HEALTHTRAC INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: May 31, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________________________ to _________________________________

Commission File Number: 000-14356

HEALTHTRAC, INC.
(Exact name of registrant as specified in its charter)

Canada
(State or other jurisdiction of incorporation or organization)

911353658
(I.R.S Employer Identification No.)

Suite 1000 - 120 North LaSalle Street, Chicago, IL, 60602
(Address of principal executive offices and Zip Code)

(312) 920-9120
(Registrant's telephone number, including area code)

VirtualSellers.com, Inc.
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

As of June 30, 2002, there were 214,554,251 shares of the Registrant's common shares issued and outstanding.

PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements

DISCLOSURE

To: The Shareholders of Healthtrac, Inc.

It is the opinion of management that the interim financial statements for the quarter ended May 31, 2002 include all adjustments necessary in order to ensure that the financial statements are not misleading.

Chicago, Illinois
Date: July 15, 2002

/s/ signed
Director of Healthtrac, Inc.

Consolidated Financial Statements
(Expressed in United States dollars)

HEALTHTRAC, INC.
(Formerly Virtualsellers.com, Inc.)

Three months ended May 31, 2002 and 2001

(Unaudited)

Healthtrac, Inc. (Formerly Virtualsellers.com, Inc.)
Consolidated Balance Sheets (Unaudited) (Expressed in United States dollars)
					May 31, 2002		February 28, 2002
(unaudited)
Assets
Current assets:
	Cash and cash equivalents				$	295,856	$	283,659
	Accounts receivable, net of allowance of $25,987
		(February 28, 2002 - $235,847)			183,723		300,262
	Employee receivable				29,917		29,917
	Inventories				33,368		49,378
	Prepaid expenses and deposits				254,059		285,474
	Assets of discontinued operations				2,097		2,097
	Total current assets				799,020		950,787
Capital assets					860,268		914,955
Intellectual property, net of $1,008,137 accumulated amortization (February 28, 2002 - $705,695)					5,040,681		5,343,123

Total assets					$	6,699,969	$	7,208,865

Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable				$	1,404,274	$	1,665,946
	Accrued liabilities				802,374		483,737
	Deferred revenue				450,677		456,025
	Deposit				53,299		-
	Notes payable				138,721		150,000
	Current portion of obligations under capital lease				27,000		43,129
	Liabilities of discontinued operations				20,519		20,519
	Total current liabilities				2,896,864		2,819,356
Obligations under capital lease					23,167		23,176
Stockholders' equity:
	Common shares, no par value (note 3):
			Authorized: 300,000,000 common shares
			Issued and outstanding: 211,301,870 shares (199,034,013 shares at February 28, 2002)		121,208,569		120,685,444
	Shares to be issued				590,751		754,213
	Accumulated deficit				(118,019,382)		(117,073,324)
	Total stockholders' equity				3,779,938		4,366,333

Total liabilities and stockholders' equity					$	6,699,969	$	7,208,865

Future operations (note 1)
Commitment and contingencies (note 7)
Subsequent event (note 8)

See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:

/s/ Dennis Sinclair Director				/s/ Raymond Mol Director

Healthtrac, Inc. (Formerly Virtualsellers.com, Inc.)
Consolidated Statements of Operations (Unaudited) (Expressed in United States dollars)
Three months ended May 31, 2002 and 2001

				2002				2001

Revenue		$		1,085,307		$		625,733
Costs and expenses:
	Direct costs			371,453				209,367
	Selling, general and administrative expenses			1,304,350				1,616,142
	Amortization			364,377				400,921
				2,040,180				2,226,430
Loss before the undernoted items				(954,873)				(1,600,697)
Other income (expense):
	Interest revenue			-				3,742
	Miscellaneous			8,815				(12,897)
				8,815				(9,155)

Loss from continuing operations				(946,058)				(1,609,852)

Loss from discontinued operations				-				(40,021)

Loss for the period		$		(946,058)		$		(1,649,873)

Loss per common share (note 2(b)):
	Continuing operations	$		(0.01)		$		(0.01)
	Discontinued operations			-				-

			$		(0.01)		$		(0.01)
Weighted average number of shares outstanding				205,087,585				127,837,249

See accompanying notes to consolidated financial statements.

