U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
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: 0-20277
WSN GROUP, INC.
(Exact name of Registrant as specified in its charter)
Nevada 11-2872782
(State or jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
1530 Brookhollow Drive, Suite C, Santa Ana, California 92705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (714) 427-0760
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $0.001 Par Value; Class A Warrants; Class B Warrants; Units
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) been subject to such filing requirements for the past 90 days.
Yes No X.
As of September 30, 2001, the Registrant had 33,375,202 shares of
common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 30, 2001 3
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURE 18
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCAL STATEMENTS.
WSN GROUP, INC.
(Formerly Known as World Shopping Network, Inc.)
Consolidated Balance Sheet
September 30, 2001
(Unaudited)
ASSETS
Current Assets
Cash $ 4,424
Accounts Receivable 41,440
Prepaid Expenses 5,997
Total Current Assets 51,861
Property and Equipment, Net 57,526
Other Assets
Restricted Cash 481,843
Investments - Marketable Equity Securities 36,000
Total Other Assets 517,843
Total Assets 627,230
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 69,385
Notes Payable 124,000
Accrued Interest Payable 8,332
Accrued Income Taxes 800
Related Party Advances 0
Total Current Liabilities 202,517
Stockholders' Equity
Common Stock: $0.001 Par Value;
Authorized Shares, 500,000,000;
Issued and Outstanding, 33,375,202 33,375
Additional Paid In Capital 2,361,245
Retained Earnings (A Deficit) (1,965,907)
Accumulated Other Comprehensive Loss (4,000)
Total Stockholders' Equity 424,713
Total Liabilities and Stockholders' Equity 627,230
See notes to condensed financial statements.
WSN GROUP, INC.
(Formerly Known As World Shopping Network, Inc.)
Consolidated Statements Of Operations
(Unaudited)
For The Three For The Three
Months Ended Months Ended
September 30 September 30
2001 2000
Service and Fee Income $ 128,301 $ 24,190
Cost of Sales 57,504 0
Gross Profit 70,797 24,190
Selling, General and Administrative Expenses (104,407) (848,162)
Operating Loss (33,610) (823,972)
Other Income (Expense)
Interest Income 4,000 3,000
Interest Expense (1,972) (4,500)
Total Other Income (Expense) 2,028 (1,500)
Net Loss (31,582) (825,472)
Basic Loss Per Common Share (0.001) (0.04)
Basic Weighted Average Common Shares
Outstanding 33,288,246 22,353,920
See notes to condensed financial statements.
WSN GROUP, INC.
(formerly known as World Shopping Network, Inc.)
Consolidated Statements of Cash Flows
(Unaudited)
For The Three For The Three
Months Ended Months Ended
September 30 September 30
2001 2000
Cash Flows From Operating Activities
Net Loss $ (31,582) $ (825,472)
Adjustments to Reconcile Net
Loss to Net Cash Used
By Operating Activities
Depreciation 6,666 2,500
Common Stock Issued For Services 9,600 762,400
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (30,714) (4,382)
(Increase) Decrease in Prepaid Expenses and
Other Current Assets 1,357 0
Increase (Decrease) in
Accounts Payable and Accrued Expenses 2,327 8,215
Total Adjustments (10,764) 768,733
Net Cash Provided By (Used In)
Operating Activities (42,346) (56,739)
Cash Flows From Investing Activities
Purchase of Property and Equipment (3,752) (2,748)
Increase in Restricted Cash (4,000) (3,000)
Net Cash Used In Investing Activities (7,752) (5,748)
Cash Flows From Financing Activities
Decrease in Checks Issued in excess of Cash (5,478) 0
Proceeds From Notes Payable 60,000 55,067
Net Cash Provided By (Used In)
Financing Activities 54,522 55,067
Increase (Decrease) in Cash and Cash Equivalents 4,424 (7,420)
Cash and Cash Equivalents, Beginning of Period 0 9,620
Cash and Cash Equivalents, End of Period 4,424 2,200
See notes to condensed financial statements.
WSN GROUP, INC.
(formerly known as World Shopping Network, Inc.)
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 1 - STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with Form 10-QSB instructions, and in
the opinion of management, contains all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the
consolidated financial position as of September 30, 2001, the
consolidated results of operations for the three months ended
September 30, 2001, and the consolidated statements of cash flows for
the three months ended September 30, 2001. These results have been
determined on the basis of generally accepted accounting principles
and practices and applied consistently with those used in the
preparation of the Company's 2001 Annual Report on Form 10-KSB.
