<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-23901
GSV, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3979226
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
116 Newark Avenue, Jersey City, NJ 07302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 234-5000
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes /x/ No / /
The number of shares of the Registrant's common stock, par value $.001 per
share, outstanding on August 11, 2000 was 10,689,228 shares.
<PAGE>
GSV, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2000
(unaudited) and December 31, 1999 2
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2000 and 1999 (unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 2000 and 1999 (unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. - Financial Statements
GSV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited)
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,782,000 $ 8,471,000
Accounts receivable, net of allowance for doubtful accounts
of $103,000 and $106,000, respectively 1,402,000 1,119,000
Inventories 155,000 282,000
Prepaid expenses and other current assets 617,000 937,000
------------ ------------
Total current assets 6,956,000 10,809,000
Investment 900,000 --
Property and equipment, net 879,000 1,032,000
Goodwill, net -- 13,137,000
Other assets 720,000 705,000
------------ ------------
Total assets $ 9,455,000 $ 25,683,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,437,000 $ 4,383,000
Accrued liabilities 781,000 860,000
Current portion of capital lease obligation 71,000 74,000
------------ ------------
Total current liabilities 3,289,000 5,317,000
Deferred rent 79,000 84,000
------------ ------------
Total liabilities 3,368,000 5,401,000
------------ ------------
Stockholders' equity:
Common stock, $.001 par value; 75,000,000 shares
authorized; 10,689,228 and 10,033,961 shares issued and
outstanding, respectively 11,000 10,000
Additional paid-in capital 37,996,000 37,878,000
Accumulated deficit (31,920,000) (17,606,000)
------------ ------------
Total stockholders' equity 6,087,000 20,282,000
------------ ------------
Total liabilities and stockholders' equity $ 9,455,000 $ 25,683,000
============ ============
</TABLE>
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these balance sheets.
2
<PAGE>
GSV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
====================================================================================================================
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
General and administrative $ 653,000 $ 793,000 $ 1,227,000 $ 1,441,000
------------ ------------ ------------ -------------
Total operating expenses 653,000 793,000 1,227,000 1,441,000
Loss from continuing operations before (653,000) (793,000) (1,227,000) (1,441,000)
interest income
Interest income, net 72,000 93,000 153,000 215,000
------------ ------------ ------------ -------------
Loss from continuing operations (581,000) (700,000) (1,074,000) (1,226,000)
Discontinued operations:
Loss from operations (484,000) (1,173,000) (1,799,000) (2,485,000)
Estimated loss on disposal (11,656,000) -- (11,441,000) --
------------ ------------ ------------ -------------
Total discontinued operations (12,140,000) (1,173,000) (13,240,000) (2,485,000)
------------ ------------ ------------ -------------
Net loss $(12,721,000) $ (1,873,000) $(14,314,000) $ (3,711,000)
============ ============ ============ ============
Basic and diluted net loss per common share:
loss per common share from continuing $ (0.05) $ (0.09) $ (0.10) $ (0.16)
operations
effect of adjustable common stock warrants -- -- (0.30) --
------------ ------------ ------------ -------------
loss per common share from continuing
operations including effect of adjustable
common stock warrants (0.05) (0.09) (0.40) (0.16)
loss per common share from discontinued
operations (0.05) (0.15) (0.17) (0.32)
loss per common share from estimated loss
on disposal of discontinued operations (1.09) -- (1.09) --
------------ ------------ ------------ -------------
Net loss per common share including
effect of adjustable common stock warrants $ (1.19) $ (0.24) $ (1.66) $ (0.48)
============ ============ ============ =============
Weighted average common shares
outstanding, basic and diluted 10,689,000 7,910,000 10,501,000 7,702,000
====================================================================================================================
</TABLE>
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these consolidated statements.