Healthtrac, Inc. (Formerly Virtualsellers.com, Inc.)
Consolidated Statements of Stockholders' Equity
(Expressed in United States dollars)


		Common Shares
		Number		Assigned Value		Shares to be issued		Accumulated deficit		Total

Balance, February 28, 2001		127,834,749	$	107,521,482	$	4,705,000	$	(107,156,515)	$	5,069,967

Shares issued during the year:
	Exercise of CCAA warrants	732,433		-		-		-		-
	Issued for acquisition of Sullivan Park	6,500,000		2,210,000		(2,700,000)		-		(490,000)
	Shares issued and to be issued for acquisition of Healthtrac	13,212,976		4,492,412		107,588		- -		4,600,000
	Issued on acquisition of Med Wire assets	241,935		150,000		- -		- -		150,000
	Issued on acquisition of specific assets of Healthscape	631,579		240,000		- -		- -		240,000
	Shares issued for cash received pursuant to private placements	42,985,717		4,744,125		(2,005,000)		- -		2,739,125
	Shares to be issued for settlement of debt	- -		- -		6,000		- -		6,000
	Shares issued for settlement of debt	3,716,090		971,767		-		-		971,767
	Shares issued for services	1,425,777		123,658		-		-		123,658
	Shares issued for employees' and directors' compensation	1,018,181		566,000		- -		- -		566,000
	Shares issued for severance pay	1,000,000		100,000		-		-		100,000
	Shares returned to treasury and cancelled	(265,424)		- -		- -		- -		- -
	Shares to be issued for cash received pursuant to private placements	- -		- -		640,625		- -		640,625
	Share issue costs	-		(24,000)		-		-		(24,000)
	Subscription receivable	-		(410,000)		-		-		(410,000)
	Loss for the year	-		-		-		(9,916,809)		(9,916,809)

Balance, February 28, 2002		199,034,013		120,685,444		754,213		(117,073,324)		4,366,333

Shares issued during the period:
	Shares to be issued for settlement of debt	- -		- -		57,163		- -		57,163
	Shares to be issued for cash received pursuant to private placements	- -		- -		47,500		- -		47,500
	Shares issued for cash received pursuant to private placements	11,267,857		520,625		(268,125)		- -		252,500
	Shares issued for employee compensation	1,000,000		80,000		- -		- -		80,000
	Subscription receivable	-		(77,500)		-		-		(77,500)
	Loss for the period	-		-		-		(946,058)		(946,058)

Balance, May 31, 2002		211,301,870	$	121,208,569	$	590,751	$	(118,019,382)	$	3,779,938

See accompanying notes to consolidated financial statements

Healthtrac, Inc. (Formerly Virtualsellers.com, Inc.)
Consolidated Statements of Cash Flows (Unaudited) (Expressed in United States dollars)
Three months ended May 31, 2002 and 2001

				2002		2001

Cash provided by (used in):
Operations:
	Loss for the period		$	(946,058)	$	(1,649,873)
	Items not involving cash:
		Loss from discontinued operations		-		40,021
		Non-cash compensation expense		80,000		-
		Amortization		364,377		400,921
	Changes in non-cash operating working capital:
		Accounts receivable		116,539		23,030
		Employee receivable		-		(1,522)
		Prepaid expenses and deposits		31,415		48,829
		Inventories		16,010		(268,877)
		Accounts payable		(204,509)		-
		Accrued liabilities		318,637		156,554
		Deferred revenue		(5,348)		-
		Deposit		53,299		-
	Cash flow used in continuing operations			(175,638)		(1,250,917)
	Cash used in discontinued operations			-		(14,065)
				(175,638)		(1,264,982)
Investments:
	Acquisition of capital assets			(7,248)		(161,919)
Financing:
	Notes payable			(11,279)		-
	Repayment of capital lease obligation, net			(16,138)		-
	Issuance of common shares for cash			175,000		-
	Cash received on shares to be issued			47,500		1,085,000
	Share issue costs			-		-
				195,083		1,085,000

Increase (decrease) in cash and cash equivalents				12,197		(341,901)
Cash and cash equivalents, beginning of period				283,659		606,262
Cash and cash equivalents, end of period			$	295,856	$	264,361

Non-cash transactions and supplemental disclosures (note 6).

See accompanying notes to consolidated financial statements.

