UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
--------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number: 333-412162
VHS NETWORK, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0656668
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
301-5170 DIXIE ROAD
MISSISSAUGA, ONTARIO, CANADA L4W 1E3
(905) 238-9398
(Address of principal executive offices)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: May 14, 2002 - 28,071,268
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VHS NETWORK, INC.
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 (UNAUDITED) AND DECEMBER 31, 2001
CONTENTS PAGE
Consolidated Balance Sheets 1.
Consolidated Statements of Operations 2.
Consolidated Statements of Shareholders' Equity 3.
Consolidated Statements of Cash Flows 4.
Notes to the Financial Statements 5.
VHS NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2002 (UNAUDITED) AND DECEMBER 31, 2001
March 31 December 31
2002 2001
---------- -----------
ASSETS
Cash $ 690 $ 1,157
Accounts receivable 1,342 17,793
Inventory 99,600 96,304
---------- -----------
Total current assets 101,632 115,254
---------- -----------
Property and equipment
Furniture and equipment 35,520 35,520
Accumulated depreciation (12,073) (8,779)
---------- -----------
Total property and equipment 23,447 26,741
---------- -----------
Intangible assets, net 127,050 139,850
---------- -----------
Total assets $ 252,129 $ 281,845
========= ==========
LIABILITIES
Bank loan payable $ 82,966 $ 88,736
Accounts payable 129,884 115,476
---------- -----------
Total current liabilities 212,850 204,212
---------- -----------
Accounts payable, related party 499,286 430,135
Notes payable, related party 182,027 182,027
Reserve for loss contingencies 350,000 350,000
---------- -----------
Total long-term liabilities 1,031,313 962,162
---------- -----------
Total liabilities 1,244,163 1,166,374
---------- -----------
Commitments and contingencies (Note 8)
SHAREHOLDERS' EQUITY
Common stock: $0.001
par value: 100,000,000 shares
authorized; 25,330,268 and
22,785,268 issued and
outstanding, respectively 25,330 22,784
Preferred stock: 25,000,000 shares
authorized; none issued or
outstanding - - - -
Additional paid-in capital 3,735,462 3,637,208
Accumulated deficit (4,752,826) (4,544,521)
---------- -----------
Total shareholders' equity (992,034) (884,529)
---------- -----------
Total liabilities and
shareholders' equity $ 252,129 $ 281,845
=========== ==========
The accompanying notes are an integral part of these financial statements.
VHS NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2001
Three months Three months Year
ended ended ended
March 31 March 31 December 31
2002 2001 2001
--------------- ---------------- ----------------
Income:
Sales $ 19,997 $ 146,884 $ 163,537
Cost of goods sold 3,543 (127,909) 139,599
--------------- ---------------- ----------------
Gross margin 16,454 18,975 23,938
--------------- ---------------- ----------------
Operating Expenses:
Agency fees 3,761 1,332 10,911
Consulting fees 51,211 462 - -
Salaries and wages 27,177 - - 11,460
General and administrative 9,672 6,464 13,180
Management fees 60,000 75,000 288,220
Professional fees 6,988 10,822 117,894
Office expense - China 4,580 17,595
Depreciation and amortization 3,578 14,883
Inventory allowance 16,093 - - 30,000
Other 102
Total operating expense 174,902 102,340 504,143
--------------- ---------------- ----------------
Operating loss 158,448 (83,365) 480,205
Other (income) and expenses:
Directors' fees 48,000 - - - -
Interest expense 1,857 - - 972
Exchange (gain) loss 1,890 (2,183)
Total other (income)
--------------- ---------------- ----------------
and expense 49,857 1,890 (1,211)
Net loss before taxes (208,305) (85,255) (478,994)
--------------- ---------------- ----------------
Income taxes - - - - - -
--------------- ---------------- ----------------
Net loss $ (208,305) $ (85,255) $ 478,994
============ =============== ============
Net loss per common
share - Basic $ 0.008 $ 0.004 $ 0.021
============ =============== ============
Weighted average number of
common shares - Basic 25,330,268 19,560,268 22,785,268
============ =============== ============
Net loss per common
share - Diluted $ 0.008 $ 0.044 $ 0.021
============ =============== ============
Weighted average number
Of common shares -
Diluted 25,330,268 19,560,268 22,785,268
============ =============== ============
The accompanying notes are an integral part of these financial statements.