3
<PAGE>
GSV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(14,314,000) $ (3,711,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 182,000 344,000
Amortization of goodwill 1,488,000 240,000
Non-cash compensation expense 32,000 24,000
Minority interest -- (244,000)
Estimated loss on disposal of discontinued
operations 11,441,000 --
Increase (decrease) in cash from changes in:
Accounts receivable, net (283,000) (515,000)
Inventories 127,000 (280,000)
Prepaid expenses and other 320,000 (76,000)
Other assets (15,000) 77,000
Accounts payable (1,946,000) 1,276,000
Accrued liabilities (774,000) (598,000)
Deferred revenues -- (23,000)
Deferred rent (5,000) 58,000
------------ ------------
Net cash used in operating activities (3,747,000) (3,428,000)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (29,000) (206,000)
Acquisition of businesses, net of cash acquired (6,281,000)
------------ ------------
Net cash used in investing activities (29,000) (6,487,000)
Cash flows from financing activities:
Proceeds from exercise of stock options 87,000 351,000
------------ ------------
Net cash provided by financing activities 87,000 351,000
------------ ------------
Net decrease in cash (3,689,000) (9,564,000)
Cash and cash equivalents, beginning of period 8,471,000 12,285,000
------------ ------------
Cash and cash equivalents, end of period $ 4,782,000 $ 2,721,000
============ ============
Supplemental cash flow information:
Common stock issued in connection with acquisition $ -- $ 8,125,000
</TABLE>
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these consolidated statements.
4
<PAGE>
GSV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Description of the Business and Basis of Presentation
Through its Internet incubator and investment operations, the Company aims
to identify and develop attractive early stage Internet companies, and to
provide these companies, as needed, with management, marketing, financing
(including early stage seed capital), human resources, accounting resources, use
of its facilities and its extensive expertise in business development. In
exchange for these services the Company will seek equity positions in these
companies commensurate with the level and nature of services provided and the
stage of their development.
Prior to February 2000 the company was an online consumer and direct
response retailer, when in early February 2000 it announced a change in its core
strategy to Internet incubator and investment company . Since that time the
company has closed two operating divisions, Cybershop.com and electronics.net,
and on August 14, 2000 sold its remaining retailing subsidiary, Tools for
Living, to the former owners of Tools for Living. Tools for Living was purchased
by the Company in June 1999.
The information presented as of June 30, 2000, and for the six-month
periods ending June 30, 2000 and 1999, is unaudited, but, in the opinion of
management of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for the fair presentation of
the Company's financial position as of June 30, 2000, the results of its
operations for the six -month periods ended June 30, 2000 and 1999 and its cash
flows for the six-month periods ended June 30, 2000 and 1999. The consolidated
financial statements included herein have been prepared in accordance with
generally accepted accounting principles and the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and accompanying notes for
the year ended December 31, 1999, included in the Company's Annual Report on
Form 10-K as filed with the Securities and Exchange Commission. Certain prior
period amounts have been reclassified to conform to the current period
presentation.
3. Discontinued Operations
Consistent with the change to its Internet incubator and investment
strategy, in February of 2000 the Company began the process of discontinuing its
two online retailing divisions, Cybershop.com and electronics.net. The
operations of the Cybershop.com division were discontinued in February of 2000
and in the same month the Company entered into a letter of intent to sell
electronics.net to two former executives of the Company. The letter of intent
was subsequently terminated, and in May of 2000 electronics.net was also
discontinued. In August of 2000, the Company sold its remaining retailing
subsidiary, Tools for Living (purchased by the Company in June 1999) to two
executives of Tools for Living, who were also the former owners of Tools for
Living, for consideration including (i) approximately 896,000 shares of common
stock of GSV, Inc., (ii) the purchasers' assumption of the liabilities of Tools
for Living, and (iii) the release of all obligations owing by the Company to the
former owners including the obligations under their respective employment
agreements. This sale substantially completes the Company's divestiture of its
retailing assets and the transition to its recently adopted Internet incubator
and investment strategy.
5
<PAGE>
As a result, the consolidated financial statements and accompanying notes
reflect Cybershop.com, electronics.net and Tools for Living as discontinued
operations. The measurement date for the closing of Cybershop.com was December
31, 1999. An estimated loss on disposal relating to Cybershop.com of $435,000
was reflected in the Company's consolidated statement of operations for the year
ended December 31, 1999. Actual results for the six months ended June 30, 2000
for Cybershop.com included operating losses of $307,000, a $1,000,000 gain on
the sale of the cybershop.com domain name, and reductions in the carrying
amounts of current assets and fixed assets of $120,000 and $415,000,
respectively. During the six months ended June 30, 2000 the provision was
reduced by $444,000 reflecting lower than anticipated losses for Cybershop.com,
and is reflected within Loss on disposal of discontinued operations in the
accompanying unaudited consolidated statements of operations.
