**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

 

**FORM 10-Q**

 
| **(Mark One)**                                                 |
|----------------------------------------------------------------|
| ý                                                         | **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                           |   |
| **For  the quarterly period ended:  September  30, 2001** |
|                                                           |   |
| **or**                                                         |
|                                                           |   |
| o                                                              | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from           to           .**

 

**CommissionFile No.: 0-18114**

 

 

**VIRTUALFUND.COM, INC.**

(Exact name of registrantas specified in charter)

 
| **Minnesota**                                                   |   | **41-1612861**                     |
|-----------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |   | (IRS Employer  Identification No.) |
|                                                            |   |                               |
| **13911  Ridgedale Drive, Suite 477, Minnetonka, Minnesota**    |   | **55305**                          |
| (Address of principal  executive offices)                       |   | (Zip code)                         |

 

**(952)348-0480**

Registrant’s telephone number, including area code)

 

 

(Former name,former address and former fiscal year, if changed since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

                Yeso  No ý

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

                Yeso  No ý

 

APPLICABLE ONLY TOCORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of issuer’s classesof common stock, as of the latest practicable date.

 
| **Class**                    |   | **Outstanding  at 12/31/02** |   |
|------------------------------|--------|------------------------------|--------|
|                         |   |                         |   |
| Common Stock, $.01 par value |   | 15,203,617                   |   |

 

 

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**TABLE OFCONTENTS**

 
| PART I.    |   | FINANCIAL INFORMATION |
|------------|--------|-----------------------|
|       |   | ITEM 1.               |   | FINANCIAL STATEMENTS |
|       |   |                  |   | CONSOLIDATED BALANCE SHEETS |
|       |   |                  |   | CONSOLIDATED  STATEMENTS OF OPERATIONS |
|       |   |                  |   | CONSOLIDATED  STATEMENTS OF CASH FLOWS |
|       |   |                  |   | NOTES  TO CONSOLIDATED FINANCIAL STATEMENTS |
|       |   | ITEM  2.              |   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|       |   | ITEM  3.              |   | QUANTITATIVE  AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
| PART II.   |   | OTHER INFORMATION     |
|       |   | ITEM 1.               |   | LEGAL PROCEEDINGS |
|       |   | ITEM 2.               |   | CHANGES IN SECURITIES |
|       |   | ITEM 3.               |   | DEFAULTS UPON  SENIOR SECURITIES |
|       |   | ITEM  4.              |   | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS |
|       |   | ITEM 5.               |   | OTHER INFORMATION |
|       |   | ITEM 6.               |   | EXHIBITS AND  REPORTS ON FORM 8-K |
| SIGNATURES |   |                  |

 

 

2

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PART I.     FINANCIALINFORMATION

 

ITEM 1.     FINANCIALSTATEMENTS

 

VIRTUALFUND.COM, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                             | ** ** | **September  30,  2001** | ** ** | **June 30,  2001** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------|------------|
|                                                                                                                   |       | **(Unaudited)**          |       |               |       |
| ASSETS                                                                                                                 |       |                     |       |               |       |
| CURRENT ASSETS                                                                                                         |       |                     |       |               |       |
| Cash and cash  equivalents                                                                                             |       | $                        | 6,637,503  |               | $          | 8,439,552 |   |
| Restricted cash                                                                                                        |       | 2,000,000                |       | —             |       |
| Receivables,  less allowance for doubtful accounts of $-0- and $1,600                                                  |       | 73,764                   |       | 1,355,933          |       |
| Receivables —  related parties, less allowance of $1,925,400                                                      |       | 135,671                  |       | 135,671            |       |
| Prepaid expenses                                                                                                       |       | 1,514,088                |       | 1,615,984          |       |
| TOTAL CURRENT  ASSETS                                                                                                  |       | 10,361,026               |       | 11,547,140         |       |
|                                                                                                                   |       |                     |       |               |       |
| PROPERTY AND  EQUIPMENT                                                                                                |       | 26,655                   |       | 58,022             |       |
|                                                                                                                   |       |                     |       |               |       |
| NOTES RECEIVABLE  — RELATED PARTIES                                                                               |       | 146,948                  |       | —             |       |
|                                                                                                                   |       |                     |       |               |       |
|                                                                                                                   |       | $                        | 10,534,629 |               | $          | 11,605,162 |   |
|                                                                                                                   |       |                     |       |               |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                              |       |                     |       |               |       |
|                                                                                                                   |       |                     |       |               |       |
| CURRENT  LIABILITIES                                                                                                   |       |                     |       |               |       |
| Notes payable  and accrued interest — related parties, 9.25%, unsecured                                           |       | $                        | 840,109    |               | $          | 820,343 |   |
| Accounts payable                                                                                                       |       | 514,001                  |       | 717,004            |       |
| Accrued  nonrecurring and restructuring charges                                                                        |       | 1,663,464                |       | 1,883,280          |       |
| Accrued expenses                                                                                                       |       | 133,500                  |       | 138,745            |       |
| Other current  liabilities                                                                                             |       | 1,868,248                |       | 1,856,780          |       |
| Net liabilities  of discontinued operations                                                                            |       | 1,894,936                |       | 2,061,221          |       |
| TOTAL CURRENT  LIABILITIES                                                                                             |       | 6,914,258                |       | 7,477,373          |       |
|                                                                                                                   |       |                     |       |               |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                         |       |                     |       |               |       |
|                                                                                                                   |       |                     |       |               |       |
| STOCKHOLDERS’  EQUITY                                                                                             |       |                     |       |               |       |
| Series A  convertible preferred stock, $.01 par value (5,000,000 shares authorized; no  shares issued and outstanding) |       | —                   |       | —             |       |
| Common stock,  $.01 par value (50,000,000 shares authorized; 15,631,404 shares issued and  outstanding)                |       | 156,314                  |       | 156,314            |       |
| Additional  paid-in capital                                                                                            |       | 36,150,694               |       | 36,150,694         |       |
| Accumulated  deficit                                                                                                   |       | (32,686,637              | )          | (32,179,219        | )          |
|                                                                                                                   |       | 3,620,371                |       | 4,127,789          |       |
|                                                                                                                   |       |                     |       |               |       |
|                                                                                                                   |       | $                        | 10,534,629 |               | $          | 11,605,162 |   |

 

Seenotes to consolidated financial statements.