Certain information and footnote disclosure normally included in the
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that the accompanying consolidated financial statements be read in
conjunction with the accompanying consolidated financial statements
and notes thereto incorporated by reference in the Company's 2001
Annual Report on Form 10-KSB.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Certain accounts from prior periods have been reclassified to conform
to the current period's presentation. These changes have no effect on
previously reported results of operations or total stockholders' equity.
Consolidation. The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries,
Growth Net, Inc. and SDR Information Services, Inc. Intercompany
transactions have been eliminated in the consolidation.
NOTE 3 - ACQUISITION AND COMMON STOCK
In connection with the Asset Purchase Agreement dated June 22, 2001
with Tuoc Bui dba System Design and Repair ("SDR"), as well as the
related Escrow Agreement, the Company agreed to pay 4,500,000 shares
of restricted common stock, to be held in escrow, with 900,000 shares
released every year for five years issuable upon the performance of
the business. Accordingly, when the outcome of the contingency is
determinable, the respective shares will be issued at the fair value
of the common stock on the date of issuance and recorded as an
additional cost of SDR, or goodwill. The operations of SDR were
merged into the Company's inactive subsidiary, World Shopping Network,
Inc., a California corporation, and the name was changed to SDR
Information Services, Inc. ("SDRIS") on September 7, 2001.
Results of operations for the three months ended September 30, 2001
include three months of activity for SDRIS. The results of operations
on a pro forma basis for the three months ended September 30, 2000
would have reflected the following had the companies combined at the
beginning of that period:
Company - System Design and Repair
Pro-forma Statement of Operations
Quarter Ended September 30, 2001
SDR Company Total
Revenue 80,228 24,190 104,418
Selling, General, and Administrative 47,028 89,075 136,103
Depreciation - 2,500 2,500
33,200 (67,385) (34,185)
Interest Income - 3,000 3,000
Interest Expense - (4,500) (4,500)
Income before taxes 33,200 (68,885) (35,685)
State income tax - 800 800
Net Loss 33,200 (69,685) (36,485)
Loss per share 0.0015 (0.0031) (0.0016)
NOTE 4 - PRIOR INTERIM ADJUSTMENT
Common stock issued for services during the three months ended
September 30, 2000 was valued at par value ($0.001) instead of the
fair market value at the date of issuance. Accordingly, net loss for
the three months ended September 30, 2000 was adjusted to reflect the
additional net loss for the quarter of $755,787, which resulted in an
adjusted net loss per share amount of $0.04.
NOTE 5 - EARNINGS PER SHARE
Earnings (loss) per share of common stock is computed by dividing the
net loss (numerator) for the period by the weighted average number of
common shares outstanding (denominator) during the period. Diluted
earnings or loss per share are based on the weighted average number of
common shares outstanding and dilutive common stock equivalents. All
per share information is adjusted retroactively to reflect stock
splits and changes in par value, when applicable. All loss per share
amounts in the financial statements are basic loss per share.
NOTE 6 - FINANCIAL RESULTS AND LIQUIDITY
To date, the Company has not been profitable. The Company faces all
the risks common to companies in their early stages of development,
including undercapitalization and uncertainty of funding sources, high
initial expenditure levels, uncertain revenue streams, and
difficulties in managing growth. The Company's recurring losses raise
substantial doubt about its ability to continue as a going concern.
The Company's financial statements do not reflect any adjustments that
might result from the outcome of this uncertainty. The Company
expects to incur losses as it expands its businesses and will require
additional funding during the fiscal year ended June 30, 2002. The
satisfaction of our cash requirements hereafter will depend in large
part on the Company's ability to successfully raise capital from
external sources to pay for planned expenditures and to fund
operations. The Company does not expect that sufficient cash will be
generated from operations to fund our growth for the foreseeable
future. As a result, the Company expects to aggressively pursue
additional sources of funds in the form of the sale of common stock
pursuant to the Company's Form SB-2 offering or loans from
shareholders, if necessary.
The Company continually seeks to find other companies that are suited
for merger into our Company. The board of directors of the Company
does consider such offers and would consider all of the terms of any
such offer as part of its fiduciary duty to determine whether any such
transaction is in the best interest of the Company's stockholders. If
the Company's board of directors does determine that a merger of the
Company is in the best interests of the Company's stockholders, the
board of directors may determine to pursue such a transaction and the
consideration to be paid in connection with such transaction would be
used to expand the Company's business and fund future operations. The
Company cannot provide assurance that it will be able to raise funds
through a sale or equity transaction, or if such funding is available,
that it will be on favorable terms. The Company's common stock is
currently traded on the Over-the-Counter Bulletin Board.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations.
