On December 20, 2000, we expect to file a petition in the U.S.
Bankruptcy Court for the District of Minnesota to reorganize our debts under
Chapter 11 of the U.S. Bankruptcy Code.
We settled our litigation with Cnet, Inc. in August 1999 in exchange
for our issuance to Cnet of 2,000,000 shares of our Common Stock.
In September 2000 Lycos offered to settle their dispute with the
Company for a $2,250,000 cash payment. In November 2000, Lycos filed suit in
United States District Court, District of Massachusetts, to collect an amount to
be established by trial up to the total remaining value of our contract. We
estimate our total exposure at up to $13,375,000. Due to our financial position,
we did not contest the suit. In December 2000, Lycos requested a default
judgment against us. Based upon the September offer from Lycos to settle the
dispute, we have provided for $2,250,000 for this claim in the financial
statements as of and for the three and nine months ended October 31, 2000.
In July 2000, EZ Quest, Inc., a vendor of our dtpdirect.com operation,
filed suit in Orange County Superior Court in Santa Ana, California to collect
approximately $65,000 that EZ Quest claims is due from sales of products to us.
In October 2000, EZ Quest obtained a default judgment for the total amount
claimed. We believe that we have adequately provided for this judgment against
us.
In September 2000, Mitsubishi Electric & Electronics USA, Inc.
("Mitsubishi") filed a claim with the American Arbitration Association in Orange
County, California demanding payment of $227,000 plus late payment fees,
arbitration costs and attorney's fees for products delivered to our GTI
subsidiary in April, May and June 2000. We believe we have adequately provided
for any amounts due as a result of this claim.
In September 2000, Perry Judds ("Judds") filed suit in Hennepin County
District Court in Minneapolis, Minnesota to collect approximately $162,000 plus
court costs and attorney's fees that Judds claims is due for publishing T2
Acquisition Corporation product catalogs. In November 2000, Judds obtained a
default judgment for the total amount claimed. We believe that we have
adequately provided for this judgment against us.
In September 2000, Hansol Multitech, Inc. ("Hansol") filed suit in
Orange County Superior Court in Santa Ana, California to collect approximately
$199,000 plus interest, court costs and attorney's fees that Hansol claims is
due for supplying products to GTI Acquisition Corporation. We believe that we
have adequately provided for any amounts due as a result of this claim.
In September 2000, Merisel Americas, Inc. ("Merisel") filed suit in
Superior Court of California in Los Angeles, California to collect approximately
$109,000 plus interest, court costs and attorney's fees that Merisel claims is
due for supplying products to T2 Acquisition Corporation. Netdirect was also
named in this suit. We believe that we have adequately provided for any amounts
due as a result of this claim.
In September 2000, the debtor in possession of the assets of Microage,
Inc. ("Microage") filed suit in the United States Bankruptcy Court in Phoenix,
Arizona to collect approximately $102,000 plus interest, court costs and
attorney's fees that Microage claims is due for supplying products to Netdirect
and T2 Acquisition Corporation. We believe that we have adequately provided for
any amounts due as a result of this claim.
In October 2000, Bill Dinges ("Dinges") filed suit in the Justice
Court, West Tempe Precinct, Maricopa County, Arizona to collect approximately
$2,500 that Dinges claims is due for publishing product brochures for GTI
Acquisition Corporation. In November 2000, Dinges obtained a default judgment
for the total amount claimed. We believe that we have adequately provided for
this judgment against us.
In October 2000, Carmichael, Lynch, Spong ("Carmichael") filed suit in
Hennepin County District Court in Minneapolis, Minnesota to collect
approximately $79,000 that Carmichael claims is due for supplying public
relations services to Netdirect. In December 2000, Carmichael obtained a default
judgment for the total amount claimed. We believe that we have adequately
provided for any amounts due as a result of this claim.
In October 2000, Merisel Americas, Inc. ("Merisel") filed suit in
Superior Court of California in Los Angeles, California to collect approximately
$40,000 plus interest, court costs and attorney's fees that Merisel claims is
due for supplying products to Netdirect. We believe that we have adequately
provided for any amounts due as a result of this claim.
In November 2000, Ricoh Corporation ("Ricoh") filed suit in Hennepin
County District Court in Minneapolis, Minnesota to collect approximately
$105,000 that Ricoh claims is due for supplying products to GTI Acquisition
Corporation. We believe that we have adequately provided for any amounts due as
a result of this claim.
-18-
In November 2000, Wynit ("Wynit") filed suit in Hennepin County
District Court in Minneapolis, Minnesota to collect approximately $111,000 that
Wynit claims is due for supplying products to T2 Acquisition Corporation. We
believe that we have adequately provided for any amounts due as a result of this
claim.
In December 2000, Iiyama North America, Inc. ("Iiyama") filed suit in
Hennepin County District Court in Minneapolis, Minnesota to collect
approximately $22,000 that Iiyama claims is due for supplying products to
Netdirect. We believe that we have adequately provided for any amounts due as a
result of this claim.
Because of our financial position, we have not contested any of the
above claims, and all of them could result in default judgments for the amount
of the claim.
