PAGE>
<TABLE>
<CAPTION>
7. NON-CASH TRANSACTIONS AND SUPPLEMENTAL DISCLOSURES:
The Company had the following material non-cash transactions:
2000 1999
<S> <C> <C>
Issuance of shares for:
Employee and director compensation $ 802,600 $579,831
Settlement of debt . . . . . . . . 19,344 -
Acquisition of Sullivan Park . . . 375,000 -
Services received. . . . . . . . . - 364,433
$1,196,944 $944,264
</TABLE>
In addition, the Company is committed to issue $2,700,000 in common shares for
the acquisition of Sullivan Park, LLC (note 2).
8. SUBSEQUENT EVENT:
On August 30, 2000, the Company signed a preliminary acquisition agreement to
acquire the assets of GoldPaint Internet Services, Inc. (d.b.a. as "Clickshop")
in exchange for 200,000 common shares of the Company. As at October 16, 2000,
this agreement has not closed.
Subsequent to period end, the Company received $200,000 relating to a private
placement to issue common shares at $0.60 per share.
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
All figures are in United States Dollars unless otherwise stated.
VIRTUALSELLERS.COM
During the quarter ended August 31, 2000, Virtualsellers.com continued to
provide turnkey e-commerce transaction processing and customer services to small
and medium-sized businesses. With the addition of Sullivan Park, the
Virtualsellers.com portfolio has increased, providing a larger customer base and
marketing edge. Virtualsellers.com is also in the process of acquiring
GoldPaint Internet Services Inc. ("GoldPaint"). GoldPaint will also increase
Virtualsellers.com's portfolio of products and services.
Additional internal development has provided Virtualsellers.com with a new
product offering, TAME Wizard technology, allowing multi-store environment
implementation with simple to use templates. Together with other value-added
services such as transaction processing, help desk and customer service,
Virtualsellers.com can strengthen its position as a solutions provider.
Some of the recent highlights and accomplishments of Virtualsellers.com include:
- developed connectivity to various ORACLE database engines utilizing
Oracle's OCI driver technology;
- in collaboration with a major telecommunications client, delivered the
"core" functionality of human resource management tool, thus providing the
foundation for future development using the TAME language;
- designed and began implementation of a new product utilizing the TAME
Wizard technology to assist new clients with full automation of website
creation. The first scheduled delivery of this new product to customers is
<PAGE>
expected by the end of October, 2000. The new product was developed for
markets that Virtualsellers.com subsidiaries are specifically targeting;
- hired additional experienced technical staff to assist in the development
and design process relating to national accounts, thus creating the
Professional Services Group; and
- via the Professional Services Group, will provide services to other
branches of Virtualsellers.com to assist in business analysis, software
development, transaction processing, web development and customer
relations.
SULLIVAN PARK
During this quarter, the Company completed the acquisition of all of the assets
and underlying shares of Sullivan Park LLC. The Company will continue to
operate this business under a newly created subsidiary called Sullivan Park,
Inc. Sullivan Park's clients include Internet start-ups in its accelerator
program and Fortune 500 companies outsourcing their website development and
e-commerce solutions. Sullivan Park promotes the Company's goal of expanding
TAME's market penetration in the existing customer base and with new customers
by using the language to build website, database management and supply chain
solutions. The Company's goal of increasing transaction processing revenue is
met by Sullivan Park's development of a portfolio of clients whose businesses
benefit from using VirtualSellers.com's e-commerce services.
By partnering with start-up Internet companies at an early stage, Sullivan Park
gives its clients the ability to leverage their resources to the fullest extent.
Instead of raising a significant amount of start-up capital for equipment,
infrastructure and personnel expenses, start-ups can engage Sullivan Park at a
fraction of this cost, deploying their products or services to market faster and
proving their business model in advance of seeking initial financing. Sullivan
Park consults at the outset, providing business analysis and technical analysis
that fully model the client's business and processes. Site development then
commenced accelerated by the use of the TAME language. Upon launch, the
client's e-commerce requirements are managed by VirtualSellers.com, which
provides its hosting, transaction processing, customer support, billing and
collection services. In addition to receiving an equity position in its
clients, Sullivan Park generates revenue from consulting and application
development fees.
NORTHSTAR TELESOLUTIONS
NorthStar TeleSolutions ("NorthStar") has been providing services to cable
television, internet service providers and other large subscriber based
businesses for over 2 years. These services include 24 hours a day, 7 days a
week transaction processing, customer service, centralized billing, payment
processing, order entry, order fulfilment, help desk services, dispatch
functions, customer and technical support, dispatching, bill collections and
marketing.
NorthStar TeleSolutions enables such businesses to significantly reduce billing
management and back-office costs through a proven and efficient outsource
service.