Total losses of $1,799,000 from discontinued operations for the six months
ended June 30, 2000 consist of $84,000 of losses related to electronics.net and
$1,715,000 of losses (including $1,487,000 of amortization of goodwill) related
to Tools for Living. For the second quarter of 2000 Tools for Living had net
income from discontinued operations of $260,000 before amortization of goodwill.
Total losses of $2,485,000 from discontinued operations for the six months ended
June 30, 1999 consist of $2,326,000 of losses related to Cybershop.com, $498,000
of losses related to electronics.net and $339,000 of income related to Tools for
Living. Losses associated with the closing of electronics.net and the sale of
Tools for Living of $2,000 and $11,883,000, respectively, are reflected within
Loss on disposal of discontinued operations in the accompanying unaudited
consolidated statements of operations for the six months ended June 30, 2000.
The loss on disposal associated with the sale of Tools for Living includes a
write off of approximately $11,650,000 related to unamortized goodwill, as well
as $234,000 of losses expected to be incurred from the measurement date through
the date of disposal. The measurement dates for the closing of electronics.net
and the sale of Tools for Living are March 31, 2000 and June 30, 2000,
respectively. The consolidated net provision for discontinued operations as of
June 30, 2000 is $419,000. Net revenues applicable to electronics.net for the
six months ended June 30, 2000, during only four of which electronics.net was in
operation, was $340,000, and net revenues applicable to electronics.net for the
same period of the prior year was $615,000, for which electronics.net was in
operation for the full period. Net revenues applicable to Tools for Living
during the first and second quarter of 2000 were $4,214,000 and $2,389,000
respectively. Revenues applicable to Tools for Living for June 1999, the first
month of operation, were $1,240,000.
The carrying value of the remaining assets and liabilities of electronics.net as
of June 30, 2000 are as follows:
Accounts receivable, net $ 209,000
Property plant and equipment, net 27,000
Other assets 636,000
Current liabilities (737,000)
---------
Net assets $ 135,000
=========
The carrying value of the assets and liabilities of Tools for Living as of June
30, 2000 are as follows:
Cash $ 154,000
Accounts receivable, net 654,000
Inventory 155,000
Prepaid expenses and other current assets 298,000
Property plant and equipment, net 44,000
Other assets 8,000
Current liabilities (1,663,000)
-----------
Net liabilities of discontinued operation $ (350,000)
===========
6
<PAGE>
4. Investment
In conjunction with the sale of the operating assets of the discontinued
Cybershop.com operating division, in March of 2000, the Company completed the
sale of its cybershop.com domain name and customer lists. In exchange, the
Company received (i) $100,000 in cash and (ii) equity in a privately owned
company valued at approximately $900,000. The investment is treated as available
for sale and is valued on the cost basis in the accompanying consolidated
balance sheet as of June 30, 2000.
5. Shareholders' Equity
Pursuant to the terms of a private placement of equity securities of the
Company, completed on December 8, 1999, the Company issued 613,486 shares of
common stock in February 2000 upon the exercise of common stock warrants
("adjustable commons stock warrants"), at an effective exercise price of $.001
per share.
6. Stock Option Plan
During the six months ended June 30, 2000, options to purchase
approximately 900,000 shares of the Company's Common Stock were granted, at
market value on date of grant, to employees under the 1998 Stock Option Plan.
7. Net Loss Per Common Share
Basic and diluted net loss per common share is calculated by dividing net
loss per common share after effect of adjustable common stock warrants, as
explained below, by the weighted average number of shares of common stock
outstanding during the period as follows:
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------------------------------------------------------------
2000 1999
------------------------------------------- ----------------------------------------
Per Per
--- ---
Loss Shares Share Loss Shares Share
---- ------ ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Loss from continuing
operations $ (1,074,000) 10,501,000 $ (0.10) $ (1,226,000) 7,702,000 $ (0.16)
Effect of adjustable common
stock warrants (3,163,000) (0.30) -- --
------------ ---------- ---------- ------------ --------- ----------
Loss from continuing
operations including effect
of adjustable common stock
warrants (4,237,000) 10,501,000 (0.40) (1,226,000) 7,702,000 (0.16)
Loss from discontinued
operations (1,799,000) (0.17) (2,485,000) (0.32)
Estimated loss on disposal
of discontinued operations (11,441,000) (1.09) -- --
------------ ---------- ---------- ------------ --------- ----------
Net loss including effect of
adjustable common stock
warrants $(17,477,000) 10,501,000 $ (1.66) $ (3,711,000) 7,702,000 $ (0.48)
============ ========== ========== ============ ========= ==========
</TABLE>
In calculating the effect on the basic and diluted net loss per common
share calculation, of the common stock issued as a result of the adjustable
common stock warrants exercised by the parties to the December 8, 1999 private
placement, the market value of the Company's common stock on the day before the
stock was issued, $5.16, was multiplied by the number of common shares issued
upon exercise of these warrants, resulting in a valuation for loss per common
share purposes of $3,163,000.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Safe Harbor for Forward-Looking Statements
From time to time, the Company may publish statements which are not
historical fact, but are forward-looking statements relating to such matters as
anticipated financial performance, business prospects, technological
developments, new products, investments in other companies, research and
development activities and similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical and anticipated
results or other expectations expressed in the Company's forward-looking
statements. Such forward-looking statements may be identified by the use of
certain forward-looking terminology, such as "may," "will," "expect,"
"anticipate," "intend," "estimate," "believe," "goal," or "continue," or
comparable terminology that involves risks or uncertainties. Actual future
results and trends may differ materially from historical results or those
anticipated depending on a variety of factors, including, but not limited to,
those set forth under "Overview" and "Liquidity and Capital Resources" included
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations. Particular attention should be paid to the cautionary statements
involving the Company's limited operating history, the unpredictability of its
future revenues, the unpredictable and evolving nature of its key markets, the
Company's dependence on its strategic alliances and key suppliers and
distributors, and the risks associated with capacity constraints, systems
development, the management of growth, the inherent risks and uncertainties of
litigation, the risks of new business areas, as well as such risks (or others)
that exist to any portfolio company in which the Company invests. Except as
required by law, the Company undertakes no obligation to update any
forward-looking statement, whether as a result of new information, future events
or otherwise. Readers, however, should carefully review the facts set forth in
other reports or documents that the Company has filed or files from time to time
with the SEC.
Overview
Through its Internet incubator and investment operations, the Company aims
to identify and develop attractive early stage Internet companies, and to
provide these companies, as needed, with management, marketing, financing
(including early stage seed capital), human resources, accounting resources, use
of its facilities and its extensive expertise in business development. In
exchange for these services the Company will seek equity positions in these
companies commensurate with the level and nature of services provided and the
stage of their development.
Prior to February 2000 the company was an online consumer and direct
response retailer, when in early February 2000 it announced a change in its core
strategy to Internet incubator and investment company. Since that time the
company has closed two operating divisions, Cybershop.com and electronics.net,
and on August 14, 2000 sold its remaining retailing subsidiary, Tools for
Living, to the former owners of that Company. Tools for Living was purchased by
the Company in June 1999.
8
<PAGE>
Results of Operations
Three Months Ended June 30, 2000 compared to Three Months Ended June 30, 1999.
General and administrative: General and administrative expenses consist
primarily of payroll and payroll related expenses for administrative,
information technology, accounting, and management personnel, recruiting, legal
fees, and general corporate expenses. General and administrative expenses
decreased by 18%, or $140,000 to $653,000 in the second quarter of 2000 from
$793,000 in the second quarter of 1999. The decrease in the current period is
the result of an increased emphasis on overhead reduction and capital
preservation.
Interest income, net: Interest income decreased $21,000 to $72,000 in the second
quarter of 2000 from $93,000 in the first quarter of 1999. The decrease is
primarily the result of a decrease in average cash and cash equivalents offset
by slightly higher interest rates.
Net Losses: Loss from continuing operations decreased by $119,000 from $700,000
in the second quarter of 1999, or ($0.09) per basic and diluted common share, to
$581,000 in the second quarter of 2000, or ($0.05) per basic and diluted common
share. Net loss in the second quarter of 2000 was $12,721,000, or ($1.19) per
basic and diluted common share, as compared to $1,873,000 or ($0.24) in the
second quarter of 1999. The increase in net loss in the second quarter of 2000
included a $11,656,000 net loss on disposal of discontinued operations,
primarily attributable to the sale of the Tools for Living Division as discussed
more fully below.
Six Months Ended June 30, 2000 compared to Six Months Ended June 30, 1999.
General and administrative: General and administrative expenses consist
primarily of payroll and payroll related expenses for administrative,
information technology, accounting, and management personnel, recruiting, legal
fees, and general corporate expenses. General and administrative expenses
decreased by 15%, or $214,000 to $1,227,000 in first six months of 2000 from
$1,441,000 in the same period of 1999. The decrease in the current period is the
result of an increased emphasis on overhead reduction and capital preservation.
Interest income, net: Interest income decreased $62,000 to $153,000 in the first
six months of 2000 from $215,000 in the same period of 1999. The decrease is
primarily the result of a decrease in average cash and cash equivalents offset
by slightly higher interest rates.
Net Losses: Loss from continuing operations decreased by $152,000 from
$1,226,000 in the first six months of 1999, or ($0.16) per basic and diluted
common share, to $1,074,000 in the same period of 2000, or ($0.10) per basic and
diluted common share. After the effect of adjustable common stock warrants, loss
per common share from continuing operations was ($0.40) in 2000. Net loss in the
first six months of 2000 was $14,314,000, or ($1.36) per basic and diluted
common share, as compared to $3,711,000 or ($0.48) in the same period of 1999.
After the effect of adjustable common stock warrants net loss per common share
was ($1.66) for the first six months of 2000. The increase in net loss in the
first six months of 2000 included a $11,441,000 net loss on disposal of
discontinued operations, primarily attributable to the sale of the Tools for
Living Division as discussed more fully below.
9
<PAGE>
Liquidity and Capital Resources
Net cash used in operations increased $319,000, from $3,428,000 in the
first six months of 1999 to $3,747,000 in the first six months of 2000, as the
Company continues to resolve its accounts payable and accrued liabilities
related to the closed Cybershop.com and electronics.net operations, while it
actively reduces operating expenses going forward.
Net cash used in investing activities during the first six months of 2000
was $29,000 as compared to $6,487,000 in the same period of the prior year. The
current periods use of cash related to the purchase of property and equipment,
primarily computer equipment, whereas the use of cash in the same period of the
prior year represented $6,281,000 related to acquisitions, primarily of Tools
for Living, as well as purchases of property and equipment of $206,000.
Net cash provided by financing activities during the first six months of
2000 was $87,000 as compared to $351,000 in the same period of the prior year.
Sources of cash during both periods were the result of proceeds on the exercise
of employee stock options.
The Company believes that its existing capital resources will enable it to
maintain its operations at existing levels for at least the next twelve months.
The Company is, however, currently considering the funding requirements
associated with its new Internet incubator and investment operations, including
the need for additional debt and/or equity financing. The sufficiency of the
Company's capital resources is substantially dependent upon the number of
investments the Company funds. Accordingly it is difficult to project the
Company's capital needs. However, the Company will evaluate potential
investments in terms of its then existing capital resources and the availability
of additional debt or equity financing and will ultimately decide on an
investment according to the sufficiency of those resources to fund the potential
investment as well as continuing operating requirements. There can be no
assurance that any additional financing or other sources of capital will be
available to the Company upon acceptable terms, if at all. The inability to
obtain additional financing, when needed, would have a material adverse effect
on the Company's business, financial condition and operating results, and could
significantly slow the pace of development of its Internet incubator and
investment operations.
Discontinued Operations
As discussed above, in February of 2000 the Company began the process of
discontinuing its two online retailing divisions, Cybershop.com and
electronics.net. The operations of the Cybershop.com division were discontinued
in February of 2000 and in the same month the Company entered into a letter of
intent to sell electronics.net to two former executives of the Company. The
letter of intent was subsequently terminated, and in May of 2000 electronics.net
was also discontinued. In August of 2000, the Company sold its remaining
retailing subsidiary, Tools for Living (purchased by the Company in June 1999)
to two executives of Tools for Living, who were also the former owners of Tools
for Living, for consideration including (i) approximately 896,000 shares of
common stock of GSV, Inc., (ii) the purchasers' assumption of the liabilities of
Tools for Living, and (iii) the release of all obligations owing by the Company
to the former owners including the obligations under their respective employment
agreements. This sale substantially completes the Company's divestiture of its
retailing assets and the transition to its recently adopted Internet incubator
and investment strategy.
10
<PAGE>
As a result, the consolidated financial statements and accompanying notes
reflect Cybershop.com, electronics.net and Tools for Living as discontinued
operations. The measurement date for the closing of Cybershop.com was December
31, 1999. An estimated loss on disposal relating to Cybershop.com of $435,000
was reflected in the Company's consolidated statement of operations for the year
ended December 31, 1999. Actual results for the six months ended June 30, 2000
for Cybershop.com included operating losses of $307,000, a $1,000,000 gain on
the sale of the cybershop.com domain name, and reductions in the carrying
amounts of current assets and fixed assets of $120,000 and $415,000,
respectively. During the six months ended June 30, 2000 the provision was
reduced by $444,000 reflecting lower than anticipated losses for Cybershop.com,
and is reflected within Loss on disposal of discontinued operations in the
accompanying unaudited consolidated statements of operations.
Total losses of $1,799,000 from discontinued operations for the six months
ended June 30, 2000 consist of $84,000 of losses related to electronics.net and
$1,715,000 of losses (including $1,487,000 of amortization of goodwill) related
to Tools for Living. For the second quarter of 2000 Tools for Living had net
income from discontinued operations of $260,000 before amortization of goodwill.
Total losses of $2,485,000 from discontinued operations for the six months ended
June 30, 1999 consist of $2,326,000 of losses related to Cybershop.com, $498,000
of losses related to electronics.net and $339,000 of income related to Tools for
Living. Losses associated with the closing of electronics.net and the sale of
Tools for Living of $2,000 and $11,883,000, respectively, are reflected within
Loss on disposal of discontinued operations in the accompanying unaudited
consolidated statements of operations for the six months ended June 30, 2000.
The loss on disposal associated with the sale of Tools for Living includes a
write off of approximately $11,650,000 related to unamortized goodwill, as well
as $234,000 of losses expected to be incurred from the measurement date through
the date of disposal. The measurement dates for the closing of electronics.net
and the sale of Tools for Living are March 31, 2000 and June 30, 2000,
respectively. The consolidated net provision for discontinued operations as of
June 30, 2000 is $419,000. Net revenues applicable to electronics.net for the
six months ended June 30, 2000, during only four of which electronics.net was in
operation, was $340,000, and net revenues applicable to electronics.net for the
same period of the prior year was $615,000, for which electronics.net was in
operation for the full period. Net revenues applicable to Tools for Living
during the first and second quarter of 2000 were $4,214,000 and $2,389,000
respectively. Avenues applicable to Tools for Living for June 1999, the first
month of operation, were $1,240,000
Continued Listing on Nasdaq National Market
The Company's stock currently trades on the Nasdaq National Stock Market
under the symbol GSVI. During the second quarter of 2000 the Company was
notified by NASDAQ that it was failing to meet the minimum $1.00 bid price
requirement for continued listing on the Nasdaq National Stock Market. The
Company has until September 18, 2000 to either demonstrate compliance with this
rule or appeal NASDAQ's determination regarding compliance. An appeal will stay
the delisting of the Company's common stock pending resolution of the appeal.
If, at anytime before September 18, 2000, the bid price of the Company's common
stock has been at least $1.00 for a minimum of 10 consecutive trading days,
NASDAQ will withdraw the notification, provided the Company is otherwise in
compliance with the continued listing requirements.
As part of its effort to maintain its NASDAQ listing the Board of
Directors has approved a one for five reverse stock split of the Company's
common stock, and the Company will hold a special meeting of stockholders on
August 30, 2000 in order to obtain shareholder approval. If effected, the
reverse stock split will reduce the number of shares of Common Stock issued and
outstanding.
11
<PAGE>
The Company hopes that it will maintain its NASDAQ National Market
listing, but there can be no assurance that it will be able to do so. Should the
Company be unsuccessful, it intends to pursue alternative exchanges for trading
its securities, but there can be no assurance that it will be able to do so.
Subsequent Investments
Telephone.com
In July 2000, the Company closed a $1.5 million investment in
Telephone.com, Inc., an online business exchange and vertical marketplace
targeting the telecommunications industry. The investment is GSV's most
significant since its recent adoption of an Internet incubator and investment
strategy.
Under the terms of the transaction, GSV will receive $1.5 million
preferred stock convertible into common stock representing approximately a 9%
ownership interest in Telephone.com, along with warrants to purchase an
additional stake in Telephone.com.
MeetChina.com
In August 2000, the Company invested $200,000 in a joint venture with
Total Film Group, Inc. to invest in MeetChina.com, a leading Chinese B2B
e-commerce trading portal.
Litigation
In March and April 2000, twelve purported class actions entitled Ames v.
Cybershop, Ezeir v. Cybershop, Fuechtman v. Cybershop, Kaufman v. Cybershop,
Goldenberg v. Cybershop, Marino v. Cybershop, Waldarman v. Cybershop, Page v.