(a) Revenues.
The Registrant generated $128,301 in revenues for the three
months ended September 30, 2001 versus $24,190 for the same period in
2000. This increase of $104,111 is directly attributable to the merger
of SDR Information Services, Inc. (formerly known as System Design and
Repair), which provides network and internet solutions for both
hardware and software, as well as providing consulting, integration,
documentation and management framework to the end user.
(b) Selling, General and Administrative Expenses.
During the three months ended September 30, 2001, the Registrant
incurred $104,407 in selling, general and administrative expenses
compared to $848,162 for the same period in 2000. The decrease of
$743,755 is due to common stock issued for services which accounted
for $762,400 for the three months ended September 30, 2000 versus
$9,600 for the three months ended September 30, 2001.
(c) Interest Income.
Interest income was $4,000 and $3,000 for the three months period
ended September 30, 2001 and 2000, respectively, and represents
interest earned on the Registrant's Dreyfus money market account. The
account is restricted from use for working capital and is held by the
Registrant's wholly owned subsidiary, Growth Net, Inc. Interest
earned in the future will be dependent on prevailing interest rates.
(d) Provision for Income Taxes.
As of September 30, 2001, the Registrant's accumulated deficit
was approximately $2,000,000, and as a result, there has been no
provision for income taxes to date, other than state taxes based on income.
(e) Net Loss.
The Registrant reported a net loss of $31,582 for the three
months ended September 30, 2001 compared to a net loss of $825,472 for
the three months ended September 30, 2000. This decrease is due to
common stock issued for services of $762,400 for the three months
ended September 30, 2000 versus $9,600 for the three months ended
September 30, 2001.
Liquidity and Capital Resources.
As of September 30, 2001, the Registrant had a cash balance of
$4,424 and a negative working capital of $150,656. The Registrant has
financed its operations primarily through the sale of common stock for
cash and from loans from shareholders for the three months ended
September 30, 2001.
Net cash used in operating activities was $42,346 for the three
months ended September 30, 2001, compared to $56,739 for the same
period in 2000, primarily representing general corporate overhead
expenses such as salaries and consulting fees, rent, and utilities.
Net cash flows used in investing activities for the three months
period ended September 30, 2001 was $7,752 and $5,748 for the same
period in 2000 representing interest earned on the Dreyfus money
market account and the purchase of fixed assets.
Net cash flows provided by financing activities for the three
months period ended September 30, 2001 was $54,522 versus $55,067 for
the same period in 2000 primarily representing working capital loans.
At present, the Registrant plans to fund its operations from the
sale of common stock pursuant to its Form SB-2 offering and loans from
shareholders, if necessary. If operating losses continue during the
next 12 months, the Registrant will need additional financing. There
is no assurance that such additional funds will be available on
acceptable terms, or at all.
The Registrant's future funding requirements will depend on
numerous factors. These factors include the Registrant's ability to
operate its business profitably in the future, recruit and train
qualified management, technical and sales personnel, and the
Registrant's ability to compete against other, better capitalized
corporations who offer similar services.
Current Developments.
(a) Asset Purchase Agreement with Tuoc Bui dba System Design and Repair
On June 22, 2001, the Registrant entered into an Asset Purchase
Agreement with Tuoc Bui dba System Design and Repair ("SDR") as well
as a related Escrow Agreement, Employee Agreement and a Promissory
Note. The Registrant acquired the assets of SDR without incurring any
of the liabilities. SDR is in the business of providing network and
internet solutions for both hardware and software, as well as
providing consulting, integration, documentation and management
framework to the end user. The employee agreement is for a period of
five years at a rate of $90,000 per year.
The Registrant agreed to pay 4,500,000 shares of restricted
common stock, which will be held in escrow and 900,000 will be
released every year for five years. The Registrant also agreed to a
promissory note for $19,000 payable over a three-year period for the
assets of SDR. For financial accounting purposes, the effective date
of the Asset Purchase Agreement is July 2, 2001. The operations of
SDR were merged into the Company's inactive subsidiary World Shopping
Network, Inc., a California corporation, and the name was changed to
SDR Information Services, Inc. on September 7, 2001.
(b) Acquisition Agreement with Connect2Save, Inc.
