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(Mark One)

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.

All figures are in United States Dollars unless otherwise stated.

We operate one call center through our subsidiary, NorthNet Telecommunications, Inc. doing business as NorthStar TeleSolutions. Our call center is located at 125 Airport Parkway, Greenwood, Indiana.

Our call center provides teleservices such as outbound and inbound customer support, centralized customer billing, customer sales and support, order entry, order fulfilment, bill collection, Internet-based sales and service support, as well as management reporting, database management, service scheduling and dispatch, and marketing services including database marketing, market research, and data mining. Our call center currently has the capacity for over 80 call center representatives and offers customer service support 24-hours a day, seven days a week. We provide our services for a flat monthly rate or on a per-transaction basis depending on the scope of services required.

In the past, we have provided services to a limited number of cable television operators and Internet service providers in the United States. We have expanded the scope of our call center operations and now service over 50,000 homes with cable television and/or other broadband services. We target businesses that have a customer base of up to 100,000 customers, as we have found that businesses with more than 100,000 customers typically have well established in-house call centers.

We market our call center services through periodic advertising, direct mail, strategic partnerships and outbound telemarketing of the services provided by the call center, as well as by appearances at industry trade-shows.

We plan to concentrate our call center services on customer support and transaction processing, allowing our clients to concentrate on the marketing and growth of their businesses while still maintaining a high level of customer care and service. We plan to continue to seek additional opportunities to add capacity, technology and expertise to our call center business. We are cultivating new customers for the call center which have also begun to provide cable-related services such as local and long distance telecommunications and Internet access. We anticipate that the services offered by our customers can be bundled and/or marketed together.

We launched our PSSP (Professional Services and Software Products) Group on March 4, 2002. Through the PSSP Group we plan to provide businesses with customized e-commerce solutions based primarily on our TAME development platform so that these businesses can retail their products and services over the Internet. PSSP will be capable of providing some of the services that were previously offered by our VirutualSellers.com operation. In this regard, PSSP is able to provide e-commerce applications, Web site development, maintenance and hosting services, customized Internet application design, deployment and project management services. We anticipate that a significant portion of the PSSP Group's revenue will be derived from our Healthtrac division and the sale and support of licenses of our TAME V software as an adjunct to Healthtrac's online product.

We operate a health promotion and disease management business through our wholly-owned subsidiary Healthtrac Corporation. Healthtrac Corporation provides its products and services to health plans and self-insured employers. Its products include health risk assessment tools, participant health status reports, tailored health education tools, general health promotion information, individual programs for self-management of individual health, disease management interventions, the means of measuring and reporting results, and need and demand reduction programs.

Our Healthtrac programs are designed to postpone the onset of morbidity (e.g. disease and disability) through healthy preventive practices, and to encourage and support self-management of chronic disease. Healthtrac offers population health management tools for organizations at risk for health care costs. These tools help identify potential high-risk constituents prior to high claims utilization, reduce health risks and costs by supporting healthy changes and management of chronic conditions, track and reinforce changes over time, and evaluate the impact of these efforts. Our Healthtrac product line includes:

Other Healthtrac services include:

During the quarter ended May 31, 2002, we continued to concentrate on the development of our health promotion business, on the development of the Healthtrac name generally, and on our call center business. We also continued to concentrate on developing our proprietary software language, TAME, by adding many functions that were necessary to make it commercially saleable. We have achieved success in using TAME for website development, maintenance and hosting and customized Internet application design and development.

Some of our recent highlights and accomplishments include:

During the quarter, sales at Northstar decreased 8.0% over the same quarter a year ago. In the past, we provided services to a limited number of cable television operators and internet service providers in the United States. We have expanded the scope of our call center operations and now service over 50,000 homes with cable and broadband services, and handle approximately 35,000 transactions per month and 12,000 calls per month.

Through our Professional Services and Software Products (PSSP) group, we build, maintain and host e-commerce capable Web sites, including customized Internet design, development, deployment and project management services. Using these capabilities, our PSSP Group is in a position to help business clients develop an online selling presence. PSSP uses our proprietary programming software language, TAME, to deliver these end-to-end e-commerce solutions.

TAME V is available for Internet Service Providers (ISPs), Web developers and networking programmers.

Healthtrac Corporation is a health promotion and disease management company that provides its products and services to health plans and self-insured employers. It provides health risk assessment tools, participant health status reports, tailored health education tools, general health promotion information, individual programs for self-management of individual health, disease management interventions, the means of measuring and reporting results, and need and demand reduction programs.

Revenues for the three months ended May 31, 2002 ("First Quarter 2003") of $1,085,307 increased $459,574, an increase of 73% from revenues of $625,733 for the three months ended May 31, 2001 ("First Quarter 2002"). The increase in revenues in First Quarter 2003 over First Quarter 2002 is primarily due to the health promotion segment, which we acquired in the second quarter of fiscal 2002.

At the call center, the quarter revenues decreased $24,155 to $274,668 compared to $298,823 for First Quarter 2002. The call center generates revenue providing transaction processing and backroom services including inbound and outbound telemarketing, customer and technical support, customer order entry, centralized billing and collection, order fulfilment, customer dispatch functions and other related services. The decrease in revenues from First Quarter 2002 is due to the closing of the VirtualSeller.com e-commerce division, which reduced revenue for the call center by $120,906 due to substantial credit memos due to clients. Revenue from the call center's primary customer management business increased slightly as the growth in new business more than offset the loss due to losing a few small clients that were lost as a result of the acquisition of our new health promotion business.

Healthtrac Corporation earned revenues of $754,151 for First Quarter 2003. Healthtrac Corporation generates revenues by providing health promotion and disease management services to self-funded employers and health insurance plans. Healthtrac Corporation was purchased on August 3, 2001, therefore there is no comparative financial information for First Quarter 2002.

The PSSP segment earned revenues of $56,220 for First Quarter 2003 compared to revenues from First Quarter 2002 of $326,910. The revenues are generated from the e-commerce website development, maintenance and hosting services to businesses. The decrease of $270,690 in revenues is principally due to the fact that we ceased to provide some of the services that our VirtualSellers.com operation previously provided, resulting in fewer contracts and downsizing.

Direct product costs in First Quarter 2003 were $371,453, compared to direct costs of $209,367 in First Quarter 2002, an increase of $162,086. The call center division primarily sells services and thus has no direct product costs. The increase in direct product costs is due to our acquisition of Healthtrac Corporation.

Selling, general and administrative expenses decreased to $1,304,350 from $1,616,142 in First Quarter 2003, a decrease of $391,792. Selling, general and administrative expenses at the call center division decreased from $346,094 to $260,387. The decrease is due to streamlining processes and procedures to reduce the number of people that we employ. Selling general and administrative expenses at the E'Commerce PSSP division decreased from $744,363 to $25,769 in First Quarter 2003, consisting primarily of payroll costs. This decrease is primarily due to the shutdown of our Sullivan Park operation. The Health promotion segment incurred $484,229 of selling, general and administrative expenses during the First Quarter 2003 primarily consisting of payroll, rent and consulting fees. As the health promotion segment was acquired during Second Quarter 2001 there are no comparable figures for selling, general and administrative for this segment. Corporate general and administrative expenses dec reased from $583,353 in First Quarter 2002 to $533,965 in First Quarter 2003 due to decreases in payroll, marketing and consulting fees.