Healthtrac, Inc. (Formerly Virtualsellers.com, Inc.)
Consolidated Notes to Financial Statements (Unaudited) (Expressed in United States dollars)
Three months ended May 31, 2002 and 2001

1.	Future operations:
	These financial statements have been prepared on the going concern basis, which assumes the realization of assets and the settlement of liabilities in the normal course of business. The application of the going concern concept is dependent on the Company's ability to generate future profitable operations and receive continued financial support from its shareholders and from external financing. The Company incurred a loss from operations of $946,058 for the three months ended May 31, 2002 and has an accumulated deficit of $118,019,382 at May 31, 2002. For the period ended May 31, 2002, the Company used $175,638 in cash to fund operations, and as at May 31, 2002, the Company has a working capital deficiency of $2,097,844.
	Management projects that the Company will require additional cash and working capital to fund planned operations and capital asset additions for fiscal 2003 of approximately $1,350,000 (unaudited). Although management is of the opinion that sufficient cash will be obtained from operations and external financing to meet the Company's liabilities and commitments as they become due in fiscal 2003, there can be no assurance that funds from external financings will be available when required on an economical basis to the Company. The ability of the Company to continue as a going concern and realize the carrying value of its assets is dependent on the Company's ability to increase its revenues by increasing its customer base and reducing its operating costs so that the Company achieves profitable operations. To date, subsequent to May 31, 2002 the Company has raised $153,333 in external financings through common share private placements (note 8). If the Company is u nable to obtain sufficient funds for operations, it will be required to reduce operations or liquidate assets.
	These financial statements do not reflect any adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of operations.

2.	Significant accounting policies:
	(a)	Basis of presentation:
		These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Except as disclosed in note 22 of the Company's annual audited consolidated financial statements as at February 28, 2002, these principles do not differ materially from accounting principles generally accepted in Canada.

Healthtrac, Inc. (Formerly Virtualsellers.com, Inc.)
Consolidated Notes to Financial Statements (Unaudited) (Expressed in United States dollars)
Three months ended May 31, 2002 and 2001

2.			Significant accounting policies (continued):
		(a)		Basis of presentation (continued):
				These consolidated financial statements do not include all disclosures required by accounting principles generally accepted in the United States or required by Canadian generally accepted accounting principles for annual financial statements, and accordingly, these consolidated financial statements should be read in conjunction with the Company's most recent annual consolidated financial statements. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of these unaudited financial statements have been made. These consolidated financial statements follow the same accounting policies and methods of application used in the Company's audited annual consolidated financial statements as at and for the year ended February 28, 2002.
				These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All subsidiaries were acquired from unrelated parties and have been accounted for using the purchase method. Their results of operations have been included from the respective effective dates of acquisition. All significant intercompany balances and transactions have been eliminated.

				Canadian subsidiaries	United States subsidiaries

				Canadian-American Communications Inc.	Northnet Telecommunications Inc.
				Canadian Northstar Transmission Systems Ltd.	eCommerce Solutions inc.
				Preferred Telemangement Inc. ("PTI)	Sullivan Park, Inc. ("Sullivan Park")
				Cam-Net Cellular Inc.	Healthtrac Corporation


				On February 28, 2002, the Company closed its catalogue sales division. As a result, the catalogue sales division business activity represents discontinued operations to the Company. In accordance with generally accepted accounting principles in the United States, prior year figures have been reclassified in the consolidated financial statements to separately reflect the assets, liabilities, revenues and expenses under discontinued operations accounting.
	(b)			Loss per share:
				Loss per share has been calculated using the weighted average number of shares outstanding during the period. Diluted loss per share does not differ from basic loss per share as the impact of all outstanding convertible securities would be to reduce the loss per share.

Healthtrac, Inc. (Formerly Virtualsellers.com, Inc.)
Consolidated Notes to Financial Statements (Unaudited) (Expressed in United States dollars)
Three months ended May 31, 2002 and 2001

3.	Share capital:
	(a)	Authorized:
		300,000,000 common stock without par value
		150,000,000 class A preference stock without par value
		150,000,000 class B preference stock without par value
	(b)	Commitments to issue common shares:
		The Company has committed to issue 13,000,000 shares to former creditors under a reorganization plan. As at May 31, 2002, 10,581,455 (February 28, 2002 - 10,581,455) shares have been issued to creditors leaving an outstanding commitment to issue 2,418,545 (February 28, 2002 - 2,418,545) shares.
	(c)		Warrants:
			On June 4, 2001, the Company issued 65,000 share purchase warrants which expire June 4, 2004. Each warrant entitles the holder to purchase one common share for $0.56. As at May 31, 2002, 65,000 (February 28, 2002, 65,000) of these warrants were unexercised.
			On July 16, 2001, the Company issued 20,000 share purchase warrants which expire July 16, 2003. Each warrant entitles the holder to purchase one common share for $0.40. As at May 31, 2002, 20,000 (February 28, 2002, 20,000) of these warrants were unexercised.
			On August 3, 2001, the Company issued 50,000 share purchase warrants to a former employee in place of 45,000 options previously granted to that employee. The warrants expire on August 3, 2003. Each warrant entitles the holder to purchase one common share for $0.24. As at May 31, 2002, 50,000 (February 28, 2002, 50,000) of these warrants were unexercised.
			On January 2, 2002, the Company issued 6,000,000 share purchase warrants to the former President as part of his severance package. The warrants expire on January 2, 2007. Each warrant entitles the holder to purchase one common share for $0.10, the market price of the Company's common shares at the time of the issuance of the share purchase warrants. As at May 31, 2002, 6,000,000 (February 28, 2002, 6,000,000) of these warrants were unexercised.
	(d)		Stock options:
			The Company has a stock option plan, which allows the Company, at the discretion of the Board of Directors, to issue options to employees, directors and consultants to purchase common shares of the Company. Stock purchase options are granted having exercise prices based on the market price at the date of grant. The stock options expire at various dates ranging from July 28, 2010 to November 5, 2011. The stock options vest in accordance with each individual stock option agreement.

