SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
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.)
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 who beneficially own more than 5% of its common stock
(giving effect to the exercise of the warrants held by each such person or
entity):
Number of shares of Percent of
Common Stock Common Stock
Name Beneficially Owned Beneficially Owned (1)
Elwin D. Cathcart 9,270,000(2) 48.7%
President, Chairman, Chief
Executive Officer and Chief
Financial Officer
1400 Dixie Road
Mississauga, Ontario
Canada L5E 3E1
2
Gang Chai 1,048,502(3) 5.5%
Director, Chief Operating Officer
89 Drewry Avenue
Toronto, Ontario
Canada M2M 1E1
David Smelsky 685,000(4) 3.4%
Director, Secretary
RR#4
Rockwood, Ontario
Canada N0B 2K0
Thomas Roberts 500,000(5) 2.6%
Director
P.O. Box 128
Fayette AL 35555
Rouge-Mountain Corp. 1,399,992 5%
13065 Riverdale Drive NW
Coon Rapids, MN 55448
Forte Management Corp. 2,475,000(6) 13%
Buckingham Square, Penthouse
West Bay Road, SMB
P.O. Box 1159GT
West Bay Road, SMB
Grand Cayman, Cayman Islands, BWI
Paul D. Winters 2,083,333 10.9%
109 E. Lancaster Avenue
Downington, PA 19335
Charles He 1,274,000(7) 6.7%
56 Temperance Street
Suite 501
Toronto, Ontario
M5H 3V5
(1) The following percentages are based upon 19,035,268 shares of the
Company's common stock outstanding.
(2) This figure includes 7,900,000 common shares owned by Groupmark
Canada Limited
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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
common shares granted to Elwin D. Cathcart at a strike 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 preference shares of China eMall
Corporation that are exchangeable on a one for one basis into common
shares of VHSN.
(4) This figure includes options to purchase 250,000 common shares
granted to Mr. Smelsky at a strike price of $0.35 per shares until
December 31, 2000 and options to purchase 250,000 common shares at a
strike 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 includes 1,225,000 share purchase warrants to purchase up to
1,225,000 shares of common stock of the Company and 550,000 shares
of common stock.
(7) This consists of conversion privileged into 1,274,000 shares of
common stock.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a)The consideration exchanged pursuant to the Acquisition Agreement
was negotiated 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
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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 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. 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 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 $890,000 US. 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.
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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.
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 $809,000 pursuant to this offering.
A copy of the Private Placement Offering Materials is filed as an
exhibit to this Form 8-K 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 were 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 and is incorporated in its entirety by reference.
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
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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.
China eMall Corporation ("China eMall"). Through its recently 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., the "Wal
Mart" of China, as its prime product supplier. With the tremendous resources and
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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 business goals:
1. To provide an online business to business portal for both the
suppliers and purchasers to engage in direct business
communications and transactions
2. To provide the much more critical assistance to both the
suppliers and purchasers to complete the business
transactions;
3. To offer various China based services to western customers;
and
4. To create a market place for China-related goods that can
attract a broad range of companies for advertisement.
o Market
China is one of the largest economies in the world. It is a
huge market for export of consumer goods and services. International trade has
mushroomed during the last decades since China began its economic reform and
started open door policy to foreign economies. Revenue from export is as much as
200 billion US dollars last year. The Company believes capturing a piece of the
export market could transfer into tremendous economic value.
o History
China eMall was established by Dr. Gang Chai, and two partners, Dr.
Charles He, a computer expert, and Ms. Qing Wang, a veteran Chinese
businesswoman, and incorporated in February of 1999. In April 1999, the initial
eMall website, based on a software platform, Intershop, was built and began test
functioning. In May 1999, Dr. Chai made initial contact to Wanfujing Dept. Store
Group Ltd., for business cooperation and received a welcoming response. Other
manufacturers were also contacted and 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-sampling, scanning and data inputting. An upgraded
version of China eMall website was built. China eMall began to contact more
suppliers and broaden its product lines. In November 1999, China eMall
introduced services to its product line and was planning to emphasize the
services part in the future. On February 12, 2000, VHSN acquired China eMall
pursuant to a share exchange arrangement.
o Products and Services
Manufactured goods:
China eMall offers a complete spectrum of products from various
sectors. They are presented in two ways. One is based on the nature of products
under different categories. Another is based on specific companies that appear
as in trade show format. The home page shows products in 20 categories, such as
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, Textile, Silk, and Toys.