VHS NETWORK, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2001
Additional
Paid-in Accumulated
Common Stock Capital Deficit
Shares Amount
----------- -------- ----------- ---------------
Balance December 31, 2000 19,560,268 $19,559 $3,544,408 $(4,065,527)
----------- -------- ----------- ---------------
Common stock issued for debt 25,000 25 - - - -
Acquisition of TrueNet Enterprise Inc. 3,200,000 3,200 92,800 - -
Net loss for the year - - - - - - (478,994)
----------- -------- ----------- ---------------
Balance December 31, 2001 22,785,268 $22,784 $3,637,208 $(4,544,521)
Directors' fees 1,250,000 1,250 46,750
Common stock issued for expenses 1,295,000 1,295 51,504
Net loss for the period - - - - - - (208,305)
----------- -------- ----------- ---------------
Balance March 31, 2002 25,330,268 $25,330 $3,735,462 $(4,752,826)
----------- -------- ----------- ---------------
The accompanying notes are an integral part of these financial statements.
VHS NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2001
Three months Three months Year
ended ended ended
March 31 March 31 December 31
2002 2001 2001
-------------- ---------------- ----------------
Net income (loss) $ (208,305) $ (85,255) $ (478,994)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Issuance of common stock for directors' fees 48,000 - - - -
Issuance of common stock for expenses and debt 52,800 - - 25
Inventory valuation allowance - - - - 30,000
Amortization of intangible assets 12,800 2,000 8,000
Depreciation 3,294 1,578 6,883
Prepaids and deposits - - - - 68,535
-------------- ---------------- ----------------
(91,411) (81,677) (365,551)
Cash flow from operating activities:
Changes in assets and liabilities
Receivables 16,451 (437) 15,077
Inventory (3,296) (31,804) (4,171)
Prepaid and deposits - - - -
Bank loan (5,770) (2,049)
Accounts payable 8,408 (10,644) 52,511
-------------- ---------------- ----------------
Cash flow used in operating activities $ (75,618) $ (124,562) $ (304,183)
-------------- ---------------- ----------------
Cash flow from investing activities:
Purchase of TrueNet $ $ - - $ (96,000)
-------------- ---------------- ----------------
Net cash used in investing activities $ $ - - $ (96,000)
-------------- ---------------- ----------------
Cash flow from financing activities:
Accounts payable, related party $ 75,151 $ 75,000 $ 280,135
Proceeds from notes payable, related party - - 31,293
Proceeds from exercise of warrants - - - - 96,000
-------------- ---------------- ----------------
Net cash generated by financing activities $ 75,151 $ 106,293 $ 376,135
(Decrease) Increase in cash and cash equivalents 467 (18,269) (24,048)
Balance at beginning of period 1,157 25,205 (25,205)
-------------- ---------------- ----------------
Balance at end of period $ 690 $ 6,936 $ 1,157
============= =============== ================
Supplementary disclosure:
Cash paid for interest $ 1,857 $ - - $ 972
Cash paid for taxes $ - - $ - - $ - -
Conversion of payables into common stock $ 52,800 $ - - $ - -
Common stock issued for acquisitions - - - - 96,000
Common stock issued for services and expenses 48,000 - - 25,000
The accompanying notes are an integral part of these financial statements.
VHS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
1. NATURE OF OPERATIONS
COMPANY HISTORY
VHS Network, Inc. ("the Company" or "VHSN") was incorporated in the State of
Florida on December 18, 1995 as Ronden Vending Corp. On December 24, 1996, the
Company incorporated a wholly owned subsidiary called Ronden Acquisition, Inc.,
a Florida corporation. Ronden Acquisition, Inc. then merged with Video Home
Shopping, Inc., (a Tennessee corporation), and Ronden Acquisition, Inc. was the
surviving Florida Corporation. In 1996, Video Home Shopping, Inc. was a network
marketing and distribution company which offered a wide range of products and
services to consumers through the medium of video tape. However, after the
merger the Company decided not to continue with the network marketing and
distribution operations of Video Home Shopping, Inc. of Tennessee.