Cybershop, Young v. Cybershop, Johnson v. Cybershop, Hitzing v. Cybershop, and
Gerber v. Cybershop were filed in the United States District Court for the
District of New Jersey against the Company and certain of its current and former
officers and directors. The complaints in those actions allege that defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by
making or causing the Company to make materially false and misleading statements
about the Company. The Company intends to vigorously defend these actions.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Item
No. Item Title
--- ----------
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession: None
3. Articles of Incorporation:
3.1 Certificate of Incorporation, as amended (Incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement on Form S-1.
File No. 333-42707).
3.2 Certificate of Amendment of The Certificate of Incorporation of
Cybershop International, Inc. (Incorporated by reference to Exhibit
3.2 of the Registrant's Report on Form 10Q for the fiscal quarter
ended June 30, 1999. File No. 000-23901)
3.5 Certificate of Merger of GSV, Inc into Cybershop.com, Inc.
(Incorporated by reference to Exhibit 3.5 of the Registrant's Form
10K for the year ended December 31, 1999. File No. 000-23901)
By-Laws:
3.4 By-Laws as currently in effect (Incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 (File No.
333-42707).
4. Instruments defining the rights of security holders, including debentures:
4.1 Specimen of Certificate for Common Stock (Incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on Form S-1.
File No. 333-42707)
4.2 Form of Warrant dated September 30, 1999 issued to Strong River
Investments, Inc. and Montrose Investments L.P. (Incorporated by
reference to Exhibit 4 D to the Company's Registration Statement on
Post Effective Amendment on Form S-3. File No. 333-75507).
4.3 Form of Warrant dated September 30, 1999 issued to Strong River
Investments, Inc. and Montrose Investments L.P. (Incorporated by
reference to Exhibit 4 E to the Company's Registration Statement on
Post Effective Amendment on Form S-3. File No. 333-75507).
4.4 Form of Warrant dated December 8, 1999 issued to Strong River
Investments, Inc. and Montrose Investments L.P. (Incorporated by
reference to Exhibit 4 D to the Company's Registration Statement on
Post Effective Amendment on Form S-3. File No. 333-92861).
4.5 Form of Warrant dated December 8, 1999 issued to Strong River
Investments, Inc. and Montrose Investments L.P. (Incorporated by
reference to Exhibit 4 E to the Company's Registration Statement on
Post Effective Amendment on Form S-3. File No. 333-92861).
9. Voting Trust Agreements: None
10. Material Contracts:
10.1 Stock Purchase Agreement dated March 24, 1999, by and between Edward
Mufson and Cybershop International, Inc. (Incorporated by reference
to Exhibit 10.1 of the Registrant's Report on Form 10Q for the
fiscal quarter ended March 31, 1999. File No. 000-23901)
10.2 Employment Agreement dated March 24, 1999, by and between Edward
Mufson and Cybershop International, Inc. (Incorporated by reference
to Exhibit 10.2 of the Registrant's Report on Form 10Q for the
fiscal quarter ended March 31, 1999. File No. 000-23901)
10.3 Employment Agreement dated February 7, 1999, by and between Jeffrey
Leist and Cybershop International, Inc.(Incorporated by reference to
Exhibit 10.3 of the Registrant's Report on Form 10Q for the fiscal
quarter ended March 31, 1999. File No. 000-23901)
<PAGE>
10.4 Form of Officer and Director Indemnification Agreement (Filed as
exhibit 10.4 to the Company's Registration Statement on Form S-1,
effective March 20, 1998. File No. 333-42707)
10.5 1998 Stock Option Plan of the Company (Filed as exhibit 10.5 to the
Company's Registration Statement on Form S-1, effective March 20,
1998. File No. 333-42707)
10.6 1998 Directors' Stock Option Plan (Filed as exhibit 10.6 to the
Company's Registration Statement on Form S-1, effective March 20,
1998. File No. 333-42707)
10.7 Agreement and Plan of Merger by and among Cybershop International,
Inc., MG Acquisition Corp., The Magellan Group, Inc., Ian S.
