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WASHINGTON, D.C. 20549
FORM 10-K
THIS FORM 10-K ANNUAL REPORT IS THE SUBJECT OF A FORM 12B-25
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 2000
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or
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-14356
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VIRTUALSELLERS.COM, INC.
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(Exact name of registrant as specified in its charter)
CANADA 911353658
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 1000, 120 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60602
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 920-9999
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, WITHOUT PAR VALUE
--------------------------------
(Title of class)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ( 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing. (See definition of affiliate in
Rule 405, 17 CFR 230.405.)
117,024,637 common shares @ $2.016 (1) = $235,921,668
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(1) Average of bid and ask closing prices on May 10, 2000.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
126,973,637 common shares issued and outstanding as of May 10, 2000
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement related to the Registrant's
2000 Annual Meeting of Shareholders, to be held on August 4, 2000, are
incorporated by reference into Part III of this Annual Report on Form 10-K.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
This Annual Report contains certain forward-looking statements that are subject
to risks and uncertainties. Statements in this Annual Report which are not
purely historical are forward-looking statements, including any statements
regarding beliefs, plans, expectations or intentions regarding the future.
Forward-looking statements include certain information relating to e-commerce
and outsourcing trends, Virtualsellers.com, Inc.'s (the "Company") business
strategy including the markets in which it operates, the services it provides,
its ability to attract new clients and the customers it targets, the benefits of
certain technologies the Company has acquired or plans to acquire and the
investment it plans to make in technology, the Company's plans regarding
expansion, the implementation of quality standards, variations in operating
results and liquidity, as well as information contained elsewhere in this
document where statements are preceded by, followed by or include the words
"believes", "plans", "intends", "expects", "anticipates" or similar expressions.
For such statements, the Company claims the protection of the safe harbor for
"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. The
forward-looking statements in this document are subject to risks and
uncertainties that could cause the assumptions underlying such forward-looking
statements and the actual results to differ materially from those expressed in
or implied by the statements.
The most important factors that could prevent the Company from achieving its
goals and cause the assumptions underlying the forward-looking statements and
the actual results of the Company to differ materially from those expressed in
or implied by those forward-looking statements include, but are not limited to,
the risk factors set forth in this Annual Report - See the section entitled
"Risk Factors" in Item 1 - Description of Business.
Business Operations
The Company's business operations focus on traditional and e-commerce
transaction processing and "backroom support" services for other businesses.
Part of the Company's services assist businesses in their transition from old
technologies or dissimilar software systems to state-of-the-art e-commerce
capable websites so that they can retail their products and/or services over the
Internet.
The Company provides the following services and/or products:
- - through its Call Center, the Company provides transaction processing,
centralized billing, customer and technical support, customer service, order
entry, order fulfilment, bill collection, help desk services and dispatch
functions;
- - through Virtualsellers.com, the Company provides turnkey e-commerce
transaction processing and website development, maintenance and hosting
services;
- - through CallDirect, the Company sells telephone related products and
provides transaction processing and customer services; and
- - through Virtualsellers.com, the Company sells its proprietary software
engine and language interpreter called TAME (Tag Activated Markup Enhancement).
TAME is an interpretative language which enables developers to create Internet
and e-commerce applications that interface with all major operating systems and
web browsers. The scope and functionality of the TAME language is comparable to
Java or Javascript.
The Company's executive offices are located at Suite 1000, 120 North LaSalle
Street, Chicago, Illinois 60602 (Telephone: (312) 920-9999; Facsimile (312)
920-1871).
The Company's financial statements are stated in United States Dollars (US$) and
are prepared in accordance with United States Generally Accepted Accounting
Principles. In this Annual Report, unless otherwise specified, all dollar
amounts are expressed in United States Dollars. Herein, all references to
"CDN$" refer to Canadian Dollars and all references to "common shares" refer to
common shares in the capital stock of the Company.
The Company and its Subsidiaries
The Company was incorporated under the laws of the Province of British Columbia
on January 29, 1982 under the name "Thunder Oil & Gas Ltd.". The Company's name
was changed to "Thunder Explorations Ltd." on May 9, 1983. On April 22, 1985,
the Company changed its name to "CAM-NET Communications Network Inc." and on
February 1, 1991, the Company was continued under the Canada Business
Corporations Act. On August 1, 1997, the Company changed its name to "Suncom
Telecommunications, Inc." and on May 31, 1999, the Company changed its name to
"Virtualsellers.com, Inc.".
The Company had the following subsidiaries as of May 10, 2000:
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Jurisdiction of Percentage of
Subsidiaries Incorporation Date of Incorporation Securities Owned
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Canadian-American Communications Inc.2 . . British Columbia March 6, 1984 100%
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Canadian Northstar Transmission
Systems Ltd.2. . . . . . . . . . . . . . . CBCA February 23, 1995 100%
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Preferred Telemanagement Inc. (formerly
Suncom Telemanagement Inc.) . . . . . . . British Columbia November 23, 1994 100%
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CAM-NET Cellular Inc. (formerly Direct
Advantage, Inc. and Invoice Reduction
Services, Inc.) . . . . . . . . . . . . . Ontario March 8, 1994 100%
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NorthNet Telecommunications Inc.1 (d.b.a.
NorthStar Telesolutions). . . . . . . . . Illinois February 6, 1998 100%
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eCommerce Solutions Inc. (d.b.a.
VirtualSellers.com) . . . . . . . . . . . Illinois May 17, 1999 100%
========================================== ================ ===================== =================
1 NorthNet Telecommunications Inc. is an Illinois corporation qualified to transact business in
Indiana.
2 Canadian Northstar Transmission Systems Ltd. and Canadian-American Communications Inc. are being
dissolved but a Notice of Dissolution has not yet been issued.
General Development of the Company During the Last Five Years
Until its reorganization in the fiscal year ended February 28, 1998, the Company
was a telecommunications holding company with subsidiaries operating in both
Canada and the United States. Through its subsidiaries, the Company provided
comprehensive telecommunications services including long distance, local access,
cellular and complete telephone management services. The Company provided these
services to commercial and residential customers in British Columbia, Alberta,
Ontario, Quebec and in the greater Chicago, Illinois area.
Although the Company supplied long distance telephone services to 6.4% of the
Canadian business market and 2.2% of the Canadian residential market,
competitive pressures in the telecommunications industry, increasingly high
technology costs and the lack of sufficient working capital eroded the Company's
potential for profitability.
Despite a number of cost cutting measures carried out in late 1995 and early
1996, and changes in management, the Company's ability to access the public and
private markets in order to generate working capital was frustrated by the
delisting of the Company by the Vancouver Stock Exchange in October of 1996.
The Vancouver Stock Exchange delisted the Company because of allegations by the
United States Securities and Exchange Commission that a former director of the
Company had used improper methods to promote sales of the Company's common
shares in the market. The negative publicity surrounding the delisting eroded
the customer base and supplier confidence. This, together with the failure a
major customer to pay a bill of approximately CDN$500,000, adversely affected
the Company's ability to go forward, and put enough additional pressure on the
Company's working capital requirements that its management concluded that it
should seek protection under the Canadian Companies' Creditors Arrangement Act
(the "CCAA"), which is similar to bankruptcy legislation in the United States.
On January 14, 1997, the Company filed for and the Court granted protection from
its creditors under the CCAA (the "CCAA Proceeding"). Court protection was
required to ensure that the Company's assets were kept intact during the
reorganization process in order to allow the Company to carry on its business
while formulating a restructuring plan. The accounting firm of KPMG LLP was
appointed by the Court as a monitor to oversee and to assist in the development
of the Company's restructuring plans (the "Plan"). The creditors of the Company
approved the Plan on July 31, 1997, and the Supreme Court of British Columbia
sanctioned the Plan on August 7, 1997.
Sale of Operating Assets
Shortly after receiving CCAA protection, it became apparent to the Company that
it would not be able to obtain sufficient new financing for its business
operations early enough in the restructuring process to permit it to continue to
serve its telecommunications customers. In order to preserve the value of its
assets and yield the greatest return to its creditors, the Company determined
that it was in its best interest to sell the Company's commercial and
residential telecommunications customer base for the highest available price.
On April 7, 1997, the Company sold its accounts receivable, capital assets,
licences and acquired customer base to Primus Communications, Inc., Primus
Telecommunications Canada Inc. and 336246 Canada Inc. (collectively, "Primus")
for approximately CDN $6,750,000 with approval of the Court (the "Primus
Transaction"). There was a holdback of CDN$1,000,000 to secure the accuracy of
Company's representations and warranties made as part of the sale. To the
extent that Primus made claims against the holdback, the trustee was required to
retain an equivalent portion of the holdback. Since Primus advanced claims
exceeding the amount of the holdback, the full amount of the holdback was held
in trust pending resolution of such claims. The Company entered into a
settlement with Primus regarding the holdback, whereby the Company received
CDN$25,000 for consulting services, Primus received CDN$275,000 and the balance
of the holdback has been distributed to creditors under the Plan.
The Company also determined that there was inherent value in the remaining
assets of Cam-Net Communications Inc. ("CNC") and Cam-Net Telecommunications
Inc. ("CNT"), including significant tax losses accrued within the Company's
affiliated groups as a result of business losses incurred during previous years.
Since the Company could not utilize these losses at the time and these losses
would cease to have value over time, it decided to sell these businesses. On
April 17, 1997, the Company sold all of the shares in CNC and its interest in
CNT to London Holdings Inc. ("LTG") for cash proceeds of CDN$3,070,000 (the "LTG
Transaction"). The agreement provided that the inter-company debt owned by CNC
to Cam-Net Communications Network Inc. ("CWK") would be repaid to the Company in
annual instalments equal to 15% of the annual profit of CNC for three fiscal
years commencing April 30, 1997. The first CDN$500,000 of the repayment to the
Company was to be payable to GT Communications Inc., pursuant to the Plan in the
CCAA Proceeding. Since the Company anticipated little or no repayment of such
debt, it decided to sell this receivable for CDN$575,000, with GT Communications
Inc. being entitled to receive approximately CDN$360,000 of these proceeds.
