<PAGE> 1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 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 NINE MONTHS ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER 0-25435
SYMPOSIUM CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-4042921
(STATE OF INCORPORATION) (IRS. 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 November 1, 2000 are as follows:
<TABLE>
<CAPTION>
SHARES
CLASS OF SECURITIES OUTSTANDING
------------------- -----------
<S> <C>
Common Stock, $.001 par value............................... 27,844,520
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
SYMPOSIUM CORPORATION
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)............................ 2
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............................. 30
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......................................... 31
B) Reports Filed on Form 8-K................................ 31
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>
SEPTEMBER 30, 2000
------------------
(UNAUDITED)
<S> <C>
ASSETS:
Current assets
Cash and cash equivalents................................. $ 2,799,678
Trade accounts receivable, net of collection and
cancellation reserve of $24,341,715.................... 28,353,553
Other accounts receivable................................. 2,971,342
Prepaid expenses.......................................... 831,043
Deferred expense.......................................... 2,100,228
------------
Total current assets.............................. 37,055,844
------------
Equipment (at cost, less accumulated depreciation)........ 543,042
Deferred financing costs.................................. 860,222
Goodwill and other intangible assets...................... 5,428,125
Other assets.............................................. 161,188
------------
$ 44,048,421
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities
Revolving credit facility................................. $ 12,490,176
Notes payable............................................. 228,800
Accounts payable and accrued expenses..................... 4,169,142
Accrued closing costs..................................... 1,600,000
Amounts due to publishers................................. 6,605,307
Deferred revenue.......................................... 2,955,930
------------
Total current liabilities......................... 28,049,355
------------
Commitments and contingencies
Mandatorily redeemable preferred stock, par value $.001
per share; authorized 10,000,000 shares; 62,455
outstanding at September 30, 2000...................... 5,492,564
Stockholders' Equity
Convertible preferred stock, $5,062,500 liquidation value;
authorized; 50,625 shares issued and outstanding....... 3,303,951
Common stock, par value $.001 per share; authorized,
100,000,000 shares; 27,844,520 issued and
outstanding............................................ 27,845
Additional paid in capital................................ 56,893,496
Note receivable -- common stock........................... (2,497,500)
Accumulated deficit....................................... (47,221,290)
------------
Total stockholders' equity........................ 10,506,502
------------
$ 44,048,421
============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
SYMPOSIUM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues, net........................ $16,768,037 $ -- $ 46,821,217 $ --
Direct costs and expenses
Commission expense................. 8,730,979 -- 22,743,329 --
Magazine costs..................... 1,884,989 -- 4,851,975 --
Other direct costs................. 2,621,947 -- 7,400,662 --
----------- ----------- ------------ -----------
13,237,915 -- 34,995,966 --
Gross profit....................... 3,530,122 -- 11,825,251 --
Salaries and benefits.............. 1,136,081 250,404 2,827,167 416,429
Consulting expenses................ 559,855 3,374,034 2,852,871 3,861,385
Other operating expenses........... 1,216,937 499,932 2,740,618 1,044,300
Amortization of goodwill and other
intangible assets............... 145,396 -- 387,723 25,110
----------- ----------- ------------ -----------
Total expenses............. 3,058,269 4,124,370 8,808,379 5,347,224
----------- ----------- ------------ -----------
(Loss) from operations............... 471,853 (4,124,370) 3,016,872 (5,347,224)
Other income, (expense)
Interest expense................... (841,761) -- (3,711,102) --
Other income....................... 268,611 66,313 419,107 100,704
----------- ----------- ------------ -----------
(573,150) 66,313 (3,291,995) 100,704
(Loss) before income taxes........... (101,297) (4,058,057) (275,123) (5,246,520)
Provision for income taxes........... 92,898 -- 384,850 --
----------- ----------- ------------ -----------
Net (loss)........................... (194,195) (4,058,057) (659,973) (5,246,520)
Preferred dividends.................. (4,865,455) -- (36,731,915) --
----------- ----------- ------------ -----------
Net loss to common stockholders...... $(5,059,650) $(4,058,057) $(37,391,888) $(5,246,520)
=========== =========== ============ ===========
Basic and diluted net loss per
share.............................. $ (0.18) $ (0.31) $ (1.64) $ (0.51)