 

3

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VIRTUALFUND.COM, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OFOPERATIONS

(Unaudited)

 
|                                                     |   | **Three  Months Ended September 30,** |     |
|----------------------------------------------------------|--------|---------------------------------------|----------|
|                                                     |   | **2001**                              |     | **2000** |   |
| NET SALES                                                |   | $                                     | —   |   | $ | — |   |
|                                                     |   |                                  |     |   |   |
| COST OF SALES                                            |   | —                                |     | — |   |
|                                                     |   |                                  |     |   |   |
| GROSS PROFIT                                             |   | —                                |     | — |   |
|                                                     |   |                                  |     |   |   |
| OPERATING  EXPENSES                                      |   |                                  |     |   |   |
| General and  administrative                              |   | 626,316                               |     | 1,872,602 |   |
| Restructuring  recoveries                                |   | (8,320                                | )        | — |   |
|                                                     |   |                                  |     |   |   |
| OPERATING LOSS                                           |   | (617,996                              | )        | (1,872,602 | ) |
|                                                     |   |                                  |     |   |   |
| OTHER INCOME  (EXPENSE)                                  |   |                                  |     |   |   |
| Interest expense                                         |   | (986                                  | )        | (1,175 | ) |
| Interest income                                          |   | 81,474                                |     | 580,929 |   |
| Other                                                    |   | (62,660                               | )        | 4,479 |   |
|                                                     |   | 17,828                                |     | 584,233 |   |
|                                                     |   |                                  |     |   |   |
| LOSS FROM  CONTINUING OPERATIONS BEFORE INCOME TAXES     |   | (600,168                              | )        | (1,288,369 | ) |
|                                                     |   |                                  |     |   |   |
| INCOME TAX  PROVISION                                    |   | —                                |     | — |   |
|                                                     |   |                                  |     |   |   |
| LOSS FROM  CONTINUING OPERATIONS                         |   | (600,168                              | )        | (1,288,369 | ) |
|                                                     |   |                                  |     |   |   |
| INCOME (LOSS)  FROM DISCONTINUED OPERATIONS              |   |                                  |     |   |   |
| Net of income  tax provision of $-0-                     |   | 92,750                                |     | (2,700,025 | ) |
|                                                     |   |                                  |     |   |   |
| NET LOSS                                                 |   | $                                     | (507,418 | ) | $ | (3,988,394 | ) |
|                                                     |   |                                  |     |   |   |
| INCOME(LOSS) PER  COMMON SHARE — BASIC AND DILUTED  |   |                                  |     |   |   |
| Continuing  operations                                   |   | $                                     | (0.04    | ) | $ | (0.07 | ) |
| Discontinued  operations                                 |   | 0.01                                  |     | (0.16 | ) |
|                                                     |   | $                                     | (0.03    | ) | $ | (0.23 | ) |
|                                                     |   |                                  |     |   |   |
| WEIGHTED AVERAGE  COMMON SHARES — BASIC AND DILUTED |   | 15,631,404                            |     | 17,168,585 |   |

 

See notes toconsolidated financial statements

 

 

4

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VIRTUALFUND.COM, INC. ANDSUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASHFLOWS

Unaudited

 
|                                                                                   |   | **Three  Months Ended September 30,** |      |
|----------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                                                   |   | **2001**                              |      | **2000** |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                                  |   |                                  |      |   |   |
| Net loss                                                                               |   | $                                     | (507,418  | ) | $ | (3,988,394 | ) |
| Adjustment to  reconcile net loss to net cash provided (used) by operating activities: |   |                                  |      |   |   |
| Discontinued  operations                                                               |   | (166,286                              | )         | (1,827,711 | ) |
| Loss on sale or  disposal of property and equipment                                    |   | 20,867                                |      | — |   |
| Depreciation and  amortization                                                         |   | 6,000                                 |      | 172,458 |   |
| Change in assets  and liabilities:                                                     |   |                                  |      |   |   |
| Accounts and  notes receivable                                                         |   | 1,301,936                             |      | (33,181 | ) |
| Prepaid expenses                                                                       |   | 101,896                               |      | (374,960 | ) |
| Accounts payable                                                                       |   | (203,003                              | )         | 221,566 |   |
| Accrued  nonrecurring and restructuring charges                                        |   | (219,816                              | )         | — |   |
| Accrued expenses                                                                       |   | (5,245                                | )         | (33,438 | ) |
| Income taxes  payable                                                                  |   | —                                |      | (872,900 | ) |
| Other current  liabilities                                                             |   | 11,468                                |      | (4,759 | ) |
| Net cash  provided(used) by operating activities                                       |   | 340,399                               |      | (6,741,319 | ) |
|                                                                                   |   |                                  |      |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                                  |   |                                  |      |   |   |
| Loans to related  parties                                                              |   | (146,948                              | )         | (45,885 | ) |
| Purchases of  property and equipment                                                   |   | —                                |      | (478,744 | ) |
| Proceeds from  sale of property and equipment                                          |   | 4,500                                 |      | — |   |
| Additions to  other assets                                                             |   | —                                |      | (4,419 | ) |
| Net cash used by  investing activities                                                 |   | (142,448                              | )         | (529,048 | ) |
|                                                                                   |   |                                  |      |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITY                                                    |   |                                  |      |   |   |
| Repurchase of  common shares                                                           |   | —                                |      | (2,026,963 | ) |
|                                                                                   |   |                                  |      |   |   |
| INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                      |   | 197,951                               |      | (9,297,330 | ) |
|                                                                                   |   |                                  |      |   |   |
| CASH AND CASH  EQUIVALENTS                                                             |   |                                  |      |   |   |
| Beginning of  period                                                                   |   | 8,439,552                             |      | 39,533,688 |   |
|                                                                                   |   |                                  |      |   |   |
| End of period  (2001 includes $2,000,000 of restricted cash)                           |   | $                                     | 8,637,503 |   | $ | 30,236,358 |   |