Depreciation and amortization decreased from $400,921 to $364,377, a decrease of $36,544 or 9%. The decrease is due to the write-down of goodwill and fixed assets during the second quarter of fiscal 2002, offset by the increase in amortization of intellectual property that arose from the acquisition of our Healthtrac subsidiary.

Other income (expense) increased from expense of $9,155 in First Quarter 2002 to income of $8,815 in First Quarter 2003, an increase of $17,970.

For First Quarter 2003, we recognized a loss of $946,058 or $0.01 per share, compared to a loss of $1,649,873 or $0.01 per share for First Quarter 2002. The decrease in the loss is due to the factors explained above.

As at May 31, 2002, we had a net working capital deficiency of $2,097,844 and cash resources of $295,856.

During First Quarter 2003, we used $175,638 in cash to fund operations, used $7,248 in cash to fund investing activities which consisted solely of capital asset additions and received $195,083 in cash from financing activities for a net increase in cash of $12,197.

We have historically funded operations through the issuance of our common shares. We expect to fund future operations and investments through the issuance of common shares. We estimate our cash requirements for capital asset additions for the remainder of fiscal 2003 to be approximately $225,000. We also estimate that cash flow from operations will be negative for the remainder of fiscal 2003, and thus, will require additional financing in order to continue operations. We estimate that further cash requirements of approximately $1,125,000 will be required to fund operations. There is no guarantee that we will be able to obtain the additional cash resources or if available, resources can be obtained at reasonable terms. If the Company is unable to obtain sufficient funds for operations, it will be required to reduce operations or liquidate assets. Management believes that the additional cash resources will be available from private placements.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations, including the discussion of liquidity and capital resources, are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that our company make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments. Actual results could differ from the estimates. We believe the following critical accounting policies require greater judgment and estimates used in the preparation of the consolidated financial statements.

The consolidated financial statements have been prepared on the going concern basis, which assumes that our company will be able to realize its assets and discharge its obligations in the normal course of business. If we were not to continue as a going concern, we would likely not be able to realize on our assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the consolidated financial statements. We incurred a loss for the period of $946,058, used $175,638 in cash to fund operations for the period ended May 31, 2002. For the year ended February 28, 2003, our management is projecting that we will require $1,800,000 to fund operations and capital asset acquisitions, that we will raise $3,000,000 from financing activities and that it will cost us approximately $390,000 to raise this financing. Management expects to use funds raised for operations and to expand our marketing and operations capacity. There can be no assurance th at management's projections will be achieved.

Our Company's management has estimated the useful life of the intellectual property that was acquired through the acquisition of Healthtrac as being five years. We have yet to realize profits from this acquisition and may not be able to realize these assets in the normal course of operations over the next five years. In estimating the fair value of intellectual property, our company's management estimates their value at the segment level. The fair value of the definite life intangible will be impacted by general economic conditions, demand for the segment's services and other factors. To the extent that fair value is reduced in future periods, we may be required to record an impairment charge against the carrying value of the intellectual property.

We recognize revenue in the Healthcare segment for the health assessment questionnaires as the services are provided and the revenues earned. In estimating the revenues earned, our management estimates the percentage of work completed based on historical experience of proportional costs incurred by us to perform the services. To the extent we have received funds for services that have not been completed they will be deferred until realized.

RISK FACTORS

Much of the information included in this quarterly report on Form 10-Q includes or is based upon estimates, projections or other "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are subject to the "safe harbor" created by those sections. When used in this document, the words "expects", "anticipates", "intends", "plans" and similar expressions are intended to identify forward-looking statements. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions, or other future performance suggested herein. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of such statements.< /P>

Such estimates, projections or other "forward-looking statements" involve various risks and uncertainties as outlined below and those discussed in our Form 10-K Annual Report for the year ended February 28, 2002. The cautionary statements made in this document and in our Form 10-K Annual Report should be read as being applicable to all related forward-looking statements wherever they appear in this document. We caution the readers that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other "forward-looking statements". Readers should carefully consider the following factors in evaluating our company, our business and any investment in our company:

Risks Related to Our Business

Although we were incorporated in 1982, we have a lack of history regarding our Web site design, development and hosting business, our custom Internet application processing business and our newly created health promotion business. Accordingly, we have a limited operating history and limited financial data upon which you may evaluate our business and prospects. Our potential for future profitability must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets. Some of these risks relate to our potential inability to:

We may not successfully address these risks. If we do not successfully address these risks, we may not realize sufficient revenues or net income to reach or sustain profitability, which would adversely affect our continuing business operations.

We have incurred substantial net losses and have a substantial net operating loss carryover. A significant component of these losses were incurred in operations which we no longer operate but we have spent significant funds to develop our current business divisions, procure hardware, software and networking products and develop our operations, research and development and sales and marketing operations. We have continued to incur losses since entering the transaction processing/customer service and Internet software and development business. For the three-month period ended May 31, 2002, we incurred losses of $946,058. As of May 31, 2002, we had an accumulated deficit of $118,019,382. We have incurred significant operating losses and have not achieved profitability. While we feel confident that we can secure additional funds through private placement financing and successfully carry out our business plan, there can be no assurance that we will accomplish these tasks and achieve p rofitability. If we cannot successfully carry out our business plan, then our continuing business operations would be adversely affected.

We expect to increase our operating expenses in the future by increasing our sales and marketing expenditures. To achieve operating profitability, we will need to increase our customer base and revenue and decrease our costs. We may not be able to increase our revenue or increase our operating efficiencies in this manner. If our revenue grows more slowly than we anticipate or if our operating or capital expenses increase more than we expect, our operating results will suffer. Moreover, because we expect to continue to increase our investment in our business faster than we anticipate growth in our revenue, we will continue to incur significant operating losses and negative cash flow for the foreseeable future. Consequently, it is possible that we will not achieve profitability, and even if we do achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis in the future. The auditors' report on our annual consolidated financial statements for the y ear ended February 28, 2002, contains an explanatory paragraph that states that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Our revenue and operating results may vary significantly from quarter to quarter. These fluctuations could cause our stock price to fluctuate significantly or decline. Important factors that could cause our quarterly results to fluctuate materially include:

Our current and future levels of operating expenses and capital expenditures are based largely on our growth plans and estimates of future revenue. These expenditure levels are, to a large extent, fixed in the short term. We may not be able to adjust spending in a timely manner to compensate for any unexpected revenue shortfall, and any significant shortfall in revenue relative to planned expenditures could negatively impact our business and results of operations. In addition, if our customer base expands rapidly or unpredictably, we may not be able to efficiently utilize our infrastructure or we may not have sufficient capacity to satisfy our customers' requirements, which could harm our operating results. Moreover, because many of our expenses are components of our cost of revenues, our gross margins are likely to be negative for the foreseeable future.

Due to these and other factors, quarter-to-quarter comparisons of our operating results may not be meaningful. You should not rely on our results for any one quarter as an indication of our future performance. In future quarters, our operating results may fall below the expectations of public market analysts or investors. If this occurs, the market price of our common stock would likely decline.