=========== =========== ============ ===========
Weighted -- average shares of common
stock outstanding -- basic and
diluted............................ 27,441,177 12,932,687 22,784,179 10,347,741
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 5
SYMPOSIUM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2000 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from operations................................ $ (659,973) $(5,246,520)
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.................................... 2,534,810 3,561,400
Non cash interest expense................................. 2,210,392 --
Depreciation and amortization............................. 770,458 28,262
Net change in asset and liability accounts:
Accounts receivable.................................... (3,057,885) --
Prepaid expenses....................................... (45,727) (30,827)
Accounts payable and other accrued expenses............ (2,709,794) 263,149
Other, net............................................. 2,772,840 38,343
------------ -----------
Net cash provided by (used in) operating activities....... 1,815,121 (1,386,193)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment..................................... (350,150) (35,749)
Proceeds from sale of equipment........................... -- 3,500
Acquisition of DSI, net of cash on hand at closing date... (23,560,190)
Deferred acquisition costs................................ -- (927,595)
------------ -----------
Net cash used in investing activities..................... (23,910,340) (959,844)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of preferred stock.................... 12,724,250 --
Proceeds from sales of common stock....................... -- 2,388,480
Payments received on note receivable for stock............ 2,500 --
Proceeds from acquisition short-term notes................ 1,350,000 --
Repayment of short-term notes............................. (1,000,000) --
Repayment of mandatory redeemable preferred stock......... (535,000) --
Net funds drawn on revolver for DSI Acquisition........... 15,775,000 --
Net repayments of Revolving Credit Agreement.............. (3,509,824) --
Preferred dividends paid.................................. (59,644) --
Deferred financing costs.................................. (190,000) --
------------ -----------
Net cash provided by financing activities................. 24,557,282 2,388,480
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 2,462,063 42,443
Cash and cash equivalents at beginning of period.......... 337,615 276,243
------------ -----------
Cash and cash equivalents at end of period................ $ 2,799,678 $ 318,686
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid during the period....................... $ 858,000 $ --
============ ===========
Interest paid during the period........................... $ 1,500,710 $ --
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 6
SYMPOSIUM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<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
Common stock issued with
preferred stock........ 2,461,817 2,462 1,878,703 -- -- -- 1,881,165
Common stock issued for
preferred stock
extensions and
conversions............ 9,224,233 9,224 17,660,202 -- -- (17,669,426) --
Warrants issued with
preferred stock........ -- -- 3,056,621 -- -- -- 3,056,621
Warrants issued for
preferred stock
extensions and
conversions............ -- -- 4,374,932 -- -- (4,374,932) --
Accretion of mandatorily
redeemable preferred
stock.................. -- -- -- -- -- (3,695,951) (3,695,951)
Deemed dividends relating
to intrinsic value and
accretion.............. -- -- 9,613,246 -- -- (9,613,246) --
Contractual dividends.... -- -- -- -- -- (576,250) (576,250)
Conversion of preferred
stock.................. 610,333 611 866,545 -- -- 867,156
Issuance of New Series A
Preferred.............. -- -- 1,054,409 3,303,951 -- (802,110) 3,556,250
Common stock issued with
debt................... 75,000 75 99,925 -- -- -- 100,000
Common issued in
connection with default
and conversion of
debt................... 741,548 742 1,397,576 -- -- -- 1,398,318
Warrants issued to
acquisition, bridge and
short-term note holders
Concurrent with
issuance............. -- -- -- -- -- -- --
Post issuance.......... -- -- 1,508,283 -- -- -- 1,508,283
Common stock issued for
consulting services.... 655,275 655 1,358,300 -- -- -- 1,358,955
Options and warrants for
consulting services.... -- -- 1,176,510 -- -- -- 1,176,510
Repayment of note
receivable for stock... -- -- -- -- 2,500 2,500
Adjustment of shares
issued in previous
period................. 33,100 33 (33) -- -- -- --
Net loss for the period
ended.................. -- -- -- -- -- (659,973) (659,973)
---------- ------- ----------- ---------- ----------- ------------ -----------
BALANCE AT SEPTEMBER 30,
2000................... 27,844,520 $27,845 $56,893,496 $3,303,951 $(2,497,500) $(47,221,290) $10,506,502
========== ======= =========== ========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 7
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended September 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 via 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.
Reclassification: Certain amounts in prior 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 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 NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
2000 1999
-------- --------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Total revenues
As reported............................................ $46,821 $ --
Pro forma.............................................. 51,862 42,987
(Loss) from continuing operations
As reported............................................ $ (660) $(5,246)
Pro forma.............................................. (307) (3,270)
Basic and diluted (loss) per share
As reported............................................ $ (1.64) $ (0.51)
Pro forma.............................................. (0.11) (0.38)
</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 maintain certain minimum
7
<PAGE> 9
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 September 30, 2000 MOS had an outstanding balance on the credit facility
of approximately $12.5 million compared to total availability of $18.2 million
resulting in $5.7 million of funds available to MOS at September 30, 2000.
In connection with the execution and delivery of the credit facility, the
Company initially granted Coast 300,000 five-year common stock purchase warrants
at an exercise price of $3.53 per share (110% of the closing price of the Common
Stock on the closing date). As a result of the anti-dilution provisions, the
exercise price has been reduced to $2.42 per share and the number of shares has
been increased to 439,213 as of September 30, 2000. Accordingly, the Company
recorded a non-cash interest charge of approximately $250,000 in the third
quarter. The fair value of such warrants was estimated using the Black--Scholes
Option Pricing Formula.
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 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. The face amount and
liquidation value of the New Series A Shares is $5,062,500.
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
8
<PAGE> 10
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 is 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 is 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").
9
<PAGE> 11
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 certain
placements agents (who received commissions consisting of three-year warrants to
purchase a total of 58,163 shares of Common Stock (the "Commission Warrants") in
connection with the Series B financing) a total of 17,820 three-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 $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 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 December 26, 2000.
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 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 issued has been recognized during the third quarter as an additional
deemed dividend in the amount of $3,171,700.
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.
10
<PAGE> 12
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The New Series C Shares have a stated value of $100 per share and accrue
dividends at a rate of 10% per annum, payable December 26, 2000 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 would have triggered 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 value of the shares issued has been
recognized during the third quarter as an additional deemed dividend in the
amount of $3,171,700.
NOTE G -- PREFERRED STOCK ACCOUNTING
The following table summarizes (i) the allocation of the proceeds from the
issuances of the preferred stock with common stock and common stock purchase
warrants and (ii) the preferred stock dividends and reduction in retained
earnings resulting from the beneficial conversion feature and from contractual
changes in conversion prices in the event of a default:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C NEW SERIES C
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Mandatory redemption amount............ $ 2,150,000 $1,535,000 $ 5,439,200 $ 806,250
=========== ========== =========== =========
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 nine months ended September 30, 2000.
<TABLE>
<CAPTION>
SERIES A NEW SERIES A SERIES B SERIES C NEW SERIES C TOTAL
----------- ------------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Deemed dividends at
issuance............ $ 1,290,000 $802,110 $ 921,000 $ 2,401,352 $372,844 $ 5,787,306
Deemed dividends
accreted/conversion... 15,074,455 -- 911,441 14,142,423 240,040 30,368,359
Contractual
dividends........... -- 123,350 69,524 359,519 23,857 576,250
----------- -------- ---------- ----------- -------- -----------
Totals...... $16,364,455 $925,460 $1,901,965 $16,903,294 $636,741 $36,731,915
=========== ======== ========== =========== ======== ===========
</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 convertible
into
11
<PAGE> 13
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (iii) and
(iv) 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 Common Stock for each
day the note remained in default. As a result of the above, Commtel received an
aggregate of 816,548 shares 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 DSI. The
12
<PAGE> 14
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D2 Loan was repayable with interest at 10% per annum on July 26, 2000. 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. The Company repaid
$100,000 of the note with interest of approximately $3,000 on September 1, 2000.
The balance of the note is due 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 anti-dilutive. 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 3.9
million and 10.3 million outstanding options and warrants for the nine months
ended September 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 nine months ended September 30, 2000, the
Company recorded approximately $0.1 million and $0.4 million, respectively, as
provisions for income taxes reflecting state tax liabilities resulting from the
MOS operations.
NOTE L -- COMMON STOCK
At September 30, 2000, the Company is authorized to issue 100,000,000
shares of Common Stock, $.001 par value and 10,000,000 shares of preferred
stock, $.001 par value. As of September 30, 2000 there were 27,844,520 shares of
Common Stock outstanding and the Company had reserved 3,613,000 shares of Common
Stock for issuance under the Company's stock option plan.
13
<PAGE> 15
SYMPOSIUM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- CONSULTING EXPENSES
The Company recorded consulting expenses totaling $2.9 million for the
nine-month period ended September 30, 2000. Included in these charges are
approximately $0.6 million of non-cash charges reflecting the estimated fair
value of warrants granted to purchase 1,022,000 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 $1.4 million of the
consulting costs incurred reflects the fair value of 585,000 shares of the
Company's common stock issued for professional services rendered during the
nine-month period ending September 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.
NOTE O -- OTHER
On August 31, 2000, Symposium entered into an agreement to acquire National
Syndications, Inc. ("NSI"), a fully integrated direct marketer of consumer
products and party to service advertising contracts that makes it the largest
print advertiser in Sunday newspaper based magazines. Under the Purchase
Agreement, the Company will pay approximately $13.0 million in cash, Common
Stock of the Company of approximately $3.0 million and future earnout payments
based on NSI's earnings in calendar years 2000 through 2002 of up to an
additional $3.1 million. The parties expect the transaction to close on or
before January 10, 2001. The Company expects to finance the cash portion of the
purchase price with a new senior credit facility. There can be no assurance that
the Company will be able to obtain the necessary financing to complete the
acquisition.
14
<PAGE> 16
PART I -- FINANCIAL INFORMATION
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 three month and nine month periods ended September 30, 2000
and 1999.
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 after signing an agreement to purchase the
assets of Direct Sales International LP ("DSI") (see "DSI Acquisition" below).
Symposium's strategy is to integrate its well established direct marketing
skills with new technologies, including e-mail marketing, web-based systems and
interactive voice response, resulting in a multi-dimensional marketing platform
for the sale of products and services. The Company seeks to achieve revenue
growth and earnings by cross marketing products and services in multiple
channels to Symposium's expanding customer base utilizing state-of-the-art
direct marketing strategies. Through voice-driven customer acquisition programs
at Media Outsourcing, Inc. (see "DSI Acquisition" below), the Company's
principal operating business, Symposium contacts and retains critical data on
more than eleven million consumers annually. Using highly refined incentive
programs, the Company hopes to attract large numbers of its customers to the
Symposium Marketplace, its newly launched on-line discount buying club developed
for Symposium by Cendant Corporation. The Company is also continuing to exploit
its expansive database in other technology-driven marketing channels
facilitating additional e-commerce transactions. There can be no assurance,
however, that the Company will be able to successfully execute its strategy.
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 United States 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
preferred stock and convertible debentures. (See "MD&A -- Financial Condition
and Liquidity" for a further description of such financing).
NSI Acquisition
On August 31, 2000, Symposium entered into an agreement to acquire National
Syndications, Inc. ("NSI"), a fully integrated direct marketer of consumer
products and party to service advertising contracts
15
<PAGE> 17
that makes it the largest print advertiser in Sunday newspaper based magazines.
Under the Purchase Agreement, the Company will pay approximately $13.0 million
in cash, Common Stock of the Company of approximately $3.0 million and future
earnout payments based on NSI's earnings in calendar years 2000 through 2002 of
up to an additional $3.1 million. The parties expect the transaction to close on
or before January 10, 2001. The Company expects to finance the cash portion of
the purchase price with a new senior credit facility. There can be no assurance
that the Company will be able to obtain the necessary financing to complete the
acquisition.
RESULTS OF OPERATIONS
Results of Operations -- for the three months ended September 30, 2000 and
September 30, 1999
Revenues: During the three months ended September 30, 2000, the Company
recorded revenues totaling $16.8 million. These revenues were derived primarily
from the sales of magazine contracts at MOS totaling approximately $16.0 million
and commission revenues from sales of memberships in a third party discount-
buying club of $0.8 million. In the third quarter, the Company increased its
cancellation reserve for its contracts due over a 20 month period resulting in a
charge of approximately $800,000 reflected as a reduction of revenues from the
sale of magazines. These contracts represented approximately 11% of all
contracts written as well as 11% of the trade accounts receivable, net as of and
for the period ended September 30, 2000. There were no additional reserves
required on the Company's contracts due over a 12 month period. There were no
revenues in the comparable period in 1999.
Commission Expense: The Company recognized approximately $8.7 million in
commission costs reflecting payments made to brokers on MOS magazine sales.
Magazine Costs: The Company incurred approximately $1.9 million of magazine
costs resulting from MOS magazine sales.
Other Direct Costs: For the three months ended September 30, 2000, the
Company recorded $2.6 million of other direct costs related to the magazine
sales at MOS. Other direct costs consisted primarily of wages of approximately
$1.2 million, bank charges related to the processing of payments received by
credit cards of approximately $0.4 million and other costs of approximately $1.0
million.
Salaries and Benefits: Salary and benefits increased $0.9 million to $1.1
million for the three months ended September 30, 2000 from $0.2 million for the
same period in 1999. This increase reflects salary expense of approximately $0.6
million related to MOS and approximately $0.3 million of increased cost related
to increased staff at Symposium Corporation (parent company).
Consulting Expenses: Consulting expenses decreased $2.8 million to $0.6
million for the three months ended September 30, 2000 from $3.4 million for the
three months ended September 30, 1999. Included in consulting expenses for the
three months ended September 30, 2000 are approximately $0.1 million of non-
cash charges reflecting the estimated fair value of five-year warrants granted
to purchase 100,000 shares of common stock at exercise prices ranging between
$1.43 to $2.50 per share. Consulting expenses in 1999 included $2.6 million of
non-cash charges reflecting the estimated fair value of warrants granted to
purchase 860,000 shares of Common Stock at exercise prices ranging from $5.00 to
$7.00 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 $0.7
million to $1.2 million for the three months ended September 30, 2000 from $0.5
million for the three months ended September 30, 1999. This increase was
primarily as a result of approximately $0.4 million of other operating costs at
MOS that were incurred during the three months ended September 30, 2000.
Amortization of Goodwill: During the three months ended September 30, 2000,
the Company recorded $0.1 million 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.
16
<PAGE> 18
Interest Expense: The Company recorded interest expense for the three
months ended September 30, 2000 totaling $0.8 million primarily consisting of
$0.3 million of non-cash interest related to the fair value of warrants issued
in connection with the extension of a term loan agreement and the repricing of
warrants issued pursuant to the Coast Business Credit Financing Facility and
approximately $0.5 million related to amortization of deferred financing fees
and interest on the Coast Business Credit Financing Facility. See "Financial
Condition and Liquidity" below.
Other Income: Other income increased $0.2 million to $0.3 million for the
three months ended September 30, 2000 from $0.1 million for the three months
ended September 30, 1999. Included in the other income for the first nine months
of 2000 are approximately $0.2 million of fees earned from the sale of third-
party long distance telephone service and interest income and other fee income
of approximately $0.1 million. Other income for the first nine months in 1999
represented interest income earned on the Company's overnight investments.
Income Taxes: For the three months ended September 30, 2000, the Company
recorded a $0.1 million 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 three months ended September 30, 2000, the
Company recorded $4.9 million of dividends including $4.6 million of non-cash
deemed dividends and contractual dividends of approximately $0.3 million
recorded in connection with the Series 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
and Common Stock purchase warrants, and dividends received in connection with
the adjustment of the default conversion price 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 September 30, 2000 was $5.1 million, or $0.18 per share,
compared to a loss of $4.1 million, or $0.31 per share, for the three months
ended September 30, 1999. The increase in the net loss to common shareholders
for the three months ended September 30, 2000 reflects preferred stock dividends
recorded during the period and increased interest charges related to the
financing of the DSI acquisition, partially offset by lower consulting expenses
and the contribution of earnings from MOS.
Results of Operations -- for the nine months ended September 30, 2000 and
September 30, 1999
Revenues: During the nine months ended September 30, 2000, the Company
recorded revenues totaling $46.8 million. These revenues were derived primarily
from the sales of magazine contracts at MOS from January 28, 2000, the date of
the DSI acquisition, totaling approximately $44.5 million and commission
revenues from sales of memberships in a third party discount-buying club of $2.3
million. There were no revenues in the comparable period in 1999.
Commission Expense: The Company recognized approximately $22.7 million in
commission costs reflecting payments made to brokers on MOS magazine sales from
January 28, 2000 through September 30, 2000.
Magazine Costs: The Company incurred approximately $4.9 million of magazine
costs resulting from the MOS magazine sales from January 28, 2000 through
September 30, 2000.
Other Direct Costs: For the nine months ended September 30, 2000, the
Company recorded $7.4 million of other direct costs related to the magazine
sales at MOS. Other direct costs primarily consisted of wages of approximately
$3.3 million, bank charges related to the processing of payments received by
credit cards of approximately $1.0 million and other costs of approximately $3.1
million.
17
<PAGE> 19
Salaries and Benefits: Salary and benefits increased $2.4 million to $2.8
million for the nine months ended September 30, 2000 from $0.4 million for the
same period in 1999. This increase reflects increased salary expense of
approximately $1.6 million related to MOS and approximately $0.8 million of
higher costs related to increased staff at Symposium Corporation (parent
company).
Consulting Expenses: Consulting expenses decreased $1.0 million to $2.9
million for the nine months ended September 30, 2000 from $3.9 million for the
nine months ended September 30, 1999. Included in consulting expenses for the
first nine months of 2000, are approximately $0.6 million of non-cash charges
reflecting the estimated fair value of warrants granted to purchase 1,022,000
shares of common stock at exercise prices ranging between $1.00 to $4.00 per
share with terms ranging between two and five years. Additionally, $1.4 million
of the consulting expenses incurred reflect the fair value of 585,000 shares of
the Company's common stock issued for professional services rendered during the
nine-month period ending September 30, 2000. Consulting expenses in 1999
included $2.6 million of non-cash charges reflecting the estimated fair value of
warrants granted to purchase 860,000 shares of Common Stock at exercise prices
ranging from $5.00 to $7.00 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 $1.7
million to $2.7 million for the nine months ended September 30, 2000 from $1.0
for the nine months ended September 30, 1999. This increase was primarily as a
result of $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 $1.1 million of other operating costs at MOS that were incurred
during the first nine months of 2000, offset by costs related to its former UK
based office during the nine months ended September 30, 1999. The fair value of
the director's options was estimated using the Black-Scholes Option Pricing
Formula.
Amortization of Goodwill: During the nine months of 2000, the Company
recorded $0.4 million 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 $3.7
million primarily consisting of $2.2 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 financings and
approximately $1.5 million related amortization of deferred financing fees and
interest on the Coast Business Credit Financing Facility.
Other Income: Other income increased $0.3 million to $0.4 million for the
nine months ended September 30, 2000 from $0.1 million for the nine months ended
September 30, 1999. Included in the other income for the first nine months of
2000 are approximately $0.2 million of fees earned from the sale of third-party
long distance telephone service and interest income and other fee income of
approximately $0.2 million. Other income for the first nine months in 1999
represented interest income earned on the Company's overnight investments.
Income Taxes: For the nine months ended September 30, 2000, the Company
recorded a $0.4 million provision for income taxes reflecting a state tax
liability resulting from the MOS operations. No provision was recorded for
federal income taxes as the Company 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 nine months ended September 30, 2000, the
Company recorded $36.7 million of dividends including $36.1 million of non-cash
deemed dividends and contractual dividends of approximately $0.6 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 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 and dividends
18
<PAGE> 20
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 and adjustment of the default conversion price of the Series C
Preferred.
Net Loss and Net Loss per Share: The net loss to common stockholders for
the nine months ended September 30, 2000 was $37.4 million, or $1.64 per share,
compared to a loss of $5.2 million, or $0.51 per share for the nine months ended
September 30, 1999. The increase in the net loss to common shareholders for the
first nine months of 2000 reflects (1) the impact of the $36.7 million of
preferred stock dividends recorded during the period, (2) increased interest
charges related to the acquisition financings, offset by (3) increased
consulting costs primarily related to issuances of warrants and shares of the
Company's stock, and (4) MOS's earnings from January 28, 2000 through September
30, 2000.
FINANCIAL CONDITION AND LIQUIDITY
At September 30, 2000, the Company had cash on hand of $2.8 million. For
the nine months ended September 30, 2000 the Company generated $1.8 million from
operations and $24.6 million from financing activities and used $23.9 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 any 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 cash flow
from operations at MOS and the amount available under the terms of the revolving
credit facility are currently sufficient to meet the Company's day-to-day
operating requirements, such cash flow would not be sufficient to retire the
outstanding preferred stock and meet certain other commitments including short
term notes and other obligations nor would such cash flow be sufficient enough
to complete any additional acquisitions in furtherance of the Company's overall
strategy. Consequently, the Company is currently in negotiations to raise
additional financing to meet its short-term obligations, to provide for
additional working capital and to finance the cash portion of the NSI
acquisition.
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 mandatorily redeemable convertible securities that are
outstanding as of December 26, 2000 (see below) then the Company, would be
required to issue a number of warrants to purchase a significant amount 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
loan made during 1999. Mr. Prochnow (the Seller of DSI) 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 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.
19
<PAGE> 21
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 is for 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 initially granted Coast 300,000 five-year warrants to purchase the
Company's Common Stock at an exercise price of $3.53 per share (110% of the
closing price of the Common Stock on the closing date). As a result of
anti-dilution adjustments, the exercise price of the Coast warrants has been
reduced to $2.42 per share and the number of shares issuable on exercise has
been increased to 439,213 as of September 30, 2000. Accordingly, the Company
recorded a non-cash interest charge of approximately $250,000 in the third
quarter representing the fair value of the increase in the number of warrants
and the decrease in the exercise price. 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.
As of September 30, 2000 MOS had an outstanding balance on the Coast
facility of approximately $12.5 million compared to total availability of $18.2
million resulting in $5.7 million of funds available to MOS at September 30,
2000.
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 and
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. The face amount and
liquidation value of the New Series A Shares is $5,062,500.
Dividends accrue on the New Series A Shares at a 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
20
<PAGE> 22
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 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 would not be convertible 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 would not be convertible 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 create a substantial risk of dilution to the holders of the Company's
Common Stock.
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
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
21
<PAGE> 23
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
share 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 $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 amounts 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
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 is initially convertible into shares of Common Stock at $2.00
per share and is entitled to a 10% cumulative dividend, payable December 26,
2000 in cash or shares of Common Stock (at the option of the Company). In
connection with the issuance and sale of the Series C Preferred (the "Series C
Shares"), the Company also issued to the holders of the Series C Shares
1,763,067 shares of Common Stock. Additionally, the Company reduced the exercise
price on 2,000,000 warrants previously issued to a holder of Series C Preferred
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 extended 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 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 Series C Shares by the
Mandatory Redemption Date, the Company must issue 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 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.
22
<PAGE> 24
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
per share. 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 New Series C Shares and Series C Shares on or
before the Mandatory Redemption Date. The value of the shares issued has been
recognized during the third quarter as an additional deemed dividend in the
amount of $3,171,700.