Since the average fee per cable subscriber is $3.50, the cost savings for most
small and medium size cable operators is substantial; approximately 50%.
<PAGE>
NorthStar achieves this savings for its clients through a package of services
that can improve the customer service and billing operation of most cable and
internet service providers. As an added benefit, NorthStar will provide all of
these services for a flat per-subscriber monthly rate so that clients can
quantify their billing management expenses in advance.
In the quarter, NorthStar grew its subscriber base by 117% to over 26,000
subscribers. NorthStar has nearly 5,000 subscribers under contract which are
expected to generate revenue which will be recorded in the upcoming quarter.
The revenue generated from the management of these subscribers has increased by
over 200%. NorthStar's growth during this past year can primarily be attributed
to work it has done to position itself as a leader of transaction processing
services for the emerging broadband service industry. NorthStar has exhibited
its services at two industry shows in the past four months with additional
appearances slated for the near future.
NorthStar has already invested the necessary capital in the technology
infrastructure to support well over 100,000 subscribers.
NorthStar's marketing plan includes the use of direct mail, telemarketing, bill
inserts, magazine advertisements and exhibiting at trade shows. In addition,
NorthStar has chosen strategic partners that will provide marketing to their
existing clients that align with NorthStar's business model.
The management team of NorthStar expects to grow its subscriber base to 50,000
subscribers by the end of this fiscal year.
CALLDIRECT
CallDirect's e-commerce website is accessible directly through
www.CallDirect.com or through www.VirtualSellers.com. CallDirect has completed
and sent to print the latest catalogue. The catalogue will be mailed during the
last part of October and the first part of November. A number of new wireless
products have been added to the products in the catalogue. CallDirect is
expecting an increase in its revenues for the final quarter of this fiscal year.
TAME
The Company has implemented significant upgrades and improvements to the
internal structure of TAME which are currently in final testing. The Company
initially focused on the linux/unix versions of the TAME software, although
specific improvements were also added to the Windows NT operating system as
well. The Company now has implemented a server version of TAME that executes on
an Apache server a fast CGI process or to improve through put and uses the
SmartHeap (Microquill) libraries so that the Company may offer high performance
SMP (Semetrical Multi-Processor) support without the typical memory contention
problems associated with the standard libraries. In conjunction with this work,
a general enhancement of the TAME software is allowing the Company to open up
its architecture by modularizing the system. These developments provide the
stage for its current XML applications and subsequent developments.
<PAGE>
SUBSEQUENT EVENTS
The Company is in the process of completing the purchase of all the assets and
business of GoldPaint Internet Services Inc. doing business as Clickshop. The
Company intends to continue the operations of Clickshop upon completion of the
acquisition. Clickshop will continue to develop and market e-commerce
applications using "Tame Lite" and specializing in developing turnkey solutions
such as the "Web Wizard". This application is a browser-based tool and uses
user-friendly menu wizards to allow rapid creation of online stores or
e-commerce enabled websites. This allows the average person to build and
maintain a storefront on the web in a matter of minutes. The "Web Wizard"
technology is required to by internet service providers' as a solution to
enhance their existing products and services. We expect to start selling a
full-blown version for around $10,000 by the beginning of the year.
Clickshop will also expand its existing client base of 350 customers by
contacting new and old clients by phone and offering both Clickshop and
VirtualSellers new products and services. We feel we now have a full range of
products and services to offer, such as Tame-Lite, the Web Wizard, transaction
processing, billing and collections, and new software solutions. This effort
will only improve customer relations and give us the opportunity to upsell new
products and services.
Clickshop will continue to improve and update the clickshop.com website as a
marketing tool for the Tame software and related services. We believe that
using the Clickshop website is the best overall marketing strategy for the Tame
family of software products and services. It can easily compete with the
handful of programming languages already out there and give us a strong and
credible presence on the Internet, which will help bring the Tame language into
the main stream.
Clickshop's marketing plan include bundling NorthStar's e-commerce solutions,
which will dramatically cut an internet service providers' costs in those areas
and allow an internet service provider to focus its efforts on growing its
customer base. Clickshop can both now offer software solutions to internet
service providers, which are seeking e-commerce solutions for their ever-growing
customer base.
As Clickshop expands into the marketplace, new transaction revenue will be
generated from the sales of its products, along with leads for
VirtualSellers.com's traditional transaction processing business.
RESULTS OF OPERATIONS
Revenues for the three months ended August 31, 2000 ("Quarter 2000") of $727,474
increased $477,324, an increase of 191% from the revenues of $250,150 for the
three months ended August 31, 1999 ("Quarter 1999"). Revenues for the six
months ended August 31, 2000 ("Six Months 2000") of $1,228,503 increased
$901,755, an increase of 276% from the revenues of $326,748 for the six months
ended August 31, 1999 ("Six Months 1999"). The increase in revenues in the
quarter and six months to date is due primarily to increased revenues at the
Company's e'commerce division.