On January 9, 1997, articles of merger were filed for the Company as the
surviving corporation of a merger between the Company and its wholly owned
subsidiary Ronden Acquisition, Inc. This step completed the forward triangular
merger between Video Home Shopping, Inc., Ronden Acquisition, Inc. and the
Company.
On January 9, 1997, articles of amendment were filed to change the name of the
Company from Ronden Vending Corp. to VHS Network, Inc. On April 9, 1997, the
Company incorporated VHS Acquisition, Inc. as a wholly owned subsidiary.
In April 1997, the Company was restructured by way of a reverse take-over
involving its wholly owned subsidiary, VHS Acquisition, Inc., a Florida company,
and VHS Network, Inc., a Manitoba and Canadian controlled private corporation.
On April 12, 2000, the Company acquired all the outstanding common shares of
China eMall Corporation, an Ontario private company. This represents a 100%
voting interest in China eMall Corporation.
On December 1, 2001, the Company acquired all the outstanding common shares of
TrueNet Enterprise Inc., an Ontario private company.
OPERATIONS
The Company is continuing to reposition itself to identify technologies and
market opportunities in the United States, Canada and abroad in Internet and
electronic commerce interactive media, and SmartCARD loyalty marketing. The
Company will operate and/or develop two lines of business as follows:
China eMall Corporation ("China eMall"): Through its acquired subsidiary, China
eMall Corporation, an Ontario, Canada corporation, the Company provides Internet
marketing and information services to facilitate trade between Chinese and
Western businesses. The Company's primary focus will be to establish an on-line
presence to facilitate the export of Chinese products. Through its
multi-functional portal, Chinese suppliers can post their products and services
in a format that is easy for searching, quoting and tracking, and that gives a
Western buyer access to multiple suppliers for the best quality and price, and
direct communication. Realizing the difference in business culture and
financial systems, China eMall will allocate a substantial amount of resources
in assisting in the communications, export/import processing, financial
transaction and product services. China eMall's business will make use of
Internet technology to speed up the export process and broaden the sales
channels for Chinese goods and services and, more importantly, bring customers
into direct contact with Chinese producers who can constantly upgrade their
products to meet customers' needs. China eMall has an agreement with Wangfujing
Department Store Ltd., a large Chinese retailer, as its prime product supplier.
SmartCARD: The Company is developing computer chip-based plastic access cards
that utilize proprietary SmartCARD technology, which is licensed from Groupmark
Canada Limited, a related party. This technology enables the cards to be used
for identification purposes and as debit or charge cards. The Company intends
to focus its marketing efforts on companies that wish to distribute these cards
to their customers as a reward for their loyalty. Groupmark Canada Limited owns
the registered trademark "SmartCARD" in Canada and has a pending application in
the United States. Groupmark Canada has granted the Company a licence to use
the trademark "SmartCARD". Pursuant to the terms of the licence agreement, the
Company will pay to Groupmark a royalty of 5% of net sales of products using the
SmartCARD trademark and technology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The following is
a summary of the significant accounting policies followed in the preparation of
these consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all of its subsidiary companies. Intercompany accounts and transactions have
been eliminated on consolidation.
These consolidated financial statements reflect all adjustments, which are, in
the opinion of management, necessary for a fair presentation of the results for
the interim periods.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and cash deposited with
financial institutions, including money market accounts, and commercial paper
purchased with an original maturity of three months or less.
CONCENTRATION OF CASH
The Company at times maintains cash balances in accounts that are not fully
federally insured.