Phillips and Howard J. Kuntz III dated as of June 1, 1999
(incorporated by reference to Exhibit 2.1 of the Registrant's
Current Report on Form 8-K. File No. 0-23901)
10.8 Employment Agreement dated June 1, 1999, by and between Ian S.
Phillips and MG Acquisition Corp which is a wholly owned subsidiary
of Cybershop International, Inc. (Incorporated by reference to
Exhibit 10.2 of the Registrant's Report on Form 10Q for the fiscal
quarter ended June 30, 1999. File No. 000-23901)
10.9 Warrant Agreement dated as of March, 1998 between the Company and
C.E. Unterberg, Towbin and Fahnstock & Co., Inc., including Warrant
Certificate of the Company (Filed as exhibit 10.9 to the Company's
Registration Statement on Form S-1, effective March 20, 1998. File
No. 333-42707)
10.10 Employment Agreement dated June 1, 1999, by and between Howard J.
Kuntz III and MG Acquisition Corp which is a wholly owned subsidiary
of Cybershop International, Inc. (Incorporated by reference to
Exhibit 10.3 of the Registrant's Report on Form 10Q for the fiscal
quarter ended June 30, 1999. File No. 000-23901)
10.11 Securities Purchase Agreement dated September 30, 1999 among
Cybershop.com, Inc., Strong River Investments, Inc. and Montrose
Investments, L.P. (Incorporated by reference to Exhibit 10.4 of the
Registrant's Report on Form 10Q for the fiscal quarter ended
September 30, 1999. File No. 000-23901)
10.12 Registration Rights Agreement dated September 30, 1999 among
Cybershop.com, Inc., Strong River Investments, Inc. and Montrose
Investments, L.P. (Incorporated by reference to Exhibit 10.4 of the
Registrant's Report on Form 10Q for the fiscal quarter ended
September 30, 1999. File No. 000-23901)
10.13 Securities Purchase Agreement dated December 8, 1999 among
Cybershop.com, Inc., Strong River Investments, Inc. and Montrose
Investments, L.P. (Incorporated by reference to Exhibit 10.13 of the
Registrant's Form 10K for the year ended December 31, 1999. File No.
000-23901.)
10.14 Registration Rights Agreement dated December 8, 1999 among
Cybershop.com, Inc., Strong River Investments, Inc. and Montrose
Investments, L.P. (Incorporated by reference to Exhibit 10.14 of the
Registrant's report on Form 10K for the year ended December 31,
1999. File No. 000-23901.)
10.15 General release dated February 14, 2000, by and between Jeffrey
Leist and Cybershop.com, Inc. (Incorporated by reference to Exhibit
10.15 of the Registrant's report on Form 10K for the year ended
December 31, 1999. File No. 000-23901.)
10.16 Modification to Employment Agreement dated February 7, 1999, by and
between Jeffrey Leist and Cybershop.com, Inc., dated March 29, 2000
(Incorporated by reference to Exhibit 10.16 of the Registrant's
report on Form 10K for the year ended December 31, 1999. File No.
000-23901.)
10.17 Severance Agreement and General release dated January 20, 2000, by
and between Edward Mufson and Cybershop.com, Inc. (Incorporated by
reference to Exhibit 10.17 of the Registrant's report on Form 10K
for the year ended December 31, 1999. File No, 000-23901.)
10.18 Employment Agreement dated February 7, 2000, by and between Kevin S.
Miller and Cybershop.com, Inc.(Incorporated by reference to Exhibit
10.18 of the Registrants report on Form 10K for the year ended
December 31, 1999. File No 000-23901.)
10.19 Agreement dated January 12th, 2000, by and between Tops Appliance
City, Inc. and Cybershop Holding Corp, which is a wholly owned
subsidiary of Cybershop.com, Inc. (Incorporated by Reference to
Exhibit 10.19 of the Registrant's report on Form 10K for the year
ended December 31, 1999. File No 000-23901.)
11. Statement re computation of per share earnings: Statement regarding
computation of per share earnings is not required because the computation
can be readily determined from the material contained in the financial
<PAGE>
statements included herein.
13. Annual report to security holders: None
16. Letter re change in certifying accountant: None
18. Letter re change in accounting principles: None
22. Published report regarding matters submitted to vote of security holders:
None
23. Consent of Arthur Andersen LLP: Not applicable.
24. Power of Attorney: None
27. Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only (Filed herewith).
99. Additional Exhibits: None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 14, 2000 By: /s/ Jeffrey S. Tauber
Jeffrey S. Tauber
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
Date: August 14, 2000 By: /s/Stephen Del Vecchia
Stephen Del Vecchia
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