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Internet Services:
One distinctive feature of China eMall business mode is that
the company offers a broad line of China based services such as high tech
projects, legal services, translation services, etc. The service part will be
the main emphasis of China eMall's product offering and revenue generator. The
following shows the services available at present:
Business Information Services
Macro- and micro- economy of China
Update of various sectors of industry and business opportunities
Special industrial reports for individual companies
Posting of government services Government policies, laws and
regulations Update of the changes of government's
administration system Investment projects from
various levels of government Engineering projects
from various levels of government Other available
projects from the government
Professional services
Construction and Engineering services for projects abroad
Business consulting for western companies
Technical and labor exchange, including providing
technical personnel and
skillful workers
Financial services
Services for companies to get listed in foreign stock exchanges
Financing, including stocks and loans, training of financial
personnel
Other services
Traveling services for both Chinese and Foreigners
Immigration
Studying abroad
Investment abroad
o Business Strategy
China eMall's management intends to establish a major e-commerce center to link
China and Western business markets in the following strategies:
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Short Term:
* Select entry products from brand suppliers as a base for the initial
establishment. Outsourcing exporting duties to suppliers and importing
job to importing agencies. China eMall will mainly coordinate the
process in order to better fulfilling its supply side of objective. The
Company believes that this will ensure the variety and quality of goods
and timely delivery of products to customers.
*Building up marketing and sales infrastructure by establishing a sales
force and by acquiring a few existing exporting business for the
initial sale and customer base, as well as expertise in related fields.
China eMall will expand the sales side by providing wider ranges of
products in each category, streamline the exporting importing process,
and marketing and sales infrastructure.
* Identify and establish services that many Western companies are anxious
to access and of immediate values to those companies. At the near
future, China eMall is planning on services like business consulting,
traveling and translation.
* Through active marketing, we try to establish China eMall as a brand
e-commerce name in North America to broaden its viewers.
Long Term:
* Broaden product bases to have a full chain of merchandise for customers
outside of China.
* Increase the proportion of retail purchase. * Expand offering of
services as the company is established and accepted by Western
customers. The company aims to provide most available services to
become a China e-commerce center.
* Start hosting of Chinese business in China eMal s web site by renting
out web space as well as offer web service to provide China eMall's
Chinese tenants with more standard web pages.
o Marketing strategies
China eMall intends to use various marketing channels to build up its
name and obtain market shares for its products and services.
Internet Marketing:
China eMall will actively post its web site to various search engines;
it will also advertise its site in the most popular portals or other
popular web sites to attract the maximum numbers of visitors.
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Business-Business:
Easy to realize at lower costs as there are only limited number of
business compared to individual consumers; marketing can be done
through posting to various business associations or other distributors.
Business-Government
Western government may want to help its companies for China related
business Government may provide special channels for various reasons
Other Channels
The acquisition by VHSN gives China eMall immediate advantage through
broadcasting through news releases Professional marketing companies
will also be hired to do marketing Media: traditional marketing
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.
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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.
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.
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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
1933 pursuant to Rule 504 of Regulation D of the General Rules and Regulations
of the Securities and Exchange Commission. The Company's common stock is 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 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:
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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
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
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.
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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;
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.
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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.
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Compensation Table For 1997 and 1998
Name and
Principle Stock
Position Year Salary Bonus Options
- -------- ---- ------ ----- -------
Elwin D. Cathcart, CEO 1997 $0.00 $0.00 250,000 shares
1998 $0.00 $0.00 750,000 shares
David J. Smelsky, CFO 1997 $0.00 $0.00 250,000 shares
1998 $0.00 $0.00 250,000 shares
Options in Last Two Fiscal Years
Number Exercise or Expiration
Name Securities Options Base Price Date
- ---- ------------------ ---------- ----
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
The Company does not provide any health, dental or life insurance to
its employees.