Secured Creditor Settlements
The first step in implementing the Plan was to satisfy the secured creditors.
At the CCAA filing date, AT&T held registered security against the Company and
certain of its subsidiaries which security was alleged to secure approximately
CDN$2,800,000 as at the end of June, 1997. On July 3, 1997, the Court approved
a settlement between the Company and AT&T which included payment of
CDN$1,822,725 and issuance of 1,000,000 common shares and 1,000,000 share
purchase warrants whereby AT&T could acquire an additional 1,000,000 common
shares of the Company at CDN$1.00 per common share. AT&T has since released the
Company from any other claims.
GT Communications Inc. ("GT") alleged an equitable security interest in the
amount of CDN $2,600,000 against all of the assets of the Company and its
subsidiaries. After extensive negotiations, the Court approved a settlement
entitling GT to an immediate cash settlement of CDN$1,400,000 and confirmation
of a claim of CDN$575,000 as an unsecured creditor to be paid only from any
repayment received by the Company from the LTG Transaction. Since the Company
anticipated little or no repayment from the LTG Transaction, it sold this
receivable for CDN$525,000, with GT receiving approximately CDN$360,000 of the
proceeds.
Unsecured Creditor Settlements
On July 31, 1997, the classes of creditors of the Company and its subsidiaries
met, and the requisite number of creditors holding the required value of claims
approved the Plan. The Plan provided for the distribution of proceeds from the
sale of assets and the recovery from lawsuits on account of creditors'
indebtedness. The Plan also provided that creditors' unpaid debt after receipt
of dividends would be satisfied by a distribution of the common shares by
issuing share purchase warrants whereby the unsecured creditors would receive a
portion of 13,000,000 share purchase warrants in proportion to their unpaid
indebtedness to the total of unpaid debt.
Significant Events Subsequent to Approval of Plan
Significant events in relation to the implementation of the Plan, subsequent to
its approval by the Court, are as follows:
- - all proofs of claims of creditors have been resolved and settled;
- - Canadian securities regulators have approved the distribution of the share
purchase warrants and the common shares;
- - the following lawsuit recoveries have been made:
- Bell Canada - CDN $100,000;
- TeleHub - US$450,000; and
- BC Tel - CDN $17,500;
- - CDN$6,550,772 of the CDN$6,750,000 received from the Primus Transaction
and approximately CDN$3,000,000 received from the LTG Transaction were paid into
a trust account. CDN$1,000,000 of the CDN$6,550,772 received from the Primus
Transaction represented a holdback. The Company entered into a settlement with
Primus regarding the holdback, whereby the Company received CDN$25,000 of the
holdback for consulting services, Primus received CDN$275,000 and the balance of
the holdback has been distributed to creditors under the Plan;
- - secured creditors with outstanding claims of approximately CDN$5,400,000
received CDN$3,222,724 in cash, a total of 1,000,000 common shares and share
purchase warrants to acquire a total of 1,000,000 common shares at CDN$1.00 per
share;
- - government claims, which consisted primarily of income, sales or capital
taxes, were settled outside the Plan and approximately CDN$196,533 was paid
towards such government claims;
- - CDN$200,000 of the proceeds paid into the trust account were segregated to
pay for creditor claims arising after the Company and its Canadian subsidiaries
entered CCAA protection;
- - CDN$280,000 of the proceeds paid into the trust account were segregated to
pay for employee and consulting commissions relating to the assets sale and the
sale of CNC and CNT. All commissions have been paid amounting to an aggregate
of CDN$280,715;
- - CDN$300,000 of the proceeds paid into the trust account were segregated to
pay for legal, monitor and audit costs, and CDN$35,000 for employee severance.
Approximately CDN$675,533 has been paid for legal, monitor and audit costs, and
CDN$32,925 for employee severances;
- - CDN$300,000 of the proceeds paid into the trust account was paid to the
Company for working capital purposes on the condition that the CDN$300,000 would
be repayable to the trust account out of any further recoveries from outstanding
litigation and thus would be available to unsecured creditors. Approximately
CDN$300,000 has been fully repaid to the trust account from lawsuit recoveries;
and
- - unsecured creditors with outstanding claims of approximately
CDN$31,000,000 were to share in the funds remaining in the trust account based
on a formula which allocated a portion of the remaining funds to the Company's
creditors and a portion to the Company's subsidiaries' creditors. Unsecured
creditor claims aggregating CDN$3,184,150 was paid in the fiscal year ended
1998 and 1999 and 13,000,000 share purchase warrants to acquire, without any
further consideration, common shares in the capital of the Company were issued
on November 8, 1998 to the unsecured creditors.
- - the remaining funds from the trust account were paid out to unsecured
creditors in fiscal 2000 after paying legal and other administrative expenses
and settling the primus holdback dispute.
Material Acquisitions
Acquisition of NorthNet Telecommunications Inc. dba "NorthStar Telesolutions"
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On January 1, 1998, the Company purchased its first Call Center for $105,000.
As consideration for the acquisition, the Company issued a convertible note for
$105,000 which was convertible into common shares at the rate of $0.10 per
common share. On January 5, 1999, the convertible note was converted into
1,050,000 common shares. The Call Center is operated through the Company's
subsidiary, NorthNet Telecommunications Inc. doing business as NorthStar
Telesolutions. For details of the operations of the Call Center, see the
section entitled "Call Center Operations" in Item 1 - Description of Business.
Acquisition of Assets from VirtualSellers.com, Inc.
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In May, 1999, the Company purchased certain assets of VirtualSellers.com, Inc.,
an Illinois corporation (the "Original VirtualSellers"). As consideration for
the acquisition, the Company paid cash of $170,000, assumed indebtedness of
US$28,928, issued 500,000 common shares and issued 361,710 share purchase
warrants. Each share purchase warrant entitled the holder to purchase one
common share at a price of $1.50 per common share for a period of two years. As
part of the acquisition, the Company entered into employment agreements with two
of the founders of the Original VirtualSellers.
The Company continues to operate the Original VirtualSellers' business under a
newly created subsidiary called eCommerce Solutions Inc. doing business as
VirtualSellers.com. For details of the operations of the Original
Virtualsellers, see the section entitled "E-Commerce Operations" in Item 1 -
Description of Business.
Acquisition of Assets from CallDirect Enterprises Inc.
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In May, 1999, the Company purchased certain assets of CallDirect Enterprises
Inc. ("CallDirect"). As consideration for the acquisition, the Company issued
1,200,000 common shares and assumed the outstanding indebtedness of
approximately CDN$500,000, which the Company settled for approximately
CDN$109,000.
The Company continues to operate CallDirect's business through its subsidiary,
Preferred Telemanagement Inc. For details of the operations of the CallDirect,
see the section entitled "CallDirect Operations" in Item 1 - Description of
Business.
Acquisition of Tame Software and Customer Base
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In June, 1999, the Company purchased the rights to a proprietary e-commerce
shopping cart software system and language interpreter called TAME (Tag
Activated Markup Enhancement) from Seth Russell and Nathan Bawden, doing
business as Clickshop. As consideration for the acquisition, the Company
assumed liabilities of $20,000 and issued 300,000 common shares (150,000 shares
to each of Seth Russell and Nathan Bawden). As part of the acquisition, the
Company entered into an employment agreement with Nathan Bawden. The Company
has also agreed to issue a further 300,000 common shares one year from closing
if Nathan Bawden has successfully trained the Company's employees in the use,
operation and development of TAME.
For more details on TAME, see the section entitled "TAME (Tag Activated Markup
Enhancement)" in Item 1 - Description of Business.
The Company's Current Business
The Company's current business operations involve traditional and e-commerce
transaction processing and "backroom support" services for other
companies/entities. Part of the Company's operations include assisting
businesses in developing state-of-the-art e-commerce capable websites so that
they can retail their products and/or services over the Internet. The Company
provides the following services and/or products:
- - through its Call Center, the Company provides transaction processing,
centralized billing, customer and technical support, customer service, order
entry, order fulfilment, bill collection, help desk services and dispatch
functions;
- - through Virtualsellers.com, the Company provides turnkey e-commerce
transaction processing and website development, maintenance and hosting
services;
- - through CallDirect, the Company sells telephone related products and
provides transaction processing and customer services; and
- - through Virtualsellers.com, the Company sells its proprietary software
engine and language interpreter called TAME (Tag Activated Markup Enhancement).
TAME is an interpretative language which enables developers to create Internet
and e-commerce applications that interface with all major operating systems and
web browsers. The scope and functionality of the TAME language is comparable to
Java or Javascript.
The Company's Executive Officers
Name and Age Office Held Date Appointed
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Dennis Sinclair, 57 President, C.E.O. Director since
and Director November 14, 1996;
President and C.E.O.
since September 30,
1997
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Kevin Wielgus, 26 Secretary Secretary since
January 31, 2000
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Mel Baillie, 50 Director Director since
November 14, 1996
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Grayson Hand, 63 Director Director since
March 15, 2000
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Greg Burnett, 38 Director Director since
March 15, 2000
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The Company's executive officers are traditionally elected to office at the
first meeting of the Board of Directors following the Annual Meeting of
Stockholders. Each officer holds office until the first meeting of the Board of
Directors following the next Annual Meeting or until a successor is chosen.
Biographical information for the executive officers follows:
Dennis Sinclair obtained his Ph.D., Economics and Sociology, M.A., Sociology and
B.A., Psychology from the University of Michigan and has been an adjunct
professor at various universities, including the University of Michigan,
University of Southern California, University of Redlands, Pepperdine University
and a full-time professor at UCLA Graduate School of Management. He has
developed extensive experience in consulting to corporate clients by providing
general management and corporate consulting services to many companies through
his own consulting company. Mr. Sinclair has developed extensive experience in
all aspects of operating, directing and managing both private and public
companies through his positions as Senior Analyst and Investment Banker with
H.J. Meyers Inc. (08/95 to 12/96), an Investment Advisor with Securities America
(08/94 to 08/95), a Director of New Business Development with Validyne
Engineering Corporation (08/92 to 08/94) and his various other corporate
positions prior to 1992.