Healthtrac, Inc. (Formerly Virtualsellers.com, Inc.)
Consolidated Notes to Financial Statements (Unaudited) (Expressed in United States dollars)
Three months ended May 31, 2002 and 2001

4.		Share capital (continued):
	(d)			Stock options (continued):
				The following summarizes changes in stock options since February 28, 2001:

							Three months ended May 31, 2002
							Shares		Weighted average exercise price

				Outstanding, beginning of period			6,776,000		$ 0.14
				Granted			6,000,000		0.10
				Forfeited			-		-

				Outstanding, end of period			12,776,000		$ 0.12

					Number	Price		Expiry

			Employees		350,000	0.11		March 6, 2004
			Director		1,000,000	0.15		July 28, 2010
			Employees		1,590,000	0.15		July 28, 2010
			Directors		300,000	0.15		September 25, 2010
			Employee		775,000	0.15		October 23, 2010
			Directors		400,000	0.15		November 1, 2010
			Employees		25,000	0.15		November 1, 2010
			Employees		65,000	0.15		January 2, 2011
			Directors		1,200,000	0.15		April 24, 2011
			Employees		70,000	0.15		April 24, 2011
			Employee		26,000	0.15		July 16, 2011
			Employees		775,000	0.09		October 22, 2011
			Director		200,000	0.15		November 5, 2011
			Consultant		2,000,000	0.10		April 11, 2003
			Employee		4,000,000	0.10		April 1, 2004

			Total		12,776,000	0.12

				On June 10, 2002, President and Chief Executive Officer resigned from the Company and consequently, forfeited the 3,000,000 unvested options at $0.10 (note 7(c)). During the quarter, the expiry date was extended for 350,000 options held by former employees. No additional compensation is required to be recognized as a result of this modification. On April 1, 2002, 2,000,000 stock options were granted to a consultant of the Company which vest in accordance with certain performance criteria and expire on April 1, 2003. No compensation was required to be recorded to May 31, 2002, for this award.
	(e)			Issuance of shares for non-monetary consideration:
				Shares issued for employee and director compensation, to third parties for services rendered, for settlement of debt and for the acquisition of assets or businesses are recorded based upon the market trading value of the shares at the date of the related agreements to issue the shares.

Healthtrac, Inc. (Formerly Virtualsellers.com, Inc.)
Consolidated Notes to Financial Statements (Unaudited) (Expressed in United States dollars)
Three months ended May 31, 2002 and 2001

5.		Segmented information:
		The Company has three operating segments - a health promotion division (Healthtrac Corp.) - a call center division (NorthStar TeleSolutions, Inc.) and an e'commerce division. The health promotion, call center and e'commerce segments are located in the United States. Segmented information for the three months ended May 31, 2002 with comparative figures for May 31, 2001 are as follows:

		Operating segments:

			May 31, 2002		Health promotion segment				Call Centre segment				E'commerce segment				Total

			Gross revenue	$	754,151		$		274,668		$		56,220		$		1,085,039
			Corporate		-				-				-				268

				$	754,151		$		274,668		$		56,220		$		1,085,307

			Segment income (loss)	$	(376,305)		$		5,279		$		(3,834)		$		(374,860)
			Corporate		-				-				-				(571,198)

			Income (loss) for the period	$	(376,305)		$		5,279		$		(3,834)		$		(946,058)

	Segment assets			$	5,499,678	$		223,764		$		224,852		$		5,948,294
	Assets of discontinued operations				- -			- -				- -				2,097
	Corporate assets				-			-				-				749,578

	Total assets			$	5,499,678	$		223,764		$		224,852		$		6,699,969

		Equipment additions: