<PAGE> 1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE SIX MONTHS ENDED JUNE 30, 2000
COMMISSION FILE NUMBER 0-25435
SYMPOSIUM CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-402921
(STATE OF INCORPORATION) (I.R.S. EMPLOYER ID NO.)
</TABLE>
410 PARK AVENUE
SUITE 830, NEW YORK, NY 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(212) 754-9901
(ISSUER'S TELEPHONE NO. INCLUDING AREA CODE)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of each of the Registrant's class of
common equity, as of August 1, 2000 are as follows:
<TABLE>
<CAPTION>
CLASS OF SECURITIES SHARES OUTSTANDING
------------------- ------------------
<S> <C>
Common Stock, $.001 par value 27,724,725
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
SYMPOSIUM CORPORATION
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheet............................................... 2
Statements of Operations and Comprehensive (Loss)........... 3
Statements of Cash Flows.................................... 4
Notes to Financial Statements............................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation... 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 29
Item 2. Change in Securities and Use of Proceeds.................... 29
Item 3. Defaults Upon Senior Securities............................. 31
Item 4. Submission of Matters to a Vote of Security Holders......... 31
Item 5. Other Information........................................... 31
Item 6. Exhibits and Reports on Form 8-K............................ 31
A) Exhibit Schedule
B) Reports Filed on Form 8-K
Signatures............................................................ 32
</TABLE>
The statements contained in this Quarterly Report on Form 10-QSB that are
not historical are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the
expectations, beliefs, intentions or strategies regarding the future. The
Company intends that all forward-looking statements be subject to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect the Company's views as of the date they are
made with respect to future events and financial performance, but are subject to
many risks and uncertainties, which could cause the actual results of the
Company to differ materially from any future results expressed or implied by
such forward-looking statements. Examples of such risks and uncertainties
include, but are not limited to: the obtaining of sufficient financing to
maintain the Company's planned operations, including acquisitions of other
companies; the changing market conditions and the other risks detailed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Trends and Uncertainties" in this Quarterly Report on Form
10-QSB and elsewhere herein. The Company does not undertake to update any
forward-looking statements.
1
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SYMPOSIUM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
2000
-------------
(UNAUDITED)
<S> <C>
ASSETS:
Current assets
Cash and cash equivalents................................. $ 2,480,689
Trade accounts receivable, net of collection and
cancellation reserve of $22,226,285.................... 28,969,615
Other accounts receivable................................. 2,674,497
Prepaid expenses.......................................... 288,841
Deferred expense.......................................... 1,663,305
------------
Total current assets.............................. 36,076,947
------------
Equipment (at cost, less accumulated depreciation)........ 352,766
Deferred financing costs.................................. 952,389
Goodwill and other intangible assets...................... 5,573,521
Other assets.............................................. 123,669
------------
$ 43,079,292
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Revolving credit facility................................. $ 13,413,944
Income tax payable........................................ 66,952
Notes payable............................................. 410,050
Accounts payable and accrued expenses..................... 4,130,945
Accrued closing costs..................................... 1,625,000
Amounts due to publishers................................. 5,804,281
Deferred revenue.......................................... 3,398,489
------------
Total current liabilities......................... 28,849,661
------------
Commitments and contingencies
Mandatorily redeemable preferred stock, par value $.001
per share;
authorized 10,000,000 shares; 60,955 outstanding at
June 30, 2000.......................................... 5,280,473
Convertible preferred stock, $3,037,500 liquidation value;
authorized;
30,375 shares issued and outstanding................... 1,997,811
Common stock, par value $.001 per share; authorized,
75,000,000 shares;
26,150,495 issued and outstanding...................... 26,151
Additional paid in capital................................ 51,584,339
Note receivable -- common stock........................... (2,497,500)
Accumulated deficit....................................... (42,161,642)
------------
Total stockholders' equity........................ 8,949,159
------------
------------
$ 43,079,293
============
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE> 4
SYMPOSIUM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues, net....................... $ 17,198,243 $ -- $ 30,053,180 $ --
Direct costs and expenses
Commission expense................ 7,760,803 -- 14,012,350 --
Magazine costs.................... 1,393,337 -- 2,966,986 --
Other direct costs................ 2,903,319 -- 4,778,715 --
------------ ----------- ------------ -----------
12,057,459 -- 21,758,051 --
Gross profit...................... 5,140,784 -- 8,295,129 --
Salaries and benefits............. 1,023,075 37,200 1,691,086 171,762
Consulting expenses............... 734,637 405,850 2,293,016 460,450
Other operating expenses.......... 713,730 335,020 1,523,681 565,532
Amortization of goodwill and other
intangible assets.............. 145,396 -- 242,327 25,110
------------ ----------- ------------ -----------
Total expenses............ 2,616,838 778,070 5,750,110 1,222,854
------------ ----------- ------------ -----------
Income (loss) from operations....... 2,523,946 (778,070) 2,545,019 (1,222,854)
Other income, (expense)
Interest expense.................. (760,704) 33,195 (2,869,341) 34,391
Other income...................... 23,792 -- 150,496 --
------------ ----------- ------------ -----------
Income (loss) before income taxes... 1,787,034 (744,875) (173,826) (1,188,463)
Provision for income taxes.......... 291,952 -- 291,952 --
------------ ----------- ------------ -----------
Net income (loss)................... 1,495,082 (744,875) (465,778) (1,188,463)
Preferred dividends................. (11,424,533) -- (31,866,460) --
------------ ----------- ------------ -----------
Net loss to common stockholders..... $ (9,929,451) $ (744,875) $(32,332,238) $(1,188,463)
============ =========== ============ ===========
Basic and diluted net loss per
share............................. $ (0.40) $ (0.07) $ (1.58) $ (0.13)
============ =========== ============ ===========
Weighted-average shares of common
stock outstanding -- basic and
diluted........................... 24,742,000 10,155,000 20,430,093 9,064,121
============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 5
SYMPOSIUM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
---------------------------
2000 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations..................... $ (465,778) $(1,188,463)
Adjustments to reconcile results of operations to net cash
effect of operating activities:
Value of common stock and common stock purchase warrants
issued for services.................................... 1,942,794 226,900
Non cash interest expense................................. 1,887,467 --
Depreciation and amortization............................. 498,806 26,290
Net change in asset and liability accounts:
Accounts receivable.................................... (3,377,102) --
Prepaid expenses....................................... 524,551 (41,103)
Accounts payable and other accrued expenses............ (1,792,793) 63,447
Other, net............................................. 2,327,554 (15,907)
------------ -----------
Net cash provided by (used in) operating activities....... 1,545,499 (912,929)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment..................................... (125,785) (35,417)
Proceeds from sale of equipment........................... 3,500
Acquisition of DSI, net of cash on hand at closing date... (23,535,190)
Deferred acquisition costs................................ -- (370,556)
------------ -----------
Net cash used in investing activities..................... (23,660,975) (402,473)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of preferred stock.................... 11,301,750 --
Proceeds from sales of common stock....................... -- 2,360,000
Payments received on note receivable...................... 2,500 --
Proceeds from acquisition short-term notes................ 1,350,000 --
Repayment of short-term notes............................. (800,000) --
Repayment of preferred stock.............................. (535,000) --
Net funds drawn on revolver for DSI Acquisition........... 15,775,000 --
Net repayments of Revolving Credit Agreement.............. (2,586,056) --
Preferred dividends paid.................................. (59,644) --
Deferred financing costs.................................. (190,000) --
------------ -----------
Net cash provided by financing activities................. 24,258,550 2,360,000
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 2,143,074 1,044,598
Cash and cash equivalents at beginning of period.......... 337,615 276,243
------------ -----------
Cash and cash equivalents at end of period................ $ 2,480,689 $ 1,320,841
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid during the period....................... $ 265,000 $ --
============ ===========
Interest paid during the period........................... $ 815,984 $ --
============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 6
SYMPOSIUM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL
NUMBER OF PAID-IN PREFERRED NOTE ACCUMULATED
SHARES AMOUNT CAPITAL STOCK RECEIVABLE DEFICIT TOTAL
---------- ------- ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 2000...... 14,043,214 $14,043 $12,848,277 $ -- $(2,500,000) $ (9,829,402) $ 532,918
Shares issued in connection with
issuance of preferred stock... 10,112,300 10,112 31,335,763 -- -- -- 31,345,875
Shares issued in connection with
short term notes.............. 816,548 817 1,572,502 -- -- -- 1,573,319
Shares issued in connection with
redemption of preferred
stock......................... 610,333 611 866,545 -- 867,156
Common stock issued for
consulting services........... 535,000 535 1,092,900 -- -- -- 1,093,435
Adjustment of shares issued from
1999 sales of stock........... 33,100 33 (33) -- -- --
Preferred stock issued.......... -- -- -- 1,997,811 1,997,811
Stock options and warrants
issued in connection with
acquisition financings........ -- -- 2,850,185 -- -- -- 2,850,185
Stock options and warrants
issued for services........... -- -- 1,018,200 -- -- -- 1,018,200
Repayment of stock note
receivable.................... 2,500
Dividends on preferred stock.... -- -- -- -- -- (31,866,462) (31,866,462)
Net loss for the six months
ended June 30, 2000........... -- -- -- -- -- (465,778) (465,778)
---------- ------- ----------- ---------- ----------- ------------ ------------
BALANCE AT JUNE 30, 2000........ 26,150,495 $26,151 $51,584,339 $1,997,811 $(2,497,500) $(42,161,642) $ 8,949,159
========== ======= =========== ========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 7
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE A -- ORGANIZATION
Symposium Corporation ("Symposium" or the "Company") was incorporated in
Delaware on May 9, 1997 under the name of Brack Industries Inc. and, after
amending its certificate of incorporation, changed its name to Symposium
Corporation in December 1998. The Company was inactive until December 1998. The
Company's principal business strategy is to identify, acquire, and consolidate
direct marketing businesses. In November 1999, the Company formed Media
Outsourcing, Inc. ("MOS") formerly known as Direct Sales International, Inc., a
wholly-owned subsidiary, for the purpose of acquiring the assets of Direct Sales
International, LP. The Company completed this acquisition in January 2000 (see
Note C). From December 1998 through June 1999, the Company, through its
wholly-owned subsidiary Publishers Advantage Corporation ("PAC"), had minimal
operations and was principally engaged in telemarketing in the United States for
magazine and periodical subscription renewals to persons whose subscriptions had
recently expired. The Company discontinued the operations of PAC as of June 30,
1999.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying unaudited financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-QSB and do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation of the results for the interim period have
been included. Operating results for the six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. The accompanying condensed consolidated financial statements
and the information included under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" should be read in
conjunction with the consolidated financial statements and related notes of the
Company for the year ended December 31, 1999 as filed with its Form 10-KSB.
Revenues: Revenues derived from originating magazine subscriptions are
recognized by the Company when the Company receives the first installment
payment for subscriptions purchased. The customer can cancel the subscription
within ten days of the order. Amounts collected from customers prior to the
expiration of the cancellation period are recorded as deferred revenues.
Revenues also include commissions earned from publishers in connection with
originating paid subscriptions for certain publications. Commissions are also
earned from outside parties for securing telemarketing memberships in a
discount-buying club. Commissions are recognized when the related subscriptions
or memberships are obtained.
Commission Expense: Commission expense is recognized by the Company when
the Company receives the first installment payment for subscriptions purchased.
The customer can cancel the subscription within ten days of the order. Amounts
paid to brokers prior to the expiration of the cancellation period are recorded
as deferred expenses.
Certain amounts in the statements have been reclassified to conform to the
2000 classifications.