Mel Baillie obtained a Bachelor of Education Degree from the University of
Alberta subsequent to which he undertook post degree studies in Business
Administration. In addition to his formal education, Mr. Baillie has taken
numerous on the job courses relating to strategic marketing and planning,
selling, financial management, management development and leadership and process
design and management. Mr. Baillie has significant marketing, sales, operations
and strategic management experience acquired from over 20 years in the
telecommunications industry. He was the Vice President of Marketing and Sales
for Westel Telecommunications (12/95 to 12/96) where he directed the marketing
department, the major account sales group and commercial sales teams throughout
the province of British Columbia. Prior to that Mr. Baillie was the Vice
President Sales for Western Canada of Unitel Communications Inc. (1991 to 1995)
and the Executive Director of Carrier Relations for AT&T Canada (1991). Mr.
Baillie was also a Director, Major Accounts, Western Canada for Northern Telecom
Canada Ltd. (1989 to 1991), General Manager, Sales, Western Canada for C.N.C.P.
Telecommunications (1988 to 1989), Executive Director, Canadian Government and
Offshore Sales for Microtel Ltd. (1983 to 1988) and Marketing Manager and Global
Project Manager for Northern Telecom Canada Ltd. (1977 to 1983).
Grayson Hand has over 25 years of senior management and executive business
experience. He has acted as a director of Global Technologies Inc., Medical
Polymers Technologies Inc., Tanisys Technology Inc. and Leigh Resources Ltd.,
each of which is a Canadian publicly traded company.
Kevin Wielgus graduated from Northwestern University's undergraduate management
and administration program. Mr. Wielgus has experience in hospitality and
business-to-business sales. Between July 1996 and May 1999, Mr. Wielgus was part
of the management of Virtualsellers.com, Inc., a transaction processing company,
which was acquired by the Company in May, 1999. Prior to that, Mr. Wielgus was
a sales manager with Beck's CRS, a laser printer repair and toner cartridge
manufacturing business. In 1994, he founded the Daily Grind, a subscription
based mail order coffee company.
Greg Burnett obtained a Master of Business Administration Degree in 1986 and a
Bachelor of Applied Science in Civil Engineering in 1984. Mr. Burnett has
provided consulting services to business through the consulting firm, Carob
Management Ltd. since 1986. The consulting firm specializes in providing due
diligence services, developing business plans and structuring/managing venture
capital projects. Mr. Burnett has served as the President and a director of
Carob Management Ltd. since 1989. He has also served as a director and officer
of several companies publicly traded in Canada.
Employees
The Company currently employs 18 persons at the Company's Call Center, 5 persons
at CallDirect, 26 persons at Virtualsellers.com and 3 administrative staff at
its corporate head office. Except for the Company's executive officers, all
employees are employees at will and both the employee and the Company are free
to terminate such employment relationships at any time.
Call Center Operations
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The Company operates one Call Center through its subsidiary, NorthNet
Telecommunications, Inc. doing business as Northstar Telesolutions. The Call
Center is located at 68 - 74 South Park Boulevard, Greenwood, Indiana.
Industry Overview and Competition
The call center services market includes traditional teleservices activities
such as outbound and inbound customer support, centralized customer billing,
customer sales and support, order entry, order fulfilment, bill collection,
Internet-based sales and service support, and marketing services including
database marketing, market research, and data mining. Teleservices and other
customer call center outsourcing services have evolved significantly in recent
years, with the expansion of e-business and Internet sales and service programs.
Dot.com companies, click-and-mortar e-commerce companies, Internet service
providers and application service providers are becoming increasingly focused on
providing real-time, customer support for business and consumer-based Internet
applications. The Company believes that this trend will continue and
anticipates expanded demand for its services.
E-commerce has grown dramatically and with the addition of this new channel
comes an increasing need for businesses to optimize the value of their customer
relationships. To remain competitive in today's e-business marketplace,
companies are realizing the importance of implementing an integrated customer
service solution to effectively attract, acquire, retain, service, and measure
customer satisfaction at every point in the customer communication cycle in
order to maximize the lifetime value of each customer.
The call center industry generates more than $80 billion in revenues in North
America with after-tax profit margins of approximately 7 to 10 percent annually
and estimated growth rates of 25 to 40 percent a year. Based on these numbers,
the Company anticipates that the Call Center operations will provide solid
long-term growth potential with reasonable and achievable rates of return. In
addition, the Call Center is a business that integrates well with the Company's
e-commerce services because most successful Internet business require the
services of a full-scale call center to support their continuing operations.
The call center industry is intensely competitive and the Company's principal
competition in its primary markets comes from large service organizations and
numerous independent firms, as well as the in-house call center operations by
many of its clients or potential clients. In addition, most businesses that are
significant consumers of these services utilize more than one call center at a
time and reallocate work among various firms from time to time. Some of this
work is contracted on an individual project basis, effectively requiring that
the Company and other firms seeking such business compete with each other
frequently as individual projects are initiated.
Furthermore, the Company believes there is a trend among businesses with
in-house call center operations toward outsourcing the management of those
operations to others and that this trend may attract new competitors into the
Company's market including, but not limited to, competitors that are
substantially larger and better capitalized than the Company.
Government Regulation
Both the federal and state governments regulate telemarketing sales practices.
The Federal Telephone Consumer Protection Act of 1991 (the "TCPA"), enforced by
the Federal Communications Commission, imposes restrictions on unsolicited
telephone calls to residential telephone subscribers. Under the TCPA, it is
unlawful to initiate telephone solicitations to residential telephone
subscribers before 8:00 a.m. or after 9:00 p.m. local time at the subscriber's
location, or to use automated telephone dialling systems or artificial or
prerecorded voices to certain subscribers. Additionally, the TCPA requires
telemarketing firms to develop a written policy implementing a "do-not-call"
list, and to train its telemarketing personnel to comply with these
restrictions. The TCPA creates a right of action for both consumers and the
state. A court may award actual damages or minimum statutory damages of $500
for certain violations, which may be tripled for wilful or knowing violations.
Currently, the Company trains its service representatives to comply with the
regulations of the TCPA and programs its call management system to avoid
initiating telephone calls during restricted hours or to individuals maintained
on an applicable do-not-call list.
The Federal Trade Commission (the "FTC") regulates both general sales practices
and telemarketing specifically. Under the Federal Trade Commission Act (the
"FTC Act"), the FTC has broad authority to prohibit a variety of advertising or
marketing practices that may constitute "unfair or deceptive acts and
practices". Pursuant to its general enforcement powers, the FTC can obtain a
variety of types of equitable relief, including injunctions, refunds,
disgorgement, the posting of bonds, and bars from continuing to do business, for
a violation of the acts and regulations it enforces.
The FTC also administers the Federal Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994 (the "TCFAPA"). Under the TCFAPA, the FTC has issued
regulations prohibiting deceptive, unfair or abusive practices in telemarketing
sales. Generally, these rules prohibit misrepresentations of the cost,
quantity, terms, restrictions, performance or characteristics of products or
services offered by telephone solicitation or of refund, cancellation or
exchange policies. The regulations also regulate the use of prize promotions in
telemarketing to prevent deception and require that a telemarketer identify
promptly and clearly the seller on whose behalf the telemarketer is calling, the
purpose of the call, the nature of the goods or services offered and, if
applicable, that no purchase or payment is necessary to win a prize. The
regulations also require that telemarketers maintain records on various aspects
of their business. Analogous restrictions apply to industries regulated by the
SEC. The Company believes that it is in compliance with the TCPA and its
implementing regulations, as well as with the regulations promulgated pursuant
to the TCFAPA. Failure to comply with either the TCPA or the TCFAPA could
adversely affect or limit the Company's current or future operations.
Most states have enacted statutes similar to the FTC Act generally prohibiting
unfair or deceptive acts and practices. Additionally, some states have enacted
laws and others are considering enacting laws targeted directly at telemarketing
practices. For example, telephone sales in certain states are not final until a
written contract is delivered to and signed by the buyer, and such a contract
often may be cancelled within three business days. At least one state also
prohibits telemarketers from requiring credit card payment, and several other
states require certain telemarketers to obtain licenses, post bonds or submit
sales scripts to the state's attorney general. Under the more general statutes,
depending on the wilfulness and severity of the violation, penalties can include
imprisonment, fines and a range of equitable remedies such as consumer redress
or the posting of bonds before continuing in business. Many of the statutes
directed specifically at telemarketing practices provide for a private right of
action for the recovery of damages or provide for enforcement by state agencies
permitting the recovery of significant civil or criminal penalties, costs and
attorneys' fees. There can be no assurance that any such laws, if enacted, will
not adversely affect or limit the Company's current or future operations.
Services Provided by the Call Center
The Call Center currently has the capacity for 70 Call Center representatives
and is actively exploring options that will allow it to staff more than 100 Call
Center representatives. The Call Center offers clients customer service support
24 hours a day, seven days a week.
The Call Center specializes in providing the following transaction processing
and backroom services for other companies and entities:
- - inbound/outbound telemarketing, including targeted marketing campaigns,
cold calling, inbound marketing promotions and up-selling campaigns;
- - customer and technical support;
- - customer order entry;
- - credit reporting;
- - centralized customer billing which can be based on a specified anniversary
date or cycles which are bi-monthly, quarterly, semi-annually or annually;
- - customer account reconciliations and reporting using either a client's own
banking structure or specially dedicated accounts at the Company's bank;
- - customer payment collection including credit card and pre-authorized
checking;
- - collection of customer accounts or disbursement of customer refunds;
- - order fulfilment;
- - help desk services;
- - customer service and dispatch functions;
- - direct mail services which involves inserting the direct mail or other
related items into customers' bills before mailing; and
- - other computer telephone applications.
The Company can provide the customer with a package of bundled services or a
customized package of any variety of services required by each particular
customer. The Call Center provides high quality customer and order support for
any company, helping to increase customer satisfaction and retention.
The Company provides its services for a flat monthly rate depending on the scope
of services required. The Call Center offers clients reports based strictly on
subscriber data or custom reports involving high-level analysis. In either
case, the reports can be easily downloaded by clients into their own
spreadsheets or other statistical or analytical software program for review.
The Company plans to concentrate its Call Center services on transaction
processing and customer service allowing the Call Center's clients to
concentrate on the marketing and growth of their businesses while still
maintaining a high level of customer care and service.
The Company plans to continue to seek out additional opportunities to add
capacity, technology and expertise to its Call Center business. The Company is
cultivating new customers for the Call Center which has also begun to provide
cable-related services such as local and long distance telecommunications and
Internet access. The Company anticipates that the services offered by its
customers can be bundled and/or marketed together.
Technology
The Company's system and software technologies are designed to improve Call
Center representative production thereby lowering the effective cost per contact
made or received, and to improve sales and customer service effectiveness by
providing its sales and service representatives with real-time access to
customer and product information.
The Company realizes significant cost savings through the use of innovative
contact handling technology, computer telephone integration (CTI) and advanced
scripting software, all of which optimize agent utilization. CTI accepts an
inbound call from the public network and routes that call to the most
advantageous, available resource to handle the call. Scripting software is used
in the Call Center to provide the Call Center representative with the
appropriate information to use during the contact and to specify the content and
sequence of the information captured from the customer.
The Company uses CTI and adopts the latest technologies so that it can provide
the highest level of service while maintaining a competitive expense structure.
Because CTI can be used with over-the-counter desktop software, it allows the
Company to provide both cutting-edge and cost-effective services. This allows
the Company to construct software systems using databases from software
companies like Microsoft or Oracle.
The Company uses call tracking software for quality assurance purposes, as well
as to monitor customer order entry and billing, assess staff productivity, add
information to the database and enable customized data reporting.
The Company also operates an electronic "knowledge base" that is a clearinghouse
for information collected by the Call Center staff. The knowledge base can be
searched to answer customer questions and solve customer problems. Through
pop-up screen technology, the Call Center can simultaneously service numerous
clients, with a minimum of manpower.
The Call Center uses interactive voice response (IVR) software which allows
callers to access certain information using their telephone. This technology
decreases the amount of time required by Call Center representatives by
assisting callers without involving a Call Center representative.
For its outbound telemarketing services, the Company uses predictive dialling
software which automatically dials phone numbers from a predetermined list.
This software increases the efficiency of the Call Center staff by eliminating
the physical dialling process and reducing downtime associated with telephone
calls receiving no answers, busy signals and answering machines.
Customers, Sales and Marketing
In the past, the Company provided the Call Center services to a limited number
of cable television operators and ISPs in the United States. The Company has
expanded the scope of its Call Center operations to offer its services to the
following businesses:
- - e-commerce businesses;
- - Internet service providers;
- - providers of technical help desk support services;
- - providers of property management services;
- - direct broadcast satellite services providers;
- - retailers of medical, healthcare and consumer products;
- - in-house call centers;
- - reservation centers; and
- - providers of mail order catalogues, other forms of direct mail, broadcast
fax and more traditional forms of marketing services.
The Company targets businesses that have a customer base of up to 100,000
customers, as it has found that businesses with more than 100,000 customers
typically have well established in-house call centers. The Company is working
to provide its e-commerce customers with the services offered by the Call
Center. This expansion is expected to lead to increased transaction volume.
The Company markets the Call Center through periodic advertising and outbound
telemarketing of the services provided by the Call Center, as well as by
appearances at trade shows relevant to the call center industry. The Company
has entered into a Cooperative Marketing Agreement with Rockwell Electronic
Commerce Corporation ("Rockwell"), a company engaged in the design, development,
manufacture and support of call center systems. Under this arrangement, the
Company and Rockwell have agreed to work together to create a marketing plan to
develop and pursue opportunities for the marketing and sale of each company's
products and services.
Separate Financial Information
Separate financial information for the Call Center can be found at Note 12 to
the Company's consolidated financial statements for the fiscal period ended
February 29, 2000.
E-commerce Operations
- ----------------------
The Company provides turnkey e-commerce transaction processing and website
development, maintenance and hosting services to businesses through its
subsidiary, eCommerce Solutions Inc. doing business as VirtualSellers.com. With
no monthly fees and minimal set-up charges, VirtualSellers.com can assist
companies in designing, building, deploying and managing sophisticated secure
e-commerce ready Internet websites that provide these businesses with
immediately available, customized, secure and complete e-commerce transaction
processing capabilities so that these businesses can retail their products
and/or services over the Internet. For businesses with existing websites,
Virtualsellers.com can convert those websites into e-commerce enabled websites
within a matter of hours.
Industry Overview
As the Internet has become an increasingly important communications medium,
businesses and consumers have begun using the Internet to buy and sell goods and
services. The number of Internet users worldwide has grown dramatically and is
expected to grow significantly in the next few years. Increasingly, these
Internet users are becoming online consumers. International Data Corporation
has forecasted that the actual number of Internet buyers worldwide will expand
from 48 million in 1999 to approximately 183 million in 2003, and that the
amount of worldwide commerce conducted over the Internet will increase from $111
billion in 1999 to approximately $1.3 trillion in 2003. Information technology
market research and consulting firm Dataquest has predicted that commerce over
the Internet (e-commerce) will grow to more than $150 billion by this year, with
70 percent of that figure being sales of consumer durable goods. Forrester
Research Inc., an independent research firm, has forecast that in 2001,
consumers will spend $7.4 billion on travel, $5 billion on financial services,
$3.8 billion on computers, $2.7 billion on entertainment and $1.1 billion on
books and music - all via transactions over the Internet.
To meet this demand, companies across all industry segments are and have been
scrambling to establish a presence on the Internet. Unfortunately, a large
number of businesses have neither the time nor the resources to design, develop,
construct and manage an e-commerce capable website to handle
business-to-business or business-to-consumer transactions. Furthermore, many
large corporations outsource their e-commerce transaction processing so as to
gain greater product focus and minimize incremental costs associated with
marketing their products online.
E-commerce offers both businesses and consumers numerous benefits, including the
following:
- - businesses and consumers can interact 24 hours a day, 7 days a week,
regardless of their respective locations;
- - businesses can customize website content to match the needs and
preferences of individual users by personalizing content for users;
- - online stores enable businesses to readily increase the number of products
and services offered, thereby enhancing the product selection available to
customers;
- - online businesses can avoid investments in physical retail locations; and
- - much of the interaction between businesses and consumers can be automated,
resulting in reduced operating costs.
E-commerce between businesses provides the following benefits:
- - reduced cost of selling the businesses' products or services;
- - reduced inventory requirements;
- - increased ability to minimize and rely on suppliers; and
- - reducing time required by senior management and others for operations and
allowing more time for strategic planning.
These benefits allow businesses to focus on growing their customer base and to
market and sell their products around the world in a cost-effective and
efficient manner.
The early adopters of e-commerce were often Internet-centered companies, such as
Amazon.com and Beyond.com, which were founded specifically to transact business
on the Internet. Today, many businesses consider it essential to offer their
goods and services through the Internet, and many traditional retailers such as
department stores, car dealers, and toy stores have opened online stores to
supplement their traditional retail sales models. An increasingly broad
selection of products is now being sold online, ranging from the initial online
product offerings of books, music, computers and software to more traditional
consumer goods such as groceries, clothes, movie tickets, vitamins and
prescription drugs. Accordingly, the need for online transaction processing
is affecting virtually all industries and businesses.
To succeed online, a business must attract customers to its website and provide
an appealing and easy-to-use environment that encourages customers to place an
order by clicking on the "buy" button. Once the customer places an order, the
business must process the order by effectively and efficiently executing
numerous transactions. With the rapid increase in the number of online
businesses and the vast array of products and services becoming available
online, competition among online businesses is increasingly intense. Due to
these competitive pressures, businesses must focus their resources on attracting
customers to their websites and providing compelling content to keep customers
in their online stores. However, as a business succeeds in these efforts, the
increased number of resulting orders creates another set of complex challenges.
These challenges include:
- - Payment processing. The vast majority of online consumer purchases are
conducted using credit cards. These credit card transactions should be
processed in real time to confirm an order while the customer is online.
Increasingly, businesses are also seeking to process transactions in local
currencies around the world.
- - Fraud prevention. Because of the anonymity offered by the Internet and
the speed with which one can make purchases, the opportunity for fraud is
significant. In e-commerce transactions, because the credit card is not
present, a business is generally held liable by its bank for the full value of
the transaction in the event of credit card fraud even if a pre-authorization
had been obtained. Online businesses must find ways to combat this fraud to
avoid losing both the product being sold and the related revenue.
The online business must often address these demands while the customer is
waiting online. Information that a traditional retailer can collect during a
period of hours, such as fraud screen, often must be available to the online
business immediately. In addition, the business must have an e-commerce system
that scales as the business grows, provides a high level of reliability and
handles peak loads. The business' e-commerce system should also integrate
smoothly into its existing business and technology and must support secure,
authenticated messaging.
Early adopters of e-commerce business models typically developed custom
transaction processing systems. Businesses that built these systems often faced
long development cycles, which delayed their time-to-market. These custom
systems often limited functionality and scalability and high ongoing maintenance
costs. Recently, online businesses have attempted to address their transaction
processing needs by either purchasing or outsourcing discrete systems.
Businesses that turn to discrete systems like payment processing are still faced
with the need to address other potentially costly and time-consuming transaction
processing issues, such as fraud screening, pay processing and customer service.
In addition, businesses that purchase discrete systems often discover that these
systems cannot scale as their business grows.
As the Internet has become an essential marketplace, businesses are increasingly
turning to e-commerce service providers with the expertise and ability to
deliver a comprehensive solution that shortens time-to-market and maximizes the
value of their investment. These transaction processing solutions should be
available at a low initial and overall cost and, at the same time, be scalable
to support the growth of the online business. A solution should also allow the
business to maintain control over its online content and customer relationships
and to integrate new services easily.
Virtualsellers.com can meet this demand by providing businesses either with or
without an existing Internet presence with immediately available, customized,
secure and complete e-commerce transaction processing capabilities so that these
businesses can retail their products and/or services over the Internet.
Virtualsellers.com provides a solution which has a low initial cost, is scalable
to support a business' growth and which allows the business to maintain control
over its online content and customer relationships.
Virtualsellers.com's services offers a significant advantage for businesses the
either do not wish to or do not have the resources to spend a large amount of
time and money developing and maintaining the ability to process e-commerce
transactions and sell their products online. In addition, the Company can help
larger businesses with websites keep their focus on the products and services
they are selling by taking over the online transaction processing and other
related customer services.
Competition
The market for Virtualsellers.com's services is intensely competitive and
subject to rapid technological change. The Company expects competition to
intensify in the future. Virtualsellers.com's primary source of competition
comes from other developers of systems for e-commerce transaction processing
such as Cybersitsce, Clear Commerce, CyberCash, Digital River, Hewlett-Packard
(VeriFone), HNC Software, Open Market, PaylinX, ShopNow.com, Signio, iCat,
ViaWeb, iBill and Octagon. Each of these companies provides software for
e-commerce transaction processing and hosts companies wanting to outsource
e-commerce transaction processing. However, each of the companies has its own
unique scope of services that it provides. For example, at ViaWeb the client
designs the website. ICat sells software but does not exclusively provide a
service. In addition, companies (including financial services and credit
companies such as First Data Corporation, AT&T and GE Capital), may enter the
market for its services. In the future, Virtualsellers.com may also compete
with large Internet-centered companies that derive a significant portion of
their revenues from e-commerce and may offer, or provide a means for others to
offer, e-commerce transaction services.
VirtualSellers.com does not believe that large systems integrators are direct
competitors because they provide complete e-commerce systems only to major
corporations. VirtualSellers.com targets businesses that cannot afford - in
either dollars or time or both - to develop e-commerce capable websites. Some
clients will need more complex systems as they grow, and VirtualSellers.com has
pursued relationships with systems integrators to pass these clients on in a
seamless manner while continuing to receive future revenue streams.
Many of Virtualsellers.com's competitors have longer operating histories,
substantially greater financial, technical, marketing or other resources, or
greater name recognition than it does. Its competitors may be able to respond
more quickly than it can to new or emerging technologies and changes in customer
requirements. Competition could seriously impede Virtualsellers.com's ability
to sell additional services on terms favourable to it. Its current and
potential competitors may develop and market new technologies that render its
existing or future services obsolete, unmarketable or less competitive.
Virtualsellers.com's current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
other e-commerce transaction service providers, thereby increasing the ability
of their services to address the needs of Virtualsellers.com's prospective
customers. Virtualsellers.com's current and potential competitors may establish
or strengthen co-operative relationships with its current or future channel
partners, thereby limiting its ability to sell services through these channels.
Competitive pressures could reduce Virtualsellers.com's market share or require
the reduction of the prices of its services, either of which could materially
and adversely affect its business, results of operations or financial condition.
Virtualsellers.com competes on the basis of certain factors, including:
- - system reliability;
- - product performance;
- - breadth of service offering;
- - ease of implementation;
- - time to market;
- - customer support; and
- - price.
Virtualsellers.com believes that it presently competes favourably with respect
to each of these factors. However, the market for its services is still rapidly
evolving, and it may not be able to compete successfully against current and
potential future competitors. VirtualSellers.com concentrates on superior
customer service and making the e-commerce transaction easy for both the
business and the consumer - safe, secure and timely. VirtualSellers.com also
provides clients with a toll free telephone number that its customers can use as
an alternative method of order entry and to access other customer service
features.
Government Regulation
Virtualsellers.com is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses generally,
and there are currently few laws or regulations directly applicable to access
to, or commence on, the Internet. However, due to the increasing popularity and
use of the Internet, it is possible that various laws and regulations may be
adopted with respect to the Internet, covering issues such as taxation, user
privacy, pricing, and characteristics and quality of products and services. In
1998, the United States Congress established the Advisory Committee on
Electronic Commerce which is charged with investigating, and making
recommendations to Congress regarding, the taxation of sales by means of the
Internet. The adoption of any such laws or regulations upon the recommendation
of this Advisory Committee or otherwise may decrease the growth of the Internet,
which could in turn decrease the demand for Virtualsellers.com's products or
services, increase its cost of doing business or otherwise have an adverse
effect on its business, prospects, financial condition, or results of
operations. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, libel, and personal privacy is
uncertain. Future federal or state legislation or regulation could have a
material adverse effect on Virtualsellers.com's business, prospects, financial
condition, and results of operations.
The Internet Tax Freedom Act ("ITFA") was enacted in October, 1998 and is
effective through October, 2001. The ITFA bars state or local governments from
imposing taxes that would subject buyers and sellers of electronic commerce to
taxation in multiple states. The ITFA also bars state and local governments
from imposing taxes on Internet access through October of 2001. When the ITFA
expires or if it is repealed, Internet access and sales across the Internet may
be subject to additional taxation by state and local governments, thereby
discouraging purchases over the Internet and adversely affecting
Virtualseller.com's business.
Services Provided by Virtualsellers.com
Virtualsellers.com provides a turnkey e-commerce transaction processing service
to businesses with existing Internet websites and develops, maintains and hosts
e-commerce capable websites for businesses without existing websites.
VirtualSellers.com has expanded its e-commerce solutions capacity by
establishing a technology facility capable of handling 53 million e-commerce
transactions a day. VirtualSellers.com provides this service in a secure
environment and handles all aspects of processing orders. VirtualSellers.com
charges a fee depending on the services provided and the cost of the item sold.
By taking control of the e-commerce transaction and by receiving payment for the
e-commerce transaction from the user directly, Virtualsellers.com has positioned
itself to ensure that the user is satisfied with its online purchase and the
processing of the transaction. Major criticism has been aimed at the e-commerce
industry for lack of customer service and Virtualsellers.com endeavours to
complete each e-commerce transaction in a timely manner or provide a refund to
the user. Virtualsellers.com has not had a charge back from a credit card
transaction in the past year.
While many companies offer partial solutions to businesses that want to sell
products and services over the Internet, VirtualSellers.com is one of the few
that provides full service, end-to-end e-commerce business solutions.
VirtualSellers.com views a business' website as a point-of-sale and attempts to
mirror in-store point-of-sale experiences as closely as possible by
concentrating its efforts on customer service.
For businesses without existing e-commerce capable Internet websites,
VirtualSellers.com can assist companies in designing, building, deploying and
managing sophisticated secure e-commerce ready Internet websites that provide
these businesses with immediately available, customized, secure and complete
e-commerce transaction processing capabilities so that these businesses can
retail their products and/or services over the Internet. There are no monthly
fees and minimal set-up charges. VirtualSellers.com earns income by charging a
percentage of each e-commerce transaction.
VirtualSellers.com allows clients to bypass all the traditional steps to create
a secure website. These include the need for software and hardware, Internet
access, software programming and website design, and Internet-accepted business
banking accounts. In addition, clients will avoid hiring and paying for the
labour necessary to learn the systems and process the orders.
For businesses with existing websites, VirtualSellers.com's goal is to provide
e-commerce transaction processing service within one hour of successfully
completing an extensive screening process. All clients are subsequently
monitored to ensure that they have the financial and logistical ability to
deliver the products they offer for sale.
VirtualSellers.com has the capability to build, maintain and host an e-commerce
capable website and therefore provide businesses with the ability to develop an
online selling presence by reducing a business' time to market and allowing the
business' existing customers to purchase the business' products or services over
the Internet. VirtualSellers.com offers a variety of e-commerce transaction
processing services, including:
- - integrated online marketing;
- - secure real time on-line order processing and clearing, including a
proprietary 8-point fraud verification check;
- - secure online order billing, payment acceptance and verification, and
payment collection;
- - business banking account services;
- - shopping cart software which allows consumers to order several items,
calculates applicable taxes, totals the order and accepts a credit card as
payment;
- - inventory interface;
- - order fulfilment tracking;
- - inventory tracking;
- - payment collection;
- - customer service support;
- - order tracking;
- - retention of commissions at the point-of-sale; and
- - provision of all the necessary documentation to facilitate product
delivery.
VirtualSellers.com processes and clears orders in the following manner:
- - upon receiving an order, VirtualSellers.com performs an 8-point fraud
check;
- - VirtualSellers.com authenticates and authorizes the credit card payment;
- - VirtualSellers.com deposits the payment, deducts its commission, sends a
check and shipping information to the client;
- - VirtualSellers.com performs all order processing, customer service and
follow-up on orders; and
- - VirtualSellers.com sends clients verification of orders for shipment
through either email, fax or postal mail. Clients only receive the verified and
completed order.
Technology
VirtualSellers.com can provide clients with complete, end-to-end e-commerce
transaction processing systems or provide only specific services in conjunction
with clients' existing websites and Internet service providers.
VirtualSellers.com uses its proprietary programming software language, TAME, to
deliver these end-to-end e-commerce solutions. For more details on TAME, see
the section entitled "TAME (Tag Activated Markup Enhancer)" in Item 1 -
Description of Business.
The technology underlying Virtualsellers.com's e-commerce transaction service
solutions provides businesses with the following benefits:
- - Scalable Solutions. Virtualsellers.com's services allow businesses to
deliver consistent quality of service as their transaction volumes grow, and to
handle daily and seasonal peak periods. As a result, businesses do not have to
expand these areas of their transaction processing infrastructure as their
businesses grow.
- - Highly Reliable Solutions. Virtualsellers.com's systems are engineered to
provide high reliability, and it provides transaction processing 24 hours a day,
7 days a week. In addition, Virtualsellers.com offers its businesses support 24
hours a day, 7 days a week.
- - Customer Satisfaction. Because its services enable online businesses to
process e-commerce transactions in real-time, businesses can improve their level
of customer satisfaction and reduce their support costs by avoiding delayed
responses and minimizing the need for follow-up communications. Businesses can
also ensure customer satisfaction by utilizing the Company's Call Center
services in connection with their e-commerce transaction processing.
Customers, Sales and Marketing
VirtualSellers.com has been providing e-commerce solutions for three years and
has serviced more than 100 companies in both the business-to-business and
business-to-consumer markets. VirtualSellers.com's clients include a wide range
of businesses and have included the Kansas City Royals, former AFL Kansas City
Chiefs football coach Hank Stram, Beanie Babies stuffed toys and various music
products.
VirtualSellers.com has found that a vast majority of managers of businesses - as
well as entrepreneurs - do not have the time or resources to create and manage a
website designed to sell their products in a secure environment. Moreover, many
larger corporations continue to outsource this aspect of their e-commerce
business in order to keep their focus on products and product development and to
minimize incremental costs associated with marketing over the Internet.
These two types of businesses provide VirtualSellers.com with its core market.
The Company believes that VirtualSellers.com can use its flexibility to turn
potential competitors into partners or clients. To do so, the Company has
created the VirtualSellers.com affiliate program, which allows ISPs, website
designers, website portal providers and others to partner with the Company both
for strategic benefit and financial gain. These affiliates become a valuable
source of referrals.
Target customers for Virtualsellers.com's e-commerce transaction services
include Internet-centered businesses, including those who have developed custom
transaction processing systems and established retailers that have opened online
stores to supplement their traditional retail models. Virtualsellers.com
reaches these businesses through a sales force as well as through an indirect
sales channel that leverages existing sales and marketing infrastructures
developed by its affiliates. As of February 29, 2000, Virtualsellers.com had a
total of five persons in sales and marketing conducting outbound telemarketing
for the e-commerce transaction processing services.
Virtualsellers.com's products and services are marketed through direct and
indirect channels. All products and services are also offered directly through
its e-commerce capable website "Virutalsellers.com". Virtualsellers.com's
efforts in marketing and selling the e-commerce transaction processing services,
and the website development, maintenance and hosting services is accomplished
through:
- - Virtualsellers.com's website;
- - direct sales by its own staff through outbound telemarketing programs;
- - tradeshows; and
- - referrals provided through a marketing agreement with IMC (Internet
Marketing Consortium) Cable Print Network Marketing Inc.
Separate Financial Information
Separate financial information for Virtualsellers.com can be found at Note 12 to
the Company's consolidated financial statements for the fiscal period ended
February 29, 2000.
CallDirect Operations
- ----------------------
The Company also operates as a catalogue reseller of telephone-related
equipment, as well as products such as multimedia, entertainment, travel,
security and computer accessories for offices and homes through its subsidiary
Preferred Telemanagement Inc. doing business as CallDirect Enterprises.
CallDirect is based in Delta, British Columbia, Canada. The Company uses the
Call Center to provide customer service functions for CallDirect and through its
website "www.calldirect.com", CallDirect retails its products over the Internet.
Industry Overview and Competition
The market for customer-premise telecommunications products is highly
competitive. CallDirect competes with a variety of traditional dealers,
distributors, and retailers, including catalog companies, electronics specialty
stores, and office products and computer superstores. A variety of external and
internal factors could adversely affect CallDirect's ability to compete. These
include the function, performance, price, and reliability of the products
offered by CallDirect and its competitors and the effectiveness of the marketing
efforts of CallDirect and its competitors. Certain competitors of CallDirect
have greater financial, technical, sales, marketing, and other resources than
CallDirect. There can be no assurance that CallDirect will compete effectively
against existing competitors or new competitors that may enter the market. In
addition, while CallDirect currently does not know of any competitor
specializing in distributing a broad line of telecommunications products
directly to business end users via catalog, outbound telemarketing, and the
Internet, there can be no assurance that CallDirect will be able to compete
successfully in the future in these direct marketing channels, which may attract
new market entrants, or in other channels that CallDirect may enter or that may
be developed for telecommunications products for such customers.
Services Provided by CallDirect
CallDirect is a catalogue reseller of telephone-related equipment as well as
products such as multimedia, entertainment, travel, security and computer
accessories for offices and homes. CallDirect markets brand name, private label
and high quality, leading-edge proprietary products through both its direct
response catalogue and its e-commerce capable website. CallDirect currently
focuses on selling brand name products but plans to expand its offering of
proprietary and private label products under the CallDirect name in order to
build brand awareness.
CallDirect continually updates its product line to ensure that customers have
access to the latest telecommunications products and services. CallDirect
regularly assesses and analyzes the performance of each product and product
group to ensure that each marketing dollar is as efficiently spent as possible.
CallDirect's current product line is divided into the following categories:
- - headset products;
- - cordless telephones;
- - telecom products;
- - CTI (computer telephone integration) products;
- - line switch products;
- - call identification products;
- - office products;
- - cellular and wireless products; and
- - miscellaneous and accessory products.
CallDirect also provides transaction processing and limited customer services.
The Company plans to use the Call Center mentioned above to expand the customer
service functions that CallDirect offers its clients. CallDirect also has
several years of credit card clearing experience and has established extensive
business banking relationships, which facilitate e-commerce transactions. The
Company's experience and relationships will allow the Company to become a
e-commerce transaction processing firm in Canada.
Customers, Sales and Marketing
CallDirect retails its products through its catalogue and over the Internet
through its website, "www.calldirect.com".
CallDirect's catalogue and its website are its primary sales tools which are
designed to provide all the information necessary for a customer to purchase any
of its products. The catalogue includes product description, full-colour
photographs, product specifications, prices, as well as information concerning
the use and application of telecommunication products. It has an end-use-end
orientation and is designed to appeal to both technical and non-technical users.
The product copy follows generally accepted direct response principles of
presenting user benefits, explaining product features and soliciting orders.
The catalogue also features a complete easy to use index, an e-mail address, web
address, direct fax number, and a toll-free telephone number.
CallDirect's catalogue has been and will be produced in-house on advanced
desktop publishing equipment. Essentially all the text, graphics and photos
used in the catalogues are digitized. Use of this equipment for page production
will provide CallDirect significant speed and cost savings over traditional
catalogue and production methods.
In response to the significant changes in the telecommunications industry
following the introduction of e-commerce, an area of opportunity opened up for
direct distribution of commercial grade telecommunication products to business
end users primarily in small to medium sized businesses including branch offices
of large organizations, via the Internet. The market for accessory and add-on
products is not well served by the large telecom and interconnect companies
because of relatively small dollar volumes.
CallDirect believes that its direct response catalogue and its website will
enable it to establish a direct relationship with the end user, especially small
home office users. CallDirect believes that its focus of sourcing out new and
innovative products that are not available (or are available on a limited basis)
through the standard telecom channels allows it to remove a lot of the cost
presently associated with large conglomerates. CallDirect will typically be
able to offer products to end users on a more cost effective basis.
CallDirect plans to continue to realize sales growth by:
- - acquiring new customers through increased catalogue circulation and via
its website;
- - stimulating repeat purchases from new and existing customers via e-mail
broadcasts;
- - supplementing catalogue mailing, links and banners with outbound
telemarketing to target potentially high volume key accounts; and
- - working with the larger inter-connect companies that are more involved
with selling large switches and key systems and not involved in the accessories
to these telephone users.
Increasing the number of prospective customers can also be achieved by accessing
customer lists that have been developed by other major business-to-business
direct marketers. CallDirect has an opportunity to significantly increase the
number of its active customers who have a proven tract record of purchasing both
through catalogues and over the Internet. CallDirect's strategy also parallels
its belief that it can successfully encourage its customers to make repeat
purchases by constantly updating its product line with innovative technology
(e-commerce) and by providing excellent customer service and care.
CallDirect's target customer is a telephone intensive person. These customers
are typically found in small to medium size businesses, including branch offices
of large organizations, that are heavily dependent on telecommunications.
Direct marketing to this target customer offers the customer superior purchasing
convenience, access to technical knowledge and support, and a wider selection of
products than those which are offered through competing distribution channels.
CallDirect also believes that it can stimulate repeat purchases from existing
customers through efficient database management. CallDirect is developing a
proprietary in-house customer list which identifies the type of customer,
purchasing agent, administrator or potential buyer, to allow it to effectively
target its marketing efforts. Based on the size of active customer lists that
have been developed by major business-to-business marketers, there is an
opportunity to significantly expand an active list of customers. CallDirect is
continuously acquiring new customers by mailing catalogues to prospective
customers. Good database management enables CallDirect to target specific
customers.
The Company has obtained potential customer names through the rental of selected
mailing lists which include the names of business buyers from non-competing
catalogues, subscribers to business publications, and members of trade
associations. CallDirect also rents selected consumer lists of individuals
whose demographic profiles match those of existing customers. CallDirect is
typically allowed to use names from a rented list only once, unless the customer
responds to CallDirect's catalogue, in which case the name may be added to
CallDirect's in-house list.
CallDirect believes that direct marketing is the most cost effective way to
market its telecommunication products to its telecommunication customers, and
that this marketing channel gives it a distinct advantage over its competition
versus other channels of distribution.
CallDirect believes that prompt and courteous service is critical in encouraging
customers to make repeat purchases. The object of CallDirect's customer care
organization, which will be responsible for in-bound sales, technical support
and training, is to set the standard in an industry that other companies, should
they decide to enter this marketplace, will find very difficult to match.
Over the last three years, CallDirect has built an extensive database of more
than 40,000 small home businesses and medium to large businesses including all
levels of government. CallDirect uses this database as a prime marketing tool.
This comprehensive database, which stores information on both customers and
their purchasing history, is used to identify high volume and potentially high
volume customers. To maximize sales opportunities offered by these customers,
CallDirect has initiated a Key Account Program designed to provide these high
volume customers with special pricing and service agreements.
CallDirect intends to produce three direct response catalogues per year but
constantly reviews catalogues and response rates and compares the product
offerings to be included in the catalogue with its online business in order to
maximize the efficiency and profitability of the catalogues. The periodic
upgrading of the catalogue with the information collected from the sales from
its e-commerce website enables CallDirect to quickly adjust to changing market
conditions.
CallDirect's e-commerce capabilities enable it to test new products quickly
without waiting the normal 8 to 12 weeks between catalogue offerings. In
addition, prices can be updated daily or as required. This enables CallDirect
to get new products into the marketplace quickly and easily.
Separate Financial Information
Separate financial information for CallDirect's operations can be found at Note
12 to the Company's consolidated financial statements for the fiscal period
ended February 29, 2000.
TAME (Tag Activated Markup Enhancer)
- ----------------------------------------
The Company owns an application computer system known as Goldpaint Shopping Cart
and the operating system software known as TAME (Tag Activated Markup
Enchancer).
Industry Overview and Competition
The Internet has experienced dramatic growth, both in terms of the number of
users and as a means of conducting business transactions, and is expected to
continue to grow rapidly. International Data Corporation estimates that the
number of Internet users will increase from 196 million in 1999 to 502 million
in 2003. The emergence of the Internet has enabled new online business models
and spurred the development and deployment of Web applications to facilitate
business interactions that were not practical to address with traditional
computing systems. This public infrastructure enables companies to market and
sell their products and services to customers through e-business applications as
well as to forge closer ties with their partners and suppliers.
As the number of companies conducting business online has increased, the
Internet has become a highly competitive business environment and has in turn
energized the entire business world. A growing number of companies are building
Web applications that perform a combination of marketing, sales and operational
functions. The Internet promotes competition in markets and makes it easy for
customers to locate and transact business with competitive vendors. As a
result, companies are seeking to differentiate themselves from competitors by
developing increasingly sophisticated websites and Internet applications to
attract and retain customers. Online businesses are looking for innovative
technology solutions that enable them to deliver products and information
targeted to their customers' interests and that enable them to provide a higher
level of customer service. More broadly, this heightened competition is raising
the importance of technology in increasing business efficiency. Companies are
increasingly looking to Internet technology to help them manage their supplier
and distributor networks more effectively -- by automating inter- and
intra-company business processes and integrating diverse systems where key
information is managed and where key business transactions reside.
Combined, these factors have created demand for comprehensive software platforms
that can enable businesses to execute on their key Internet business initiatives
quickly and reliably. Such a platform includes software platforms that allow
integration and movement of data between existing software applications systems
of different businesses across the Internet, as well as productive tools that
enable both developers and business users to participate in the construction,
maintenance and management of online businesses. TAME provides that solution.
The Web application products market is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other
activities of market participants. Primary competitors in the market include
Microsoft and its software Java and Javascript. As the size and visibility of
the market opportunity increases, the Company believes that additional
competitors may enter the market with competing products. Increased competition
could result in pricing pressures, reduced margins or the failure of TAME to
achieve or maintain market acceptance, any of which could have a materially
adverse effect on the Company's business, operating results and financial
condition. Many of the Company's current and potential competitors have longer
operating histories and substantially greater financial, technical, marketing
and other resources than it does. Therefore, they may be able to respond more
quickly to new or changing opportunities, technologies, standards or customer
requirements. Many of these competitors also have broader and more established
distribution channels that may be used to deliver competing products directly to
customers through bundling or other means. If competitors were to bundle
competing products with their products, the demand for TAME might be
substantially reduced and the Company's ability to distribute its products
successfully would be substantially diminished.
Competitive factors in the Web application products market include:
- - the quality and reliability of software;
- - cost per user;
- - application server scalability, availability and performance;
- - productivity features for creating, editing and adapting content;
- - ease of use and interactive user features;
- - compatibility with the user's existing network components and software;
- - systems; and
- - interoperability with emerging Internet standards such as XML, Java, and
HTML.
TAME Software
The TAME Interpretative Programming Language
TAME is a platform independent, server side, interpretative programming language
that is compatible with Unix, Linux, Microsoft Windows NT and virtually every
major operating system. The scope and functionality of the language can be
compared to Java, Javascript, or Visual Basic. In addition, TAME can work side
by side with any of these programming languages.
TAME also has full compatibility with XML (eXtensible Markup Language), the
website programming language that has quickly become the de facto standard for
electronic business information. XML is easy to learn, easily extensible to
support new data attributes and flexible enough to represent any information.
Unlike many competing software programs that use HyperText Markup Language
(HTML), TAME's XML compatibility allows its users to develop, build and modify
their websites regardless of their existing programming language, operating
system, server system or Internet browser. TAME acts like glue, creating a layer
between users and the systems they must interact with and binds them together.
TAME has achieved acceptance into the EMC Proven Program. Acceptance into the
EMC Proven Program indicates that VirtualSellers.com's IT infrastructure has
passed a rigorous review of its ability to support the operational needs of an
Internet-based business or service and has the enterprise storage resources
necessary to operate at peak efficiency, adapt to a constantly changing business
climate and easily mange Internet-driver growth. EMC Proven E-Infostructure
Program benefits give VirtualSellers.com the right to display the EMC Proven
E-Infostructure logo in its printed and electronic media, allowing it to add
value and market differentiation in the products and services it offers
customers. In addition, VirtualSellers.com will be included in a number of
EMC-driven marketing initiatives. Such acceptance will allow the Company to
benefit from EMC's vendor network in generating sales for both TAME and
Virtualsellers.com.
The Company uses TAME to provide its transaction processing clients a quick,
easy and seamless way to establish a presence on the Internet, and as the key
facilitator for e-commerce solutions. With the software, a business can
quickly, easily and seamlessly launch a new website, upgrade an existing one,
add leading-edge shopping cart technology to a website, or add new services for
its own customers. For those companies that already have websites, TAME gives
them the opportunity to remain on the cutting edge of Internet technology
without having to continuously invest in new software and hardware.
In addition to using TAME for its clients, the Company operates a high
technology laboratory in the Chicago area that serves as the testing ground for
TAME - both in terms of upgrading the software to keep pace with technology
changes and to test new applications for clients. Through the operation of the
lab, the Company ensures that new versions of and new applications for TAME are
market-ready and real world tested.
Through its use of TAME, the Company and its development partners can deliver
end-to-end e-business solutions based on an open, scalable architecture provided
by the TAME development environment. This ability ensures that clients'
existing business processes, intelligence and technology can be easily
Web-enabled and integrated to support new online and offline business
initiatives.
If, for example, a client decides to move to a different operating system, TAME
can be installed and the applications can be seamlessly moved to their new home.
TAME-enabled Web services link sites and applications together to perform
functions that individual components alone are not able to perform.
TAME has many benefits and competitive advantages:
- - Platform Independence. TAME is compatible with Unix, Linux, Microsoft
Windows NT and virtually every other major computer operating system which
simplifies Web and enterprise infrastructure development over clients' existing
architectures.
- - Flexibility. TAME enables applications to communicate with each other
within the Web's infrastructure, and more importantly provides a framework for
connecting websites and applications to create dynamic TAME-enabled Internet
services.
- - Ease of Use. TAME is quick and easy to learn and dramatically reduces
coding time compared to other competing software languages.
- - Reduction of Bandwidth Requirements. Because TAME processes data requests
at the server side, only formatted data results are sent to the user's browser.
In order to display a data-driven Internet web page, the browser must receive
formatting information to control how the pages look. This savings in file size
translates directly to savings in bandwidth. The less data being sent, the less
bandwidth an application will require.
- - Faster Loading. For users connected to the Internet via modems, TAME
means dramatically faster loading of pages and for businesses hosting websites
on dedicated (and expensive) Internet connections, it means lowered connection
costs.
- - TAME is XML-Enabled. Recently introduced, XML (extensible Markup
Language) is acclaimed as the new standard in data sharing via the Internet.
This technology breakthrough is also believed to be the replacement for current
electronic data interchange (EDI) technology that many companies use for
business-to-business transactions. Because XML is embedded in TAME, the time
required to develop website tags is greatly reduced. TAME can access many
dissimilar databases from different operating systems and provide a common
interface to display the data. TAME includes a dynamic Internet web page engine
and provides Internet access to databases, giving developers the ability to
easily create solutions that can be deployed on all major operating systems and
server environments, resolving common problems associated with many of today's
non-XML Internet browsers.
- - Browser Compatibility. Whereas most XML solutions require specific
Internet browsers (such as MSIE 5.0), TAME XML will function on nearly all
browsers, including lower versions of Netscape Navigator, MSIE, OPERA and AOL's
proprietary browsers. This browser compatibility is a key advantage to TAME
because industry standards for XML are still in their infancy. By not basing an
XML strategy in loosely defined standards, TAME will be able to grow with the
industry and in fact help drive that growth.
The TAME Shopping Cart
Much has been made recently about Internet shopping carts and the software that
supports them. Shopping carts in general collect information about an online
shopping session so orders can be calculated and managed. While simple shopping
cart solutions stop there, more complex systems interface with other elements of
the transaction process such as databases, inventory control systems, payment
verification systems and accounting systems. These systems together make up the
buying and selling process.
As it exists now, the TAME shopping cart can work fluidly as an XML solution,
meaning that as XML becomes standardized, applications using TAME can adapt to
the standards or create their own XML standards for a particular task. Because
it uses XML, the TAME shopping cart is superior to other similar solutions
available today because of its operating system compatibility, speed,
development time and browser compatibility. Unlike many existing shopping cart
programs, TAME XML-enabled systems can be deployed on virtually all operating
system platforms.
Customers, Sales and Marketing
The Company markets and sells TAME to businesses using a combination of direct
and indirect distribution channels, including the following:
- - direct sales by its own staff through its outbound telemarketing program;
- - sales through its website - www.tameable.com;
- - sales through industry trade shows like COMDEX; and
- - sales through reselling agreements with companies like RedHat Inc.
The Company intends to market and sell TAME using the following direct and
indirect distribution channels:
- - sales through strategic relationships with hardware vendors;
- - direct sales to application service providers who in turn sell to their
customers;
- - direct sales to internet and other service providers who provide website
development and e-commerce solutions;
- - agents who develop or resell integrated solutions;
- - organizations that use TAME to create websites and Web applications with
electronic commerce, content management and personalization capabilities for
Internet, intranet and extranet use; and
- - sponsorship of seminars for potential customers and promoting special
events.
The Company's website allows visitors to download, evaluate and purchase TAME.
Electronic distribution provides the Company with a low-cost, globally
accessible, 24-hour sales distribution channel. To date, many copies of an
evaluation version of TAME have been downloaded from the Company's website.
The Company continues to develop market awareness of the "TAME" brand. The
Company's branding strategy includes participating in trade shows and
conferences, promoting special events and advertising its products and services
in print and electronic media.
One example of a website built with TAME is www.webshoppersclub.com, a website
that provides data in 13 languages and uses 24 currencies. Rather than
replicating the same site in multiple languages, TAME allows the user to specify
the parameters of the information desired such as language, currency or
products, and then retrieves the data and delivers it. The result is an
application that dynamically gathers, translates and displays information on the
fly rather than accessing an existing page or converting existing content to fit
the request.
Intellectual Property
- ----------------------
The Company's success is dependent upon its proprietary technology and other
intellectual property and on its ability to protect its proprietary technology
and other intellectual property rights. In addition, the Company must conduct
its operations without infringing on the proprietary rights of third parties.
The Company also intends to rely upon unpatented trade secrets and the know-how
and expertise of its employees. To protect its proprietary technology and other
intellectual property, the Company relies primarily on a combination of the
protections provided by applicable copyright, trademark, and trade secret laws,
as well as on confidentiality procedures and licensing arrangements.
The Company has one patent application pending with the United States Patent and
Trademark Office for its TAME software system and method. The Company also has
trademark applications pending with the United States Patent and Trademark
Office for "Virtualsellers.com", "TAME", "If you don't care about e-commerce,
that's your business. If you do that's our business." and Virtualsellers.com
and Tiger (Tame) logos. Although the Company believes that it has taken
appropriate steps to protect its unpatented proprietary rights, including its
requirement that its employees and third parties who are granted access to its
proprietary technology enter into confidentiality agreements, there can be no
assurance that these measures will be sufficient to protect its rights against
third parties. Others may independently develop or otherwise acquire unpatented
technologies or products similar or superior to the Company's technologies or
products.
The Company licenses certain software and Internet tools from third parties that
it includes in its services and products. If any of these licenses were
terminated, the Company could be required to seek licenses for similar software
and Internet tools from other third parties or develop these tools internally.
The Company may be unable to obtain such licenses or develop such tools in a
timely fashion, on acceptable terms, or at all.
Companies participating in the software and Internet technology industries are
frequently involved in disputes relating to intellectual property. In the
future, the Company may be required to defend its intellectual property rights
against infringement, duplication, discovery, and misappropriation by third
parties or defend against third-party claims of infringement. Likewise,
disputes may arise in the future with respect to ownership of technology
developed by employees who were previously employed by other companies. Any
such litigation or disputes could result in substantial costs to, and a
diversion of effort by, the Company. An adverse determination could subject the
Company to significant liabilities to third parties, require that it seek
licenses from, or pay royalties to, third parties, or require it to develop
appropriate alternative technology. Some or all of these licenses may not be
available to the Company on acceptable terms or at all, and the Company may be
unable to develop alternate technology at an acceptable price or at all. Any of
these events could have a materially adverse effect on its business, prospects,
financial condition, and results of operations.
RISK FACTORS
Much of the information included in this Annual Report on Form 10-K includes or
is based upon estimates, projections or other "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and are subject to the "safe harbor"
created by those sections. While these forward-looking statements, and any
assumptions upon which they are based, are made in good faith and reflect the
Company's current judgment regarding the direction of its business, actual
results will almost always vary, sometimes materially, from any estimates,
predictions, projections, assumptions, or other future performance suggested
herein. The Company undertakes no obligation to update forward-looking
statements to reflect events or circumstances occurring after the date of such
statements.
Such estimates, projections or other "forward-looking statements" involve
various risks and uncertainties as outlined below. The Company cautions the
readers that important factors in some cases have affected and, in the future,
could materially affect actual results and cause actual results to differ
materially from the results expressed in any such estimates, projections or
other "forward-looking statements". Readers should carefully consider the
following factors in evaluating the Company, its business and any investment in
the Company.
HISTORY OF LOSSES
The Company has incurred substantial net losses and has a substantial net
operating loss carryover. These losses were mainly incurred in operations which
the Company no longer operates. The Company has incurred losses since entering
the alternate long distance telecommunications business and has continued to
lose money during the transition to becoming a transaction processing/customer
service company. For the fiscal year ended February 29, 2000, the Company
incurred losses of $4,693,230. The Company projects that it will continue to
incur losses for the period ending February 28, 2001, but should be at a
positive monthly run rate after that time. While the Company feels confident
that it can secure additional funds through private placement financing and
successfully carry out its business plan, there can be no assurance that the
Company will accomplish these tasks and achieve profitability.
LACK OF HISTORY OF THE INTERNET AND E-COMMERCE
Due to the lack of history regarding both Internet business and e-commerce
transaction processing, there is little information on which to base projections
of future profitability. Consideration should be given to risks inherent to
start up businesses and the volatility of emerging technology. The Company's
viability will depend on its ability to anticipate changes in e-commerce
technology and avoid the pitfalls associated with new businesses. If the
Company is not successful in addressing these risks, its business will likely be
adversely affected.
DEPENDENCE UPON KEY CUSTOMERS
The Company's Call Center is dependent upon a limited number of customers for a
substantial portion of its revenues. The loss of any of these customers would
have a significant, materially adverse impact upon the Call Center's revenues
and prospects for profits but would not significantly impact the Company's
working capital, liquidity or the long term prospects. Each customer accounted
for no more than 25% of the Call Center's total revenue for the year ended
February 29, 2000. Although the Company expects to expand its customer base,
there can be no assurance that the Company will be successful and, if the
customer base is expanded, that the Company will be able to retain its existing
customers. Furthermore, an unexpected decline in sales to any of such customers
could have a materially adverse effect upon the Company. In addition, there are
no firm contracts governing the Company's relationship with any of its Call
Center customers. Accordingly, such business relationships could be terminated
or curtailed at any time. The lack of firm contracts between the Company and
its customers could have a materially adverse impact on the Company's revenue.
The Company's e-commerce business is estimated to produce 80% to 90% of the
Company's continuing revenue. While several of Virtualsellers.com's clients
may produce substantial sales, none will account for more than 5% of
Virtualsellers.com's total revenue. The remaining revenues will be generated
from the Call Center and CallDirect operations. As with the Call Center, an
unexpected decline in sales to any of its e-commerce customers could have a
materially adverse effect upon the Company. In addition, all sales of services
to VirtualSellers.com's clients are based on short-term contracts, usually
12-months, and as a result such relationships could be terminated before their
expiry or expire. This could have a materially adverse impact on the Company's
revenue.
COMPETITION
Many of the Company's competitors in both the call center and e-commerce
business segments are substantially larger than the Company and have
significantly greater financial resources and marketing capabilities than the
Company, together with better name recognition. It is also possible that new
competitors may emerge and acquire significant market share in each or either of
these markets. Competitors with superior resources and capabilities may be able
to utilize such advantages to market their products and services better, faster
and/or cheaper than the Company. Increased competition is likely to result in
price reductions, reduced gross margins and loss of market share, any of which
could have a materially adverse effect upon the Company's business, results of
operations and financial condition. In addition, there can be no assurance that
the Company will be able to compete successfully against its present or future
competitors in each or either of these markets.
The telecommunications and Internet markets are both very competitive. The
Company will compete directly with companies providing similar products and
services which may have certain commercial advantages. The Company's ability to
compete successfully will require it to develop and maintain technologically
advanced products and services, attract and retain highly qualified personnel,
obtain a significant customer base using its e-commerce transaction processing
services and its Call Center services, whether alone or with third parties.
There can be no assurance that the Company will be able to achieve these
objectives. Failure to do so would have a materially adverse effect on the
Company's business, operating results and financial condition. Furthermore, the
Company's potential products and services, if successfully developed, will
compete directly with other existing and subsequently developed products using
competing technologies. There can be no assurance that the Company's
competitors will not succeed in developing or marketing technologies and
products that are more effective and commercially desirable than those developed
or marketed by the Company or that would render the Company's technology and
products non-competitive. Failure of the Company's potential products to
compete successfully with products using competing technologies will have a
materially adverse effect on the Company's business, operating results and
financial condition.
The Company has entered an industry that is in its infancy. Competition comes
in several forms. There are traditional companies that sell hardware and
software; there are design companies that develop e-commerce solutions for
business; and there are on-line malls that house a multitude of websites for
various businesses. In general, these are not direct competitors in that they
do not supply complete e-commerce transaction development and processing
services.
The closest direct competition to the services provided by the Company comes
from iCat, ViaWeb, iBill and Octagon. Each of these companies provides software
for e-commerce transaction processing and hosts companies wanting to outsource
the e-commerce portion of their websites. However, many of these companies do
not provide the back-office services, business services, customer service, order
tracking, or technical services. The Company has chosen to concentrate on
superior service and making the e-commerce transaction itself easy for the
client and their customers - safe, secure and timely. The Company's competitive
advantage is derived from the fact that it provides a complete e-commerce
solution/service to these businesses.
The market for customer-premise telecommunications products is highly
competitive. CallDirect competes with a variety of traditional dealers and
retailers, including catalog companies, electronics specialty stores, office
products and computer superstores. A variety of external and internal factors
could effect its ability to compete, including:
- - the function, performance, price and reliability of the products offered
by CallDirect and its competitors;
- - the timing and success of CallDirect and its competitors' new products;
- - development efforts; and
- - the effectiveness of CallDirect and its competitors' marketing efforts.
Certain of CallDirect's competitors have greater financial, technical, sales,
marketing, and other resources than its has. CallDirect may not be able to
compete effectively against existing competitors or against new competitors that
may enter the market. In addition, while CallDirect currently does not know of
any competitor specializing in distributing a broad line of telecommunications
products directly to business end users via catalog, outbound telemarketing and
the Internet, it may not be able to compete successfully in the future in these
direct marketing channels, which may attract new market entrants, or in other
channels that CallDirect may enter or that may be developed for the sale of
telecommunications products.
COSTS OF CATALOG MAILING, PAPER, AND PRINTING MAY INCREASE.
Increases in postal rates and paper and printing costs increase the cost of
catalog mailings. An increase in postal rates or higher than anticipated paper
and printing costs could harm the Company's financial position and results of
operations to the extent that it is unable to pass such increase directly on to
customers by raising prices or offset such increase by implementing more
efficient printing, mailing and delivery systems.
THE COMPANY FA