17
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 the period from January 30, 1999 to September 30, 1999,
the Company experienced a loss from its operations in the amount of $369,568.
The Company experienced a net loss of $2,207,818 on revenues of $794 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'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
18
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.
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.
19
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.
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 48.7% 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.
20
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
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
21
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.
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.
22
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.
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.
23
VHS NETWORK, INC.
Consolidated Balance Sheets
As of December 31,1999 and 1998
1999 1998
----------- -----------
ASSETS
Cash $ 533 $ 18,191
Receivables -- 11,000
Inventory 1,399,992 1,399,992
----------- -----------
Total current assets 1,400,525 1,429.183
----------- -----------
Prepaids and Deposits 67,774 67,774
----------- -----------
Total assets 1,468,299 $ 1,496,957
=========== ===========
LIABILITIES
Accounts payable $ 101,867 $ 40,842
----------- -----------
Accrued expenses
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;
10,429,435 and 10,429,435 issued and outstanding,
respectively 10,429 10,429
Preferred stock; 5,000,000 shares authorized;
none issued or outstanding
Additional paid-in-capital 2,441,663 2,441,663
Accumulated deficit (3,081,528 (2,677,651)
----------- -----------
Total shareholders' equity (629,436) (225.559)
----------- -----------
Total liabilities and shareholders' equity $ 1,468,299 $ 1,496.957
=========== ===========
The accompanying notes are an integral part of these financial statements,
F-2
VHS NETWORK, INC.
Consolidated Statements of Operations
for the years ended December 31,1999 and 1998
1999 1998
------- -------
Income:
Sales $ -- $ --
Cost of goods sold -- --
Gross margin -- --
Operating Expenses:
Agency fees 9,190 21,634
Consulting fees 2,833 53,253
General and administrative 37,686 50,413
Management fees 336,000 672,000
Professional fees 18,168 16,647
Other -- 2,767
Depreciation and amortization
------- -------
Total operating expenses 403,877 816,714
------- -------
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 403,877 816,446
------- -------
Income taxes
Net toss $ 403,877 $ 816,446
========= =========
Net loss per common share -
Basic $ $
========= =========
Net loss per common share -
Diluted $ $
========= =========
The accompanying notes are an integral part of these financial statements.
F-3
VHS NETWORK, INC.
Consolidated Statements or Shareholders' Equity
for the years ended December 31, 1999 and 1998
Common Preferred Additional Accumulated
Stock Stock paid-in-capital Deficit Total
----- ----- --------------- ------- -----
Shares Amount Shares Amount
------ ------ ------ ------
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 -- -- 336,000 -- 338,789
-- -- -- -- (2,789) -- (2,789)
Offering costs
5,000,000 5,000 -- -- 495,000 -- 500,000
Conversion of debt
Acquisition of inventory 1,399,992 1,399 -- -- 1,398,593 -- 1,399,992
Net loss -- -- -- -- -- (816,446) (816,446)
---------- ----------- ----------- ----------- ----------- ----------- ------------
Balance December 31, 1998 10,429,435 10,429 -- -- 2,441,663 (2,677,651) (225,559)
---------- ----------- ----------- ----------- ----------- ----------- ------------
Net foss -- -- -- -- -- (403,877) (403,877)
---------- ----------- ----------- ----------- ----------- ----------- ------------
Balance December 3l, 1999 10,429,435 $ 10,429 -- $ -- $ 2,441,663 $ (3,081,528) $ (629,436)
========== =========== =========== =========== =========== =========== ============
The accompanying notes are an integral part of these financial statements.
F-4
VHS NETWORK, INC.