Use of estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
6
<PAGE> 8
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- ACQUISITION OF DIRECT SALES INTERNATIONAL, LP ("DSI ACQUISITION")
On January 28, 2000, the Company, through its wholly-owned subsidiary MOS,
acquired substantially all of the assets and assumed certain liabilities of
Direct Sales International, LP ("DSI"), a Georgia limited partnership, for
approximately $27.6 million, including closing costs of approximately $1.1
million and an agreement to provide approximately $1.5 million of funding to
AmeriNet, Inc. ("AmeriNet"). The transaction was accounted for as a purchase
business combination.
The acquisition was financed by borrowing $16 million ($15.8 million of
proceeds, net of fees) under a revolving credit facility entered into
contemporaneous with consummating the acquisition and the remainder was funded
with proceeds received from sales of common stock, par value $.001, of the
Company ("Common Stock") and Common Stock purchase warrants, Series A, B and C
mandatorily redeemable convertible preferred stock and the acquisition bridge
loans described below.
The following table provides an analysis of the purchase price of the DSI
acquisition. The excess of the purchase price over the book value of the net
assets acquired has been allocated to goodwill calculated as follows:
<TABLE>
<S> <C>
Cash consideration paid to the seller....................... $25,000,000
Commitment to fund AmeriNet, Inc............................ 1,500,000
Transaction expenses........................................ 1,114,317
-----------
Total purchase cost......................................... 27,614,317
Fair value of net assets acquired........................... 21,798,469
-----------
Purchase price in excess of estimated fair value of net
assets acquired allocated to goodwill..................... $ 5,815,848
===========
</TABLE>
Goodwill is being amortized on a straight-line basis over a ten-year
period.
The following pro-forma information illustrates the estimated effects of
the DSI Acquisition as if such transaction was consummated on January 1, 1999:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
2000 1999
-------- --------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Total revenues
As reported............................................ $29,452 $ --
Pro forma.............................................. 35,094 27,440
Income (loss) from continuing operations
As reported............................................ $ (466) $(1,188)
Pro forma.............................................. (69) (438)
Basic and diluted earnings (loss) per share
As reported............................................ $ (1.55) $ (0.13)
Pro forma.............................................. (0.07) (0.15)
</TABLE>
NOTE D -- REVOLVING CREDIT FACILITY
On January 28, 2000, the Company and MOS entered into a three-year
revolving credit facility, as amended, with a bank providing for borrowings of
up to $20 million subject to certain availability limitations stipulated in the
agreement. All borrowings under this facility are repayable with interest at the
prime rate plus 2% per annum but not less than 9%. The Company and MOS are also
required to
7
<PAGE> 9
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maintain certain minimum earnings ratios and levels of net worth as defined in
the agreement and MOS is restricted from making distributions to Symposium in
excess of $1.8 million annually plus any amounts necessary for tax obligations
attributable to its operations. All of MOS's assets are pledged as collateral
for this obligation. As of June 30, 2000 the Company had an outstanding balance
on the Coast facility of approximately $13.4 million compared to total
availability of $16.6 million resulting in $3.2 million of funds available to
the Company at June 30, 2000.
MOS incurred fees and expenses in connection with this facility of
approximately $1.1 million which are being amortized over three years.
NOTE E -- CONVERTIBLE PREFERRED STOCK
Series A Convertible Preferred Stock ("New Series A Shares")
On June 9, 2000, the Company issued 30,375 shares of New Series A Shares
and a five year warrant to purchase 225,000 shares of Common Stock at an initial
exercise price of $1.4850 (subject to certain anti-dilution and similar
adjustments). The aggregate purchase price for the New Series A Shares and the
warrant was $2,250,000. The face amount and liquidation value of the New Series
A Shares is $3,037,500. The Company also granted the purchaser of the New Series
A Shares an option, exercisable in the purchaser's sole discretion during the
sixty day period following June 9, 2000, to purchase up to an additional
$2,025,000 face amount of New Series A Shares and a warrant to purchase an
additional 150,000 shares of Common Stock for the same purchase price. The
purchaser exercised its option, and the Company issued and sold to the purchaser
an additional 20,250 New Series A Shares and the additional warrant on August 1,
2000 for an aggregate purchase price of $1,500,000.
Dividends accrue on the New Series A Shares at an annual rate of 10% of the
face amount, payable semi-annually in cash and/or Common Stock at the Company's
option under certain conditions. The New Series A Shares are redeemable, at the
option of the Company under certain conditions, at a redemption price of 100% of
face value plus any accrued and unpaid dividends.
The New Series A Shares are convertible at a conversion price equal to the
lesser of: (i) $1.9250 (110% of the closing bid price of the Common Stock on the
date of the issuance, subject to adjustments); or (ii) percentages ranging from
103% to 91% (depending on the number of days elapsed from the date of issuance)
of the average of the three lowest, non-consecutive closing bid prices for the
Common Stock in the ten trading days preceding the date of the holder's
conversion notice to the Company (the "Conversion Notice"). The conversion price
and the exercise price of the warrants is subject to downward adjustment to
equal the lowest price at which shares of the Common Stock or securities
convertible into, or exchangeable or exercisable for, shares of Common Stock are
issued while the New Series A Shares and warrants remain outstanding (if such
price is lower than the then effective conversion or exercise price), subject to
certain exceptions. These exceptions include: (i) the issuance of shares of
Common Stock upon conversion or exercise of presently outstanding options,
warrants or convertible securities in accordance with the terms of such options,
warrants or convertible securities as in effect upon the initial issuance date
of the New Series A Shares (but subject to certain anti-dilution adjustments);
and (ii) certain issuances of securities to, or adjustments in the exercise or
conversion price of outstanding options, warrants or convertible securities held
by, the holders of the Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock, to the extent the number of additional shares of
Common Stock resulting from such issuances and adjustments do not exceed
5,000,000 shares.
However, during the 180 day period commencing on the date of issuance, the
New Series A Shares may not be converted if the closing bid price of the Common
Stock on the date of the Conversion Notice were below a floor (the "Conversion
Floor") of $1.50 per share; and during the next ninety day period, the New
Series A Shares may not be converted if the closing bid price of the Common
Stock on the date of
8
<PAGE> 10
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Conversion Notice were below a Conversion Floor of $1.10 per share. On and
after the 270th day following the date of issuance, there will be no Conversion
Floor. The conversion provisions of the New Series A Shares and warrants create
a substantial risk of dilution to the holders of the Company's Common Stock.
NOTE F -- MANDATORILY REDEEMABLE PREFERRED STOCK
Series A Mandatorily Redeemable Convertible Preferred Stock ("Series A
Preferred")
On January 28, 2000, in a private placement, the Company sold 21,500 units,
each unit consisting of one share of Series A mandatorily redeemable convertible
preferred with a face value of $100 each and 20 shares of the Company's common
stock for gross proceeds of $2.0 million. The Series A Preferred was initially
convertible into 1,075,000 shares of common stock at a conversion ratio of $2.00
per share and carried a 16% per annum cumulative dividend.
On March 21, 2000, the holders of the Series A preferred extended the due
date for the redemption of their shares from March 28, 2000 to April 12, 2000 in
exchange for 275,000 shares for the Company's common stock; then, on March 27,
2000, they agreed to convert their shares into 4,414,666 shares of common stock
at an effective conversion ratio of $.50 per share based on the Series A
aggregate redemption price of $2,207,333, including $2,150,000 representing the
face value of the shares and accrued dividends of $57,333. In addition, Series A
holders were also issued 2,207,000 five-year common stock purchase warrants,
including 1,103,500 with an exercise price of $.50 per share and 1,103,500 with
an exercise price of $1.00 per share plus a fee of 220,000 shares of common
stock.
As a result of the extension and conversion, the former Series A holders
were issued 5,393,416 shares of the Company's common stock, plus warrants to
purchase 2,207,000 additional shares of the Company's common stock as of March
27, 2000.
Series B Mandatorily Redeemable Convertible Preferred Stock ("Series B
Preferred")
On January 28, 2000, in a private placement, the Company sold 15,350 units,
each unit consisting of one share of Series B mandatorily redeemable convertible
preferred stock with a face value of $100 each and warrants to purchase 25
shares of the Company's common stock for gross proceeds of $1.5 million. The
Series B Preferred was originally convertible into 767,500 shares of common
stock at a conversion ratio of $2.00 per share and carried a 10% cumulative
dividend, payable quarterly. The common stock purchase warrants were exercisable
for three years from their date of issuance and had an exercise price of $1.50
per share. The Series B Preferred was mandatorily redeemable on the earlier of
July 26, 2000 or upon the consummation of an additional financing transaction
resulting in gross proceeds of at least $10 million.
By letter agreement dated June 16, 2000 (the "Letter Agreement"), the
Company offered (i) to permit the holders of Series B Preferred to convert their
shares of Series B Preferred into Common Stock at an effective conversion price
of $0.50 or (ii) to redeem the Series B Preferred at the then effective
redemption price ($100 per share plus accrued dividends). In addition, whether a
holder elected to convert shares of Series B Preferred or to be redeemed, the
Company agreed to issue to the holders, ratably in accordance with their
respective percentage interests in the outstanding Series B Preferred, an
aggregate of 122,800 three-year warrants to purchase Common Stock at an exercise
price of $0.75 per share and 200,000 three-year warrants to purchase Common
Stock at an exercise price of $1.50 per share (collectively, the "Additional
Warrants"). The Company also agreed to reduce the exercise price of the Original
Warrants from $1.50 to $0.75. In addition, the Company agreed to issue to D2 Co.
LLP (which received a commission consisting of three-year warrants to purchase
58,163 shares of Common Stock (the "Commission Warrants") in connection with the
Series B financing) 17,820 three-year warrants to
9
<PAGE> 11
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase Common Stock at an exercise price of $0.75 per share and to reduce the
exercise price of the Commission Warrants from $1.50 per share to $0.75 per
share
The holders of 30,000 shares of Series B Preferred elected to convert their
shares of Series B Preferred (and accrued dividends thereon) into an aggregate
of 610,333 shares of Common Stock. The Company redeemed the remaining Series B
Preferred shares on June 29, 2000 for an aggregate redemption price of
$1,235,000 (plus $21,269 in accrued dividends).
Series C Convertible Preferred Stock ("New Series C Shares")
On June 14, 2000, the Company issued 7,500 shares of New Series C Shares,
par value $.001 and 250,000 shares of Common Stock for $750,000. In accordance
with such issuance, the Company also agreed to reduce the exercise price on
2,000,000 warrants held by the purchaser from $1.00 to $0.50 per share. The
Company also paid a fee in connection with the issuance of such shares of 562.5
shares of New Series C Shares, five-year warrants to purchase 100,000 shares of
Common Stock at a price of $1.88 per share and 18,750 shares of Common Stock.
The New Series C Shares have a stated value of $100 per share and accrue
dividends at a rate of 10% per annum, payable quarterly in cash or Common Stock
at the Company's option. The New Series C Shares are convertible into shares of
Common Stock at an effective conversion price of $1.00. At any time prior to
December 26, 2000, the Company may redeem, without penalty, in whole or in part,
the New Series C Shares by paying the face amount outstanding and any accrued
and unpaid dividends. If the Company fails to redeem the shares by December 26,
2000, the Company must issue 188,125 five-year common stock purchase warrants
with an exercise price of $0.25 per share each month until the shares are fully
redeemed.
On July 18, 2000, the holders of the New Series C Shares and the Series C
Shares agreed to waive the requirement that the failure of the Company to redeem
the Series C Preferred on or before December 26, 2000 will trigger a reduction
in the conversion price of the Series C Preferred from $1.00 to $0.25. In
consideration for this waiver by the holders of the New Series C Shares and the
Series C Shares, the Company agreed to issue to such holders an aggregate of
1,523,750 shares of Common Stock, pro rata in accordance with their percentage
holdings of the New Series C Shares and Series C Shares and to issue, as a fee
in connection with such waiver, an additional 1,500 shares of Series C Preferred
and 50,000 shares of Common Stock. The waiver does not affect the Company's
obligation to issue warrants, on a monthly basis, if the Company fails to redeem
the New Series C Shares and Series C Shares by December 26, 2000. The value of
the shares of Common Stock issued will be reflected in the third quarter as an
additional deemed dividend.
Series C Mandatorily Redeemable Convertible Preferred Stock ("Series C
Preferred")
On January 28, 2000, in a private placement, the Company sold 52,892 units,
each unit consisting of one share of Series C mandatorily redeemable convertible
preferred stock with a face value of $100 each and 33.33 shares of the Company's
common stock for approximately $5 million. Additionally, the Company reduced the
exercise price on 2 million warrants previously issued to a Series C holder from
$3.50 per share to $1.00 per share. The Series C Preferred is initially
convertible into 2,644,600 shares of common stock at a conversion ratio of $2.00
per share and carries a 10% cumulative dividend, payable quarterly.
The Series C Preferred was mandatorily redeemable on the earlier of July
26, 2000 or upon the consummation of a financing transaction resulting in gross
proceeds of at least $10.0 million. On April 24, 2000, the holders of the Series
C Preferred extended the due date of the redemption of their shares from July
26, 2000 to December 26, 2000 in exchange for 2,247,067 shares of the Company's
common stock
10
<PAGE> 12
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and a reduction in the conversion ratio from $2.00 per share to $1.00 per share.
The value of the shares issued and change in the conversion rate has been
reflected during the second quarter as an additional deemed dividend in the
amount of $8,560,417. If the Company fails to redeem the shares by December 26,
2000, the Company must issue 370,244 five-year common stock purchase warrants
with an exercise price of $0.25 per share each month until the shares are fully
redeemed.
On July 18, 2000, the holders of the New Series C Shares and the Series C
Shares agreed to waive the requirement that the failure of the Company to redeem
the Series C Preferred on or before December 26, 2000 will trigger a reduction
in the conversion price of the Series C Preferred from $1.00 to $0.25. In
consideration for this waiver by the holders of the New Series C Shares and the
Series C Shares, the Company agreed to issue to such holders an aggregate of
1,523,750 shares of Common Stock, pro rata in accordance with their percentage
holdings of the New Series C Shares and Series C Shares and to issue as a fee in
connection with such waiver, an additional 1,500 shares of Series C Preferred
and 50,000 shares of Common Stock. The waiver does not affect the Company's
obligation to issue warrants, on a monthly basis, if the Company fails to redeem
the New Series C Shares and Series C Shares by December 26, 2000. The value of
the shares of Common Stock issued will be reflected in the third quarter as an
additional deemed dividend.
NOTE G -- PREFERRED STOCK ACCOUNTING
The following table summarizes the mandatory redemption amount and the
allocation of the proceeds from the issuances of the preferred stock with common
stock and common stock purchase warrants based on relative fair values:
<TABLE>
<CAPTION>
NEW
SERIES A SERIES B SERIES C SERIES C
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Mandatory redemption amount............. $ 2,150,000 $1,535,000 $ 5,439,200 $ 750,000
=========== ========== =========== =========
Allocation of proceeds to:
Preferred stock....................... $ 1,428,571 $1,173,715 $ 2,401,352 $ 372,844
Common stock.......................... 430 1,763 269
Additional paid-in capital............ 1,860,999 1,282,285 4,948,237 749,731
Retained earnings..................... (1,290,000) (921,000) (2,401,352) (372,844)
----------- ---------- ----------- ---------
Gross proceeds........................ $ 2,000,000 $1,535,000 $ 4,950,000 $ 750,000
=========== ========== =========== =========
</TABLE>
The following table summarizes the preferred stock dividends recorded for
the six months ended June 30, 2000.
<TABLE>
<CAPTION>
NEW NEW
SERIES A SERIES A SERIES B SERIES C SERIES C TOTAL
----------- -------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Deemed dividends at
issuance................. $ 1,290,000 $ -- $ 921,000 $ 2,401,352 $372,844 $ 4,985,196
Deemed dividends accreted/
conversion............... 14,574,590 -- 911,441 11,050,507 35,562 26,572,100
Contractual dividends...... -- 12,945 69,524 223,161 3,534 309,164
----------- ------- ---------- ----------- -------- -----------
Totals................ $15,864,590 $12,945 $1,901,965 $13,675,020 $411,940 $31,866,460
=========== ======= ========== =========== ======== ===========
</TABLE>
All of the preferred shares, except for the New Series A Shares, were
issued with beneficial conversion features representing the difference between
the market value of the Company's Common Stock and the initial conversion price
on the date of issuance. Since the preferred shares are immediately
11
<PAGE> 13
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
convertible into common stock, the intrinsic value of the beneficial conversion
feature has been recognized as deemed dividends on the date of issuance.
Deemed dividends accreted/conversion represents (i) normal accretion of the
difference between the carrying value of the preferred stock and its mandatory
redemption value; (ii) additional deemed dividends resulting from reductions in
conversion prices relating to beneficial conversion features; (iii) Common Stock
and warrants issued to holders in exchange for extending mandatory due dates
redeeming certain of the preferred stock and (iv) Common Stock issued on the
conversion of the preferred stock. The Common Stock and warrants issued or
repriced in connection with extensions and conversions described in (ii) and
(iii) were accounted for at their fair market values on their respective dates
of issuance.
NOTE H -- ACQUISITION BRIDGE LOANS
Commtel Services LTD Note
On January 20, 2000, the Company entered into a note agreement with Commtel
Services, Ltd. for a 30-day bridge loan in the principal amount of $300,000 that
was due, with interest at 10% per annum, on February 20, 2000. The proceeds of
the loan were used to acquire DSI. The Company issued 75,000 shares of its
common stock to Commtel as consideration for the loan.
The proceeds received from the issuances of the note with Common Stock was
allocated to each component based on their relative fair values on January 20,
2000 (the date of issuance). The fair value of the common stock on January 20,
2000 was $2.31 and resulted in discounted carrying value to the note of $200,000
and an increase to stockholders' equity of $100,000.
The Company defaulted on its obligation to repay the note on its due date
and, as a result, the interest rate increased to 18% per annum and the Company
was required to immediately issue 50,000 additional shares of its common stock
to Commtel.
On March 21, 2000, Commtel agreed to convert the note into 614,048 shares
of common stock (representing a $.50 per share conversion ratio) in settlement
of the $300,000 principal balance plus accrued interest of approximately $7,000.
In addition, the Company was also required to issue an additional 77,500 shares
of Common Stock to Commtel pursuant to the default provisions of the note under
which Commtel is entitled to 2,500 additional shares of the Common Stock for
each day the note remained in default. As a result of the above, Commtel
received an aggregate of 816,548 shares of Common Stock.
As a result of the conversion, the Company recorded additional interest
expense of approximately $1.2 million, including (i) contractual interest of
10%; (ii) the fair market value of additional common shares issued in exchange
for the holders agreement to convert; (iii) the additional shares issued under
the penalty provision; (iv) and the intrinsic value of the beneficial conversion
of the note into 614,048 shares of Common Stock.
Fontenelle Subordinated Bridge Note
On January 25, 2000, the Company entered into a Subordinated Bridge Note
agreement with Fontenelle LLC in the principal amount of $500,000, due with
accrued interest at 10% per annum on March 25, 2000. The proceeds of the loan
were used to acquire DSI. The loan was repaid with interest of approximately
$8,000 on March 24, 2000.
D2 Loan
On January 25, 2000, the Company entered into a Convertible Subordinated
Bridge Loan in the amount of $300,000 with D2 Partners (the "D2 Loan"). The
proceeds of this loan were used to acquire
12
<PAGE> 14
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DSI. The D2 Loan was repayable with interest at 10% per annum on July 26, 2000.
The D2 Loan was convertible into 150,000 shares of Common Stock at a conversion
price of $2.00 per share. The Company paid the D2 Loan in full, with interest of
approximately $11,000, on June 12, 2000.
NOTE I -- NOTES PAYABLE
On April 6, 2000, the Company entered into a term loan agreement with The
Management Group pursuant to which the Company borrowed $250,000. The loan
accrued interest at 10% per annum, compounded daily, and matured on July 31,
2000. In connection with the execution and delivery of the term loan agreement,
the Company issued 100,000 five-year Common Stock purchase warrants with an
exercise price of $1.50 per share. On July 31, 2000, the Company paid $100,000
of the outstanding principal of the loan plus accrued interest and agreed with
the holder to extend the maturity of the remaining principal balance to December
31, 2000 in consideration of the issuance to such holder of 80,000 five-year
Common Stock purchase warrants with an exercise price of $2.00 per share.
On June 20, 2000, the Company entered into a note agreement with Hermitage
Capital Corp. ("Hermitage") for $178,800 which represents a portion of
Hermitage's fees earned in connection with the Company's Series C Preferred
financing. The note accrues interest at 9% per annum and is payable in two
installments, an installment of $100,000 on or before September 1, 2000 and the
balance on or before December 1, 2000. The Company also issued 10,000 shares of
its Common Stock to Hermitage in June 2000.
NOTE J -- NET LOSS PER SHARE
Net loss per share is presented under Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share." In accordance with
SFAS No. 128, basic and diluted net loss per share has been computed using the
weighted-average number of shares of common stock outstanding during the period.
Potentially dilutive securities have been excluded from the computation, as
their effect is antidilutive. If the Company had reported net income, diluted
earnings per share would have included the shares used in the computation of net
loss per share plus common equivalent shares related to approximately 11.2
million and 3.5 million outstanding options and warrants for the six months
ended June 30, 2000 and 1999, respectively.
NOTE K -- INCOME TAXES
The Company had Federal and State net operating loss carryforwards of
approximately $5.9 million available to offset future taxable income, if any,
through December 2019. The utilization of the net operating losses is subject to
a substantial limitation due to the "change of ownership" provisions under
Section 382 of the Internal Revenue Code and similar State provisions. Such
limitation may result in the expiration of the net operating losses before their
utilization. A valuation allowance has been established to reserve for the
deferred tax assets arising from the net operating losses and other temporary
differences since there is no assurance that their benefit will be realized in
the future. For the three months and six months ended June 30, 2000, the Company
recorded a $291,952 provision for income taxes reflecting a state tax liability
resulting from the MOS operations.
NOTE L -- COMMON STOCK
At June 30, 2000 the Company is authorized to issue 75,000,000 shares of
Common Stock and 10,000,000 shares of preferred stock, $.001 par value. As of
June 30, 2000 there were 26,150,495 shares of
13
<PAGE> 15
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock outstanding and the Company had reserved 2,500,000 shares of common
stock for issuance under the Company's stock option plan.
NOTE M -- CONSULTING EXPENSES
The Company recorded consulting expenses totaling $2.3 million for the
six-month period ended June 30, 2000. Included in these charges are
approximately $407,000 of non-cash charges reflecting the estimated fair value
of warrants granted to purchase 922,000 shares of Common Stock at a range of
between $1.00 to $4.00 per share with terms of between two and five years. The
fair value of such warrants was estimated using the Black-Scholes Option Pricing
Formula. Additionally, approximately $1,126,000 of the consulting costs incurred
reflects the fair value of 535,000 shares of the Company's Common Stock issued
for professional services rendered during the six-month period ending June 30,
2000.
NOTE N -- RELATED PARTY TRANSACTIONS
Deferred financing costs includes $266,000 paid to a consulting firm owned
by one of the Company's directors for services rendered in connection with
obtaining the revolving credit facility as described in Note D.
14
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read together with the
Condensed Consolidated Financial Statements of Symposium Corporation ("the
Company" or "Symposium") and the notes to the Condensed Consolidated Financial
Statements included elsewhere in this Form 10-QSB.
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity and cash flows
of Symposium for the six months ended June 30, 2000.
INTRODUCTION
The Company was incorporated in Delaware in May 1997 as "Brack Industries,
Inc." and changed its name to "Symposium Telecom Corporation" in June 1998 and
to "Symposium Corporation" in May 1999. The Company commenced business
operations in the quarter ended December 31, 1998. From December 1998 through
June 30, 1999, the Company, through its wholly-owned subsidiary Publishers
Advantage Corporation ("PAC"), had minimal operations and was engaged
principally in telemarketing magazine and periodical subscription renewals to
persons whose subscriptions had recently expired. The Company discontinued the
operations of PAC as of June 30, 1999.
The Company's principal business strategy is to acquire well established
direct marketing companies and then to leverage the existing marketing
infrastructure and management techniques of those companies to attain
significant market presence in the new web-based economy. Targeted acquisitions
are expected to have one or more of the following characteristics:
- a history of profitability
- an on-going base of current customers
- the ability to reach millions of consumers annually
- direct marketing expertise in such areas as outbound/inbound
telemarketing, mass market print and broadcast advertising and mass
market direct mail campaigns
- the opportunity for significant growth within each company's present
business.
Symposium's strategy is to "piggyback" on the direct marketing skills of an
acquired company and its consumer contacts to recruit members to a web-based
discount buying club being developed by Symposium, to provide E-mail addresses
to third party web sites and/or to sell a variety of targeted web services. By
following this strategy, Symposium believes that it can obtain new web customers
for either Symposium's own use or for third party web retailers at or below the
cost of other recruiting techniques. There can be no assurance, however, that
the Company will be able to identify and acquire companies that meet these
criteria. As the first step in the implementation of this strategy, in January
2000, Symposium completed its acquisition of Direct Sales International LP
("DSI") (see "DSI Acquisition" below).
DSI Acquisition
On January 28, 2000, Symposium, through its wholly-owned subsidiary Media
Outsourcing, Inc. ("MOS"), acquired substantially all the assets and assumed
certain liabilities of DSI, a magazine subscription agency based in Atlanta,
Georgia which works on behalf of US magazine publishers to generate new magazine
subscriptions. The purchase price paid by Symposium to acquire the net assets of
DSI was approximately $27.6 million, including: (i) $25.0 million in cash paid
to the Seller, (ii) an agreement to loan $1.5 million to AmeriNet, Inc.
("AmeriNet") a company in which Richard Prochnow, DSI's former owner and seller
of DSI, holds a majority interest and (iii) approximately $1.1 million in
closing costs and fees incurred in connection with the acquisition. Symposium
financed the cash portion of the purchase price by borrowing $16.0 million under
a credit facility provided by Coast Business Credit, resulting in net proceeds
of $15.8 million net of fees, and by using proceeds totaling approximately $9.2
million from the issuance of common stock, warrants for the purchase of common
stock, convertible
15
<PAGE> 17
preferred stock and convertible debentures. (See "MD&A -- Financial Condition
and Liquidity" for a further description of such financing).
RESULTS OF OPERATIONS
Results of Operations for the three months ended June 30, 2000 and June 30,
1999
Revenues: During the three months ended June 30, 2000, the Company recorded
revenues totaling $17.2 million. These revenues were derived primarily from the
sale of magazine contracts at MOS, totaling approximately $16.5 million and
commissions from sales of memberships in a third party discount-buying club of
$0.9 million. There were no revenues in the comparable period in 1999.
Commission Expense: The Company recognized approximately $7.7 million in
commission costs reflecting payments made to brokers on MOS magazine sales.
Magazine Costs: The Company incurred approximately $1.4 million of magazine
costs resulting from MOS magazine sales.
Other Direct Costs: For the three months ended June 30, 2000, the Company
recorded $2.9 million of other direct costs related to magazine sales at MOS.
Other direct costs consisted primarily of wages of approximately $1.4 million,
bank charges related to the processing of payments received by credit cards of
approximately $0.4 million and other costs of approximately $1.1 million.
Salaries and Benefits: Salaries and benefits increased by $1.0 million for
the three months ended June 30, 2000 from $37,200 for the same period in 1999.
This increase reflects salary expense of approximately $0.6 million related to
MOS and approximately $0.4 million of increased cost related to increased staff
at Symposium Corporation (parent company).
Consulting Expenses: Consulting expenses increased $0.3 million to $0.7
million for the three months ended June 30, 2000 from $0.4 million for the three
months ended June 30, 1999. Included in consulting expenses for the three months
ended June 30, 2000 are approximately $0.2 million of non-cash charges
reflecting the estimated fair value of warrants granted to purchase 322,000
shares of Common Stock at exercise prices ranging from $1.50 to $2.00 per share
with terms ranging from three to five years. The fair value of such warrants was
estimated using the Black-Scholes Option Pricing Formula.
Other Operating Expenses: Other operating expenses increased by $0.4
million to $0.7 million for the three months ended June 30, 2000 from $0.3
million for the three months ended June 30, 1999. This increase was primarily
attributable to approximately $0.4 million of other operating expenses at MOS
that were incurred during the three months ended June 30, 2000.
Amortization of Goodwill: During the three months ended June 30, 2000, the
Company recorded $145,396 of goodwill amortization related to the $5.8 million
of goodwill recorded in connection with the January 28, 2000 DSI acquisition.
Goodwill is being amortized on a straight-line basis over a ten-year period.
Interest Expense: The Company recorded interest expense for the three
months ended June 30, 2000 totaling $0.8 million, consisting primarily of $0.2
million of non-cash interest related to the fair value of shares and warrants
issued in connection with the initial issuance and subsequent conversions of the
DSI acquisition bridge financing and approximately $0.6 million related
amortization of deferred financing fees and interest on the Coast Business
Credit Facility. See "Financial Condition and Liquidity" below.
Income Taxes: For the three months ended June 30, 2000, the Company
recorded a $291,952 provision for income taxes reflecting a state tax liability
resulting from the operations of MOS. No provision was recorded for federal
income taxes as the Company has incurred net operating losses since inception.
In accordance with Statement of Accounting Standards No. 109 "Accounting for
Income Taxes" the Company provided a valuation allowance for the entire amount
of the deferred tax assets because of the uncertainty regarding their
realization.
16
<PAGE> 18
Preferred Dividends: For the three months ended June 30, 2000, the Company
recorded $11.4 million of dividends including $11.2 million of non-cash deemed
dividends and contractual dividends of approximately $0.2 million recorded in
connection with the Series B and C preferred stock issued to complete the DSI
Acquisition on January 28, 2000 and the issuance of the New Series A and C
Preferred Shares. Deemed dividends represent the accretion of the difference
between the carrying value and the mandatory redemption amounts of preferred
stock that resulted from allocating a portion of the proceeds to Common Stock,
Common Stock purchase warrants, and dividends received upon the extension of the
mandatory redemption date of the Series C Preferred. See "Financial Condition
and Liquidity" below.
Net Loss and Net Loss per Share: The net loss to common stockholders for
the three months ended June 30, 2000 was $9.9 million, or $0.40 per share,
compared to a loss of $0.7 million, or $0.07 per share for the three months
ended June 30, 1999. The increase in the net loss to common shareholders for the
three months ended June 30, 2000 reflects (1) the impact of the $11.4 million of
preferred stock dividends recorded during the period, (2) increased interest
charges related to the financing of the DSI acquisition, (3) increased
consulting costs primarily attributable to issuances of warrants and shares of
the Company's stock, offset by (4) the earnings of MOS.
Results of Operations for the six months ended June 30, 2000 and June 30, 1999
Revenues: During the six months ended June 30, 2000, the Company recorded
revenues totaling $30.1 million. These revenues were derived primarily from the
sale of magazine contracts at MOS from January 28, 2000, the date of the DSI
acquisition, totaling approximately $28.6 million and commission revenues from
sales of memberships in a third party discount-buying club of $1.5 million.
There were no revenues in the comparable period in 1999.
Commission Expense: The Company recognized approximately $14.0 million in
commission costs reflecting payments made to brokers on MOS magazine sales from
January 28, 2000 through June 30, 2000.
Magazine Costs: The Company incurred approximately $3.0 million of magazine
costs resulting from MOS magazine sales from January 28, 2000 through June 30,
2000.
Other Direct Costs: For the six months ended June 30, 2000, the Company
recorded $4.8 million of other direct costs related to the magazine sales at
MOS. Other direct costs primarily consisted of wages of approximately $2.3
million, bank charges related to the processing of payments received by credit
cards of approximately $584,000 and other costs of approximately $1.9 million.
Salaries and Benefits: Salary and benefits increased $1.5 million to $1.7
million for the six months ended June 30, 2000 from $171,762 for the same period
in 1999. This increase reflects increased salary expense of approximately $1.0
million related to MOS and approximately $0.5 million related to increased staff
at Symposium Corporation (parent company).
Consulting Expenses: Consulting expenses increased $1.8 million to $2.3
million for the six months ended June 30, 2000 from $460,450 for the six months
ended June 30, 1999. Included in consulting expenses for the first half of 2000,
are approximately $0.4 million of non-cash charges reflecting the estimated fair
value of warrants granted to purchase 922,000 shares of common stock at exercise
prices ranging between $1.00 to $4.00 per share with terms ranging between two
and five years. The fair value of such warrants was estimated using the
Black-Scholes Option Pricing Formula. Additionally, $1.1 million of the
consulting expenses incurred reflects the fair value of 535,000 shares of the
Company's common stock issued for professional services rendered during the
six-month period ending June 30, 2000.
Other Operating Expenses: Other operating expenses increased by $1.0
million or 176.8% to $1.5 million for the six months ended June 30, 2000 from
$565,532 for the six months ended June 30, 1999. This increase was primarily
attributable to $410,000 of non-cash charges reflecting the estimated fair value
of 600,000 options granted to directors at an exercise price of $2.00 per share
and approximately $810,000 of other operating costs at MOS that were incurred
during the first half of 2000, offset by losses incurred
17
<PAGE> 19
on PAC and costs related to its former UK based office during the six months
ended June 30, 1999. The fair value of the directors' options was estimated
using the Black-Scholes Option Pricing Formula.
Amortization of Goodwill: During the first half of 2000, the Company
recorded $242,322 of goodwill amortization related to the $5.8 million of
goodwill recorded in connection with the January 28, 2000 DSI Acquisition.
Goodwill is being amortized on a straight-line basis over a ten-year period.
Interest Expense: The Company recorded interest expense totaling $2.9
million primarily consisting of $1.9 million of non-cash interest related to the
fair value of shares and warrants issued in connection with the initial issuance
and subsequent conversions of the DSI acquisition bridge financing and
approximately $1.0 million related amortization of deferred financing fees and
interest on the Coast Business Credit Financing Facility. See "Financial
Condition and Liquidity" below.
Income Taxes: For the six months ended June 30, 2000, the Company recorded
a $291,952 provision for income taxes reflecting a state tax liability resulting
from the operations of MOS. No provision was recorded for federal income taxes
as the Company has incurred net operating losses since inception. In accordance
with Statement of Accounting Standards No. 109 "Accounting for Income Taxes" the
Company provided a valuation allowance for the entire amount of the deferred tax
assets because of the uncertainty regarding their realization.
Preferred Dividends: For the six months ended June 30, 2000, the Company
recorded $31.9 million of dividends including $31.6 million of non-cash deemed
dividends and contractual dividends of approximately $0.3 million recorded in
connection with the Series A, B and C preferred stock issued to complete the DSI
Acquisition on January 28, 2000 and the issuance of the New Series A and C
Preferred Shares. Deemed dividends represent the accretion of the difference
between the carrying value and the mandatory redemption amounts of preferred
stock that resulted from allocating a portion of the proceeds to Common Stock,
Common Stock purchase warrants, and the beneficial conversion features of the
shares, dividends received in connection with the conversion of the Series A
Preferred Stock into Common Stock on March 27, 2000 and dividends received upon
the extension of the redemption date of the Series C Preferred. See "Financial
Condition and Liquidity" below.
Net Loss and Net Loss per Share: The net loss to common stockholders for
the six months ended June 30, 2000 was $32.3 million, or $1.58 per share,
compared to a loss of $1.2 million, or $0.13 per share, for the six months ended
June 30, 1999. The increase in the net loss to common shareholders for the first
half of 2000 reflects (1) the impact of the $31.9 million of preferred stock
dividends recorded during the period, (2) increased interest charges related to
the financing of the DSI Acquisition, (3) increased consulting costs primarily
attributable to issuances of warrants and shares of the Company's stock, offset
by (4) the earnings of MOS from January 28, 2000 through June 30, 2000.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 2000, the Company had cash on hand of $2.5 million. For the six
months ended June 30, 2000 the Company generated $1.5 million from operations
and $24.3 million from financing activities and used $23.7 million in investing
activities. Through the operations of MOS, the Company generates cash flow from
the sale and collection of trade receivables, commissions earned from publishers
in connection with originating paid subscriptions for certain publications, and
commissions earned on the sale of third party discount buying club memberships.
MOS uses these funds, as well as funds available under its revolving credit
facility, to fund its working capital needs. Under the Coast Facility, MOS is
not permitted to make distributions to Symposium in excess of $1.8 million per
annum, plus any amounts necessary for tax obligations attributable to its
operations. While the Company believes that the amount of cash flow from
operations at MOS and the amount available under the revolving credit facility
are currently sufficient to meet the Company's day-to-day operating
requirements, such amounts would not be sufficient to retire the outstanding
mandatorily redeemable preferred stock or to satisfy certain other commitments
including short term notes and other obligations nor would such amounts be
sufficient to complete any additional acquisitions in furtherance of the
Company's overall strategy. Consequently, the Company is
18
<PAGE> 20
currently in negotiations to raise additional financing to meet its short-term
obligations and to provide for additional working capital.
There can be no assurance that the Company will be successful in raising
these additional funds to retire its outstanding commitments. If the Company is
unable to redeem the outstanding Series C Preferred Shares on or before December
26, 2000 (see below), then the Company would be required to issue to the Series
C Preferred holders warrants to purchase a significant number of additional
shares of its Common Stock, resulting in significant dilution to the current
shareholders.
AmeriNet Commitment
In February, 2000, the Company decided not to exercise its option (the
"Option") to acquire 50.1% of the outstanding stock of AmeriNet, Inc.
("AmeriNet"), but as a prerequisite to consummating the DSI acquisition agreed
to provide a $1.5 million credit facility to AmeriNet in addition to a $500,000
of loan made during 1999. Mr. Prochnow owns 50% of the common stock of AmeriNet.
Due to the uncertainty of AmeriNet's ability to repay any of such loans, the
Company is treating its commitment to provide additional funding to AmeriNet as
an increase in the purchase price of DSI. Under the original terms of the
AmeriNet credit facility, the Company was obligated (1) to lend AmeriNet
$100,000 per month for the ten months beginning in March, 2000 through December
2000, inclusive, and (2) on or before July 28, 2000 ("RLP"), to purchase for
$500,000 a $500,000 principal amount note issued by AmeriNet to RLP Holdings
L.P., an affiliate of Mr. Prochnow (the "RLP Note"). The Company has loaned
AmeriNet an aggregate of $300,000 under the credit facility and the Company and
AmeriNet have agreed that subsequent loan installments will be made as and when
requested by AmeriNet but, in any event, in amounts not to exceed $50,000 per
month. In addition, RLP has agreed to extend the date by which the Company is
required to purchase the RLP Note from July 28, until December 31, 2000. The
Company and RLP are also discussing an arrangement pursuant to which the Company
would satisfy its obligation to purchase the RLP Note by issuing 1,000,000
shares of Common Stock to RLP, but no agreement has been reached on this matter.
Coast Business Credit -- Financing Facility
In connection with the DSI acquisition, MOS and the Company entered into an
agreement with Coast Business Credit ("Coast") to provide a credit facility (the
"Coast Facility") used to fund the DSI acquisition and working capital needs of
MOS. The Coast Facility has a term of three years, and provides a maximum credit
line of $20 million, subject to certain availability limitations. As a result of
these availability limitations, the amount available for borrowing under the
Coast Facility at the time of the DSI acquisition was $16.0 million, which MOS
drew down in its entirety to finance the DSI acquisition. Interest on
outstanding advances under the Coast Facility accrues at an annual rate equal to
the higher of (i) the prime rate plus 200 basis points, calculated on the basis
of the actual number of days elapsed in a 360 day year, and (ii) 9.0%. The Coast
Facility requires Symposium and MOS to comply with specified financial
covenants. In connection with the execution and delivery of the Coast Facility,
the Company granted Coast 300,000 five-year warrants to purchase the Company's
Common Stock at an original exercise price of $3.53 per share (110% of the
closing price of the Common Stock on the closing date). The exercise price of
the Coast warrants has been reduced (and the number of shares purchasable upon
exercise of such options has correspondingly increased) since the date such
options were granted as a result of contractual anti-dilution adjustments. Coast
extended the facility to the Company subject to the condition that the Company
raise additional equity capital of not less than $3 million by February 28, 2000
which was subsequently extended to March 31, 2000. On March 30, 2000, the
Company and Coast amended the Coast Facility as follows: (i) the covenant
requiring the Company to raise additional cash equity of $3.0 million was
eliminated; (ii) the parties reduced the consolidated net worth (defined as
stockholder equity and subordinated debt) covenant to $9.0 million from $12.0
million at March 31, 2000; and (iii) a new covenant was added requiring that the
Company maintain excess borrowing availability of $750,000.
19
<PAGE> 21
As of June 30, 2000 the outstanding balance on the Coast facility was
approximately $13.4 million compared to total availability of $16.6 million
resulting in $3.2 million of funds available for borrowing.
Series A Mandatorily Redeemable Convertible Preferred Stock ("Series A
Preferred")
On January 28, 2000, the Company issued 21,500 shares of Series A Preferred
resulting in net proceeds to the Company totaling $2.0 million. The outstanding
shares of Series A Preferred ("Series A Shares") were initially redeemable at an
aggregate redemption price of $2,150,000 (together with accrued dividends at a
rate of 16% per annum). Since Series A Shares remained outstanding subsequent to
February 27, 2000, the Company was required to issue to the holders of the
outstanding Series A Shares (the "Series A Holders") an aggregate of 16,125
shares of Common Stock per day for each day that the Series A Shares remained
outstanding from February 28 through March 28, 2000 and 26,875 shares of Common
Stock per day for each day that such Series A Shares remained outstanding after
March 28, 2000.
On March 21, 2000, the Series A Holders agreed to extend the mandatory
redemption date of the Series A Shares from March 28, to April 12, 2000 in
consideration of the issuance to such Series A Holders of an aggregate of
275,000 shares of Common Stock. If the Series A Shares were not redeemed by the
mandatory redemption date, the Company would have been required to issue to the
Series A Holders, monthly in advance, five-year warrants to purchase 215,000
shares of Common Stock at an exercise price of $.10 per share, for each 30-day
period the Series A Shares remained outstanding from and after the Series A
mandatory redemption date and the conversion price at which the Series A Shares
were convertible into shares of Common Stock would have decreased from $2.00 to
$0.10.
On March 27, 2000, the Series A Holders, in full satisfaction of their
rights as Series A Holders (the "Series A Settlement"), (i) converted their
total holdings of Series A Shares including accrued and unpaid dividends into an
aggregate of 4,414,666 shares of Common Stock (representing an effective
conversion price of $.50 per share); (ii) the Company agreed to issue to the
Series A Holders: (A) warrants to purchase 1,103,500 shares of Common Stock at
an exercise price of $0.50 per share; and (B) warrants to purchase 1,103,500
shares of Common Stock at an exercise price of $1.00 per share; and (iii) the
Company paid to Capital Research, Ltd. (the placement agent for the Series A
Shares and one of the Series A Holders) a fee of 220,000 shares of Common Stock.
Series B Mandatorily Redeemable Convertible Preferred Stock ("Series B
Preferred")
On January 28, 2000, the Company issued 15,350 shares of Series B
Preferred, together with three-year warrants to purchase an aggregate of 383,750
shares of Common Stock at $1.50 per share, resulting in net proceeds to the
Company totaling $1.5 million. The Series B Preferred was originally convertible
into 767,500 shares of Common Stock at a conversion price of $2.00 per share and
was entitled to a 10% cumulative dividend, payable quarterly. The Series B
Preferred was mandatorily redeemable on or before July 26, 2000 at an aggregate
redemption price of $1,535,000, together with accrued and unpaid dividends.
By letter agreement dated June 16, 2000 (the "Letter Agreement"), the
Company offered (i) to permit the holders of Series B Preferred to convert their
shares of Series B Preferred into Common Stock at an effective conversion price
of $0.50 or (ii) to redeem the Series B Preferred at the then effective
redemption price ($100 per share plus accrued dividends). In addition, whether a
holder elected to convert shares of Series B Preferred or to be redeemed, the
Company agreed to issue to the holders, ratably in accordance with their
respective percentage interests in the outstanding Series B Preferred, an
aggregate of 122,800 3-year warrants to purchase Common Stock at an exercise
price of $0.75 per share and 200,000 3-year warrants to purchase Common Stock at
an exercise price of $1.50 per share (collectively, the "Additional Warrants").
The Company also agreed to reduce the exercise price of the Original Warrants
from $1.50 to $0.75. In addition, the Company agreed to issue to D2 Co. LLP
(which received a commission consisting of 3-year warrants to purchase 58,163
shares of Common Stock (the "Commission Warrants") in connection with the Series
B financing) 17,820 3-year warrants to purchase Common Stock at an exercise
price of $0.75 per share and to reduce the exercise price of the Commission
Warrants from
20
<PAGE> 22
$1.50 per share to $0.75 per share. In consideration of the Company's agreement
to reduce the effective conversion price of the shares of Series B Preferred
Stock, to reduce the exercise price of the Original Warrants and to issue the
Additional Warrants, the holders of Series B Preferred waived and released any
claims that they may have had against the Company relating to the amount or
terms of the securities issued to them in connection with their original
investment in the Series B Preferred and the Original Warrants or any
commissions or fees relating thereto.
The holders of 30,000 shares of Series B Preferred elected to convert their
shares of Series B Preferred (and accrued dividends thereon) into an aggregate
of 610,333 shares of Common Stock. The Company redeemed the remaining Series B
Preferred shares on June 29, 2000 for an aggregate redemption price of
$1,235,000 (plus $21,269 in accrued dividends).
Series C Mandatorily Redeemable Convertible Preferred Stock ("Series C
Preferred")
On January 28, 2000, the Company issued 52,892 shares of Series C Preferred
resulting in proceeds to the Company totaling approximately $5.0 million. The
Series C Preferred was initially convertible into Common Stock at $2.00 per
share and is entitled to a 10% cumulative dividend, payable quarterly in cash of
shares of Common Stock (at the option of the Company). In connection with the
issuance and sale of the shares of Series C Preferred (the "Series C Shares"),
the Company also issued to the holders of the Series C Shares an aggregate of
1,763,067 shares of Common Stock. Additionally, the Company reduced the exercise
price of 2,000,000 warrants previously issued to a holder of Series C Shares
from $3.50 per share to $1.00 per share.
The Series C Preferred was originally mandatorily redeemable on the earlier
of July 26, 2000 or upon the consummation of a financing transaction resulting
in gross proceeds of at least $10 million. On April 24, 2000, the holders of the
Series C Shares agreed to extend the mandatory redemption date of the Series C
Preferred from July 26, 2000 to December 26, 2000 (the "Mandatory Redemption
Date") in exchange for 2,247,067 shares of Common Stock and a reduction in the
effective conversion rate from $2.00 per share to $1.00 per share. The value of
the shares of Common Stock issued and change in the effective conversion rate
have been reflected during the second quarter as an additional deemed dividend
in the amount of $8,560,417. If the Company fails to redeem the Series C Shares
by the Mandatory Redemption Date, the Company must issue to the holders an
aggregate of 370,244 five-year Common Stock purchase warrants (7 warrants per
share of Series C Share) with an exercise price of $0.25 per share each month
until the shares are fully redeemed.