At the Call Center division, Quarter 2000 revenues increased to $169,086
compared to $78,180 for Quarter 1999 while the Six Months 2000 revenues
increased to $244,892 compared to $131,028 for Six Months 1999. The Call Center
generates revenue providing transaction processing and backroom services
including inbound and outbound telemarketing , customer and technical support,
customer order entry, centralized billing and collection, order fulfillment,
customer dispatch functions and other related services. The increase in
revenues from 1999 is due to an increase in the number of cable service
customers which has been partially offset by lower monthly fees which have
declined due to competitive pressures.
The Company acquired CallDirect effective May 15, 1999. Revenues for Quarter
2000 of $48,683 compare to revenues for Quarter 1999 of $118,978 while Six Month
2000 revenues increased to $165,361 compared to $118,978 for Six Months 1999.
CallDirect generates revenue primarily from the resale of telephone related
equipment and secondly, from the resale of products such as multimedia,
entertainment, travel, security and computer accessories for offices and
residences. The increase in revenues for Six Months 2000 is due to six months
of sales in 2000 compared to only three months of sales in Six Months 1999. The
decrease in revenues for Quarter 2000 is due to the timing of the issuance of a
new catalogue which occurred in the first quarter in fiscal 2001 versus the
second quarter in fiscal 2000.
The Company acquired Virtualsellers.com effective April 23, 1999 and Sullivan
Park effective June 1, 2000. These two business form the Company's e-commerce
business segment. Revenues for Quarter 2000 of $509,705 compare to revenues for
Quarter 1999 of $52,992 while revenues for Six Months 2000 increased to $818,250
compared to $76,742 for Six Months 1999. The e-commerce segment generates
revenue from the e-commerce transaction processing and website development,
maintenance and hosting services to businesses. The increase in revenues for
Six months 2000 and Quarter 2000 is due to an increase in the investments made
in fiscal 2000 including an increase in the number of the Company's employees
and an increase in infrastructure costs. In addition, revenues for Six Months
1999 included 4 months of revenues whereas Six Months 2000 included 6 months due
to the acquisition occurring in 1999.
Direct product costs in Quarter 2000 were $127,593 compared to direct costs of
$111,370 in Quarter 1999, a increase of $16,223 while direct product costs for
Six Months 2000 increased to $288,993 from $132,260 in Six Months 1999. The
increase is due to a decline in product sales at the Catalogue division in the
second quarter as discussed above, but more than offset by an increase in mall
sales at the e-commerce division. The Call Center division primarily sells
services and thus, has no direct product costs.
<PAGE>
Selling, general and administrative expenses or Quarter 2000 increased to
$2,104,715 from $1,179,120 in Quarter 1999, an increase of $925,595 or 78%.
Selling, general and administrative expenses for the Six Months 2000 increased
to $3,750,544 from $1,560,393 the Six Months 1999, an increase of $2,190,151 or
141%. Selling, general and administrative expenses at the Call Center division
for Six Months 2000 increased to $315,421 from $160,131. The increase is due to
an increase in the number of the Call Center's customers which increased the
number of employees required to service the customers and related costs such as
telephone, rent and office costs. Selling, general and administrative expenses
at CallDirect for the Six months 2000 were $87,604, consisting primarily of
payroll costs, office rent, telephone, printing and postage and delivery
expenses. Selling general and administrative expenses at the e-commerce
division were $1,429,123, consisting primarily of payroll costs, office rent,
telephone and internet fees. Corporate general and administrative expenses for
Six Months 2000 increased to $1,773,853 from $930,651. The increase is due
primarily to an increase in cash expenses including compensation paid to
officers and directors, marketing, travel and entertainment expenses and other
administrative expenses.
Depreciation and amortization for Quarter 2000 increased to $528,530 from
$31,203 in Quarter 1999, an increase of $497,327 or 1,594%. Depreciation and
amortization for Six Months 2000 increased to $642,349 from $36,028 for Six
Months 1999, an increase of $606,321 or 1,683%. The increase in Quarter 2000
and Six Months 2000 is due primarily to additions of computer hardware and
software at the e-commerce division since acquisition and the amortization of
goodwill acquired on the acquisition of Sullivan Park on June 1, 2000.
Other income (expense) for Quarter 2000 decreased to income of $22,597 compared
to income of $216,134 in Quarter 1999, a decrease of $193,537. Other income
(expense) for Six Months 2000 decreased to income of $30,715 from income of
$1,266,834 for Six Months 1999, a decrease of $1,236,119. The decrease is due
to an unusual items recorded in Six Months 1999 - $975,000 received on the sale
of the "Suncom" trade name and $146,000 received from conditional sales proceeds
on the sale of the Company's former subsidiaries, which were not repeated in
Quarter 2000 nor Six Months 2000.