In connection with our January 1999 acquisition of the operating assets
of Herold Marketing Associates, Inc. dba Graphics Technologies, Inc. ("Herold"),
we escrowed $200,000 of funds for possible future payment to Herold upon a
post-closing purchase price reconciliation. Umax, Inc. asserted a claim against
the escrowed funds based on a money judgment against Herold in a matter
unrelated to us. Herold and we authorized the payment into court of $85,000 of
the amount in escrow for determination by the court as to whether Umax may make
a claim for those funds. The matter has not been resolved to date.
-19-
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None
(b) None
(c) Recent Sales of Unregistered Securities.
(1) Issuance of shares with no cash consideration:
Between August 1 and October 31, 2000, we issued 2,000,000 shares to
CNET, Inc. to settle our $500,000 litigation dispute. We believe the
issuance of these shares was exempt under Sections 4(2) and 4(6) of the
Securities Act of 1933, as amended.
(d) None
ITEM 5. OTHER INFORMATION
In December 1999 we entered into a purchase agreement to acquire
certain of the assets of Softdisk, Inc., including the downloadstore.com
website, and to lease the screensaverstudio.com website from Softdisk, Inc. in
exchange for cash, Common Stock and an interest-free note payable over 12 months
at $9,150 per month. The note payable was secured by the downloadstore.com
website and a customer list (the "Assets"). In July 2000, we defaulted on the
note and subsequently failed to make timely payments in August, September and
October 2000. In November 2000, Softdisk foreclosed on and subsequently took
possession of the Assets to satisfy a total secured debt of $55,000. We believe
no additional amounts are due Softdisk for the secured debt.
In September 2000, Coast Business Credit sent us notice of default on
our loan and security agreement and demanded full repayment of its loans within
45 days. On September 28, 2000 Philip Lacerte ("Lacerte"), a director and
shareholder of our company, purchased the loan from Coast for $296,000. As a
result, Lacerte holds a senior secured position over our assets.
In November 2000, a shareholder demanded rescission of a $150,000
purchase of securities. We deny the right of rescission and intend to vigorously
defend any action brought by the shareholder.
-20-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) All schedules and exhibits not included are not applicable, not
required or would contain information which is shown in the financial statements
or notes thereto.
EXHIBITS DESCRIPTION
3.1 Articles of Incorporation of the Company, as amended.*
3.2 By-Laws of the Company, as amended.*
4.1 (Form of) Stock Certificate, form of Stock Purchase Warrant
and Stock Option Agreement.*
4.2 (Form of) redeemable warrant for December 1999 private
placement.*****
10.1 Asset Purchase Agreement dated January 28, 1999, by and among
GTI Acquisition Corporation, Herald Marketing Associates,
Incorporated, dba Graphics Technology, Inc. and Stephan G.
Herold*
10.2 Consulting Agreement dated January 28, 1999, between GTI
Acquisition Corporation and Stephan G. Herold*
10.3 Loan and Security Agreement dated February 11, 1999, by and
among Virtual Technology Corporation, GTI Acquisition
Corporation and Coast Business Credit.*
10.4 Employment Agreement with Gregory Appelhof. ***
10.5 Employment Agreement with John Harvatine.***
10.6 Asset Purchase Agreement dated November 8, 1999 among Tech
Squared Inc., T2 Acquisition Corporation, Charles E. Reese Jr.
and Joel A Ronning.****
10.7 First and Second Amendments to the Loan and Security Agreement
dated December 10, 1999 and December 15, 1999, respectively,
by and among Virtual Technology Corporation, GTI Acquisition
Corporation and T2 Acquisition Corporation.*****
10.11 Registration Rights Agreement by and between Virtual
Technology Corporation and Corona Viking Group, LLC dated June
14, 2000.******
10.12 Convertible Promissory Note made by Virtual Technology
Corporation payable to Corona Viking Group, LLC and dated June
14, 2000.******
10.13 Form of warrant from Virtual Technology corporation to Corona
Viking Group, LLC issued June 14, 2000.******
10.14 Side letter agreement entered into between Virtual Technology
Corporation and Graybox, LLC dated June 16, 2000.******
10.15 Credit Agreement dated November 20, 2000, by and among Virtual
Technology Corporation, GTI Acquisition Corporation and
Inc.Ubator Capital, Inc. *******
10.16 Convertible Promissory Note made by Virtual Technology
Corporation payable to Inc.Ubator Capital, Inc. and dated
November 20, 2000.*******
10.17 (Form of) General Security Agreement in favor of Inc.Ubator
Capital, Inc. dated November 20, 2000.*******
10.18 (Form of) Warrant from Virtual Technology Corporation to
Inc.Ubator Capital, Inc. issued November 20,2000.*******
27. Financial Data Schedule
(b) Reports on Form 8-K.
None
* Incorporated by reference from the Company's 10-SB, filed with the SEC
on February 12, 1999.
** Incorporated by reference from the Company's amended Form S-8, filed
with the SEC on April 15, 1999.
*** Incorporated by reference from the Company's 10-K, filed with the SEC
on May 6, 1999.
**** Incorporated by reference from the Company's 8-K, filed with the SEC on
December 30, 1999.
***** Incorporated by reference from the Company's 10-K, filed with the SEC
on May 16, 2000.
****** Incorporated by reference from the Company's 8-K, filed with the SEC on
June 26, 2000.
******* To be filed by amendment to this Form 10-Q.
-21-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE THREE AND
NINE MONTHS ENDED OCTOBER 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
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