INVENTORIES
Inventories are stated at the lower of cost (first in, first out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost or, in the case of leased assets under
capital leases, at the present value of future lease payments at inception of
the lease. Major improvements that materially extend the useful life of
property are capitalized. Depreciation is calculated on a straight-line basis
over the estimated useful lives of the various assets, which range from three to
seven years. Leasehold improvements and leased assets under capital leases are
amortized over the life of the asset or the period of the respective lease using
the straight-line method, whichever is the shortest. Expenditures for repairs
and maintenance are charged to expense as incurred.
Depreciation expense for the three-month period ending March 31, 2002 was $3,294
and for the year ended December 31, 2001 was $6,883.
BANK LOAN
The company has a bank loan secured by the assets of a subsidiary and guaranteed
by a group of shareholders who have recourse against the Company. Interest is
calculated at Canadian Bank Prime Plus 1.5% (currently 6.5%).
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plan based on Accounting
Principles Board ("APB") Opinion No. 25. In October 1995, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for
Stock-Based Compensation". The Company has determined that it will not change
to the fair value method and will continue to use APB Opinion No. 25 for
measurement and recognition of any expense related to employee stock-based
transactions.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Income taxes are provided for the tax effects of
transactions reported in the consolidated financial statements and consist of
deferred taxes related to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of those differences,
which will be either taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes are also recognized for operating losses
that are available to offset future taxable income.
FOREIGN CURRENCY TRANSLATION
Transactions are translated into the functional currency at the exchange rates
in effect at the time the transactions occur. Exchange gains and losses arising
on translation are included in the operating results for the year.
REVENUE
Sales are recorded for products upon shipment of product to customers and
transfer of title under standard commercial terms.
COMPREHENSIVE INCOME
In 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Comprehensive income is presented in the consolidated statements of
shareholders' equity and comprehensive income, and consists of net income and
unrealized gains (losses) on available for sale marketable securities; foreign
currency translation adjustments and changes in market value of futures
contracts that qualify as a hedge; and negative equity adjustments recognized in
accordance with SFAS No. 87. SFAS No. 130 requires only additional disclosures
in the consolidated financial statements and does not affect the Company's
financial position or results of operations. The elements of comprehensive
income for the three month period end March 31, 2001 and 2000, the year ended
December 31, 2000 are de minimis.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is computed on the weighted average number of
common or common and common equivalent shares outstanding during each year.
Basic Earnings-per-Share ("EPS") is computed as net income (loss) applicable to
common stockholders divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur from common shares issuable through stock options, warrants, and
other convertible securities when the effect would be dilutive. The Company had
no dilutive securities.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
the Company reviews the carrying value of its long-lived assets and identifiable
intangibles for possible impairment whenever events or changes in circumstances
indicate the carrying amount of assets to be held and used may not be
recoverable.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles necessarily requires management to make estimates
and assumptions that 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 revenue and expenses during the reporting
periods. Actual results could significantly differ from those estimates.
ADVERTISING COSTS
The Company expenses advertising costs as they are incurred. The Company did
not incur any advertising costs during the three month period ending March 31,
2002 or year ended December 31, 2001.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company follows SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information". SFAS No. 131 requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Currently, the
Company operates in only one segment.
INTANGIBLES
Intangible assets are recorded at cost. Capitalized web-site and software
development costs associated with the purchase of China eMall and TrueNet
Enterprise Inc. are amortized on a straight-line basis over a period of three
years.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires recognition of all
derivative financial instruments as either assets or liabilities in consolidated
balance sheets at fair value and determines the method(s) of gain/loss
recognition. The FASB issued SFAS No. 137, "Deferral of the Effective Date of
FASB Statement No. 133" in June 1999 to defer the effective date of SFAS No. 133
to fiscal years beginning after June 15, 2000. The Company does not have
derivative instruments and does not conduct hedging activities.
3. INVENTORIES
On April 29, 1998, the Company acquired approximately 32,000 sets of printed art
reproductions. Each set consists of four full-colour prints from "The Andover
Series" by artist Jim Perleberg. Each image has a title narrative printed in
the margin and is re-signed, in the plate, by the artist. The management of the
Company has evaluated the market value of the prints and determined that the
market value of the prints is not below their acquisition cost. The prints are
by a noted artist, and the original Andover Series S/N Limited Edition
lithographs were fully sold.
The Company acquired these sets of prints in exchange for 1,399,992 shares of
its common stock valued at $139,999. The Company will be offering these prints
for sale through its own web site and other Internet web sites.
The Company has recorded a valuation allowance of $30,000 in 2001 and $28,000 in
2000 to reflect the fair value of the inventory.
The Company has other inventory of computer related items held in the normal
course of business in the amount of $17,601.
4. INCOME TAXES
No provision for federal and state taxes has been recorded for the three month
period ended March 31, 2002 and 2001, and the year ended December 31, 2001,
since the Company incurred net operating losses for these periods.
5. RELATED PARTY TRANSACTIONS
GROUPMARK CANADA LIMITED
In 1997, the Company entered into a management service agreement with Groupmark
Canada Limited ("Groupmark"), of which the Chairman and Chief Executive Officer
of the Company is the sole shareholder. Under this agreement, Groupmark
provides the Company all management, daily administrative functions, financial
and business advisory services. Groupmark was also contracted to assist in the
technological development of the "SmartCARD". Contractually, charges for these
services are not to exceed $56,000 per month. For the three months ending March
31, 2002 and 2001, the Company incurred management fees of $60,000 and $75,000,
respectively.
Amounts due Groupmark pursuant to this management service agreement and other
borrowings as of March 31, 2002 and December 31, 2001 are $499,286 and $430,135,
respectively. Groupmark has the option to accept payment by way of the
Company's common stock at fair market value in lieu of cash.
6. COMMITMENTS AND CONTINGENCIES
LEGAL
The Company is not currently aware of any legal proceedings or claims that the
Company believes will have, individually or in the aggregate, a material adverse
effect on the Company's financial position or results of operations.
VIDEO HOME SHOPPING, INC., A TENNESSEE CORPORATION
In December 1996, the Company was merged with Video Home Shopping, Inc., a
Tennessee corporation. Subsequent to the merger, the new managemetn of the
company decided not to continue with the business operations of Video Home
Shopping, Inc.
The Company has recorded a $350,000 liability for loss contingencies. This
reserve was established because of a potential liability of the Company to the
Internal Revenue Service (IRS). Management discovered from reviewing 1996
financial statements of Video Home Shopping Inc., a predecessor to the Company,
of the nature of this liability. The footnotes to those financial statements
stated the following:
"The Company has outstanding payroll taxes totalling $206,385 as of July 31,
1996. The outstanding balance consists of Federal Withholdings, Social Security
and Medicare taxes ad Unemployment taxes for the quarters ended December 31,
1995, March 31, 1996 and June 30, 1996. The Company also did not make the
necessary payroll tax deposits for the month ending July 31, 1996. Management
believes the Company will be able to file and remit the outstanding payroll tax
returns during the current period. As the Internal Revenue Service assesses
substantial civil penalties and interest for the failure to file and remit
payroll related taxes, the total amount due could increase significantly "
Management believes that these Federal Withholding taxes, Social Security and
Medicare taxes, employer's taxes, and other payroll taxes may not have been
remitted to date; however, the Company has not been able to confirm whether
payment was made.
Furthermore, in March 2000, the Company learned of an IRS investigation relating
to the affairs of a former principal of Video Home Shopping Inc. The Company
learned of this investigation from its transfer agent, and has not been
contacted by the IRS. Management of the Company has, however, contacted the IRS
for information and has no indication that the investigation concerns the
Company directly. Management, nevertheless, believes that said IRS
investigation may relate, in part, to these unpaid Federal Withholding taxes,
Social Security and Medicare taxes, employer's taxes, and other payroll taxes.
While management views that any liability in this regard is the responsibility
of the former principal of Video Home Shopping Inc. and is not necessarily the
liability of the Company, out of prudence, the Company has elected to provide a
reserve of $350,000 to provide for the possibility of such liability to the IRS.
Management is currently in process of determining the course of further action
regarding this liability. As of May 10, 2002, the IRS has not notified
management by regarding the status of the investigation.
GOING CONCERN UNCERTAINTIES
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has experienced recurring
operating losses and negative cash flows from operations. The Company's
continued existence is dependent upon its ability to increase operating revenues
and/or raise additional equity financing.
In view of these matters, management believes that actions presently being taken
to expand the Company's operations and to continue its web-site development
activity provide the opportunity for the Company to return to profitability.
The continued focus on strategic technological investments will improve the
Company's cash flow, profitability, and ability to raise additional capital so
that it can meet its strategic objectives.
Management is currently in the process of negotiating additional equity
financing with potential investors. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
7. INTANGIBLE ASSETS
Intangible assets at March 31, 2002 consist of the following:
March 31 December 31
2002 2001
------------- ---------------
Software $ 129,520 $ 129,520
Domain name 24,000 24,000
Less: accumulated amortization (26,470) (13,760)
$ 127,050 $ 139,850
============== ================
Amortization expense for the three months ended March 31, 2002 and 2001 was
$12,800 and $2,000 respectively, and for the year ended December 31, 2001 was
$8,000.
8. REGISTRATION STATEMENT
The Securities and Exchange Commission issued a no further comment letter on
February 14, 2001, and the Company's Registration Statement, Form SB-2, was
deemed effective as of that date. This Registration Statement, Form SB-2,
pertains to the sale of 6,830,812 shares of its common stock, of which 3,755,828
shares are issued and outstanding, and 3,074,984 shares are issuable upon
exercise of options and other conversion privileges to acquire common stock.
The shares were issued, or are issuable upon conversion or exercise of
securities, which were issued, by the Company in private placement transactions.
The Company will not receive any proceeds upon the sale of shares by the Selling
Securityholders. However, this registration statement relates to the sale of up
to 299,230 shares of the Company's common stock that may be issued in the event
of the exercise of outstanding options held by Selling Securityholders. If all
such options are exercised, the Company would receive proceeds of $104,730.
9. MAJOR CUSTOMERS
Virtually all of the revenues for the three months ending March 31, 2002 were
from two customers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. For example, statements included in this report regarding
our financial position, business strategy and other plans and objectives for
future operations, and assumptions and predictions about future product demand,
supply, manufacturing, costs, marketing and pricing factors are all
forward-looking statements. When we use words like "intend," "anticipate,"
"believe," "estimate," "plan" or "expect," we are making forward-looking
statements. We believe that the assumptions and expectations reflected in such
forward-looking statements are reasonable, based on information available to us
on the date hereof, but we cannot assure you that these assumptions and
expectations will prove to have been correct or that we will take any action
that we may presently be planning. We have disclosed certain important factors
that could cause our actual results to differ materially from our current
expectations elsewhere in this report. You should understand that
forward-looking statements made in this report are necessarily qualified by
these factors. We are not undertaking to publicly update or revise any
forward-looking statement if we obtain new information or upon the occurrence of
future events or otherwise.
Going Concern
VHSN is in the development stage and has not yet generated a profit from its
operations. Its continued existence and its ability to continue as a going
concern are dependent upon its ability to obtain additional capital to fund its
operations.
Goals and Objectives
VHSN's goals and objectives are centered around its ability to identify market
opportunities in technology and products related to its e-commerce objectives in
United States, Canada and abroad. To achieve these objectives VHSN must compete
with many other more well established organizations in the Internet and related
fields. It is the intention of VHSN to continue to acquire technology and joint
venture/ strategic alliances where possible, to help it achieve its goals.
Cash Requirements
The Company intends to raise additional funds over the next year from sales of
its securities to satisfy its cash requirements.
Liquidity and Capital Resources
VHSN had sales of $19,997 for the period ended March 31, 2002. The Company will
continue to rely on investor funding until revenue and profitability are
achieved. The result of this current years activities, which have been
significant, in terms of the development of potential customers, have not
reflected in sales achievement during the current fiscal year. VHSN acquired
TrueNET Enterprise Inc. in December 2001. This resulted in a period of
adjustment while the move to new premises took place. It is anticipated that
this acquisition will begin to show results during the 2002 fiscal year.