On November 13, 2001, the Registrant entered into an agreement
with Connect2Save, Inc., a Delaware Corporation, whereby the
Registrant agreed to buy from this company all of the shares of
Connect4Savings, Inc., a Delaware Corporation ("C4S"). C4S is
principally engaged in the business of long distance telephone service
and related technologies. Under the terms of this agreement, the
Registrant agreed to pay to Connect2Save, Inc. 6,500,000 shares of
restricted common stock of the Registrant in exchange for 100% of the
issued and outstanding shares of C4S, subject to an escrow.
(c) Acquisition Agreement with Delphi Communications, Inc.
On November 8, 2000, the Registrant entered into a definitive
agreement with Delphi Communications, Inc. whereby the Registrant will
acquire certain of the assets of this company (which includes the
license for the AM radio station KMET). This agreement replaced and
superceded a binding letter of intent for this transaction which was
entered into by the parties on September 19, 2000. KMET carries live
broadcasts of Los Angeles Dodgers baseball. In addition, KMET airs
the popular, nationwide one-on-one sports-talk radio program. When
not broadcasting sports content, KMET airs country western music.
Under the terms of this agreement, the Registrant has agreed to
pay to Delphi 7,415,254 restricted shares of common stock of the
Registrant (valued on the date of the transaction at $1,750,000).
This agreement is subject to approval by the Federal Communications
Commission of the transfer of the license for this radio station owned
by Delphi. In February 2001, the FCC approved the acquisition. On
October 25, 2001, both parties agreed, by mutual consent, not to
proceed with the transaction.
Risk Factors Connected with Operations of Registrant.
(a) Limited Prior Operations, History of Operating Losses, and
Accumulated Deficit May Affect Ability of Registrant to Survive.
The Registrant has only a limited operating history upon which to
base an assumption that the Registrant will be able to achieve its
business plans. In addition, the Registrant has only limited assets.
As a result, there can be no assurance that the Registrant will
generate significant revenues in the future; and there can be no
assurance that the Registrant will operate at a profitable level. If
the Registrant is unable to obtain customers and generate sufficient
revenues so that it can profitably operate, the Registrant's business
will not succeed.
The Registrant incurred a net loss of $291,321 for the fiscal
year ended June 30, 2000 and $1,312,252 for the fiscal year ended June
30, 2001, and $31,582 for the three months ended September 30, 2001.
The Registrant's current liabilities exceed its current assets by
$174,381 as of June 30, 2000 and $108,591 as of June 30, 2001, and
$150,656 as of September 30, 2001. At September 30, 2001, the
Registrant had an accumulated deficit of approximately $2,000,000.
This raises substantial doubt about the Registrant's ability to
continue as a going concern.
(b) Need for Additional Financing May Affect Operations and Plan of Business.
Current funds available to the Registrant will not be adequate
for it to be competitive in the areas in which it intends to operate.
Therefore, the Registrant will need to raise additional funds in order
to fully implement its business plan. The Registrant will attempt to
raise approximately $1 million in additional funds during the next 12
months through public or private financing in order to continue with
its business plan. However, there can be no assurance that the
Registrant will be successful in raising such additional funds.
Regardless of whether the Registrant's cash assets prove to be
inadequate to meet the Registrant's operational needs, the Registrant might
seek to compensate providers of services by issuance of stock in lieu of cash.
The Registrant's continued operations therefore will depend upon
its ability to raise additional funds through bank borrowings, equity
or debt financing. There is no assurance that the Registrant will be
able to obtain additional funding when needed, or that such funding,
if available, can be obtained on terms acceptable to the Registrant.
If the Registrant cannot obtain needed funds, it may be forced to
curtail or cease its activities. If additional shares were issued to
obtain financing, current shareholders may suffer a dilutive effect on
their percentage of stock ownership in the Registrant.
(c) Lack of Acceptance and Effectiveness of Internet Electronic
Commerce May Affect Viability of Registrant.
The Registrant's success in establishing an e-commerce business
web site will be dependent on consumer acceptance of e-retailing and
an increase in the use of the Internet for e-commerce. If the markets
for e-commerce do not develop or develop more slowly than the
Registrant expects, its e-commerce business may be harmed. If
Internet usage does not grow, the Registrant may not be able to
increase revenues from Internet advertising and sponsorships which
also may harm both our retail and e-commerce business. Internet use by
consumers is in an early stage of development, and market acceptance
of the Internet as a medium for content, advertising and e-commerce is
uncertain. A number of factors may inhibit the growth of Internet
usage, including inadequate network infrastructure, security concerns,
inconsistent quality of service, and limited availability of cost-
effective, high-speed access. If these or any other factors cause use
of the Internet to slow or decline, our results of operations could be
adversely affected.
(d) Competition in Internet Commerce May Affect Registrant's Prospects.
Increased competition from e-commerce could result in reduced
margins or loss of market share, any of which could harm both our
retail and e-commerce businesses. Competition is likely to increase
significantly as new companies enter the market and current
competitors expand their services. Many of the Registrant's present
and potential competitors are likely to enjoy substantial competitive
advantages, including larger numbers of users, more fully-developed e-
commerce opportunities, larger technical, production and editorial
staffs, and substantially greater financial, marketing, technical and
other resources. If the Registrant does not compete effectively or if
it experiences any pricing pressures, reduced margins or loss of
market share resulting from increased competition, the Registrant's
business could be adversely affected.
(e) Unreliability Of Internet Infrastructure May Affect Registrant's Business.
If the Internet continues to experience increased numbers of
users, frequency of use or increased bandwidth requirements, the
Internet infrastructure may not be able to support these increased
demands or perform reliably. The Internet has experienced a variety of
outages and other delays as a result of damage to portions of its
infrastructure, and could face additional outages and delays in the
future. These outages and delays could reduce the level of Internet
usage and traffic on the Registrant website. In addition, the
Internet could lose its viability due to delays in the development or
adoption of new standards and protocols to handle increased levels of
activity. If the Internet infrastructure is not adequately developed
or maintained, use of the Registrant website may be reduced. Even if
the Internet infrastructure is adequately developed, and maintained,
the Registrant may incur substantial expenditures in order to adapt
its services and products to changing Internet technologies. Such
additional expenses could severely harm the Registrant's financial results.
(f) Transactional Security Concerns May Affect Ability of Registrant
to Attract Customers.
A significant barrier to Internet e-commerce is the secure
transmission of confidential information over public networks. Any
breach in our security could cause interruptions in the operation of
our website and have an adverse effect on the Registrant's business.
(g) Governmental Regulation of the Internet May Affect Registrant's
Operations.
There are currently few laws that specifically regulate
communications or commerce on the Internet. Laws and regulations may
be adopted in the future, however, that address issues including user
privacy, pricing, taxation and the characteristics and quality of
products and services sold over the Internet. An increase in
regulation or the application of existing laws to the Internet could
significantly increase our costs of operations and harm the
Registrant's business.
(h) Influence of Other External Factors on Prospects for Registrant.
The industry of the Registrant in general is a speculative venture
necessarily involving some substantial risk. There is no certainty that
the expenditures to be made by the Registrant will result in a
commercially profitable business. The marketability of its products
will be affected by numerous factors beyond the control of the
Registrant. These factors include market fluctuations, and the general
state of the economy (including the rate of inflation, and local
economic conditions), which can affect companies' spending. Factors
which leave less money in the hands of potential customers of the
Registrant will likely have an adverse effect on the Registrant. The
exact effect of these factors cannot be accurately predicted, but the
combination of these factors may result in the Registrant not receiving
an adequate return on invested capital.
(i) Control by Officers and Directors Over Affairs of Registrant May
Override Wishes of Other Stockholders.
The Registrant's officers and directors beneficially own
approximately 23% of the outstanding shares of the Registrant's common
stock. As a result, such persons, acting together, have the ability
to exercise significant influence over all matters requiring
stockholder approval. Accordingly, it could be difficult for the
investors hereunder to effectuate control over the affairs of the
Registrant. Therefore, it should be assumed that the officers,
directors, and principal common shareholders who control these voting
rights will be able, by virtue of their stock holdings, to control the
affairs and policies of the Registrant.
(j) Loss of Any of Current Management Could Have Adverse Impact on
Business and Prospects for Registrant.
The Registrant's success is dependent upon the hiring and
retention of key personnel. None of the officers or directors has any
employment or non-competition agreement with the Registrant.
Therefore, there can be no assurance that these personnel will remain
working with the Registrant. Should any of these individuals cease to
be affiliated with the Registrant for any reason before qualified
replacements could be found, there could be material adverse effects on
the Registrant's business and prospects.
In addition, all decisions with respect to the management of the
Registrant will be made exclusively by the officers and directors of
the Registrant. Investors will only have rights associated with
minority ownership interest rights to make decision which effect the
Registrant. The success of the Registrant, to a large extent, will
depend on the quality of the directors and officers of the Registrant.
Accordingly, no person should invest in the Shares unless he is
willing to entrust all aspects of the management of the Registrant to
the officers and directors.