On June 14, 2000, the Company issued an additional 7,500 shares of Series C
Preferred and 250,000 shares of Common Stock, resulting in Common Stock purchase
proceeds of $750,000. The Company also agreed to reduce the effective exercise
price of 2,000,000 Common Stock purchase warrants held by the purchaser of the
New Series C Shares from $1.00 to $0.50 per share. The Company also paid a fee
to Capital Research Ltd. in connection with the issuance of such Series C Shares
of 562.5 shares of Series C Preferred (together the "New Series C Shares"),
five-year warrants to purchase 100,000 shares of Common Stock at a price of
$1.88 per share and 18,750 shares of Common Stock.
If the Company fails to redeem the New Series C Shares by the Mandatory
Redemption Date, the Company must issue to the holders of the New Series C
Shares 188,125 five-year warrants with an initial exercise price of $0.25 per
share each month until the New Series C Shares are fully redeemed.
On July 18, 2000, the holders of the New Series C Shares and the Series C
Shares agreed to waive the requirement that the failure of the Company to redeem
the Series C Preferred on or before the Mandatory Redemption Date will trigger a
reduction in the conversion price of the Series C Preferred from $1.00 to $0.25.
In consideration for this waiver by the holders of the New Series C Shares and
the Series C Shares, the Company agreed to issue to such holders an aggregate of
1,523,750 shares of Common Stock, pro rata in accordance with their percentage
holdings of the New Series C Shares and Series C Shares, and to issue to Capital
Research Ltd., as a fee in connection with such waiver, an additional 1,500
shares of Series C Preferred and 50,000 shares of Common Stock. The waiver does
not affect the Company's obligation to issue warrants, on a monthly basis, if
the Company fails to redeem the
21
<PAGE> 23
New Series C Shares and Series C Shares on or before the Mandatory Redemption
Date. The value of the shares of Common Stock issued will be reflected in the
third quarter as an additional deemed dividend.
Series A Convertible Preferred Stock ("New Series A Shares")
On June 9, 2000, the Company issued 30,375 New Series A Shares and a
five-year warrant to purchase 225,000 shares of Common Stock at an initial
exercise price of $1.4850 (subject to certain anti-dilution and similar
adjustments). The aggregate purchase price for the New Series A Shares and the
warrant was $2,250,000. The face amount and liquidation value of the New Series
A Shares is $3,037,500. The Company also granted the purchaser of the New Series
A Shares an option, exercisable in the purchaser's sole discretion during the
sixty day period following June 9, 2000, to purchase up to an additional
$2,025,000 face amount of New Series A Shares and a warrant to purchase an
additional 150,000 shares of Common Stock for the same purchase price. The
purchaser exercised its option, and the Company issued and sold to the purchaser
an additional 20,250 New Series A Shares and the additional warrant on August 1,
2000 for an aggregate purchase price of $1,500,000.
Dividends accrue on the New Series A Shares at an annual rate of 10% of the
face amount, payable semi-annually in cash and/or Common Stock at the Company's
option under certain circumstances. The New Series A Shares are redeemable, at
the option of the Company under certain circumstances, at a redemption price of
100% of face value plus any accrued and unpaid dividends.
The New Series A Shares are convertible at a conversion price equal to the
lesser of: (i) $1.9250 (110% of the closing bid price of the Common Stock on the
date of the issuance, subject to adjustments); or (ii) percentages ranging from
103% to 91% (depending on the number of days elapsed from the date of issuance)
of the average of the three lowest, non-consecutive closing bid prices for the
Common Stock in the ten trading days preceding the date of the holder's
conversion notice to the Company (the "Conversion Notice"). The conversion price
and the exercise price of the warrants is subject to downward adjustment to
equal the lowest price at which shares of the Common Stock or securities
convertible into, or exchangeable or exercisable for, shares of Common Stock are
issued while the New Series A Shares and warrants remain outstanding (if such
price is lower than the then effective conversion or exercise price), subject to
certain exceptions. These exceptions include: (i) the issuance of shares of
Common Stock upon conversion or exercise of presently outstanding options,
warrants or convertible securities in accordance with the terms of such options,
warrants or convertible securities as in effect upon the initial issuance date
of the New Series A Shares (but subject to certain anti-dilution adjustments);
and (ii) certain issuances of securities to, or adjustments in the exercise or
conversion price of outstanding options, warrants or convertible securities held
by, the holders of the Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock, to the extent the number of additional shares of
Common Stock resulting from such issuances and adjustments does not exceed
5,000,000 shares.
However, during the 180 day period commencing on the date of issuance, the
New Series A Shares may not be converted if the closing bid price of the Common
Stock on the date of the Conversion Notice were below a floor (the "Conversion
Floor") of $1.50 per share; and during the next ninety day period, the New
Series A Shares may not be converted if the closing bid price of the Common
Stock on the date of the Conversion Notice were below a Conversion Floor of
$1.10 per share. On and after the 270th day following the date of issuance,
there will be no Conversion Floor. The conversion provisions of the New Series A
Shares and warrants create a substantial risk of dilution to the holders of the
Company's Common Stock.
Short Term Financings
Commtel Services Ltd. Note. On January 20, 2000, the Company entered into
a note agreement (the "Commtel Note") with Commtel Services Ltd. ("Commtel") for
a 30-day bridge loan in the principal amount of $300,000. The proceeds of this
loan were used in connection with the financing of the DSI acquisition. The
Commtel Note accrued interest of a rate of 10% per annum, with principal and
interest
22
<PAGE> 24
due and payable on February 20, 2000. In consideration of the loan, the Company
issued 75,000 shares of its Common Stock to Commtel. The Company failed to pay
the Commtel Note at maturity, as a result of which: (i) the annual interest rate
on the Commtel Note increased to 18% on all outstanding principal and accrued
interest, and (ii) the Company was required to issue to Commtel an additional
50,000 shares of Common Stock as of February 21, 2000 and an additional 2,500
shares of Common Stock for each subsequent day until the Commtel Note was paid
or converted (aggregating 77,500 shares on March 21, 2000). On March 21, 2000,
Commtel converted the Commtel Note into approximately 614,048 shares of Common
Stock in satisfaction of all principal and interest due. The proceeds received
from the issuances of the Commtel Note with Common Stock are being allocated to
each component based on their relative fair values on January 20, 2000 (the date
of issuance). The fair value of the Common Stock on January 20, 2000 was $2.31
per share and resulted in discounted carrying value to the Commtel Note of
$200,000 and an increase to stockholders' equity of $100,000.
As a result of the conversion of the Commtel Note, during the first quarter
of 2000, the Company recorded additional interest expense of approximately $1.2
million including interest of 10% on the Commtel Note, the fair market value of
additional shares of Common Stock issued under the penalty provision of the
Commtel Note, and the intrinsic value of the beneficial conversion of the
Commtel Note into 614,048 shares of Common Stock.
Fontenelle Note. On January 25, 2000, the Company borrowed $500,000 from
Fontenelle LLC, which borrowing was evidenced by a $500,000 principal amount
Convertible Subordinated Note due March 25, 2000 (the "Fontenelle Note").
The proceeds of this borrowing were used primarily in connection with the
financing of the DSI acquisition. Interest accrued on the Fontenelle Note at an
annual rate of 10% and was due and payable along with the outstanding principal
at maturity. The Fontenelle Note was convertible into shares of Common Stock at
a conversion price of $2.00 per share. The Company paid the Fontenelle Note in
full on March 24, 2000.
D2 Loan. On January 25, 2000, the Company borrowed $300,000 from D2 Co.
LLC, which was due on July 26, 2000 (the "D2 Loan"). The proceeds of the D2 Loan
were used primarily in connection with the financing of the DSI acquisition.
Interest accrued on the D2 Loan at an annual rate of 10% and was due and payable
along with the outstanding principal at maturity. The outstanding principal
amount of the D2 Loan was convertible into 150,000 shares of the Company's
Common Stock at a conversion price of $2.00 per share. If the Company failed to
pay the D2 Loan by July 26, 2000, the conversion price would have been reduced
to $0.50 per share (representing 600,000 shares of the Company's Common Stock).
The Company paid the D2 Loan in full on June 12, 2000.
Richard Prochnow Put Right. Pursuant to an agreement dated as of June 9,
1999, the Company sold to Richard Prochnow 2,500,000 shares of Common Stock. In
connection with the DSI acquisition, the Company and Mr. Prochnow entered into a
registration rights agreement, dated January 28, 2000 pursuant to which, at any
time between January 15, and March 15, 2001, Mr. Prochnow may require the
Company to purchase up to 600,000 shares of Common Stock for $3.00 per share,
resulting in an aggregate payment obligation of the Company to Mr. Prochnow of
$1.8 million.
The Management Group Loan. On April 6, 2000, the Company entered into a
term loan agreement with The Management Group pursuant to which the Company
borrowed $250,000. The loan accrued interest at 10% per annum, compounded daily,
and matured on July 31, 2000. In connection with the execution and delivery of
the term loan agreement, the Company issued 100,000 five-year Common Stock
purchase warrants with an exercise price of $1.50 per share. On July 31, 2000,
the Company paid $100,000 of the outstanding principal of the loan and agreed
with the holder to extend the maturity of the remaining principal balance to
December 31, 2000 in consideration of the issuance to such holder of 80,000
five-year Common Stock purchase warrants with an exercise price of $2.00 per
share.
Hermitage Note. On June 20, 2000, the Company entered into a note
agreement with Hermitage Capital Corp. ("Hermitage") pursuant to which the
Company issued to Hermitage a note in the principal
23
<PAGE> 25
amount of $178,800 (the "Hermitage Note"), representing a portion of the fee
earned by Hermitage in connection with the Series C Preferred financing. The
Hermitage Note accrues interest at 9% per annum, The Hermitage Note is payable
in two installments, an installment of $100,000 on or before September 1, 2000
and the balance on or before December 1, 2000. The Company also issued 10,000
shares of Common Stock to Hermitage in June 2000.
GENERAL ECONOMIC CONDITIONS
The Company's business may be adversely affected by periods of economic
slowdown or recession, which may be accompanied by a decrease in the
availability of consumer credit. Any material decline in the availability of
consumer credit may result in a decrease in consumer demand to utilize credit
cards to purchase magazine subscriptions, which could adversely affect the
demand for the Company's products and services.
INTEREST RATES
In connection with the DSI acquisition, MOS entered into the Coast Credit
Facility (the "Coast Facility") with Coast Business Credit pursuant to a Loan
and Security Agreement dated January 28, 2000. The Company has guaranteed MOS's
obligations under the Coast Facility.
The Company's profitability may be directly affected by interest rates,
specifically the Prime Rate, which affects the interest payable by MOS under the
Coast Facility. The annual rate of interest payable under the Coast Facility is
calculated at the higher of (i) the Prime Rate plus 200 basis points and (ii)
9.0%. An increase in the Prime Rate would increase the interest payable by MOS
under the Coast Facility, adversely impacting earnings.
NEED FOR ADDITIONAL FINANCING
The Company will require additional debt or equity financing in order to
meet its obligations to redeem the outstanding New Series C Shares and Series C
Preferred Shares, which are mandatorily redeemable on or before December 26,
2000, to pay the remaining outstanding principal balance of, and accrued
interest on, The Management Group Note which matures on December 31, 2000, to
satisfy its obligations to AmeriNet and RLP and to satisfy its obligations to
purchase shares of Common Stock from Richard Prochnow if Mr. Prochnow exercises
his put right in the first quarter of 2001. The Company will also require
additional financing to pursue its strategy of expanding its business operations
through the development or acquisition of niche direct marketing businesses. The
failure timely to obtain such financing could prevent the Company from
continuing its business strategy or responding to changing business or economic
conditions, could cause the Company to experience difficulty in withstanding any
adverse operating results or competing effectively and could, therefore,
materially adversely affect the Company.
The Company's failure timely to redeem the New Series C Shares and Series C
Shares will trigger certain requirements under the Certificate of Designation
relating to the Series C Preferred and the Company's agreements with the holders
thereof, that the Company issue warrants to purchase Common Stock to the holders
of the New Series C Shares and Series C Shares. Such issuances could result in
significant dilution to the existing holders of Common Stock. See "Dilution"
below.
LIMITED OPERATING HISTORY
Although the business of DSI that was acquired by MOS on January 28, 2000
has a history of profitable operations, the Company has a limited operating
history and it is difficult to predict whether the Company will be profitable in
the future.
24
<PAGE> 26
ACQUISITIONS
A key component of the Company's strategy is to acquire, on acceptable
terms, companies that complement or enhance the Company's business. The
Company's acquisition strategy may result in increased expenses, difficulties in
integrating acquired companies and diversion of management's attention. There
cannot be any assurance that the Company will be able to identify or
successfully compete for attractive acquisition candidates or to complete
acquisitions at reasonable purchase prices, in a timely manner or at all. In
addition, certain of the Company's competitors have greater financial resources
than the Company and may be able to more effectively complete acquisitions,
which could result in increased prices for acquisition targets and a diminished
number of companies available for acquisition.
Other risks associated with the Company's acquisition growth strategy
include: (i) expenses and difficulties in identifying potential targets and
costs associated with uncompleted acquisitions; (ii) expenses, delays and
difficulties of integrating acquired companies in the Company's existing
organization; (iii) expenses of amortizing acquired companies' intangible
assets; and (iv) issuance of equity securities to pay for acquisitions may be
dilutive to existing stockholders. These risks could have a material adverse
effect on the Company's financial condition, operating results and business.
MANAGING GROWTH
The Company's recent growth as a result of the DSI acquisition has
required, and anticipated future growth will require, a substantial amount of
the Company's managerial and operational resources. To manage future growth,
management must continue to improve its operational and financial systems and
expand, train, retain and manage its employee base. There can be no assurance
that the Company will be able to effectively manage its growth. If the Company's
(or its present or any future subsidiaries') systems, procedures or controls are
inadequate to support their operations, the Company's expansion would be
impaired. The Company's inability to manage growth effectively could have a
material adverse effect on its financial condition, operating results and
business.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been, and is likely to
continue to be, volatile, experiencing wide fluctuations. Some of these
fluctuations appear to be unrelated or disproportionate to the operating
performance of the Company. Future market movements may materially and adversely
affect the market price of the Company's Common Stock.
OWNERSHIP OF COMPANY IS CONCENTRATED
The five largest stockholders of the Company beneficially owned in excess
of 50% of the Company's issued and outstanding Common Stock as of June 30, 2000.
As a result, these stockholders possess significant influence over the Company
on business matters, including the election of directors or the approval of any
other action requiring the approval of stockholders. This concentration of share
ownership may: (i) delay or prevent a change of control of the Company; (ii)
impede a merger, consolidation, takeover or other business combination involving
the Company; or (iii) discourage a potential acquirer from making a tender offer
or otherwise attempting to obtain control of the Company.
DILUTION, SHARES ELIGIBLE FOR FUTURE SALE COULD CAUSE THE COMPANY'S STOCK PRICE
TO DECLINE
As of August 1, 2000, there were 27,724,245 issued and outstanding shares
of Common Stock and the Company was required to reserve approximately 42.6
million additional shares of Common Stock for issuance upon exercise of
outstanding options and warrants and conversion of outstanding convertible
securities (the "Derivative Securities"). (The number of shares reserved for
issuance upon conversion or exercise of Derivative Securities is based upon the
actual numbers of shares into which outstanding Derivative Securities are
convertible or for which such Derivative Securities are exercisable, except in
the case of the New Series A Preferred Shares. The Company is contractually
obligated to reserve a number of shares of Common Stock for issuance upon
exercise of the New Series A Preferred Shares and related
25
<PAGE> 27
warrants calculated on the assumption that such New Series A Preferred Shares
and warrants were convertible and/or exercisable at an effective price of $0.25
per share. Accordingly, the Company is required to reserve 22,477,500 shares of
Common Stock for issuance in connection with the New Series A Preferred Shares
and related warrants, although, after giving effect to the issuance of
additional New Series A Preferred Shares and related warrants upon exercise of
the purchaser's option, less than 3,000,000 shares of Common Stock would be
issuable if the Series A Preferred Shares were converted and such warrants were
exercised at the conversion and exercise prices currently in effect ($1.9250 and
$1.4850, respectively). However, as described above under "Financial Condition
and Liquidity -- Series A Convertible Preferred Stock", the respective
conversion and exercise prices of the New Series A Preferred Shares and related
warrants are subject to adjustment in a manner that could result in substantial
dilution to other holders of the Company's equity securities).
The market price of the Common Stock could decline as a result of future
sales of substantial amounts of the Company's Common Stock, or the perception
that such sales could occur. Furthermore, certain of the Company's existing
stockholders have the right to require the Company to register their shares, or
shares of Common Stock into or for which their Derivative Securities are
convertible or exercisable, which may facilitate the sale of these shares in the
public market. Existing registration rights are described below.
In March 1999 the Company issued an aggregate of 100 Units, each consisting
of (i) 25,000 shares of Common Stock and (ii) 25,000 warrants to purchase one
share of Common Stock at an exercise price of $3.50 per share, expiring on
December 31, 2001 (the "Units Offering"). In connection with the Units Offering,
the Company agreed to register, as promptly as practicable following June 16,
1999, the Common Stock included in the Units and all Common Stock issuable upon
exercise of the warrant component of the Units (collectively, the "Unit
Shares").
On January 28, 2000, the Company entered into a Registration Rights
Agreement with Richard Prochnow, which requires the Company to register
1,000,000 of the shares owned by Mr. Prochnow (the "Prochnow Shares") within 120
days following January 28, 2000.
The Company has not yet filed a registration statement covering the
Prochnow Shares or the Unit Shares.
The Company and RLP Holdings L.P. are parties to a letter agreement dated
January 28, 2000, pursuant to which the Company has agreed to purchase from RLP
for $500,000 a promissory note evidencing the $500,000 obligation of AmeriNet,
Inc. to RLP. The Company and RLP are discussing an arrangement pursuant to which
the Company's obligation to pay $500,000 for the Note will be satisfied by the
issuance to RLP of 1,000,000 shares of Common Stock. If such shares were issued
to Mr. Prochnow, the Company would be required to file a registration statement
covering such shares and the Prochnow Shares on or before September 15, 2000 and
will use its best efforts to cause such registration statement to be declared
effective on or before December 1, 2000.
On March 21, 2000, the Company entered into a Settlement Agreement with
Commtel Services, Ltd. which provides that the Company issue 816,548 shares of
Common Stock to Commtel as full performance of the Company's obligations under
the Commtel Note. The Settlement Agreement grants Commtel "piggyback"
registration rights with respect to these shares should the Company register any
shares of its Common Stock.
In connection with the issuance of the Series A, B and C Mandatorily
Redeemable Convertible Preferred Stock of the Company, the Company has agreed to
register upon demand (i) the Common Stock issued to the holders of the Series A
and C Preferred in connection with the original issuance and sale thereof, and
the Common Stock issued or issuable, upon conversion of the Series A, B and C
Shares (collectively, the "Preferred Stock"), (ii) the Common Stock issued or
issuable upon exercise of warrants issued to the holders of the Series B Shares;
(iii) the Common Stock issuable upon exercise of warrants issued to the holders
of the Series A Shares to induce such holders to convert such shares into Common
Stock; (iv) the Common Stock issued to the holders of the Series A Shares to
induce such holders to
26
<PAGE> 28
extend the Series A Mandatory Redemption Date from March 28 to April 12, 2000;
(v) the Common Stock issued or issuable to the holders of the Series C Shares to
induce such holders to extend the Series C Mandatory Redemption Date to December
26, 2000; (vi) the Common Stock issuable upon exercise of certain springing
warrants that the Company would be required to issue to the holders of the
Series C Preferred if the Series C Preferred is not redeemed on or before the
Series C Mandatory Redemption Date; (vii) any other securities issued or
issuable as a result of, or in connection with, any stock dividend, stock split
or reserve stock split, combination, recapitalization, merger or consolidation,
exchange or distribution in respect of the Common Stock referred to above. The
Company has also agreed to unlimited "piggyback rights" with respect to such
shares.
The shares of Common Stock issuable upon exercise of the warrants issued in
June 2000 to the holders of the Series B Preferred and Series C Preferred Shares
described above under "Financial Condition and Liquidity --Series B Mandatorily
Redeemable Convertible Preferred Stock and Series C Mandatorily Redeemable
Convertible Preferred Stock" will have the same registration rights as described
in the immediately preceding paragraph.
Pursuant to an agreement dated January 25, 2000, the Company granted
"piggyback" registration rights to Fontenelle LLC covering shares of Common
Stock issuable upon exercise of warrants issued to Fontenelle in connection with
a $500,000 principal amount bridge loan by Fontenelle to the Company.
The Company has issued Warrants to purchase an aggregate of 250,000 shares
of Common Stock to Steven L. Vanechanos, Michael Vanechanos, John Figliolini and
Internet PR Group. The Company is obligated to file a registration statement
covering the shares of Common Stock issuable upon exercise of such warrants. The
holders of such Warrants also have unlimited "piggyback" registration rights
with respect to such shares.
On January 28, 2000, in consideration of entering into the Coast Facility,
the Company issued to Coast a warrant (the "Coast Warrant") to purchase 300,000
shares of Common Stock. The Company has agreed to certain "piggyback"
registration rights with respect to the shares of Common Stock issuable upon
exercise of such warrant.
In connection with consulting services rendered to the Company, the Company
issued to Steven Antebi 850,000 warrants to purchase shares of Common Stock. The
Company has granted to Mr. Antebi the right to include the shares issuable upon
exercise of such warrants in any registered primary offering of Common Stock by
the Company.
The Company is party to a financial consulting services agreement (the
"Meyerson Agreement") dated as of June 1, 1999 with M.H. Meyerson ("Meyerson")
pursuant to which, among other things, the Company agreed to issue to Meyerson
warrants to purchase up to 250,000 shares of Common Stock. The Company
terminated the Meyerson Agreement in June 2000. Upon such termination, Meyerson
was entitled to retain 125,000 warrants that were vested as of the termination
date. Under the Meyerson Agreement, the Company agreed to register, by August
29, 1999, up to 125,000 shares of Common Stock issuable upon exercise of such
warrants. The Company has not yet filed a registration statement covering such
shares.
On October 14, 1999, the Company sold 120,000 shares of Common Stock to
Kreditbank S.A. Luxembourgeoise. The Company agreed to register these shares of
Common Stock no later than January 14, 2000. The Company has not yet filed a
registration statement covering these shares.
The Company was party to a financial consulting services agreement (the
"Equity Agreement"), dated as of June 1, 1999, with The Equity Group Inc.
("Equity") pursuant to which, among other things, the Company agreed to issue to
Equity warrants to purchase 40,000 shares of Common Stock. On November 12, 1999,
the Company, in accordance with the terms of the Equity Agreement, sent a notice
to Equity asserting the Company's right to early termination of the agreement.
In satisfaction of its obligations under the Equity Agreement, the Company has
agreed to allow Equity to retain 10,000 of the 40,000 warrants originally
issued. The Company has granted Equity certain "piggyback" registration rights
with regard to the retained warrants.
27
<PAGE> 29
The Company is party to a financial consulting services agreement (the
"Komorsky Agreement"), dated as of April 1, 2000, with Adolph Komorsky
Investments Ltd. ("Limited"). The Komorsky Agreement provides for a maximum
issuance by the Company to Komorsky of 500,000 shares of Common Stock (inclusive
of Common Stock issuable upon exercise of certain warrants). The Komorsky
Agreement provides for "demand registration rights."
The Company entered into a financial consulting services agreement (the
"Metropolitan Agreement"), dated as of March 1, 2000, with Metropolitan Capital
Partners ("Metropolitan"). The Metropolitan Agreement provides for a maximum
issuance of 325,000 shares of Common Stock (inclusive of Common Stock issuable
upon exercise of certain warrants). The Company and Metropolitan have agreed to
terminate the Metropolitan Agreement. and that Metropolitan will retain 75,000
shares of Common Stock already issued to Metropolitan under the Metropolitan
Agreement. These shares are entitled to registration rights.
On November 5th, 1999, the Company sold 42,000 shares of Common Stock to
Banque Diamantaire Anversoise (Suisse) S.A. The Company agreed to register such
shares no later than February 5, 2000. The Company has not yet filed a
registration statement covering such shares.
On or before September 15, 2000, the Company is obligated to file a
registration statement covering shares of Common Stock issuable upon conversion
of the New Series A Shares and upon exercise of the warrants issued to the
holder of such shares. Such shares are also entitled to "piggyback" registration
rights.
CREDIT FACILITY COVENANTS
In connection with the financing of the DSI acquisition, MOS and the
Company entered into the Coast Facility. The Company has guaranteed MOS'
obligations under the Coast Facility. Under the terms of the agreement with
Coast, the Company is required, among other things, to maintain a consolidated
net worth of not less than $9.0 million (defined as stockholders' equity and
subordinated debt) and excess borrowing availability of $750,000. If the Company
cannot satisfy these covenants, or other covenants under the Coast Facility, it
will be required to seek a waiver or amendment from Coast. Although Coast has
agreed to waivers and amendments in the past, there can be no assurance that
Coast will do so in the future. If MOS and the Company are in default of their
obligations to Coast, Coast would be entitled to accelerate the maturity of
outstanding indebtedness under the Coast Facility $13.4 million is outstanding
as of June 30, 2000 and to enforce its security interest in the Company's
assets.
PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECT
The Company's Certificate of Incorporation, as amended, authorizes the
board of directors (the "Board of Directors") to issue up to 10,000,000 shares
of preferred stock, par value $.001 per share. The preferred stock may be issued
in one or more series, the terms of which may be determined at the time of
issuance by the Board of Directors, without further action by stockholders, and
may include, among other things, voting rights (including the right to vote as a
series on particular matters), preferences as to dividends and liquidation,
conversion and redemption rights, and sinking fund provisions. After giving
effect to the conversion of the Series A Preferred into Common Stock and the
redemption and conversion of the Series B Preferred, there are two series of
preferred stock currently outstanding, which have a liquidation preference. In
addition, specific rights granted to future holders of preferred stock could be
used to restrict the Company's ability to merge with, or sell its assets to a
third party. The ability of the Board of Directors to issue preferred stock
could discourage, delay, or prevent a takeover of the Company, hereby preserving
control of the Company by the current stockholders.
DEPENDENCE ON KEY PERSONNEL
The Company's and MOS' success depends to a significant extent upon a
number of key employees and management. The loss of the services of key
employees could adversely affect our business, operating results or financial
condition.
28
<PAGE> 30
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT ISSUANCES OF UNREGISTERED SECURITIES TO CONSULTANTS:
On May 31, 2000 Symposium issued five-year warrants to purchase 75,000
shares of Common Stock at an exercise price of $2.00 per share to Charles Nelson
for financial public relations services and investment relations services
rendered to the Company. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering, because: (1) Mr. Nelson represented that he was an
accredited investor and was acquiring the securities for investment purposes;
and (2) the Company did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.
On May 31, 2000 Symposium issued five-year warrants to purchase 75,000
shares of Common Stock at an exercise price of $1.50 per share to Steve
Vanechanos for financial public relations services and investment relations
services rendered to the Company. The issuance and sale of these securities was
made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering, because: (1) Mr. Vanechanos represented that he
was an accredited investor and was acquiring the securities for investment
purposes; and (2) the Company did not engage in any general advertisement or
general solicitation in connection with the issuance of the securities.
On May 31, 2000 Symposium issued five-year warrants to purchase 21,000
shares of Common Stock at an exercise price of $1.50 per share to Michael
Vanechanos for financial public relations services and investment relations
services rendered to the Company. The issuance and sale of these securities was
made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering, because: (1) Mr. Vanechanos represented that he
was an accredited investor and was acquiring the securities for investment
purposes; and (2) the Company did not engage in any general advertisement or
general solicitation in connection with the issuance of the securities.
On May 31, 2000 Symposium issued five-year warrants to purchase 14,000
shares of Common Stock at an exercise price of $1.50 per share to John
Figliolini for financial public relations services and investment relations
services rendered to the Company. The issuance and sale of these securities was
made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering, because: (1) Mr. Figliolini represented that he
was an accredited investor and was acquiring the securities for investment
purposes; and (2) the Company did not engage in any general advertisement or
general solicitation in connection with the issuance of the securities.
On May 31, 2000 Symposium five-year warrants to purchase 125,000 shares of
Common Stock at an exercise price of $1.50 per share to Internet PR Group for
financial public relations services and investment relations services rendered
to the Company. The issuance and sale of these securities was made in reliance
on Section 4(2) of the Securities Act as a transaction not involving any public
offering, because: (1) Internet PR Group represented that it was an accredited
investor and was acquiring the securities for investment purposes; and (2) the
Company did not engage in any general advertisement or general solicitation in
connection with the issuance of the securities.
On June 13, 2000 Symposium issued five-year warrants to purchase 12,000
shares of Common Stock at an exercise price of $1.93 per share to Financial
Strategies for financial public relations services and investment relations
services rendered to the Company. The issuance and sale of these securities was
made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering, because: (1) Financial Strategies represented
that it was an accredited investor and was acquiring the securities for
investment purposes; and (2) the Company did not engage in any general
advertisement or general solicitation in connection with the issuance of the
securities.
29
<PAGE> 31
RECENT SALES OF UNREGISTERED SECURITIES IN CONNECTION WITH BORROWINGS:
On April 6, 2000, Symposium issued five-year warrants to purchase 100,000
shares of Common Stock at an exercise price of $1.50 per share to The Management
Group in connection with The Management Group financing. The issuance and sale
of these securities was made in reliance on Section 4(2) of the Securities Act
as a transaction not involving any public offering, because: (1) The Management
Group represented that it was an accredited investor and was acquiring the
securities for investment purposes; and (2) the Company did not engage in any
general advertisement or general solicitation in connection with the issuance of
the securities.
On June 20, 2000, Symposium issued 10,000 shares of Common Stock to
Hermitage Capital Corp. in connection with the issuance to Hermitage of a
$178,800 principal amount promissory note. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering, because: (1) Hermitage Capital
Corp. represented that it was an accredited investor and was acquiring the
securities for investment purposes; and (2) the Company did not engage in any
general advertisement or general solicitation in connection with the issuance of
the securities.
Other Recent Sales of Unregistered Securities:
As described in Part I, Item 2 above under the heading "Financial Condition
and Liquidity -- Series A Convertible Preferred Stock," on June 9, 2000, the
Company issued 30,375 shares of Series A Convertible Preferred Stock and
five-year warrants to purchase an aggregate of 225,000 shares of Common Stock at
$1.485 per share and on August 1, 2000, upon exercise of an option granted to
the purchaser of such New Series A Shares and warrants, the Company issued to
such purchase an additional 20,250 New Series A Shares and five-year warrants to
purchase an additional 150,000 shares of Common Stock at $1.485 per share. The
issuance and sale of all of these securities was made in reliance on Section
4(2) of the Securities Act as a transaction not involving any public offering,
because: (1) the purchaser represented that it was an accredited investor and
was acquiring the securities for investment purposes; and (2) the Company did
not engage in any general advertisement or general solicitation in connection
with the issuance of the securities.
As described in Part I, Item 2 above under the heading "Financial Condition
and Liquidity -- Series B Mandatorily Redeemable Convertible Preferred Stock,"
on June 16, 2000, the Company issued (x) to the holders of its Series B Shares
three-year warrants to purchase an aggregate of 122,800 shares of Common Stock
at $0.75 per share and three-year warrants to purchase an aggregate of 200,000
shares of Common Stock at $1.50 per share and (y) to D2 Co. LLP three-year
warrants to purchase 17,820 shares of Common Stock at $0.75 per share. The
Company also issued an aggregate of 610,333 shares of Common Stock upon
conversion of certain Series B Shares. The issuance and sale of all of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering, because: (1) each Series B
Preferred holder and D2 Co. LLP represented that it was an accredited investor
and was acquiring the securities for investment purposes; and (2) the Company
did not engage in any general advertisement or general solicitation in
connection with the issuance of the securities.
As described in Part I, Item 2 above under the heading "Financial Condition
and Liquidity -- Series C Mandatorily Redeemable Convertible Preferred Stock,"
on June 14, 2000, the Company issued 8,062.5 shares of Series C Preferred Stock,
268,750 shares of Common Stock and five-year warrants to purchase an aggregate
of 100,000 shares of Common Stock to certain existing holders of Series C
Shares. Also, on July 18, 2000, the Company agreed to issue an additional
1,523,750 shares of Common Stock, ratably, to the holders of the Series C
Preferred as well as an additional 1,500 shares of Series C Preferred and 50,000
shares of Common Stock to Capital Research Ltd. The issuance and sale of all of
these securities was, or will be, made in reliance on Section 4(2) of the
Securities Act as a transaction not involving any public offering, because: (1)
each such holder represented that it was an accredited investor and was
acquiring the securities for investment purposes; and (2) the Company did not
engage in any general advertisement or general solicitation in connection with
the issuance of the securities.
30
<PAGE> 32
Limitation on Rights of Common Stock
As a result of the issuance of the New Series A Preferred Shares, the
rights of the holders of the Company's Common stock were made subordinate to the
holders of the New Series A Preferred Shares with respect to distributions upon
the liquidation of the Company. Each shares of New Series A Preferred is
entitled to a liquidation preference of $100 plus any accrued and unpaid
dividends. In addition, the Company is not permitted to pay dividends on, or
purchase, redeem or otherwise acquire, Common Stock if all accrued and unpaid
dividends on the New Series A Preferred have not been paid or set apart for
payment.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Designation of Series A Convertible Preferred
Stock of Symposium Corporation (incorporated by reference to
Registrant's Report on Form 8-K filed with the Commission on
June 16, 2000).
10.1 Form of Common Stock Purchase Warrant to Purchase 225,000
shares of Symposium Corporation Common Stock issued to The
Shaar Fund, Ltd. (incorporated by reference to Registrant's
Report on Form 8-K filed with the Commission on June 16,
2000).
10.2 Registration Rights Agreement, dated as of June 9, 2000,
between Registrant and the holders of the New Series A
Shares (incorporated by reference to Registrant's Report on
Form 8-K filed with the Commission on June 16, 2000).
10.3 Form of Letter Agreement between the Company and the holders
of the Series B Convertible Preferred Stock, dated June 16,
2000 (incorporated by reference to Registrant's Report on
Form 8-K filed with the Commission on July 21, 2000).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
(b) Reports on Form 8-K
The Registrant filed a Report on Form 8-K on June 16, 2000, reporting
certain events under "Item 5 -- Other Events." No financial statements were
filed as part of such Report.
31
<PAGE> 33
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on behalf by the undersigned, thereto duly
authorized.
SYMPOSIUM CORPORATION
By: /s/ TIM S. LEDWICK
------------------------------------
Tim S. Ledwick
Chief Financial Officer
Date: August 10, 2000
32