Results of Operations
Results for the period ended March 31, 2002 compared to the same period ended
March 31, 2001
Sales for the period ended March 31, 2002 were 19,997 as compared to the same
period sales in 2001 of 146,884.
Total Operating Expense increased from $102,340 for the period ended March 31,
2001 to $174,902 for the period ended March 31, 2002. This increase of $72,562
was due primarily to an increase in consulting fees, salaries and wages.
The Company is not aware of any material trend, event or capital commitment
which would potentially adversely affect liquidity. In the event a material
trend develops, the Company believes that it will have sufficient funds
available to satisfy working capital needs through lines of credit and the funds
expected from equity sales.
OTHER:
Except for historical information contained in this Report, the matters set
forth above are forward-looking statements that involve certain risks and
uncertainties that could cause actual results to differ from those in the
forward-looking statements. Investors are directed to consider, among other
items, the risks and uncertainties discussed in documents filed by the Company
with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities/Recent Sales of Unregistered Securities.
Some of the holders of the shares issued below may have subsequently
transferred or disposed of their shares and the list does not purport to be a
current listing of the Company's stockholders.
During the period ended March 31, 2002, we have issued unregistered
securities to the persons, as described below. We believe that each transaction
was exempt from the registration requirements of the Securities Act of 1933 by
virtue of Section 4(2) thereof, Regulation D promulgated thereunder. All
recipients had adequate access, through their relationships with us, to
information about us.
On or about March 4, 2002 the Company issued the following shares to the
following Individuals:
- - 1,320,000 shares to Forte management for consulting services rendered to
the Company valued at $.03 per share.
- - 500,000 shares to Elwin Cathcart valued at $.05 per share
- - 250,000 shares to Gang Chai valued at $.05 per share
- - 250,000 shares to Thomas Roberts valued at $.05 per share
- - 250,000 shares to David Smelsky valued at $.05 per share
- - 1,000,000 shares each to Jeff McMillan, John Salowski and Reginal Hose in
connection with the acquisition of TruNet.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports.
a. 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 for VHS Network, Inc.
3.2* Articles of Merger for VHS Network, Inc.
3.3* Articles of Amendment for VHS Network, Inc.
3.4* By-laws of VHS Network, Inc.
4.1* Specimen Stock Certificate.
10.1* Share Exchange Agreement made April 15, 2000 among VHS Network, Inc.,
China eMall Corporation, Gang Chai, Qin Lu Chai, Uphill Capital Inc.,
Charles He, Qing Wang and Forte Management Corp.
10.2* Licence Agreement between Groupmark Canada Limited and VHS Network,
Inc. dated January 1, 2000.
10.3* Management Services Agreement between VHSN and Groupmark Canada Limited
dated April 1997.
10.4* 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.
10.5* Agreement and Plan of Merger dated as of December 30, 1996 between
Ronden Vending Corp. and Ronden Acquisition, Inc.
10.6* Agreement and Plan of Reorganization dated April 10, 1997 among VHS
Network, Inc. and VHS Acquisition, Inc. and VHS Network (Canada), Inc.*
10.8** Form of Acquisition Agreement between the Company and TrueNET
Enterprise, Inc.
- ----------------
* Previously filed as an exhibit to the Company's Registration Statement
on Form SB2 filed with the Commission and incorporated by reference
herein
** Filed as exhibit 10.8 to the Company's Form 10K-SB filed with the Commission
on April 16, 2002 and incorporated by reference herein
b. Reports on Form 8-K
On February 4, 2002, the Company filed a Current Report on Form 8-K with
the Commission disclosing the Company's change of accountants.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VHS NETWORK INC.
/s/Elwin Cathcart
Elwin Cathcart, Chief Executive Officer
(Principle Accounting Officer and Principal
Executive Officer)
Date: May 15, 2002