 

See notes toconsolidated financial statements

 

 

5

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VIRTUALFUND.COM,INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.             Basis of Presentation -

 

The accompanying unaudited consolidated financialstatements have been prepared in accordance with accounting principles generallyaccepted in the United States of America for interim financial information andwith the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They donot include all information and footnotes required by accounting principlesgenerally accepted in the United States of America for complete financialstatements. However, except as disclosed herein, there has been no materialchange in the information disclosed in the notes to consolidated financialstatements included in the Annual Report on Form 10-K of VirtualFund.com, Inc.and subsidiaries (the “Company”) for the year ended June 30, 2001. In theopinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included. Operatingresults for the three months ended September 30, 2001 are not necessarilyindicative of the results that may be expected for the year ending June 30,2002.

 

2.             Restructuring Charges -

 

In December 2000, as a result of the discontinuedoperations and other actions, the Company adopted a restructuring plan andincurred certain restructuring charges in 2001 which are included in operationsas follows:

 
| ** **                           |       | **Allowance  and  Accrual at  June 30, 2001** | ** ** | **Three Months Ended September 30, 2001** | ** ** | **Allowance  and  Accrual at  September 30, 2001** | ** ** |
|--------------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------|------------|----------------------------------------------------|------------|
| **Recoveries**                       | ** ** | **Asset  Write-offs**                         | ** ** | **Amounts  Paid**                         |
| NONRECURRING                         |       |                                          |       |                                      |       |                                               |       |   |   |   |   |
| Allowance for  doubtful accounts (a) |       | $                                             | 1,925,369  |                                      | $          | —                                             |       | $ | — |   | $ | — |   | $ | 1,925,369 |   |
|                                 |       |                                          | ** ** |                                      | ** ** |                                               | ** ** |   | ** ** |   | ** ** |
| RESTRUCTURING                        |       |                                          |       |                                      |       |                                               |       |   |   |   |   |
| Product discontinuance  (b)          |       | 855,076                                       |       | —                                    |       | (111,080                                           | )          | — |   | 743,996 |   |
| Employee  separation costs           |       | 46,956                                        |       | —                                    |       | —                                             |       | (46,956 | ) | — |   |
| Facilities costs  (c)                |       | 981,248                                       |       | (8,320                                    | )          | (53,460                                            | )          | — |   | 919,468 |   |
|                                 |       | 1,883,280                                     |       | (8,320                                    | )          | (164,540                                           | )          | (46,956 | ) | 1,663,464 |   |
|                                 |       |                                          |       |                                      |       |                                               |       |   |   |   |   |
|                                 |       | $                                             | 3,808,649  |                                      | $          | (8,320                                             | )          | $ | (164,540 | ) | $ | (46,956 | ) | $ | 3,588,833 |   |

 

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(a)   An allowance foruncollectable receivables from Melvin Masters (Masters), the Company’s formerChief Executive Officer.

 

(b)  Costs associated with thediscontinuance of the Internet business-to-business software platform,B2Bxchange, and separate supply chain investment.

 

(c)   Payments to exit closed andidle facilities leases.

 

 

6

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3.                                       DiscontinuedOperations -

 

In the fourth quarter of 2001 we discontinued theInternet Services Business Unit (ISBU), which included the B2BX platformdevelopment and Supply Chain Management software integration, RSPNetwork, Inc.,and Rymatics, Inc.  The related expensesare reflected in the restructuring charges included in the operating statementin that fiscal year.  As part of therestructuring, the assets of RSPN were sold to a member of the Company’s Boardof Directors and a stockholder during the quarter ended September 30,2001.  All ISBU operations are disclosedherein as discontinued operations.  Netsales of the ISBU for the three months ended September 30, 2001 and 2000 were$130,408 and$1,490,000.

 

 

4.                                       EarningsPer Share Calculation

 

The following table summarizes securities that couldpotentially dilute basic earnings per share in the future but were not includedin the computation of diluted earnings per share because to do so would havebeen antidilutive:

 

|          |   | **September  30,** |   |
|---------------|--------|--------------------|--------|
|          |   | **2001**           |   | **2000** |   |
| Stock Options |   | 2,530,433          |   | 4,968,301 |   |
| Warrants(a)   |   | 4,054,953          |   | 4,404,953 |   |
|          |   | 6,585,386          |   | 9,373,254 |   |

 

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(a)        Includes warrants for2,192,239 common shares that were cancelled on March 11, 2002 under terms of aGlobal Settlement Agreement between the Company and Masters.

 

5.                                       CertainRelated Party Transactions

 

Directors ConsultingCompensation Agreements

 

In July 2001, the SpecialCompensation Committee of the Board of Directors authorized an agreement withthe Company’s Chairman of the Board (Chairman).  The agreement provides for the Chairman to be paid a monthlyconsulting services fee of $21,667 for 3 years plus 100,000 options exercisableat $0.15 per share, to be granted on each anniversary date.  If terminated by the Company without cause,compensation is generally continued until the end of the agreement.  The Company also authorized payment of hisrelocation expenses, which totaled $202,527. In addition, the Chairman receives a monthly directors fee of $3,000.  Additionally, the Chairman was reimbursedexpenses of $26,717 during fiscal 2002.