For Quarter 2000, the Company recognized a loss of $2,010,567 or $0.02 per
share, compared to a loss of $855,409 or $0.01 per share for the Quarter 1999.
For the six months ended 2000, the Company recognized a loss of $3,422,668 or
$0.03 per share, compared to a loss of $135,099 or $0.00 per share for the six
months ended 1999. The increase in the losses is due to the factors discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
As at August 31, 2000, the Company has net working capital of $1,177,393 and
capital assets of $5,201,873 for net equity of $6,379,266. The Company does not
have any long-term debt nor other long-term obligations.
During the six months ended 2000, the Company used $2,355,053 in cash to fund
operations, used $873,601 in cash to fund investing activities which consisted
primarily of capital asset additions at the e-commerce division and received
$3,858,350 in cash from financing activities for a net increase in cash of
$629,696.
<PAGE>
During the three months ended 2000, the Company used $1,042,988 in cash to fund
operations, used $651,090 in cash to fund investing activities which consisted
primarily of capital asset additions at Virtualsellers.com and received $75,000
in cash from financing activities for a net decrease in cash of $1,615,830.
Cash at August 31, 2000 was $1,077,540.
The Company has historically funded operations through the issuance of common
shares of the Company or through the issuance of convertible debentures which
are convertible into common shares of the Company. The Company expects to fund
future operations and investments through the issuance of common shares.
The Company estimates its cash requirements for capital asset additions for the
remainder of fiscal 2001 to be less than $200,000. The Company also estimates
that cash flow from operations will be positive in fiscal 2001, commencing in
the second quarter. The Company will continue to search for appropriate
acquisitions to compliment its existing operations. Where possible, the Company
will pay for acquisitions through the issuance of common shares of the Company.
Effective June 1, 2000, the Company acquired Sullivan Park, LLC which is
comprised of an internet services business involved in the development of
on-line stores in California. The Company issued 200,000 common shares valued
at $375,000 to the former owner of Sullivan Park in conjunction with an
employment agreement entered into during the acquisition and will issue common
shares at a market value of $2,700,000 for total proceeds of $3,075,000.
Goodwill of $3 million was recorded on the purchase and is being amortized over
three years.
FORWARD LOOKING STATEMENTS
----------------------------
Much of the information included in this Quarterly Report on Form 10-Q includes
or is based upon estimates, projections or other "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and are subject to the "safe harbor"
created by those sections. When used in this document, the words "expects",
"anticipates", "intends", "plans" and similar expressions are intended to
identify other forward-looking statements. While such forward-looking
statements, and any assumptions upon which they are based, are made in good
faith and reflect the Company's current judgment regarding the direction of its
business, actual results will almost always vary, sometimes materially, from any
estimates, predictions, projections, assumptions, or other future performance
suggested herein. Those forward-looking statements also involve certain risks
and uncertainties. Factors, risks and uncertainties that could cause or
contribute to such differences include those specific risks and uncertainties
discussed below and those discussed in the Company's Form 10-K Annual Report for
the year ended February 29, 2000. The cautionary statements made in this
document should be read as being applicable to all related forward-looking
statements wherever they appear in this document.
Specifically, the projections and expectations in connection with the TAME
software could be affected by a number of factors, which could have an adverse
effect on the Company's ability to generate revenue and on its continued
operations. Those factors include acceptance of the TAME software by end users,
developers and the computer software community in general, continued use of the
Internet and computers as a tool for conducting business and other financial
situations. The completion of the licensing program of TAME may be affected by
the ability of the Company to develop and implement an acceptable license
agreement by that time. In addition, the success of TAME will depend on the
ability of the Company to protect the intellectual property rights associated
with TAME. While the Company has applied for patent protection of TAME, no such
protection has yet been obtained or granted. There is no assurance that such
registration or protection will be available, and therefore the Company may have
little or no protection for its intellectual property assets, comprising a
significant asset of the Company.
The Company's TAME software and its other intellectual property is important to
the Company's continued operations and success. The Company's efforts to
protect this intellectual property may not be adequate. Unauthorized parties
may infringe upon or misappropriate its
<PAGE>
TAME software. In the future, litigation may be necessary to protect and
enforce the Company's intellectual property rights or to determine the validity
and scope of its intellectual property, which could be time consuming and
costly. The Company could also be subject to intellectual property infringement
claims as the numbers of competitors grows. These claims, even if not
meritorious, could be expensive and divert the Company's attention from its
continued operations. If the Company becomes liable to any third parties for
such claims, it could be required to pay a substantial damage award or to
develop comparable non-infringing intellectual property and systems.
The markets in which the Company competes are characterized by rapidly changing
technology, evolving technological standards in the industry, frequent new
websites, services and products and changing consumer demands. The Company's
future success will depend on its ability to adapt to these changes and to
continuously improve the performance, features and reliability of its service as
compared to competitive services and products and the evolving demands of the
marketplace, which it may not be able to do. In addition, the widespread
adoption of new Internet, networking or telecommunications technologies or other
technological changes could necessitate that the Company incur substantial
expenditures to modify or adapt its services or infrastructure, which might
impact its ability to become or remain profitable.
The Company anticipates that it will be necessary to continue to invest in and
continue to develop the TAME software on a timely basis to maintain its
competitiveness. Significant capital expenditures may be required to keep its
technology up to date. Investments in technology and future investments in
upgrades and enhancements to software may not necessarily maintain the Company's
competitiveness. The Company's business is highly dependent upon its computer
and software systems, and the temporary or permanent loss of such equipment or
systems, through casualty, operating malfunction or otherwise, could have a
materially adverse effect upon the Company.
In connection with the continued expansion and success of the operations of
VirtualSellers.com, there are a number of factors which could have an adverse
effect on the Company's ability to generate revenue and continue such
operations. Continued use of the Internet as a way of carrying on business is
crucial to the continued success of VirtualSellers.com. The Company's success
is dependent upon achieving significant market acceptance of its website,
products and services by business who want to retain their products and services
over the internet. It cannot guarantee that such businesses will accept
VirtualSellers.com, or even the Internet, as a replacement for traditional
methods of retailing their products and services. Market acceptance of
VirtualSellers.com depends upon continued growth in the use of the Internet
generally and, in particular, as a method of business selling and retailing
their products. The Internet may not prove to be a viable channel for these
services because of inadequate development of necessary infrastructure, such as
reliable network backbones, or complimentary services, such as high-speed modems
and security procedures for the transmission of confidential and private
information, the implementation of competitive technologies, government
regulation or other reasons. Failure to achieve and maintain market acceptance
of VirtualSellers.com would seriously harm the Company's business.
The revenues expected to be generated by the operation of the CallCenter and
CallDirect could be affected by a number of factors, which could have an adverse
effect on the Company's ability
<PAGE>
to generate revenue and on its continued operations. Those factors include:
any changes in the demands for the services offered by the Call Center or the
products offered by CallDirect, the loss of any significant clients of either
the Call Center or CallDirect, increased competition in either of these
industries, any problems encountered with the Call Center's sophisticated and
specialized telecommunications, network and computer technology.
ITEM 3 Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
On August 24, 2000, an Agreed Order of Dismissal (with prejudice) was entered in
the Circuit Court of Cook County, Illinois, as a result of which the First
Berman Lawsuit (as reported in the Company's Form 10-Q filed July 14, 2000) was
settled. The settlement does not require that the Company pay any consideration
to Mr. Berman; however, Mr. Berman retains the 250,000 shares issued on August
11, 1999, which were the subject of both the First Berman Lawsuit and the Second
Berman Lawsuit.
On September 6, 2000, a Consent Dismissal Order was entered in the Supreme Court
of British Columbia, as a result of which the Second Berman Lawsuit (as reported
in the Company's Form 10-Q filed July 14, 2000) was settled. The 250,000 shares
retained by Mr. Berman with respect to the First Berman Lawsuit form part of a
global settlement of both the First Berman Lawsuit and the Second Berman
Lawsuit.
To the Company's knowledge, no lawsuits were commenced against the Company
during the quarter ended August 31, 2000, nor did the Company commence any
lawsuits during the same period.
ITEM 2 Changes in Securities and Use of Proceedings
Recent Sales of Unregistered Securities
During the quarter ended August 31, 2000, the Company issued the following
securities, none of which were registered under the Securities Act of 1933 (the
"1933 Act"):
On June 8, 2000, the Company issued 30,000 common shares at a deemed price of
$2.50 per common share to a single accredited individual investor. The
transaction was private in nature and the Company had reasonable grounds to
believe that the investor was accredited, capable of evaluating the merit and
risks of his investment and acquired the shares for investment purposes.
Accordingly, the Company issued the shares relying on Rule 506 of Regulation D
of the 1933 Act.
On June 12, 2000, the Company issued an aggregate of 1,693,340 common shares at
a deemed price of $2.50 per common share to the following investors (4
unaccredited investors, 38 accredited investors). The transaction was private
in nature, and with respect to the accredited investors, the Company had
reasonable grounds to believe that the investors were accredited,
<PAGE>
capable of evaluating the merits and risks of their investment and acquired
their shares for investment purposes. With respect to the unaccredited
investors, the Company provided the information required by Regulation D.
Accordingly, the Company issued the shares relying on Rule 506 of Regulation D
of the 1933 Act as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES NAME AND ADDRESS NUMBER OF SHARES
========================== ========================== ======================= =====================
<S> <C> <C> <C> <C>
Raymond Frankel
c/o Glickenhaus & Co . . . Ronald and Judith Cipriani
6 East 43rd Street . . . . 20 Lake Katherine Drive
New York, NY 10017 . . . . 70,000 Palos Heights IL 60463 35,000
VS Technology
c/o Glickenhaus & Co . . . Louis I. Lang
6 East 43rd Street . . . . 1E Wacker Drive - #3400
New York, NY 10017 . . . . 70,000 Chicago, IL 60601 28,000
Science Participants
c/o Glickenhaus & Co . . . Alexander Shafernich
6 East 43rd Street . . . . 1932 De Cook Avenue
New York, NY 10017 . . . . 21,000 Park Ridge, IL 60068 40,040
Maria Molinsky . . . . . . Dr. Jeffrey Paul Feffer
51 Lord's Highway E. . . . 561 W. Diversey Parkway
Weston, CT 06883 . . . . . 14,000 #203 Chicago, IL 60614 14,000
John N. Estes III
1440 New York Avenue,. . . Billy L. Cabell
N.W. Washington, D.C.. . . 5417 N. Natchez
20005-2111 40,000 Chicago, IL 60656 20,000
Gary W. Purucker and
Nancy E. Purucker. . . . . Margaret R. Lilly
440 Seaside Lane . . . . . 525 N. Circle
Juno Beach, FL. 33408. . . 15,960 Itasca, IL 60143 20,000
<PAGE>
Wahler, Pecyna & Fleming
Pension Plan
123 W. Madison, Suite. . . John R. Lilly
1700 Chicago, Illinois . . 1532 Forest Drive
60602 10,080 Glenview, IL 60025 34,000
Wahler, Pecyna & Fleming
Profit Sharing Plan
123 W. Madison, Suite. . . Francis Kirby
1700 Chicago, Illinois . . 1294 Fiore Drive
60602 10,080 Lake Forest, IL 60045 20,000
Daniel W. Pecyna
100 W. Monroe. . . . . . . Charles DeFend
Chicago, Illinois. . . . . 988 Esthaers
60603 10,080 Nashville, IL 62263 70,000
Mark A. Schweihs . . . . . Sarah A. Thewes
306 E. Van Buren . . . . . 1447 Old Salem Ct.
Elmhurst, IL 60126. . . . 100,000 Birmingham, MI 48009 10,000
Gary L. Avril. . . . . . . John K. Howey
813 S. Quincy. . . . . . . 22333 Allen Road
Hinsdale, IL 60521 . . . . 42,000 Woodhaven, MI 48183 10,000
Steven A. Maril. . . . . . Robert J. Howey
1315 Cheswick Court. . . . 2945 Riverside Drive
Wheeling, IL 60090 . . . . 14,000 Trenton, MI 48183 10,000
Charles O. Howey Jr.
WillStar L.L.C.. . . . . . 22333 Allen Road
3115 Ridge Road. . . . . . Woodhaven, MI
Lansing, IL 60438 . . . . 40,000 48183 20,000
John T. Malone . . . . . . Gregory A. Applin
552 N. Garfield Ave. . . . 227 Orchard Drive
Hinsdale, IL 60521. . . . 80,000 Monroe, MI 48162 5,000
Kenneth Weiss. . . . . . . Gregory A. Applin
961 Stonegate. . . . . . . 227 Orchard Drive
Highland Park, IL 60035 . 123,500 Monroe, MI 48162 10,000
Lou Weisbach
c/o Halo . . . . . . . . . Patrick D. Applin
5980 W. Touhy Avenue . . . 436 Godfroy Avenue
Niles, IL 60714. . . . . . 35,000 Monroe, MI 48162 5,000
<PAGE>
Dr. Russell Young. . . . . Gregory H. Montgomery
210 Plush Mill Road. . . . 106 Flag Point Drive
Wallingford, PA 19086 . . 30,800 Roscommon, MI 48653 44,000
Alfred G. Yates Jr. and
Barbara L. Yates . . . . . Paul N. Howey
8 Green Brier Drive. . . . 22333 Allen Road
Allison Park, PA 15101 . 22,400 Woodhaven, MI 48183 100,000
Briar Partners
Donald R. Gordon . . . . . 535 Madison Avenue
720 MacDade Blvd.. . . . . 15th Floor
Folsom, PA 19033. . . . . 42,000 New York, NY 10022 70,000
Steven Paul Braff. . . . . Jennifer Cherney
10 Dish Lane . . . . . . . 1 Lincoln Plaza, #37-0
Stowe, VT 05672 . . . . . 175,000 New York, NY 10023 70,000
Bruce A. Godick D.M.D.