We have rapidly expanded our business during the transition to becoming a health promotion/customer service and Internet software and development company, although we have decreased our number of employees from 79 at February 28, 2001 to 52 at February 28, 2002. As at May 31, 2002, we had 50 employees. We have completed several acquisitions of businesses which we now operate.

This growth has placed, and will continue to place, a significant strain on our employees, management systems and other resources. We expect our business to continue to grow in terms of headcount, geographic scope, number of customers and the scope of services we offer. There will be additional demands on our customer service support, research and development, sales and marketing and administrative resources as we try to increase our service offerings, expand our geographic scope and expand our target markets. The strains imposed by these demands are magnified by our limited operating history. We may not be able to successfully manage our growth. In order to manage our growth successfully, we must:

Any failure by us to effectively manage our growth could disrupt our operations or delay execution of our business plan and consequently harm our business.

The markets related to each of our business divisions are rapidly evolving and highly competitive. Some of these will likely be characterized by an increasing number of market entrants, as there are few barriers to entry, and by industry consolidation. We expect that we will face competition from both existing competitors and new market entrants in the future.

Our competitors and other companies may form strategic relationships with each other to compete with us. These relationships may take the form of strategic investments, joint-marketing agreements, licenses or other contractual arrangements, any of which may increase our competitors' ability to address customer needs with their product and service offerings. In addition, we believe that there will be continued consolidation within the markets in which we compete. Our competitors may consolidate with one another, or acquire other technology providers, enabling them to more effectively compete with us. This consolidation could affect prices and other competitive factors in ways that would impede our ability to compete successfully and harm our business. To the extent that these providers expand the scope of these new services to address some of the functionality we currently provide, some of these companies may be unwilling to provide services to us or to enter into relationships with us.

Our success is dependent upon achieving significant market acceptance of our products and services by employers, healthcare organizations, physicians, healthcare professionals and, now that we have adapted the Healthtrac products for use on the Internet, Internet consumers. We cannot guarantee that employers, healthcare organizations, medical professionals or Internet consumers will accept Healthtrac, or even the Internet, as a replacement for traditional sources of healthcare information. Market acceptance of our products and services depends upon continued growth in the use of the Internet generally and, in particular, as a source of healthcare information services for medical professionals and consumers. The Internet may not prove to be a viable channel for these services because of inadequate development of necessary infrastructure, such as reliable network backbones, or complementary services, such as high-speed modems and security procedures for the transmission of confidential and private healthcare information, the implementation of competitive technologies, government regulation or other reasons. Failure to achieve and maintain market acceptance would seriously harm our business.

We will compete with other companies providing or maintaining online services or Web sites targeted to doctors and the health promotion and disease management industry, companies providing or maintaining online general health promotion and disease management information and related services, companies providing or maintaining public sector and non-profit Web sites that contain health-related information and services, companies providing or maintaining websearch services particularly geared to medical and healthcare Web sites, and publishers and distributors of traditional media targeted to doctors and the healthcare industry. Competition for users, members and advertisers, as well as general competition in the electronic commerce market, is intense and is expected to increase significantly.

Many of our competitors are larger than we are and have significantly greater financial resources and marketing capabilities than we do, together with better name recognition. It is also possible that new competitors may emerge and acquire significant market share. Competitors with superior resources and capabilities may be able to utilize such advantages to market their Web site, products and services better, faster and/or cheaper than we can. Increased competition is likely to result in reduced gross margins and loss of market share, either of which could have a material adverse effect upon our business, results of operations and financial condition. Because of these competitive factors and due to our comparatively small size and limited financial resources, we may be unable to compete successfully.

Our ability to compete successfully will require that we develop and maintain technologically advanced Web sites and provide superior products and services, attract and retain highly qualified personnel and obtain a significant customer base, and that we develop strategic partnerships that help us expand our products and services. There can be no assurance that we will be able to achieve these objectives. Failure to do so would have a material adverse effect on our business, operating results and financial condition.

The call center, telemarketing and customer relationship management industries are intensely competitive. We compete with numerous independent call centers, telemarketing and customer relationship management firms as well as the in-house operations of many of our existing or prospective clients. We compete for call center, telemarketing and customer relationship management services based on quality, technological expertise, customer service, price, value, range of service offerings, and available capacity.

Most businesses that are significant consumers of call center, telemarketing and customer relationship management services utilize more than one firm to outsource their business and often reallocate work among various firms from time to time. Clients often request call center, telemarketing and customer relationship management services to be provided on an individual project basis and we frequently are required to compete for individual projects as they are initiated.

Our business and operations are substantially dependent on the performance of our key employees. Following the year ended February 28, 2002, we entered into an employment agreement for a two year term with Thomas V. Kalebic to act as our President and CEO. Mr. Kalebic resigned from these positions on June 10, 2002. Although we believe that the loss of Mr. Kalebic will not have a materially adverse impact upon our company, there can be no assurance in this regard, nor any assurance that we will be able to find a suitable replacement for Mr. Kalebic. Furthermore, we do not maintain "key man" life insurance on the lives of any of our officers. If we lose the services of one or more of our executive officers or key employees or if one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, we may not be able to successfully manage our business or achieve our business objectives.

Our future success depends on our ability to identify, hire, train, integrate and retain highly qualified technical, sales and marketing, managerial and administrative personnel. Our success is therefore dependent upon our ability to identify, hire and retain such qualified personnel, for whose services we will be in competition with other prospective employers, many of which may have significantly greater resources than we do. Additionally, demand for qualified personnel conversant with certain technologies is intense and may outstrip supply as new and additional skills are required to keep pace with evolving computer technology. As our customer base and revenue continue to grow, we will need to hire a significant number of qualified personnel. In particular, we need to hire a sufficient number of technical operations personnel in order to deploy customers on a timely basis. Competition for qualified personnel is intense, and we may not be able to attract, train, integrate or ret ain a sufficient number of qualified personnel in the future. As we grow, it will become more difficult to identify qualified personnel to fill technical positions, which will cause us to rely increasingly on internal training programs. Our failure to attract, train, integrate and retain qualified personnel could seriously disrupt our operations and increase our costs by forcing us to use more expensive outside consultants and reduce the rate at which we can increase revenue.

Important components of the compensation of our personnel are stock options and restricted stock, which vest typically over an extended period. We face a significant challenge in retaining our employees if the value of these stock options and restricted stock is either not substantial enough or so substantial that the employees leave after their stock options or restricted stock have vested. To retain our employees, we expect to continue to grant new options subject to vesting schedules, which could be dilutive to investors. If our stock price does not increase significantly above the prices of our options, we may also need to issue new options or grant additional shares of stock in the future to motivate and retain our employees.

Our Call Center and Healthtrac systems utilize sophisticated and specialized telecommunications, network and computer technology and proprietary software and have focused on the application of these technologies to meet our clients' needs. We anticipate that it will be necessary to continue to invest in and develop new and enhanced technology on a timely basis to maintain our competitiveness. Significant capital expenditures may be required to keep our technology up to date. Investments in technology and future investments in upgrades and enhancements to software for such technology may not necessarily maintain our competitiveness. Our future success will also depend in part on our ability to anticipate and develop information technology solutions which keep pace with evolving industry standards and changing client demands.

In addition, our business is highly dependent upon our computer and telephone equipment and software systems, and the temporary or permanent loss of such equipment or systems, through casualty, operating malfunction or otherwise, could have a materially adverse effect upon our company. Our business systems depend on the smooth operation of computer systems that may be affected by circumstances beyond our control. Events that could cause system interruptions are:

Although we back up data as a matter of course, and take other measures to protect against loss, there is still a certain degree of risk of such losses. A system outage or data loss could adversely affect our business.

Despite the security measures that we maintain, our systems may be vulnerable to computer viruses, hackers, rogue employees or similar sources of disruption. Any interruptions in our operations could have a materially adverse effect on our business. Any problem of this nature could result in significant liability to customers or financial institutions and may deter potential customers from using its services. We attempt to limit this sort of liability through back-up systems, contractual provisions and insurance. However, there is no assurance that these contractual limitations would be enforceable, or that our insurance coverage would be adequate to cover potential liabilities.

Our operations are dependent upon our ability to protect our Healthtrac and Call Center information databases against damage that may be caused by fire, power failure, telecommunications failures, unauthorized intrusion, computer viruses and other emergencies. We have taken precautions to protect our company and our customers from events that could interrupt delivery of our services. These precautions include off-site storage of backup data, fire protection and physical security systems, backup power generators and a disaster recovery plan. We also maintain business interruption insurance in amounts that we consider adequate. Notwithstanding such precautions, there can be no assurance that a fire, natural disaster, human error, equipment malfunction or inadequacy, or other event will not occur.

The growth of our Call Center business depends in large part on the industry trend toward outsourcing information technology and administrative services. There can be no assurance that this trend will continue, as organizations may elect to perform such services in-house. We intend to alleviate our dependence upon any one revenue stream by expanding our business operations vertically and horizontally. Nevertheless, a significant change in the direction of this trend toward outsourcing could have a materially adverse effect on our company.

Our future success will depend in large part upon our ability to keep pace with technology. Rapid changes have occurred, and are likely to continue to occur. There can be no assurance that our development efforts will not be rendered obsolete by research efforts and technological advances made by others. The market for information technology services is characterized by rapid technological advances, frequent new product introductions and enhancements, and changes in customer requirements. Although we believe that our Call Center is sufficient for the present, we believe that our future success will depend in large part on our ability to service new products, platforms and rapidly changing technology. These factors will require that we provide adequately trained personnel to address the increasingly sophisticated, complex and evolving needs of our customers. Our ability to capitalize on future acquisitions in the Call Center and health promotion and disease management industries w ill depend on our ability to (i) enhance our software and successfully integrate such software into our technical product support services, (ii) adapt such software to new hardware and operating system requirements and (iii) develop new software products in an industry characterized by increasingly rapid product and technological obsolescence. Our success is dependant upon Healthtrac's ability to upgrade and enhance its existing programs and systems. Our failure to anticipate or respond rapidly to technological advances, new products and enhancements, or changes in customer requirements could have a materially adverse effect on our company.

The market for Internet software and Web site design and development services is characterized by rapid technological change, frequent new hardware, software and networking product introductions and Internet-related technology enhancements, uncertain product life cycles, changes in customer demands and evolving industry standards. Any delays in responding to these changes and developing and releasing enhanced or new services could hinder our ability to retain existing and obtain new customers. In particular, our technology is designed to support a variety of hardware, software and networking products that we believe to be proven and among the most widely used. We cannot assure you, however, that present and future customers will continue to use these products. Even if they do, new versions of these products are likely to be released and we will need to adapt our technology to these new versions. We must, therefore, constantly modify and enhance our technology to keep pace with chang es made to our customers' hardware and software configurations and network infrastructures. If we fail to promptly modify or enhance our technology in response to evolving customer needs and demands, our technology could become obsolete, which would significantly harm our business. In addition, frequent changes in the hardware, software and networking components of the systems and services we provide could adversely affect our ability to automate the deployment process, a key element of our business strategy.

Our success is dependent upon our ability to provide the latest technology for our operation processes and our ability to enhance and provide clinical upgrades in our disease management and health promotion programs based on the latest research. Our success may also require that we continue to perform science-based evaluations on the impact of our programs.

If we do not develop, license or acquire new services, or deliver enhancements to existing products on a timely and cost-effective basis, we may be unable to meet the growing demands of our existing and potential customers. In addition, as we introduce new services or technologies into existing customer architectures, we may experience performance problems associated with incompatibility among different versions of hardware, software and networking products. To the extent that such problems occur, we may face adverse publicity, loss of sales, delay in market acceptance of our services or customer claims against us, any of which could harm our business.

The standard customer agreement for customers of the Call Center are short-term and can be terminated without cause by either party. We expect that there will be terminations and non-renewals from time to time and that we may not be able to replace all of these clients. Our ability to generate revenues and our financial performance could be damaged by a significant number of terminations or non-renewals of such contracts.

The information provided by us is intended to be in addition to, and not in substitution for, medical advice from a user's own physician. However, medical advice may be dispensed both directly by doctors and indirectly through our Healthtrac products. Damage awards in medical malpractice suits can be very high, potentially creating a financial burden that we could not withstand if such a suit were successful and not fully covered by insurance.

Use of the Internet by businesses and consumers as a medium for commerce is still in the early stages of development, and is therefore subject to uncertainty. E-commerce is a relatively recent development. Rapid growth in the use of and interest in the Internet has occurred only recently. Acceptance and use may not continue to develop at historical rates and a sufficiently broad base of consumers and businesses may not adopt or continue to use the Internet and other online services as a medium of commerce. The development of the Internet as a commercial marketplace may occur more slowly than anticipated. Factors that may affect Internet usage include:

These factors could result in slower response times or adversely affect usage of the Internet, resulting in lower numbers of e-commerce transactions and decreased demand for our services. If Internet usage does not continue to increase, demand for our services may be limited and our business and results of operations could be harmed.

Our success depends in large part on our intellectual property, including our proprietary software technology. We currently rely on a combination of copyright, trademark, trade secret and other laws and restrictions on disclosure to protect our intellectual property rights. We currently hold the Internet domain names "www.virtualsellers.com", "www.Healthtrac.com" and "www.MyHealthtrac.com" as well as various other related names, and we use "Healthtrac" and "TAME" as tradenames. Domain names generally are regulated by Internet regulatory bodies and are subject to change and may be superseded, in some cases, by the laws, rules and regulations governing the registration of tradenames and trademarks with the United States Patent and Trademark Office and certain other common law rights. In the event that the domain registrars are changed, new ones are created or we are deemed to be infringing upon another's tradename or trademark, we could be unable to prevent third parties from acquirin g or using, as the case may be, our domain name, tradenames or trademarks which could adversely affect our brand name and other proprietary rights. These legal protections afford only limited protection, and our means of protecting our proprietary rights may not be adequate.

Our intellectual property may be subject to even greater risk in foreign jurisdictions, as the laws of many countries do not protect proprietary rights to the same extent as the laws of the United States. If we cannot adequately protect our intellectual property, our competitive position may suffer.

We may be required to spend significant resources to monitor and police our intellectual property rights. We may not be able to detect infringement and may lose our competitive position in the market before we are able to ascertain any such infringement. In addition, competitors may design around our proprietary technology or develop competing technologies. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Any such litigation could result in substantial costs and diversion of resources, including the attention of senior management. Defending against intellectual property infringement and other claims could be time consuming and expensive and, if we are not successful, could subject us to significant damages and disrupt our business.

Other companies, including our competitors, may obtain patents or other proprietary rights that would prevent, limit or interfere with our ability to make, use or sell our services. As a result, we may be found to infringe on the proprietary rights of others. In the event of a successful claim of infringement against us and our failure or inability to license the disputed technology, our business and operating results would be significantly harmed. Intellectual property litigation has become prevalent in the Internet and software fields. Any litigation or claims, whether or not valid, could result in substantial costs and diversion of resources. Intellectual property litigation or claims could force us to do one or more of the following:

If we are forced to take any of the foregoing actions, our business may be seriously harmed. In addition, any of these could have the effect of increasing our costs and reducing our revenue. Our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed.

We have limited internal marketing and sales resources and personnel. In order to market our current products and services and any future products and services we may develop, we will have to either develop a marketing and sales force with technical expertise and distribution capability or outsource such duties to independent contractors. There can be no assurance that we will be able to establish sales and distribution capabilities or that we will be successful in gaining market acceptance for our current products or services and any future products and services we may develop. There can be no assurance that we will be able to recruit skilled sales, marketing, service or support personnel, that agreements with distributors will be available on terms commercially reasonable to us, or at all, or that our marketing and sales efforts will be successful. Failure to successfully establish a marketing and sales organization, whether directly or through third parties, would have a materia lly adverse effect on our business, financial condition, cash flows, and results of operations. There can be no assurance that any of our proposed marketing schedules or plans can or will be met.

Laws and regulations governing Internet services, related communications services and information technologies and electronic commerce are beginning to emerge but remain largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws, such as those governing intellectual property, privacy, libel, telecommunications and taxation, apply to the Internet and to related services such as ours. Uncertainty and new laws and regulations, as well as the application of existing laws to the Internet, could limit our ability to operate in these markets, expose us to compliance costs and substantial liability and result in costly and time consuming litigation. The international nature of the Internet and the possibility that we may be subject to conflicting laws of, or the exercise of jurisdiction by, different countries may make it difficult or impossible to comply with all the laws that may govern our activities. Furth ermore, the laws and regulations relating to the liability of online service providers for information carried on or disseminated through their networks is currently unsettled.

The healthcare industry is highly regulated and is subject to changing political, regulatory and other influences. These factors affect the purchasing practices and operations of healthcare organizations. Federal and state legislatures and agencies periodically consider programs to reform or revise the United States healthcare system. These programs may contain proposals to increase governmental involvement in healthcare, lower reimbursement rates or otherwise change the environment in which healthcare industry participants operate. Healthcare industry participants may respond by reducing their investments or postponing investment decisions, including investments in our applications and services. We are unable to predict future proposals with any certainty or to predict the effect they would have on our business.

Existing laws and regulations also could create liability, cause us to incur additional cost or restrict our operations. Many healthcare laws are complex, applied broadly and subject to interpretation by courts and other governmental authorities. In addition, many existing healthcare laws and regulations, when enacted, did not anticipate the methods of healthcare e-commerce and other products and services that we provide. However, these laws and regulations may nonetheless be applied to our products and services. Our failure, or the failure of our business partners, to accurately anticipate the application of these healthcare laws, or other failure to comply, could create liability for us, result in adverse publicity and negatively affect our business.

The Effect of The Health Insurance Portability and Accountability Act of 1996 (HIPAA) On Our Business Is Difficult to Predict And Its Implementation May Cause Unexpected Problems

Although we believe that we are in a position to comply with HIPAA, we are continuing to develop our HIPAA-ready solutions and our business strategy for marketing those solutions and services. Changes in compliance deadlines or in other aspects of the HIPAA regulations may cause us to make changes to our strategy or require us to develop different solutions. The effect of HIPAA on our business is difficult to predict and there can be no assurances that we will adequately address the business risks created by HIPAA and its implementation or that we will be able to take advantage of any resulting business opportunities. In addition, we are unable to predict what changes to the HIPAA regulations will be made in the future or how those changes could affect our business.

The extension of the deadline for complying with the HIPAA transaction standards will cause us to have a longer period of time in which we must accommodate our customers' varying states of readiness to test new systems and move to the new standards. There can be no assurance that we will be able to meet our deadlines or those of our customers.

The terrorist attacks in New York and Washington, D.C. on September 11, 2001 appear to be having an adverse affect on business, financial and general economic conditions. This may, in turn, have an adverse effect on our business and results and operations. At this time, however, we are not able to predict the nature, extent and duration of these effects on overall economic conditions or on our business and operating results.

Many of our customers are affected by economic conditions in the United States and throughout the world. Many companies have announced that they will reduce their spending which may include them spending less on information technology systems, Internet applications and healthcare promotion products. If such spending is reduced by customers and potential customers, our sales could be harmed, and we may experience greater pressures on our gross margins. If economic conditions do not improve, or if our customers reduce their overall purchases, our business, sales, gross profits and operating results may be adversely affected.

The trading price of our common shares has been, and in the future is expected to be, volatile and we expect to experience further market fluctuations as a result of a number of factors. These factors include, but are not limited to, current and anticipated results of operations as well as changes in our business, operations or financial results, the timing of sales of common shares by our shareholders, prospects of general market and economic conditions and other factors.

Our common stock is quoted on the OTC Bulletin Board and is thinly traded. In the past, our trading price has fluctuated widely, depending on many factors that may have little to do with our operations or business prospects. In addition, the OTC Bulletin Board is not an exchange and, because trading of the securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on an exchange of the Nasdaq Stock Market, Inc., you may have difficulty reselling any of the shares your purchase from the selling stockholders.

Our common shares are currently traded on the OTC Bulletin Board and are not listed for trading on the NASDAQ system. A company must meet certain quantitative criteria relating to its total assets, its capital and the trading prices of its securities to be included on the NASDAQ system. In addition, the NASDAQ staff may consider other factors, such as our company's management and the circumstances surrounding our company's operations, when determining whether to approve a company's application for inclusion in the NASDAQ system. We cannot guarantee that we will ever be listed on NASDAQ or any other stock exchange or automated quotation system. As a result, it may be more difficult to dispose of, or to obtain adequate quotations as to the prices of, our common stock.

The U.S. Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors." The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks i n the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary marke t for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of, our common stock.

We plan to pursue collaborative arrangements with other market leaders to develop, manufacture and market health promotion and disease management, application development and telecommunication services. Such agreements already exist with ASI, a web hosting company that has 160,000 business available to market its complete e-commerce solutions, and with World Satellite Network (WSNet), a provider of programming, hardware and network edge integrated digital services to private and franchised broadband service providers. Our future success will depend in large part on our ability to continue to form collaborative arrangements with third parties, our strategic interest in the potential products under development and, eventually, our success in marketing or willingness to purchase any such products. These programs may require that we share control over our marketing programs or restrict our ability to engage in certain areas of product development, production and marketing. These progra ms may also be subject to unilateral termination by our collaborative partners without cause or default and without an ability to cure any defaults. Accordingly, we may compete with our partners (and others to whom disclosure maybe made) for commercial sales of any products or services developed in these arrangements. There can be no assurance that we will be able to enter into collaborative arrangements on commercially reasonable terms, that these arrangements, if established, will result in successful programs to develop, manufacture or market products or that, if those programs are successful, our collaborative partners will not seek to compete directly through jointly developed products themselves or obtain them from alternative sources.

In order to grow our business and finance future acquisitions, we will require additional financing. We currently have a working capital deficiency of $2,097,844. As of May 31, 2002, our accumulated deficit was $118,019,382. Furthermore, we have experienced negative cash flows during each of the last three years of operations. We have historically depended upon capital infusion from the issuance of long term debt and equity securities to provide the cash needed to fund operations. Our ability to continue in business depends upon our continued ability to obtain significant financing from external sources. We are currently raising additional funds through the sale of additional equity. If this additional capital were raised through borrowing or other debt financing, we would incur substantial additional interest expense. Sales of additional equity securities, through a traditional underwritten offering, would dilute, on a pro rata basis, the percentage ownership of all holders of common shares. There can be no assurance that any such financing would be available upon terms and conditions acceptable to us, if at all. The inability to obtain additional financing in a sufficient amount when needed and upon acceptable terms and conditions could have a material adverse effect upon our company and our revenue growth may be adversely affected. If adequate funds are not available on acceptable terms when needed, we may be required to delay, scale-back or eliminate marketing of one or more of our products or development programs or obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies, product candidates or potential products that we would not otherwise relinquish. Inadequate funding also could impair our ability to compete in the marketplace and could result in our dissolution.

We are authorized to issue 150,000,000 each of Class A and Class B preference shares, with such designations, rights and preferences as may be determined from time to time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue such preference shares with dividend, liquidation, conversion or other rights which could adversely affect the rights of the our shareholders. The issuance of preference shares could, among other things, adversely affect the voting power of our shareholders and, under certain circumstances, make it more difficult for a third party to gain control of our company, discourage bids for common shares at a premium or otherwise adversely affect the market price for common shares.

Our bylaws contain provisions limiting the liability of our officers and directors for all acts, receipts, neglects or defaults of themselves and all of our other officers or directors or for any other loss, damage or expense happening to our company which shall happen in the execution of the duties of such officers or directors. Such limitations on liability may reduce the likelihood of derivative litigation against our officers and directors and may discourage or deter our shareholders from suing our officers and directors based upon breaches of their duties to our company, though such an action, if successful, might otherwise benefit our company and our shareholders.

Our bylaws contain provisions entitling our directors and officers to indemnification from all costs, charges, expenses, including any amount paid to settle an action or satisfy a judgment reasonably incurred by such officer or director with respect to any civil, criminal or administrative action or proceeding to which such officer or director is made a party by reason of being or having been an officer or director of our company. We have authorized the indemnification of our officers and directors in such other circumstances permitted under the Canadian Business Corporations Act which may reduce the likelihood of derivative litigation against directors and officers and may discourage or deter shareholders from suing directors or officers for breaches of their duties to our company, though such an action, if successful, might otherwise benefit us and our shareholders. Our bylaws also provide for the indemnification of our directors and officers from judgments, fines, amounts paid in sett lement and reasonable expenses as a result of an action or proceeding in which they may be involved by reason of being or having been a director or officer of our company as long as the acts were done in good faith. We are not presently aware of any claims which would result in our indemnification of our directors and officers. Such provisions do not eliminate the personal liability of our directors and officers for monetary damages as a result of a breach of fiduciary duty. We will indemnify against reasonable costs and expenses incurred in connection with any action, suit or proceeding to which any of such individuals were made a party by reason of his or her being or having been such a director of officer, unless such person has been adjudicated to have been liable for negligence or misconduct in his or her corporate duties. Although we may obtain an insurance policy which will cover such indemnity, there can be no assurance that such a policy will be available or that, if available, it will be adequa te. To the extent that we are required to expend funds to indemnify officers and directors, it could have a materially adverse effect upon our financial condition.

Furthermore, our bylaws allow for insurance for the benefit of our officers and directors against such liabilities and in such amounts as the Board of Directors may determine. We currently subscribe to Directors and Officers Liability Insurance from Tri-City Brokerage of Illinois, Inc. for $3,000,000 for each claim and as an annual aggregate.

The grant and exercise of warrants or stock options would likely result in a dilution of the value of the common shares. Moreover, we may seek authorization to increase the number of our authorized common shares and to sell additional securities and/or rights to purchase such securities at any time in the future. Dilution of the value of the common shares would likely result from such sales.

In addition, we may determine to grant additional stock options or other forms of equity-based incentive compensation to our management and/or employees to attract and retain such personnel. We also may in the future offer equity participation in connection with the obtaining of non-equity financing, such as debt or leasing arrangements accompanied by warrants to purchase equity securities of our company. Any of these actions could have a dilutive effect upon the holders of the common shares.

We have never paid a cash dividend on our common shares and do not expect to pay dividends in the foreseeable future.

We do not utilize derivative instruments to manage market related risks. We do not have any long-term debt instruments so our company is not subject to market related risks such as interest or foreign exchange on long-term debt. All of our operations are conducted in the United States.

On January 31, 2001, Chambers, Devonshire & Wyerhaus Ltd., a shareholder of our company, commenced a lawsuit against our company and two of our directors, Dennis Sinclair and Raymond Mol, in the Circuit Court of Cook County, Illinois. In the lawsuit, Chambers alleges as follows:

Chambers is seeking the following relief:

Our company and management believe that this lawsuit has no merit. At a hearing held in this lawsuit on July 13, 2001, the Judge in this case struck the Plaintiff's Complaint because it was insufficient in both substance and form. A Complaint is the formal name of the document in which a plaintiff states his claim - a plaintiff without a Complaint has no claim for the court to adjudicate. The Judge gave the Plaintiff in this lawsuit permission to file an amended Complaint if he did so by August 10, 2001. On August 10, 2001, the Plaintiff asked the Judge for an extension of time in which to file the amended Complaint and the court granted the Plaintiff an extension until September 7, 2001. The Plaintiff, without notice to us or our attorneys, filed an amended Complaint on September 7, 2001. We believe that the amended Complaint was without merit and we filed a motion asking that it be dismissed. On May 17, 2002, this case was dismissed for want of prosecution.

On September 25, 2001, Rolling Meadows Associates, I, LLC, by Zaragon Holdings, Inc., filed a Complaint in Cook County, Illinois Circuit Court against VirtualSellers.com, Inc. for possession of the premises located at 3075 Tollview Drive, Rolling Meadows Illinois and for rent or damages for withholding possession of these premises for the period from September 1, 2001 through September 30, 2001 in the amount of $26,315 plus all rents accruing through the date of trial. At a hearing held October 16, 2001, the Court granted possession of the premises to the Plaintiff. Subsequently, the Plaintiff filed an amended Complaint asking for $116,762.31 in rent, late fees, costs, interest and attorneys' fees. Thereafter, the Plaintiff again amended its Complaint to demand an additional $683,000, for a total claim of $859,512. We deny that we owe the Plaintiff any money. In addition, we have asserted various affirmative defences and we have filed a Counterclaim arising out of the Plaintiff/landlo rd's interference with our efforts to negotiate a sublease by bypassing us and negotiating a new lease directly with the company with whom we were negotiating a sublease, with whom the Plaintiff/landlord did eventually enter into a new lease. Our affirmative defences include a claim that the demand for the additional $683,000 constitutes an unlawful claim for liquidated damages, that the Plaintiff's interference with our efforts to negotiate a sublease caused us to lose profits in excess of the rent being demanded of us, as well as the opportunity to be released from the liability that the Plaintiff alleges we have under the lease. We are also alleging that the Plaintiff waived any right to seek rental payments, and is estopped from doing so, and that the Plaintiff is itself in material breach of the lease.

Pursuant to a Loan and Pledge Agreement dated July 26, 2001, among our company, Strategic Investments Management SA and Dennis Sinclair, as Pledgor, Strategic Investments agreed to loan $100,000 to our company. As evidence of the loan our company executed and delivered to Strategic Investments a six-month negotiable promissory note and Dennis Sinclair, one of our directors, pledged an aggregate of 300,000 of his common shares of our company as security for the obligations to repay the promissory note. As repayment was not made on the maturity date of the loan, Strategic Investments exercised its rights pursuant to the default provisions of the Loan and Pledge Agreement. Strategic Investments executed upon the collateral posted for the loan and received $34,360.30 for the 300,000 shares, leaving a balance due and owing, before the imposition of interest before and after default, of $65,639.70. By letter dated March 5, 2002, the parties agreed upon a settlement whereby we would (1) deliv er a Consent Judgment for the full amount of the loan; (2) deliver an initial payment of $5,639.70 on or before March 20, 2002 together with a promise to pay $5,000 per month during each of the following twelve months; and (3) if payment is made in full, then Strategic Investments will return the Consent Judgment and forgive the interest, and any claim against Dennis Sinclair. We delivered an initial payment of $11,279.40 on or about April 20, 2002 representing the initial payment of $5,639.70 and the next monthly payments of $5,000 for May and June.

On July 25, 2001 in the Vancouver Registry of the Supreme Court of British Columbia, our company commenced a lawsuit against Telemetrix Solutions Inc. (formerly Telemetrix Resource Group, Inc.) and Tracy Corporation II dba Western Total Communications asserting a claim against Telemetrix and Tracy in the amount of CDN$64,658 jointly and severally (plus pre-judgment interest) pursuant to a letter agreement entered into between the parties on or about July 14, 1998 with respect to a possible business combination between the parties which was never completed. A provision in the agreement regarding the proposed business combination obligated Telemetrix and Tracy to pay our costs in connection with the proposed business combination. Although no Appearance or Statement of Defence has been filed on behalf of Telemetrix and Tracy, they have advised us that they take the position that the British Columbia Court has no jurisdiction over this matter and further, that any dispute must be dealt with by way of arbitration to be held in Denver, Colorado.

On November 9, 2001, Globalcom, Inc. filed a lawsuit against our company in the Circuit Court of Cook County, Illinois, County Department, Chancery Division (Case No. 01 L 014565), claiming that they had provided telecommunications services to our company under a written three year contract and that we were in default of that contract for non-payment of sums due. In this lawsuit, Globalcom, Inc. is claiming that we owe them $32,556.73 in damages and $273,617.68 in liquidated damages (the liquidated damage claim is for the balance of the monthly service charges that would have been paid if the contract had remained in effect for the full term). We believe that the liquidated damages claim is an unenforceable penalty and we have filed a motion to have this part of the claim dismissed on this ground. This motion was scheduled to be heard on July 9, 2002 but is now being reset to a new date to be determined. We dispute the claims made in the lawsuit and we intend to offer a vigorous defenc e.

On October 18, 2001, Steven & Marc Holdings, Inc. filed a lawsuit against our company in the Supreme Court of the State of New York, Court of New York, Case No. 604972/01. In this lawsuit, Steven & Marc Holdings, Inc., a public relations firm, is claiming that we owe them $61,480, plus interest and costs, for services rendered but not paid for between March and October of 2001. We have filed an Answer in this lawsuit and we are attempting to settle it at a reduced amount on a payment plan.

Other than as set forth above, to our knowledge no other lawsuits were commenced against us during the period ended May 31, 2002, nor did we commence any lawsuits during the same period.

During the quarter ended May 31, 2002, we issued the following securities, none of which were registered under the Securities Act of 1933:

On March 28, 2002, we issued 250,000 common shares at a price of $0.10 per share to an investor, who we had reasonable grounds to believe was an accredited investor, capable of evaluating the merits and risks of this investment, and who acquired the shares for investment purposes. The transaction was private in nature, and the shares were issued in reliance upon Section 4(2) and/or Rule 506 promulgated under the Securities Act of 1933.

On March 28, 2002, we issued 500,000 common shares at a price of $0.05 per share to an investor, who we had reasonable grounds to believe was an accredited investor, capable of evaluating the merits and risks of this investment, and who acquired the shares for investment purposes. The transaction was private in nature, and the shares were issued in reliance upon Section 4(2) and/or Rule 506 promulgated under the Securities Act of 1933.

On March 28, 2002, we issued an aggregate of 3,214,286 common shares at a price of $0.035 per share to three investors, who we had reasonable grounds to believe were accredited investors, capable of evaluating the merits and risks of this investment, and who acquired the shares for investment purposes. The transaction was private in nature, and the shares were issued in reliance upon Section 4(2) and/or Rule 506 promulgated under the Securities Act of 1933.

On April 1, 2002, we granted an aggregate of 4,000,000 stock options to one (1) of our directors and officers. 1,000,000 of these stock options vested upon execution of the employment agreement between our company and the officer and director. An additional 1,000,000 of these stock options were to vest after the officer and director completed six months of employment with our company and the remaining 2,000,000 stock options were to vest when and if our company achieves certain profitability criteria (but only if this officer and director was then still employed by our company), but the aggregate of these 3,000,000 stock options will never vest because this officer and director resigned before the six-month anniversary of his employment date. The 1,000,000 stock options that did vest are exercisable at a price of $0.10 per share and expire on April 1, 2004. The options were granted in reliance upon Section 4(2) and/or Rule 506 promulgated under the Securities Act of 1933.

On April 9, 2002, we issued 875,000 common shares at a price of $0.035 per share to an investor, who we had reasonable grounds to believe was an accredited investor, capable of evaluating the merits and risks of this investment, and who acquired the shares for investment purposes. The transaction was private in nature, and the shares were issued in reliance upon Section 4(2) and/or Rule 506 promulgated under the Securities Act of 1933.

On April 9, 2002, we issued an aggregate of 2,500,000 common shares at a price of $0.05 per share to three investors, who we had reasonable grounds to believe were accredited investors, capable of evaluating the merits and risks of this investment, and who acquired the shares for investment purposes. The transaction was private in nature, and the shares were issued in reliance upon Section 4(2) and/or Rule 506 promulgated under the Securities Act of 1933.

On April 11, 2002, we granted an aggregate of 2,000,000 stock options to one (1) of our directors. The stock options will vest, if at all, if and when our company achieves certain profitability criteria, are exercisable at a price of $0.10 per share and expire on April 11, 2012. The options were granted in reliance upon Section 4(2) and/or Rule 506 promulgated under the Securities Act of 1933.