Consolidated Statements of Cash Flows
for the years ended December 31,1999 and 1998
1999 1998
----------- -----------
Net income (loss) $ (403,877) $ (816,446)
Depreciation and amortization -- --
----------- -----------
Net use of cash from operations $ (403,877) $ (816,446)
----------- -----------
Cash flow from operating activities:
Changes in assets and liabilities
Inventory $ -- $(1,399,992)
Receivables 11,000 (11,000)
Prepaids and deposits -- (67,774)
Accounts payable 61,025 33,668
Accrued expenses -- --
----------- -----------
Cash flow generated by (used in) operating activities $ (331,852) $(2,261,544)
----------- -----------
Cash flow from investing activities:
Net cash generated by (used in) investing activities $ -- $ --
----------- -----------
Cash flow from financing activities:
Borrowings under notes payable $ 314,194 $ 43,685
Notes payable converted to stock -- 500,000
Offering costs -- (2,789)
Inventory acquired for common stock -- 1,399,992
Proceeds from sale of stock -- 338,789
----------- -----------
Net cash generated by (used in) financing activities $ 314,194 $ 2,279,677
(17,658) 18,133
Balance at beginning of year 18,191 58
----------- -----------
Balance at end of year $ 533 $ 18,191
=========== ===========
Supplemental disclosure:
Cash paid for interest $ -- $ --
----------- -----------
Cash paid for taxes $ -- $ --
----------- -----------
The accompanying notes are an integral part of these financial statements.
F-5
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF FEBRUARY 24, 2000
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
--------
PAGE F-1 INDEPENDENT AUDITORS' REPORT
PAGE F-2 BALANCE SHEET AS OF FEBRUARY 24, 2000
PAGE F-3 STATEMENT OF OPERATIONS FOR THE PERIOD FROM FEBRUARY 15, 2000
(INCEPTION) TO FEBRUARY 24, 2000
PAGE F-4 STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY FOR THE PERIOD FROM
FEBRUARY 15, 2000 (INCEPTION) TO FEBRUARY 24, 2000
PAGE F-5 STATEMENT OF CASH FLOWS FOR THE PERIOD FROM FEBRUARY 15, 2000
(INCEPTION) TO FEBRUARY 24, 2000
PAGES F-6-F-8 NOTES TO FINANCIAL STATEMENTS AS OF FEBRUARY 24, 2000
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of:
Exodus Acquisition Corporation
(A Development Stage Company)
We have audited the accompanying balance sheet of Exodus Acquisition Corporation
(a development stage company) as of February 24, 2000 and the related statement
of operations, changes in stockholder's equity and cash flows for the period
from February 15, 2000 (inception) to February 24, 2000. 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 audit 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 financial statements referred to above present fairly in all
material respects, the financial position of Exodus Acquisition Corporation (a
development stage company) as of February 24, 2000, and the results of its
operations and its cash flows for the period from February 15, 2000 (inception)
to February 24, 2000 in conformity with generally accepted accounting
principles.
By:/s/Weinberg & Company, P.A.
------------------------------
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
February 29, 2000
F-1
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF FEBRUARY 24, 2000
-----------------------
2
ASSETS
------
Cash $ 2,000
-------
TOTAL ASSETS $ 2,000
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Accounts payable $ 750
-------
STOCKHOLDER'S EQUITY
Common Stock, no par value, 50,000,000
shares authorized, 5,000,000 issued
and outstanding 2,000
Additional paid-in capital 358
Deficit accumulated during development stage (1,108)
-------
Total Stockholder's Equity 1,250
-------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,000
=======
See accompanying notes to financial statements
F-2
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
-----------------------
February 15, 2000
(Inception) to February
24, 2000
--------
Income $ --
Expenses
Legal fees 750
Organization expense 358
----------
Total expenses 1,108
----------
NET LOSS $ (1,108)
==========
LOSS PER SHARE - BASIC AND DILUTED $ (0.0002)
==========
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC AND
DILUTED 5,000,000
==========
See accompanying notes to financial statements
F-3
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM FEBRUARY 15, 2000 (INCEPTION)
TO FEBRUARY 24, 2000
--------------------
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING
ISSUED PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
--------- --------- --------- --------- ---------
Common Stock Issuance 5,000,000 $ 2,000 $ -- $ -- $ 2,000
Fair value of expenses contributed -- -- 358 -- 358
Net loss for the period ended
February 24, 2000 -- -- -- (1,108) (1,108)
--------- --------- --------- --------- ---------
BALANCE, FEBRUARY 24, 2000 5,000,000 $ 2,000 $ 358 $ (1,108) $ 1,250
========= ========= ========= ========= =========
See accompanying notes to financial statements
F-4
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
-----------------------
February 15, 2000
(Inception) to February
24, 2000
--------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (1,108)
Adjustment to reconcile net loss to
net cash used by operating activities
Increase in accounts payable 750
Capitalized expenses 358
------
Net cash used by operating activities --
------
CASH FLOWS FROM INVESTING
ACTIVITIES --
------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock 2,000
------
Net cash provided by financing activities 2,000
------
INCREASE IN CASH AND CASH
EQUIVALENTS 2,000
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD --
------
CASH AND CASH EQUIVALENTS - END OF
PERIOD $ 2,000
======
See accompanying notes to financial statement.