 

In July 2001, the SpecialCompensation Committee of the Board of Directors authorized an agreement withthe Company’s Vice-Chairman of the Board (Vice-Chair).  The agreement provides for the Vice-Chair tobe paid a monthly consulting services fee of $12,500 for 3 years plus 100,000options exercisable at $0.15 per share, to be granted on each anniversarydate.  If terminated by the Company,without cause, payment of the compensation is generally continued until the endof the agreement.  In August 2001, theCompany also authorized a one–time special consulting fee in the amountof $30,000 for services provided to the Company outside of the agreement forhis monthly consulting services.  Inaddition, the Vice-Chair receives a monthly directors fee of $3,000.  Additionally the Vice-Chair was reimbursedexpenses of $57,017 during fiscal 2002.

 

In connection with the June andJuly 2001 agreements with the Chairman and Vice-Chair, the Company consultedwith an independent specialist.

 

 

7

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Directors Loan Program

 

In July 2001, the Board ofDirectors approved a loan program, whereby the Company is authorized to loan toDirectors up to $500,000, in total, to buy stock in the Company.  The Chairman and Vice-Chair each borrowed $73,314in August 2001 to purchase 488,759 and 488,758 shares of the Company’s commonstock, respectively. As of September 30, 2001, the Chairman and Vice-Chair eachowes the Company approximately $73,500 under terms of their loan agreements,the amount originally borrowed plus interest accrued at the annual rate of8%.  The loans are due on August 1,2006.  The Sarbanes-Oxley Act of 2002restricts future loans to directors.

 

Consulting Agreement —Interim CEO

 

In August 2001, the Companyentered into a consulting agreement with Financial Drivers, Ltd., controlled byJoseph D. Pupel.  Under terms of theagreement, Mr. Pupel is to provide financial services to the Company.  In October 2001, Mr. Pupel was designatedInterim Chief Executive Officer and Financial Drivers, Ltd. is paid $100 perhour for his services. During the quarter, the Company paid Financial Drivers,Ltd. $10,504 for Mr. Pupel’s services and $12,756 for financial servicesprovided by other employees of Financial Drivers, Ltd.

 

Repricing

 

In July 2001, the Board approvedthe repricing of 500,000 nonstatutory stock options from $.16 per share to $.15per share, approved the repricing of 100,000 nonstatutory stock options from$2.00 to $.15 per share, and repriced 100,000 nonstatutory stock options from$1.65 per share to $.15 per share.

 

6.                                       SupplementalDisclosures of Cash Flow Information

 
|                                                                                             |   | **Three  Months Ended September 30,** |   |
|--------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                                             |   | **2001**                              |   | **2000** |   |
| Interest Paid                                                                                    |   | $                                     | 986    |   | $ | 159,777 |   |
|                                                                                             |   |                                  |   |   |   |
| Noncash  investing and financial activities:                                                     |   |                                  |   |   |   |
| VirtualFund.com  Common Stock purchased but not settled until after September 30, 2000           |   | —                                |   | 1,083,266 |   |
| Purchase of  shares of public company for investment not settled until after September 30,  2001 |   | 110,608                               |   | — |   |
|                                                                                                  |        |                                       |        |  |  |  |  |

 

 

7.                                       LegalProceedings

 

GlobalSettlement Agreement - Masters

On March 11, 2002, the Companyentered into a Global Settlement Agreement with Melvin Masters("Masters"), TimeMasters, Inc., Grandchildren's Realty AlternativeProgram I, L.P. ("GRAMPI"), and David Norlander — individually and asTrustee of and on behalf of Masters Trust I, Realty Settlement, LLC, andJessica Tran-Masters.  The parties gaveeach other mutual and complete releases for any claims and judgments, therebyending the legal proceedings summarized below (“Feltl,” “Masters,” “Montana,”and “GRAMPI”).  The Company agreed toconvey to Masters or his designee all of the Company’s assets pertainingspecifically and solely to B2BXchange, and pay to Masters or his designee theamount of $600,000, which included payment of Masters’ attorneys’ fees.  Masters, in turn, agreed to transfer to theCompany all shares of Company stock and all warrants owned or controlled byMasters, GRAMPI, Masters Trust I, TimeMasters, any parent, sibling, spouse(whether current or future), child, or grandchild.

 

Kittrell

In August 2000, the Company commenced litigationagainst Jaffray Communications, Inc., doing business as 

 

 

8

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Vitesse Networks, Inc. (Vitesse) and its formerPresident and COO Mark Kittrell in Hennepin County District Court.  The lawsuit alleges that Mr. Kittrellviolated his agreement not to compete against the Company and that he, contraryto his contractual promises, recruited RSPNetwork employees to Vitesse and itssubsidiaries. The suit also alleges that Vitesse interfered with thecontractual rights of RSPNetwork that prevented Mr. Kittrell from competingagainst it and the Company and recruiting employees of RSPNetwork and theCompany.  Finally, the suit alleges certain securities law violationsand misrepresentations by Mr. Kittrell in connection with the conversionand sale of Company stock.  Inconnection with this lawsuit, Mr. Kittrell made a demand for arbitration,alleging breach of contract and breach of implied covenants of good faith andfair dealing.  Kittrell and the Companyfiled cross motions in the trial court regarding an arbitration clause in oneof the contracts at issue in the case. Prior to the Court hearing these motions, Kittrell and the Companyagreed to arbitrate the disputes between them. The suit against Vitesse was settled with Vitesse agreeing to pay$10,000, and both parties agreeing to drop all further claims.  The lawsuit against Kittrell went toarbitration in January 2002, with Kittrell prevailing.  The arbitrator awarded Kittrell, net ofcertain offsets, $2,708,073. Under terms of the final settlement, the Companypaid Kittrell $2,137,547, transferred to him 400,000 shares of Muller Media,Inc. stock being held by the Company for investment purposes (book value of$60,188), and also transferred to him the rights to future earnout payments(having no recorded value) due the Company under terms of the agreement sellingthe assets of RSPNetwork to RSP Acquisitions.