Gil Sacher . . . . . . . . and Judith M. Godick
176 E. 71st Street, #16D . 304 Colonial Drive
New York, NY 10021 . . . . 35,000 Wallingford, PA. 19086 22,400
Steven J. Mitchell
165 E. 66th Street - #16A
New York, NY 10021. . . . 35,000
</TABLE>
On June 19, 2000, the Company issued an aggregate of 50,000 common shares to a
director of the Company pursuant to the terms of a Release and Settlement
Agreement in connection with the acquisition of certain assets of CallDirect
Enterprises, Inc. The 50,000 common shares were issued in an offshore
transaction relying on Regulation S promulgated under the 1933 Act.
On June 28, 2000, the Company issued an aggregate of 145,000 common shares to
twelve employees (all unaccredited investors) of the Company. The shares were
issued as "bonus shares" in recognition of past services performed by the
employees. The transaction was private in nature and the Company provided each
employee with the information required by Regulation D of the 1933 Act, and
accordingly issued the bonus shares relying on Rule 506 of Regulation D.
On July 20, 2000, the Company issued an aggregate of 25,000 common shares in an
offshore transaction relying on Section 4(2) and Regulation S promulgated under
of the 1933 Act to one employee in consideration of past services rendered by
the employee to the Company.
On July 26, 2000, the Company issued an aggregate of 100,000 common shares to
one unaccredited employee in consideration of past services rendered by the
employee to the Company. The Company provided the information required by
Regulation D of the 1933 to the employee, and accordingly issued the shares
relying on Rule 506 of Regulation D.
<PAGE>
On July 26, 2000, the Company issued an aggregate of 33,405 common shares at a
deemed price of $0.50 per common share in an offshore transaction relying on
Regulation S promulgated under the 1933 Act to a former creditor of CallDirect
Enterprises, Inc., which indebtedness was assumed and settled by the Company as
part of its earlier acquisition of certain assets of CallDirect Enterprises,
Inc.
On July 28, 2000, the Company entered into Stock Option Agreements with the
following directors, officers or key employees of the Company:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
TO PURCHASE COMMON
NAME OF OPTIONEE SHARES EXERCISE PRICE EXPIRATION DATE
---------------- ------------------ --------------- ---------------
<S> <C> <C> <C>
Dennis Sinclair. 1,000,000 $ 1.31 July 28, 2010
------------------ --------------- ---------------
Kevin Wielgus. . 1,000,000 $ 1.31 July 28, 2010
------------------ --------------- ---------------
Everett Palmer . 500,000 $ 1.31 July 28, 2010
------------------ --------------- ---------------
TOTAL OPTIONS. . 2,500,000
---------------- ------------------
</TABLE>
On August 31, 2000 the Company granted 1,000,000 options to purchase common
shares to one of its directors, Pierre Prefontaine. The options granted to Mr.
Prefontaine are exercisable at a price of $1.31 per share and expire on August
31, 2010. The options were issued in an offshore transaction relying on Section
4(2) and Regulation S promulgated under the 1933 Act.
Shares Returned to Treasury
On June 14, 2000, the Company issued, returned to treasury and cancelled 121,167
common shares registered to Universal Electronic Marketing Inc. ("Universal"),
as the Company chose not to proceed with a transaction which contemplated the
issuance of the said 121,167 common shares to Universal.
On June 14, 2000, the Company returned to treasury and cancelled an aggregate of
1,550,000 common shares registered to certain of its directors, which had been
issued as compensation for their contributions to the Company. Following a
change in the Company's policy with respect to the compensation of its officers
and directors, the 1,550,000 common shares were returned to treasury and
cancelled. The Company approved this return to treasury effective May 25, 2000.
ITEM 3 Defaults Upon Senior Securities
Not applicable.
<PAGE>
ITEM 4 Submission of Matters To A Vote Of Security Holders
The Company held its Annual General Meeting on August 4, 2000 (the "AGM"). Of
the 127,131,127 common shares outstanding at the Record Date (June 23, 2000),
94,003,044 common shares (73.9%) were represented at the AGM, either in person
or by proxy.
At the AGM, it was resolved that:
(a) the number of directors of the Company be set at five (5);
(b) Dennis Sinclair, Mel Baillie and Grayson Hand continue as directors
of the Company for the ensuing year, to hold office until the next
annual general meeting;
(c) Raymond Mol be elected as a director of the Company for the ensuing
year, to hold office until the next annual general meeting;
(d) the Company's 2000 Stock Option Plan be approved; and
(e) KPMG LLP, Chartered Accountants be appointed as auditors of the
Company to hold office until the close of the next annual general
meeting and the Company be authorized to fix the remuneration to
be paid to the auditor.