F-5
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF FEBRUARY 24, 2000
-----------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A Organization and Business Operations
---------------------------------------
Exodus Acquisition Corporation (a development stage company)
("the Company") was incorporated in California on February 15,
2000 to serve as a vehicle to effect a merger, exchange of
capital stock, asset acquisition or other business combination
with a domestic or foreign private business. At February 24,
2000, the Company had not yet commenced any formal business
operations, and all activity to date relates to the Company's
formation and proposed fund raising. The Company's fiscal year
end is December 31.
The Company's ability to commence operations is contingent
upon its ability to identify a prospective target business and
raise the capital it will require through the issuance of
equity securities, debt securities, bank borrowings or a
combination thereof.
B Use of Estimates
-------------------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
C Cash and Cash Equivalents
----------------------------
For purposes of the statement of cash flows, the Company
considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents.
D Earning per Share
--------------------
Net loss per common share for the period from February 15,
2000 (inception) to February 24, 2000 is computed based upon
F-6
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF FEBRUARY 24, 2000
-----------------------
the weighted average common shares outstanding as defined be
Financial Accounting Standards No. 128 "Earnings Per Share".
There were no common stock equivalents outstanding at February
24, 2000.
E Income Taxes
--------------
The Company accounts for income taxes under the Financial
Accounting Standards Board of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("Statement 109").
Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. There were no current or deferred income tax
expense or benefits due to the Company not having any material
operations for the period ended February 24, 2000.
NOTE 2 STOCKHOLDER'S EQUITY
----------------------------
A Common Stock
--------------
The Company is authorized to issue 50,000,000 shares of common
stock with no par value. The Company issued 5,000,000 shares
of its common stock to BAC Consulting Corporation ("BAC") for
an aggregate consideration of $2,000.
B Additional Paid-In Capital
----------------------------
Additional paid-in capital at February 24, 2000 represents the
fair value of the amount of organization costs incurred by BAC
on behalf of the Company. (See Note 3)
F-7
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF FEBRUARY 24, 2000
-----------------------
NOTE 3 AGREEMENTS
-----------------
(A) Consulting
--------------
On February 24, 2000, the Company signed an agreement with
BAC, a related entity (See Note 4). The Agreement calls for
BAC Consulting Corporation to provide the following services,
without reimbursement from the Company, until the Company
enters into a business combination as described in Note 1A:
1. Preparation and filing of required documents with the
Securities and Exchange Commission.
2. Location and review of potential target companies.
3. Payment of all corporate, organizational, and other costs
incurred by the Company.
(B) Legal
On February 21, 2000, the Company signed an agreement with
Boyd and Chang, LLP, a related entity (see Note 4). The
agreement calls for Boyd and Chang, LLP to provide legal
services at standard rates and provide secretarial and office
support at a flat rate of $250 per month.
NOTE 4 RELATED PARTIES
-----------------------
Legal counsel to the Company is a firm owned by the directors
of the Company who also owns a controlling interest in the
outstanding stock of BAC. (See Note 3)
F-8
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
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(b) Exodus Acquisition Financial Statements
99.1 Form 10SB of Exodus Acquisition Corporation (File No. 33-0893488).
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*To be filed by amendment
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant 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
Date: January 12, 2000
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