 

Wiskus

In January 2001, Michael S.Wiskus brought an action against the Company in Minnesota state court, HennepinCounty, for breach of contract and promissory estoppel.  This action was settled before reachingcourt, with the Company agreeing to pay Wiskus $95,000 in exchange for hisrelease of all present and future claims against the Company.

 

Metiom

This matter commenced in February2001, in the United States District Court for the District of Minnesota.  The Company sued Metiom, Inc. (Metiom)seeking a declaratory judgment that Metiom breached a September 29, 2000,Software Licensing Agreement by failing to timely deliver “ConnectTrade”software to it.  A few days later,Metiom filed a suit against the Company in the United States District Court forthe District of New York, alleging that the Company breached theSeptember 29, 2000, Software Licensing Agreement and is seeking$1,250,000, plus interest at 1% per month. In July of 2002, a negotiated settlement was reached.  Under terms of the settlement, the Companypaid Metiom $365,000 and entered into a mutual release of all current andfuture actions, causes of action, individual or class action claims or demandsof any kind.

 

Feltl

In November 2000, Masters andGRAMPI attempted to convey real estate to John E. Feltl, which subsequentlybecame subject to the Montana litigation (see below).  The Company joined Feltl as defendant in the Montana litigation,claiming that the conveyances were fraudulent. The Company’s claims against Feltl were relinquished under terms of theMarch 11, 2002, Global Settlement Agreement - Masters.

 

Masters

On December 1, 2000, the formerCEO (Masters), purporting to act both individually and derivatively on behalfof the Company, filed an action in Minnesota state court against the Companyand three of its directors, Edward S. Adams, Timothy R. Duoos and Roger Wikner.Masters’ complaint alleged breach of fiduciary duty, corporate waste andviolations of the Minnesota Business Corporation Act and requested that theCourt act to temporarily restrain the defendants from (i) selling shares of theCompany or its subsidiaries, (ii) terminating or changing the job descriptionof any employee of the Company, (iii) selling assets of the Company or itssubsidiaries except in the ordinary course of business, (iv) materiallychanging any business relationship of the Company, (v) interfering with thescheduling of a shareholders’ meeting by Masters to elect new directors orremove all directors with the exception of Masters and Steve Fisher, (vi)diminishing the global operating performance of the Company’s web site, and(vii) preventing employees or directors from communicating with Masters.Moreover, Masters wanted to be allowed to remove his personal property from theCompany’s premises.  On December 5,2000, the Court denied Masters’ motion for a temporary restraining order in itsentirety. The 

 

 

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Company thereafter assertedcounterclaims against Masters seeking to recover damages arising from breach offiduciary duty, wrongful use of corporate assets and failure to repay personalloans Masters had received from the Company. At a second injunction hearingheld on January 5, 2001, the Court denied Masters’ renewed motion for atemporary injunction. After the Company and the director defendants filedmotions to dismiss Masters’ complaint, Masters stipulated to the dismissal ofhis claims. His derivative claims were dismissed with prejudice by the Court onFebruary 12, 2001, and any personal claims dismissed without prejudice.  The Court entered a judgment against Mastersregarding the repayment of personal loans. The Company agreed to release Masters from this judgment under terms ofthe Global Settlement Agreement — Masters.

 

Montana

On December 18, 2000, the Companyfiled an action in Montana state court against Masters, and two other entitiesaffiliated with Masters. The Company asserted that Masters and/or GRAMPIpurported to grant a security interest to the Company in Montana propertiesactually owned by another Master’s affiliate, Masters Trust I. The Deed ofTrust necessary to create the security interest was never recorded. Thecomplaint sought a declaration that the Company has a security interest inthree parcels of real property owned by the Masters’ affiliate. In addition tofiling the complaint, the Company filed the necessary documents to restrictMasters’ or GRAMPI’s ability to convey any of the affected parcels of realproperty while the lawsuit was pending. This action was dropped under terms of the Global Settlement Agreement —Masters.

 

GRAMPI

On January 10, 2001, the Companycommenced an action in Hennepin County District Court against Masters andGRAMPI.  The action sought, among otherthings, to void the lease of space in a business complex owned by GRAMPI on thegrounds that the lease was unfair, unreasonable, and unduly benefited Masters,in violation of Masters’ fiduciary duties to the Company.  The action also sought the return of profitsrealized by Masters as a result of his self-dealing regarding the purchase ofthe business complex, the lease, and other real estate transactions with theCompany.  In March 2001, GRAMPI asserteda counterclaim against the Company for breach of the lease contract.  The GRAMPI claims against the Companyexceeded $9 million.  Masters alsoasserted a personal counterclaim at that time for breach of an allegedemployment contract with the Company. Both the Company’s and Masters actions were withdrawn under terms of theGlobal Settlement Agreement — Masters.

 

Manugistics

Contrary to explicit instructionsreceived from the majority of the Board of Directors, Masters signed, on behalfof the Company, a software licensing agreement with a company calledManugistics and initiated the wire transfer of an initial payment of $2.5million.  The Company refused to honorthe contract alleging that Manugistics was aware of Masters acting outside ofhis powers and authorities when signing the contract and wiring the money.  Manugistics commenced an action against theCompany in federal court in Maryland on December 5, 2000, alleging breach ofcontract.  The Company filed in earlyFebruary 2001 its Answer and Counterclaims for Rescission and DeclaratoryJudgment (Claim) that the alleged contract was not valid.  TheCompany requested the Court impose a constructive trust over the $2.5 millionManugistics received.  The Claim allegedthat Manugistics was guilty of conversion and was unjustly enriched.  It also sought a declaratory judgment thatthe contract was null and void, or that the Court rescind the contract.  The parties settled the litigation onJuly 6, 2001.  Manugistics paid theCompany $1.3 million in July 2001, and the parties agreed to mutually andcompletely release each other from any further claims.

 

Ryan

In September 2000, former Executive Vice PresidentThomas Ryan brought a lawsuit in Hennepin County District Court against theCompany and its former subsidiary, Colorspan Corporation, alleging that he isentitled to severance payments and performance options based upon an employmentagreement with Colorspan.  Mr. Ryansought damages of $175,000 in addition to performance options and attorneyfees.  The matter was tried before ajury and on October 2, 2001, the jury entered a verdict in favor of theCompany.  Mr. Ryan is seeking to appealthe verdict.

 

 

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Thurnet al.

In February 2001, the Companycommenced an action in Hennepin County District Court against Timothy N. Thurn,Nancy Masters Sawyer, and Danny J. Vatland. The Company sought money damagesagainst the defendants for breaches of their employment agreements and/or theirfiduciary duties. Moreover, the Company sought to have the Court declare thatthe defendants breached their respective employment agreements and weretherefore not entitled to any further compensation or benefits under thoseagreements and that these agreements are rescinded. The Company claimed thatThurn violated his contractual and/or fiduciary duties as Chief FinancialOfficer and/or Treasurer of the Company, one of the violations being thetransfer of $2.5 million to Manugistics, even though he was aware or shouldhave been aware that the Company’s Board of Directors had restricted Masters’authority to enter into the transaction with Manugistics.  The Company claimed Masters Sawyer breachedher duties as former Secretary/Assistant Treasurer and most recently asVice-President of Operations, amongst others, by receiving excessive unapprovedcompensation, failing to disclose contracts and transactions that were contraryto the Company’s interest, and failing to perform the tasks and duties of herposition due to excessive, unexplained absenteeism. The Company claimed thatVatland as Vice President of Advanced Technology Development and/or ChiefTechnology Officer breached his duties because he failed to disclose andfurthered contracts and transactions by corporate officers and/or directorsthat were contrary to the Company’s interest, and because he furthered the useof Company funds and/or assets, which were not in furtherance of the Company’sinterest and were not authorized or were in contravention of directives issuedor restrictions placed by the Company’s Board of Directors.  All defendants denied the Company’s claimsand raised various counterclaims, including counterclaims for severancepayments, breach of contract and violation of the Workers Adjustment RetrainingNotification Act.  Vatland and Thurnclaimed to be entitled to 12 months of severance pay and Masters Sawyer claimedto be entitled to 36 months of severance pay. Vatland further contended that hewas entitled to $75,000 per year, covering a period of time after hevoluntarily had his base compensation reduced from $250,000to $175,000.  The Company settledall claims in June 2001.  Inconsideration for payments from the Company in the amounts of $157,500,$45,000, and $55,000 to Vatland, Thurn, and Masters Sawyer, respectively, theparties mutually released each other from any further claims and agreed toexecute a stipulation for dismissal with prejudice.

 

8.             Subsequent Events

 

Investment — Common Stock

 

At various times during Octoberand November 2001, the Company made an aggregate investment of $1,007,000 for601,400 shares of Cone Mills Corporation, a publicly traded company that is aproducer of denim and decorative fabrics. Commissions of approximately $36,000 were paid on these transactions toEquity Securities Investments, Inc. (Equity) whose president is also theVice-Chair of the Company.  The Companyjoined an existing investor group and in connection therewith executed anagreement with Equity on the same terms as other members of the group.  Under the terms of such agreement, theCompany agreed to pay 20% advisory fee on the gain from the sale of securitiesand reflected at year-end to be paid to Equity.  The agreement also requires 20% of the appreciation on certainsecurities and reflected at year-end to be paid to Equity.  In May and June 2002, 235,100 of these shareswere sold for a net gain of $446,874. Commissions of approximately $121,086 related to these transactions werealso paid to Equity.

 

Investment — TemporarySubordinated Loan Agreement

 

On October 30, 2001, the Company entered into aTemporary Subordinated Loan Agreement with Equity.  Under terms of the loan, the Company loaned Equity $1,350,000 at10% interest.  The loan was repaid withinterest on December 28, 2001.

 

Investment — Convertible Notes

 

On November 8, 2001, the Companyentered into an arrangement with Cash Systems, Inc. (Borrower), a nationalprovider of cash access services to the gaming and retail industries, to loanthem up to $500,000 in the form of 

 

 

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convertible notes.  On November 8, 2001, the Company loaned theBorrower $200,000 and an additional $200,000 was loaned on March 1, 2002.  The notes mature on November 8, 2003, payinterest at 12.5%, pay principal and interest on a monthly basis, and requirethe Borrower to grant the Company a security interest in a cash account whichis required to maintain a minimum of $300,000 during the term of the loan.  Additionally, the agreement containspersonal guarantees of the President and CEO of the Borrower and a pledge ofcertain shares of his stock.  The notesare convertible into common stock of the Borrower at an exercise price of $2per share.  The agreement also providesthat the Company will receive warrants to purchase up to 125,000 shares ofcommon stock of the Borrower, dependent upon the level of borrowings.  The exercise price of the warrants is $2 pershare.  Commissions of $65,000 andwarrants to purchase 50,000 shares of common stock were paid and issued,respectively, by the Borrower to Equity.

 

Investment — Common Stock/Convertible Note

 

On October 24, 2001, the Companyinvested $305,000 for an 80% ownership position in Business TranslationServices, Inc. (BTSV), a Nevada Corporation. On November 12, 2001 the Company loaned $300,000 to BTSV under the termsof a 10% convertible promissory note, payable in three installments over 12months.  The note is convertible intoshares of BTSV at $.50 per share.  OnNovember 12, 2001, BTSV merged with Muller Media, Inc. under a plan ofreorganization within the meaning of Section l68 of the Internal Revenue Code,and BTSV’s name was changed to Muller Media, Inc. (Muller).  Muller guaranteed the convertible promissorynote, issued a warrant to the Company to purchase 1,200,000 shares of Mullercommon stock at an exercise price of $.125 per share and agreed to issue to theCompany 2,000,000 shares of its common stock in the event of default.  Before taking into account the effects ofexercising the warrant, the Company’s ownership in Muller is approximately16%.  Under the terms of the KittrellSettlement (Note 9), 400,000 shares of Muller were transferred to Kittrell inMay 2002, reducing the Company’s ownership to approximately 13%.

 

BTSV/Muller paid a commission of$107,550 and issued warrants for 1,000,000 shares of Muller common stock toEquity for this transaction.

 

In July 2002, Muller Media, claiming unspecifieddamages, defaulted on payment of their $300,000 note payable to theCompany.  The Company established areserve equal to the full amount of this note, and is actively pursuingcollection.

 

Investment — PrivatePlacement

In May 2002 the Company paid $200,000 for 208,333private placement common units of a non-public Illinois company that providesbilling, collections and reimbursement services for healthcare industryclients.  If all private placement unitswere sold, the Company would hold a 3.4% ownership position.

 

Acquisition of Business

 

On January 10, 2003, the Company acquired all of thestock of Marquest Financial, Inc. ("Marquest"), a mortgage brokeragebusiness based in Minnesota, in exchange for 3,000,000 shares of common stockof the Company and cash of $80,000. As a result of the transaction, Marquestbecame a wholly owned subsidiary of the Company. Edward M. Graca, a director ofthe Company, was the sole shareholder of Marquest. In connection with theacquisition, Mr. Graca entered into a three-year employment agreement withMarquest.

 

 

 

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Issuance of RestrictedStock

 

In January 2003 the Company engaged a consultant toprovide assistance in establishing financial services operations to be based inCalifornia. As compensation for such services, the Company agreed to issue theconsultant a total of 2,000,000 shares of restricted common stock of theCompany which will vest over a period of 36 months. The consulting arrangementcan be terminated at any time by either party, and upon such termination anyshares that have not vested will be forfeited by the consultant and cancelled.

 

 

Shareholder Matters

 

In January 2003 a shareholder filed a Schedule 13Dreporting beneficial ownership of 1,545,000 shares of common stock of theCompany, held for investment purposes. Concurrently, this shareholder indicatedthat he would seek changes in the composition of the Board of Directors,termination of consulting agreements with directors and a review of related partytransactions, and would seek to have the Company pursue the acquisition of thedigital printer business formerly owned by the Company.

 

 

 

 

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ITEM2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

** **

***Overview***

 

Currently, the Company is not operating as a sales-generatingbusiness.  The Board is activelypursuing options regarding the future use of its residual assets by examiningvarious potential business acquisitions and other opportunities.

 

*Results of Operations*

 

*Generaland Administrative Expenses*. General and administrative expenses for the quarter ended September 30,2001 were $626,316, compared to $1,872,602 in the quarter ended September 30,2000.  The decrease in general andadministrative costs is a result of the restructuring plan implemented inDecember 2000 that included headcount reductions, the discontinuance of theInternet Services Business Unit (ISBU) which included the termination of allactivities related to B2Bxchange and the sale of RSPNetwork, Inc. (RSPN), andthe elimination of facility-related expenses.

 

*OtherIncome and Expense*. Interest income was $81,474 for thequarter ended September 30, 2001 compared to $580,929 for the quarter ended September30, 2000.  The decrease in interestincome was primarily attributable to a reduction in the amount of invested cashand cash equivalents.

 

*Lossfrom Discontinued Operations. * In the quarter ended September 30, 2000 the$2,700,025 loss from discontinued operations results from the reclassificationof the ISBU.  In the quarter endedSeptember 30, 2001 the $92,750 income results from a change in estimate offuture product liability established in 2000 on sale of the Digital GraphicsBusiness Unit (DGBU).

 

##### *Liquidityand Capital Resources*

 

At September 30, 2001, the Company had cash and cash equivalents of$8,637,503, an increase of $197,951 from June 30, 2001.  In September 2001, the Company agreed toplace $2,000,000 in a restricted interest bearing account pending completion ofa lawsuit (See Note — LegalProceedings — Kittrell above), which was subsequently paid in February 2002, aspart of the final settlement.

 

Operations provided cash of $340,399 during the three months endedSeptember 30, 2001, net of cash used by discontinued operations of$166,286.  For the comparable periodlast year, net cash used by continuing operations in 2001 was $3,337,221,resulting in total cash used by operating activities of $6,741,319 when addedto the net cash used by discontinued operations of $3,404,098.  Net cash used in operating activities forthe three months ended September 30, 2001 consisted primarily of combined netlosses from both continuing and discontinued operations of $507,418, a net usefrom changes in current balance sheet asset and liability accounts of $452,183,offset by a $1,300,000 payment received in proceeds from a settled lawsuit (SeeNote — Legal Proceedings — Manugistics). In 2001, continuing operations used cash primarily for general and administrativepurposes.

 

Net cash used in investing activities was $142,448 for the three monthsended September 30, 2001 compared to net cash used by investing activities of$529,048 for the same period one year ago. The net cash used by investing activities for the current quarter endedSeptember 30, 2001 resulted primarily from loans made to two directors fortheir purchase of company stock, as approved by the Board of Directors.  The net cash used by investing activitiesduring the quarter ended September 30, 2000 was due primarily to purchases ofproperty and equipment.

 

No funds were used or provided by financing activities during thequarter ended September 30, 2001.  The$2,026,963 used for financing activities in the first quarter of fiscal year2000 was the result of the purchase of Company stock under a stock repurchaseprogram authorized by the Board of Directors.

 

The Board of Directors is currently evaluating the Company’s financialposition, and believes the reduction in 

 

 

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operating costs achieved from the restructuring process implemented infiscal 2001, combined with the future strategic direction will allow theCompany to meet its obligations through the next twelve months.

 

Due to the Company’s failure to meet NASDAQ per share price criteria,the Company’s common stock was delisted from NASDAQ National Market on August21, 2001. In addition, the Company’s ability to obtain additional financingthrough the issuance of common stock or securities convertible into commonstock could be adversely affected.

 

The Company incurred a net loss of $507,418 for the quarter endedSeptember 30, 2001, and has an accumulated deficit of $32,686,637 as ofSeptember 30, 2001.  The Company expectsto incur losses for the remainder of its current fiscal year.  There can be no assurance that the Companywill not incur additional losses for a longer period, will generate positivecash flow from its operations, or that the Company will attain or thereaftersustain profitability in any future period. To the extent the Company continues to incur losses or acquiresinvestments, its operating and investing activities may use cash and,consequently, such losses or growth will require the Company to obtainadditional sources of financing in the future or to cash outflows.

 

*Cautionary Statements*

 

Certain statements contained in this Form 10-Q and other written and oral statements made from time to time by us may not relate strictly to historical or current facts. As such, they are considered “forward-looking statements” which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “possible,” “plan,” “project,” “should,” “will,” “forecast” and similar words or expressions. One must carefully consider forward-looking statements and understand that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions, including, among others, those discussed below. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially. We undertake no obligation to update any forward-looking statement, but investors are advised to consult any further disclosures by us on this subject in our filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-KSB, 10-Q, 10-QSB and 8-K (if any), in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. We note these factors as permitted by the Private Securities Litigation Reform Act of 1995. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions.

 

*Legal Proceedings*

 

Legal proceedings involving the Company are significant to theCompany’s financial position.  Thefinancial statements include accrued amounts sufficient to adequately reflectpayments required under terms of the various settlements and related legalexpenses incurred subsequent to September 30, 2001.  The Company is unaware of any material existing or potentialfuture legal proceedings for which additional amounts would need to be accrued.

 

*Business Acquisition Opportunities*

 

The Company is currently not operating any revenue-generatingbusiness.  However, the Companycontinues to incur general and administrative expenses, principally forcompensation of its directors, insurance, and accounting and legalexpenses.  There is no guarantee thatthe Company will be able to identify an adequate business acquisitionopportunity and to generate revenues before its financial resources areexhausted.

 

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUTMARKET RISK

 

There have not been any material changes in the sources and effects ofthe Company’s market risk since June 30, 2001.

 

 

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PART II.  OTHER INFORMATION

 

ITEM 1:     LEGAL PROCEEDINGS

 

We are involved invarious disputes and litigation as follows:

 

In accordance with the terms of the DGBU sale, the Company retainedcertain liabilities related to claims made by customers who purchased equipmentfrom the DGBU prior to the sale. Also, the DGBU buyer withheld $1,000,000,pending the receipt of consents from Masters related to the transferability ofcertain leases.  These consents wereobtained under terms of the Global Settlement Agreement with Masters.  When payment of the holdback was requestedfrom the buyer, the Company was notified of the buyer’s intent to deduct fromthe holdback $821,481 to settle $322,000 in unsubstantiated product liabilityclaims, and other unsubstantiated claims unrelated to the initial purpose ofthe holdback.  Management intends tovigorously pursue collection of the holdback.

 

ITEM 2:     CHANGES IN SECURITIES

 

None

 

ITEM 3:     DEFAULTSUPON SENIOR SECURITIES

 

None

 

ITEM 4:     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

None

 

ITEM 5:     OTHER INFORMATION

 

Effective October,2001 Monte S. Johnson resigned his position as the Company’s acting ChiefExecutive Officer. Joseph D. Pupel assumed the position as Interim ChiefExecutive Officer.  Mr. Pupel is aprincipal with The Drivers, LTD., a financial and marketing consulting firm hefounded in 1999, and which is headquartered in Minnetonka, Minnesota.  From 1996 until 1999, Mr. Pupel was theChief Financial Officer of Chumbo.com. Mr. Pupel is a Certified Public Accountant, and earned his BBA and MBAfrom The University of Notre Dame.

 

Item 6:             Exhibits and Reports on Form 8-K.

 

(a)   Listing of Exhibits

 

99.1       Certification Pursuant to 18 U.S.C. Section 1350, asAdopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(b)   Reports on Form 8-K

 

(1)     Change in Independent Accountants to LurieBesikof Lapidus & Company, LLP filed on July 16, 2001

 

(2)     Disposition of Assets of RSPNetwork, Inc.(as sole shareholder of RSPNetwork, Inc.) filed on August 7, 2001

 

 

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SIGNATURES

 

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                   |   | VIRTUALFUND.COM, INC.                                      |
|------------------------|--------|------------------------------------------------------------|
|                   |   | (Registrant)                                               |
| Date: January 13, 2003 |   | /s/ Timothy Duoos                                          |
|                   |   | Timothy Duoos, Chairman of the Board                       |
|                   |   |                                                       |
| Date: January 13, 2003 |   | /s/ Joseph D. Pupel                                        |
|                   |   | Joseph D. Pupel, Interim Chief Executive Officer           |
|                   |   | (Duly Authorized  Officer and Principal Financial Officer) |

 

 

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CERTIFICATIONUNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Joseph D.Pupel, the Interim Chief Executive and Duly Authorized  Principal Accounting Officer, hereby certifythat:

 

1.     I have reviewed this quarterly report on Form10-Q of VirtualFund.com, Inc.;

 

2.     Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.     Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, theperiods presented in this quarterly report;

 

Date: January 13, 2003

 
| /s/ Joseph D. Pupel                                                                             |
|-------------------------------------------------------------------------------------------------|
| Joseph D. Pupel                                                                                 |
| Interim Chief Executive  Officer (principal executive officer and principal accounting officer) |

 

 

EXPLANATORY NOTE REGARDING CERTIFICATION:Representations 4, 5 and 6 of the Certification as set forth in Form 10-Q havebeen omitted, consistent with the Transition Provisions of SEC Exchange ActRelease No. 34-46427, because this Quarterly Report on Form 10-Q covers aperiod ending before the Effective Date of Rules 13a-14 and 15d-14.

 

 

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