(k) Potential Conflicts of Interest May Affect Ability of Officers
and Directors to Make Decisions in the Best Interests of Registrant.
The officers and directors have other interests to which they
devote time, either individually or through partnerships and
corporations in which they have an interest, hold an office, or serve
on boards of directors, and each will continue to do so
notwithstanding the fact that management time may be necessary to the
business of the Registrant. As a result, certain conflicts of interest
may exist between the Registrant and its officers and/or directors
which may not be susceptible to resolution.
In addition, conflicts of interest may arise in the area of
corporate opportunities which cannot be resolved through arm's length
negotiations. All of the potential conflicts of interest will be
resolved only through exercise by the directors of such judgment as is
consistent with their fiduciary duties to the Registrant. It is the
intention of management, so as to minimize any potential conflicts of
interest, to present first to the Board of Directors to the
Registrant, any proposed investments for its evaluation.
(l) Limitations on Liability, and Indemnification, of Directors and
Officers May Result in Expenditures by Registrant.
Although neither the articles of incorporation nor the bylaws of
the Registrant provide for indemnification of officer or directors of
the Registrant, the Nevada Revised Statutes provide for permissive
indemnification of officers and directors and the Registrant may
provide indemnification under such provisions. Any indemnification of
directors, officer, or employees, could result in substantial
expenditures being made by the Registrant in covering any liability of
such persons or in indemnifying them.
(m) Absence of Cash Dividends May Affect Investment Value of
Registrant's Stock.
The Board of Directors does not anticipate paying cash dividends
on the common stock for the foreseeable future and intends to retain
any future earnings to finance the growth of the Registrant's
business. Payment of dividends, if any, will depend, among other
factors, on earnings, capital requirements and the general operating
and financial conditions of the Registrant as well as legal
limitations on the payment of dividends out of paid-in capital.
(n) No Assurance of Continued Public Trading Market and Risk of Low
Priced Securities May Affect Market Value of Registrant's Stock.
There has been only a limited public market for the common stock
of the Registrant. As of September 30, 2001, the common stock of the
Registrant was quoted on the Over the Counter Bulletin Board. As a
result, an investor may find it difficult to dispose of, or to obtain
accurate quotations as to the market value of the Registrant's
securities. In addition, the common stock is subject to the low-priced
security or so called "penny stock" rules that impose additional sales
practice requirements on broker-dealers who sell such securities. The
Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure in connection with any trades involving a stock
defined as a penny stock (generally, according to recent regulations
adopted by the U.S. Securities and Exchange Commission, any equity
security that has a market price of less than $5.00 per share, subject
to certain exceptions), including the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. The regulations governing
low-priced or penny stocks sometimes limit the ability of broker-
dealers to sell the Registrant's common stock and thus, ultimately,
the ability of the investors to sell their securities in the secondary market.
(o) Failure to Maintain Market Makers May Affect Value of Registrant's Stock.
If the Registrant is unable to maintain a National Association of
Securities Dealers, Inc. member broker/dealers as market makers, the
liquidity of the common stock could be impaired, not only in the
number of shares of common stock which could be bought and sold, but
also through possible delays in the timing of transactions, and lower
prices for the common stock than might otherwise prevail.
Furthermore, the lack of market makers could result in persons being
unable to buy or sell shares of the common stock on any secondary
market. There can be no assurance the Registrant will be able to
maintain such market makers.
(p) Sale of Shares Eligible For Future Sale Could Adversely Affect
the Market Price.
All of the approximate 7,600,000 shares of common stock which are
currently held, directly or indirectly, by management have been issued
in reliance on the private placement exemption under the Securities
Act of 1933. Such shares will not be available for sale in the open
market without separate registration except in reliance upon Rule 144
under the Securities Act of 1933. In general, under Rule 144 a
person, or persons whose shares are aggregated, who has beneficially
owned shares acquired in a non-public transaction for at least one
year, including persons who may be deemed affiliates of One Touch, as
defined, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then
outstanding shares of common stock, or the average weekly reported
trading volume during the four calendar weeks preceding such sale,
provided that current public information is then available. If a
substantial number of the shares owned by these shareholders were sold
under Rule 144 or a registered offering, the market price of the
common stock could be adversely affected.
(q) Status as a Pseudo California Corporation Could Adversely Affect
the Operation of the Registrant.
Section 2115 of the California General Corporation Law subjects
foreign corporations doing business in California to various
substantive provisions of the California General Corporation Law in
the event that the average of its property, payroll and sales is more
than 50% in California and more than one-half of its outstanding
voting securities are held of record by persons residing in the State
of California. Section 2115 does not apply to any corporation which,
among other things, has outstanding securities designated as qualified
for trading as a national market security on NASDAQ if such
corporation has at least eight hundred holders of its equity securities
as of the record date of its most recent annual meeting of shareholders.
Some of the substantive provisions of California which apply to
the Registrant include laws relating to annual election of directors,
removal of directors without cause, removal of directors by court
proceedings, indemnification of officers and directors, directors
standard of care and liability of directors for unlawful
distributions. Currently, the Registrant does meet the requirement of
a pseudo California corporation.
Forward Looking Statements.
The foregoing Plan of Operation contains "forward looking
statements" within the meaning of Rule 175 of the Securities Act of
1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as
amended, including statements regarding, among other items, the
Registrant's business strategies, continued growth in the Registrant's
markets, projections, and anticipated trends in the Registrant's
business and the industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. These forward-
looking statements are based largely on the Registrant's expectations
and are subject to a number of risks and uncertainties, certain of
which are beyond the Registrant's control. The Registrant cautions
that these statements are further qualified by important factors that
could cause actual results to differ materially from those in the
forward looking statements, including, among others, the following:
reduced or lack of increase in demand for the Registrant's products,
competitive pricing pressures, changes in the market price of
ingredients used in the Registrant's products and the level of
expenses incurred in the Registrant's operations. In light of these
risks and uncertainties, there can be no assurance that the forward-
looking information contained herein will in fact transpire or prove
to be accurate. The Registrant disclaims any intent or obligation to
update "forward looking statements."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Other than as set forth below, the Registrant is not a party to
any material pending legal proceedings and, to the best of its
knowledge, no such action by or against the Registrant has been threatened.
Subsequent to year end, the Registrant filed an action in the
Orange County, California Superior Court seeking to cancel 4,500,000
common shares of WSN Group, Inc. and for breach of contract (WSN Group,
Inc. v. Tri-Star Diversified Ventures, L.L.C., et al, Case No.
01CC09508). A cross complaint was filed by Tri-Star and the Registrant
is currently contesting the case vigorously. No trial date has been
set. Based upon the opinion of the Registrant's counsel, the
likelihood is favorable as to success for the Registrant. Potential
gain is the cancellation of 4,500,000 shares of common stock; potential
loss is the Registrant having to repay the loans outstanding to Tri-
Star of $45,000 plus accrued interest could result in favor of the
Registrant (see Item 3, below). The financial statements reflect the
4,500,000 shares outstanding and the full amount of the loans plus
accrued interest.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Sales of Unregistered Securities.
There were no sales of unregistered securities in the quarter
ended September 30, 2001.
Use of Proceeds.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
On November 2, 1999 and December 22, 1999, the Registrant borrowed
$25,000 and $20,000, respectively, from Tri Star Diversified Ventures,
L.L.C., a greater than 10% shareholder of the Registrant, to assist in
day to day operations of the company. The terms of the promissory
notes for these loans call for 10% annual interest rate, with full
principal and interest payable on December 2, 1999 and June 22, 2000,
respectively. On September 26, 2000, the due dates for both these
notes was extended by the parties in writing to November 1, 2000.
On December 20, 2000, the Registrant attempted to settle the
payment of these notes, less certain amounts paid by the Registrant, in
the amount of $40,000 by the payment of shares of common stock.
However, this offer was subsequently declined. The Registrant now
considers these notes, plus accrued interest of $8,332 as of September
30, 2001, to be in default.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits.
Exhibits included or incorporated by reference herein are set
forth in the Exhibit Index.
Reports on Form 8-K.
The following report on Form 8-K were filed during the first
quarter of the fiscal year covered by this Form 10-QSB:
A Form 8-K was filed on August 15, 2001 to report that
effective on August 8, 2001, the firm of Clancy & Co., PLLC had been
engaged to serve as the new principal accountant to audit the
Registrant's financial statements, replacing Keyhan Hewitt Accountancy
Corporation (who was dismissed by the Registrant). On August 16,
2001, this Form 8-K was amended to include as an exhibit a response by
Keyhan Hewitt Accountancy Corporation regarding its agreement with the
statements made by the Registrant in response to Item 304(a)(1) of
Regulation S-B.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WSN Group, Inc.
Dated: December 6, 2001 By: /s/ John J. Anton
John J. Anton, President
EXHIBIT INDEX
Number Exhibit Description
2.1 Agreement and Plan of Merger between the Registrant and
World Shopping Network, Inc., dated September 15, 1999
(incorporated by reference to the Schedule 14C Definitive
Information Statement filed on October 1, 1999).
2.2 Agreement between the Registrant and Delphi Communications,
Inc., dated November 8, 2000 (incorporated by reference to
Exhibit 2 to the Form 8-K filed on January 12, 2001)
2.3 Merger Agreement between the Registrant and WSN Group, Inc.,
a Delaware corporation, dated June 11, 2001 (incorporated by
reference to Exhibit 2.3 of the Form 10-KSB/A filed on
November 28, 2001).
2.4 Asset Purchase Agreement between the Registrant and Tuoc
Bui, dated June 22, 2001 (incorporated by reference to
Exhibit 2 to the Form 8-K filed on June 29, 2001).
3.1 Articles of Incorporation, dated January 29, 2001
(incorporated by reference to Exhibit 3.1 of the Form 10-
KSB/A filed on November 28, 2001).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the Form
10-K filed on November 5, 1996).
4.1 Share Exchange Agreement between the Registrant, Tri Star
Diversified Ventures, L.L.C., Nick Markulis, and John J.
Anton, dated August 15, 1999 (incorporated by reference to
Exhibit 4 of the Form 10-QSB for the period ended October
31, 1999 - filed on February 28, 2000).
4.2 Retainer Stock Plan for Non-Employee Directors and
Consultants, dated April 25, 2000 (incorporated by reference
to Exhibit 4.1 of the Form S-8 filed on May 2, 2000).
4.3 Consulting Services Agreement between the Registrant and
Laurel-Jayne Yapel Manzanares, dated April 25, 2000
(incorporated by reference to Exhibit 4.2 of the Form S-8
filed on May 2, 2000).
4.4 Consulting Services Agreement between the Registrant and
Marcine Aniz Uhler, dated April 26, 2000 (incorporated by
reference to Exhibit 4.3 of the Form S-8 filed on May 2, 2000).
4.5 Form of Common Stock Purchase Agreement between the
Registrant and institutional investors (incorporated by
reference to Form SB-2 filed on July 6, 2000).
4.6 Amended and Restated Retainer Stock Plan for Non-Employee
Directors and Consultants, dated May 15, 2001 (incorporated
by reference to Exhibit 4.1 of the Form S-8 filed on May 25, 2001).
4.7 Consulting Services Agreement between the Registrant and
Gary Fox, dated May 16 2001 (incorporated by reference to
Exhibit 4.2 of the Form S-8 filed on May 25, 2001).
4.8 Consulting Services Agreement between the Registrant and
Gretchen Muscente, dated May 16 2001 (incorporated by
reference to Exhibit 4.3 of the Form S-8 filed on May 25, 2001).
4.9 Consulting Services Agreement between the Registrant and
Kevin Penrose, dated May 21, 2001 (incorporated by reference
to Exhibit 4.4 of the Form S-8 filed on May 25, 2001).
4.10 Consulting Services Agreement between the Registrant and
Tuoc Bui, dated May 21, 2001 (incorporated by reference to
Exhibit 4.5 of the Form S-8 filed on May 25, 2001).
4.11 Consulting Services Agreement between the Registrant and
Wally Tauch, dated May 23, 2001 (incorporated by reference
to Exhibit 4.6 of the Form S-8 filed on May 25, 2001).
10.1 Promissory Note issued by the Registrant, dated November 2,
1999 (incorporated by reference to Exhibit 10.1 of the Form
10-KSB/A filed on November 28, 2001).
10.2 Promissory Note issued by the Registrant, dated December 22,
1999 (incorporated by reference to Exhibit 10.2 of the Form
10-KSB/A filed on November 28, 2001).
10.3 Joint Venture Agreement between the Registrant and American
Consumer Network, dated August 3, 2000 (incorporated by
reference to Exhibit 10.1 of the Form 10-QSB filed on
November 20, 2000).
10.4 Promissory Notes Extension, dated September 26, 2000
(incorporated by reference to Exhibit 10.4 of the Form 10-
KSB/A filed on November 28, 2001).
10.5 Joint Venture Agreement between the Registrant and Preferred
Dental Plan, dated September 27, 2000 (incorporated by
reference to Exhibit 10.2 of the Form 10-QSB filed on
November 20, 2000).
16 Letter on change in certifying accountant (incorporated by
reference to Exhibit 16 of the Form 8-K/A filed on March 9, 2000).
21 Subsidiaries of the Registrant (see below).