On April 16, 2002, we issued 1,000,000 common shares at a price of $0.05 per share to one of our directors and officers, pursuant to the terms of his Employment Agreement. The transaction was private in nature, and the shares were issued in reliance upon Section 4(2) and/or Rule 506 promulgated under the Securities Act of 1933.

On May 9, 2002, we issued an aggregate of 2,928,571 common shares at a price of $0.035 per share to two investors, who we had reasonable grounds to believe were accredited investors, capable of evaluating the merits and risks of this investment, and who acquired the shares for investment purposes. The transaction was private in nature, and the shares were issued in reliance upon Section 4(2) and/or Rule 506 promulgated under the Securities Act of 1933.

On May 9, 2002, we issued an aggregate of 1,000,000 common shares at a price of $0.05 per share to two investors, who we had reasonable grounds to believe were accredited investors, capable of evaluating the merits and risks of this investment, and who acquired the shares for investment purposes. The transaction was private in nature, and the shares were issued in reliance upon Section 4(2) and/or Rule 506 promulgated under the Securities Act of 1933.

Not applicable.

None.

On November 9, 2001, we entered into a Letter Agreement with Dr. Dennis Sinclair, then our chief executive officer and the Chairman of our board of directors, in which Dr. Sinclair agreed to resign all of his positions with our company and any of our subsidiaries in exchange for our agreement to issue to him 1,018,181 shares of our common stock in lieu of back salary we owed him for the period up to November 9, 2001, and an additional 1,000,000 shares of our common stock, and a share purchase warrant, in lieu of any obligation we might have to pay him termination compensation, entitling him to purchase up to 6,000,000 of our common shares at a purchase price of $0.10 per share for a period of five years from the date of issue of the warrant. On December 6, 2001, because we did not have a successor for Dr. Sinclair, we signed an amendment of his termination agreement extending the effective date of his resignation to a date upon which our board of directors identified and appointed a s uccessor chief executive officer for our company, which occurred on April 10, 2002, the date we appointed Tom Kalebic to be the new President and Chief Executive Officer of our company.

On April 11, 2002, we entered into a Consulting Agreement with Dr. Sinclair, our former President and Chief Executive Officer (but who remained a member of our Board of Directors), pursuant to which Dr. Sinclair has agreed to help us develop a strategy and business plan and to assist us in developing our business. As compensation for his services, we agreed to pay Dr. Sinclair a consulting fee equal to $12,500 per month for the first year of the term of the Consulting Agreement, $6,500 per month for the second year and $1,000 per month plus the cost of health insurance for Dr. Sinclair and his spouse from the second anniversary of the Consulting Agreement until the earlier of June 22, 2007 or his death. We also agreed to grant Dr. Sinclair options to purchase 2,000,000 common shares in the capital of our company at an exercise price of $0.10 per share, which options will vest, if at all, if and when our company achieves certain profitability criteria during the first year of the term of the Consulting Agreement. The Consulting Agreement will expire on June 22, 2007.

When Thomas Kalebic resigned from his offices of President, Chief Executive Officer and Secretary of our company and resigned from his seat on our Board of Directors on June 10, 2002, we appointed Dr. Sinclair as the Managing Director of our company and agreed to increase his consulting fee to $25,000 per month until September 30, 2002.

If we terminate the Consulting Agreement for cause, Dr. Sinclair is entitled to receive all sums due and payable under the Consulting Agreement to the date of termination for cause. We are not entitled to terminate the Consulting Agreement without cause.

On April 11, 2002, we entered into an Employment Agreement with Thomas V. Kalebic in which he agreed to act as our current President and Chief Executive Officer for a two year term. During the first six months of his employment, Mr. Kalebic was to be paid a monthly salary of $12,500. On the six month anniversary of his employment, Mr. Kalebic's salary was to increase to $25,000 per month for the balance of the two year term. The employment agreement also provided that Mr. Kalebic would receive, pursuant to a separate stock option agreement, options to purchase 4,000,000 shares of our common stock. 1,000,000 of these stock options vested upon execution of the employment agreement; an additional 1,000,000 of these stock options were to vest after Mr. Kalebic completed six months of employment with our company and the remaining 2,000,000 stock options were to vest when and if our company achieved certain profitability criteria during the first year of the term of the Consulting Agreem ent. As Mr. Kalebic resigned from all of his positions with our Company on June 10, 2002, only the first 1,000,000 of these stock options vested. Pursuant to the terms of his Stock Option Agreement and his employment agreement, these 1,000,000 stock options will expire on July 10, 2004. Also pursuant to the Employment Agreement, Mr. Kalebic agreed to purchase from our company 1,000,000 common shares in our capital at a price of $0.05 per share.

Mr. Kalebic resigned from his offices of President, Chief Executive Officer and Secretary and from his seat on our board of directors on June 10, 2002, although he will continue to work as a consultant to our company until July 10, 2002 for a consulting fee equal to the monthly salary that he would have received during that one month period had he not resigned.

On March 25, 2002, Mark Bartlett resigned from his position as one of our directors.

On April 11, 2002, we filed a Form 8-K Current Report with respect to the April 10, 2002 appointment of Thomas V. Kalebic to our Board of Directors and to the offices of President and Chief Executive Officer of our company, in place of Dr. Dennis Sinclair, who was appointed Chairman of the Board. This Form 8-K Current Report also reported that Dr. Sinclair will continue to provide services to our company pursuant to a consulting agreement dated April 11, 2002.

Exhibit
Number Exhibit Title

(The following exhibits are incorporated by reference into this Form 10-Q from reports previously filed by with the Securities and Exchange Commission)

3.1 Certificate of Continuance, dated January 11, 1991

3.2 Certificate of Amendment, dated June 14, 1995

3.3 Certificate of Amendment, dated September 14, 1995

3.4 Certificate of Amendment, dated December 22, 1995

3.5 Certificate of Amendment, dated March 23, 1999

3.6 Certificate of Amendment, dated May 31, 1999

3.7 Certificate of Amendment, dated July 18, 1997

3.8 By-laws

10.1 Amending Agreement between Healthtrac, Inc. and Dennis Sinclair, dated April 11, 2002 (incorporated by reference from our Form 10-K Annual Report filed on June 13, 2002)

10.2 Agreement between Healthtrac, Inc. and Thomas V. Kalebic, dated April 11, 2002 (incorporated by reference from our Form 10-K Annual Report filed on June 13, 2002).

21.1 Canadian-American Communications Inc.

21.2 Canadian Northstar Transmission Systems Ltd.

21.3 Preferred Telemanagement Inc. (formerly Suncom Telemanagement Inc.)

21.4 CAM-NET Cellular Inc. (formerly Direct Advantage, Inc. and Invoice Reduction Services, Inc.

21.5 NorthNet Telecommunications Inc. (d.b.a. NorthStar Telesolutions)

21.6 eCommerce Solutions Inc. (d.b.a. Professional Services and Software Products group)

21.7 Healthtrac Corporation

SIGNATURES

In accordance with the requirements of the Securities Exchange Act, Healthtrac, Inc. has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.