The following table sets forth each matter voted on at the AGM, and the number
of votes cast for, against or withheld, and the number of abstentions and
non-votes:
<TABLE>
<CAPTION>
MATTER VOTED UPON IN FAVOR AGAINST WITHHELD ABSTAIN NON-VOTES
---------------------- ---------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Number of Directors. . 93,053,847 700,973 0 248,224 0
---------- --------- -------- ------- ---------
Dr. Dennis Sinclair
(director) . . . . . . 93,435,272 0 293,896 273,876 0
---------- --------- -------- ------- ---------
Mel Baillie (director) 93,361,857 0 367,311 273,876 0
---------- --------- -------- ------- ---------
Grayson Hand
(director) . . . . . . 93,358,035 0 371,133 273,876 0
---------- --------- -------- ------- ---------
Raymond Mol
(director) . . . . . . 93,160,088 0 569,080 273,876 0
---------- --------- -------- ------- ---------
2000 Stock
Option Plan. . . . . . 92,128,058 1,449,014 0 425,972 0
---------- --------- -------- ------- ---------
KPMG LLP
(as auditors
and compensation for). 93,545,750 0 194,470 262,824 0
---------------------- ---------- --------- -------- ------- ---------
</TABLE>
<PAGE>
ITEM 5 Other Information
On August 25, 2000, Pierre Prefontaine was appointed to the Board of Directors
of the Company. Mr. Prefontaine was previously a director of the Company
(between November 14, 1996 and May 5, 1999). Mr. Prefontaine obtained
certificates of Business Administration and Communication Electronics from the
Southern Alberta Institute of Technology, and has over 20 years' experience in
the telecommunications industry. Mr. Prefontaine is currently employed by
Sprint Canada Inc. as an Account Manager, a position he has held since 1999.
Mr. Prefontaine is the founder of three telecommunications companies:
Consolidated Technologies Inc. and Whistler Telephone Company Ltd. in 1989 and
Tricor Telemanagement Inc. in 1987.
ITEM 6 Exhibits and Reports on Form 8-K
Reports on Form 8-K
On June 15, 2000, the Company filed a Current Report on Form 8-K with respect to
the acquisition of assets owned by Sullivan Park LLC ("Sullivan Park").
Pursuant to an Asset Purchase Agreement (the "Asset Purchase Agreement") dated
for reference May 19, 2000, between the Company, Sullivan Park and Edward W.
Sharpless ("Sharpless"), the Company acquired all of the property, assets and
undertakings of the internet services development business carried on by
Sullivan Park. The closing date of the Asset Purchase Agreement, as agreed by
the parties, was June 1, 2000.
On August 25, 2000, the Company filed a Current Report on Form 8-K/A attaching
the Audited Financial Statements of Sullivan Park, as at December 31, 1999 and
1998, and from the date of incorporation on August 28, 1998 to December 31,
1998, the unaudited interim financial statements of Sullivan Park as at May 31,
2000 and for the five months ended May 31, 1999 and 2000, and the pro forma
balance sheets as at May 31, 2000 and pro forma Statement of Operations for the
year ended February 28, 2000 and for the three months ended May 31, 2000.
Exhibits
Exhibit
Number Exhibit Title
------ --------------
3 Articles of Incorporation and Bylaws
(The following exhibits are incorporated by reference into this Form 10-Q from
reports previously filed by the Company with the Securities and Exchange
Commission)
3.1 Certificate of Continuance, dated January 11, 1991
3.2 Certificate of Amendment, dated June 14, 1995
3.3 Certificate of Amendment, dated September 14, 1995
<PAGE>
3.4 Certificate of Amendment, dated December 22, 1995
3.5 Certificate of Amendment, dated March 23, 1999
3.6 Certificate of Amendment, dated May 31, 1999
3.7 Certificate of Amendment, dated July 18, 1997
3.8 By-laws of the Company
10 Material Contracts
10.1 Asset Purchase Agreement between the Company and Sullivan Park
LLC, dated for reference May 19, 2000 (closing date June 1, 2000)
(incorporated by reference from the Company's Form 8-K filed
on June 15, 2000)
10.2 Incubation Services Agreement between the Company and Sullivan
Park LLC, dated June 16, 2000
27 Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VIRTUALSELLERS.COM, INC.
By: /s/ Dennis Sinclair
Dennis Sinclair, President/Director
Date: October 16, 2000
By: /s/ Ray Mol
Ray Mol/Director
Date: October 17, 2000
By: /s/ Pierre Prefontaine
Pierre Prefontaine/Director
Date: October 16, 2000
By: /s/ Kevin Wielgus
Kevin Wielgus/Secretary
Date: October 16, 2000