Acquisition Bridge 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 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 common shares 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 loan 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 did not
pay the D2 Loan by July 26, 2000, the conversion price would have been reduced
to
23
<PAGE> 25
$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. In 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 acquisition of DSI, the Company and Mr. Prochnow entered into a certain
registration rights agreement, dated January 28, 2000 whereby, at any time
between January 15, 2001 and March 15, 2001, Mr. Prochnow may, by delivery of
written notice to the Company, require the Company to purchase from Mr. Prochnow
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 borrowed $250,000
from The Management Group. The loan accrued interest at 10% per annum,
compounded daily, and matured on July 31, 2000. In connection with the loan, 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 Capital 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 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 Company repaid $100,000 of the note with interest
of approximately $3,000 on September 1, 2000. The balance of the note is due on
or before December 1, 2000. The Company also issued 10,000 shares of its 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 shares of New Series C Shares and
Series C Preferred, which are redeemable on December 26, 2000, and to pay the
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 to timely obtain such financing
could prevent the Company from continuing its
24
<PAGE> 26
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 to timely redeem the New Series C Shares and Series C
Preferred will trigger certain requirements under their respective Certificates
of Designation 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.
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 September 30,
2000. As a result, these stockholders possess
25
<PAGE> 27
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 November 1, 2000, there were 27,844,520 issued and outstanding shares
of Common Stock and the Company was required to reserve approximately an
additional 45.1 million 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
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
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 New 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 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 Unit
consisting of (i) 25,000 shares of its Common Stock and (ii) 25,000 warrants
(the "Warrants"), each warrant representing the right 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 this offering, the Company
agreed to register, as promptly as practicable following June 16, 1999 (the date
the Company's Common Stock was registered under Section 12 of the Securities
Exchange Act of 1934, as amended) 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, Symposium entered into a Registration Rights Agreement
with Richard Prochnow, which also requires the Company to register 1,000,000 of
the shares owned by Mr. Prochnow 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.
On March 21, 2000 Symposium entered into a Settlement Agreement regarding
the Commtel Note which provides that Symposium issue 816,548 shares of Symposium
Common Stock to Commtel as full
26
<PAGE> 28
performance of Symposium's obligations under the Commtel Note. The Settlement
Agreement grants Commtel piggyback registration rights with respect to these
shares should Symposium effect the registration of any shares of Common Stock.
In connection with the issuance of the Series A, B and C Mandatory
Returnable 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 used 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 Series B Shares;
(iii) the Common Stock issuable upon exercise of warrants issued to 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 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; and (vii) any
other securities issued or issuable as a result of, or in connection with, any
stock dividend, stock split or reverse 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
"piggy back 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 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 439,213
shares of Common Stock issuable upon exercise of such warrant. The Company has
agreed to certain "piggyback" registration rights with respect to the shares of
Common Stock issuable upon exercise of such warrants.
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 the 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.
27
<PAGE> 29
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.
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 the Common Stock already issued to Metropolitan under the Metropolitan
Agreement. These shares are entitled to registration rights.
On November 5, 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.
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. The Company and
the holder of the New Series A Shares have agreed in principle that a
registration statement will be filed on or about December 1, 2000. 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, $12.5 million outstanding as
of September 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
28
<PAGE> 30
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 the business, operating results or financial
condition.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT ISSUANCES OF UNREGISTERED SECURITIES TO PROFESSIONALS:
On June 1 and September 1, 2000 Symposium issued five-year warrants to
purchase 50,000 shares of Common Stock to Capital Research Ltd. for consulting
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) Capital Research Ltd. 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 August 3, 2000 Symposium issued five-year warrants to purchase 125,000
shares of Common Stock to Executive Management Services in connection with the
termination of an agreement for consulting services. 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) Executive Management
Services 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 September 11, 2000 Symposium issued 120,275 shares of Common Stock to
Kramer Levin Naftalis & Frankel LLP for legal 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) Kramer Levin Naftalis & Frankel 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.
RECENT SALES OF UNREGISTERED SECURITIES IN CONNECTION WITH BORROWINGS:
On July 31, 2000 Symposium issued five-year warrants to purchase 80,000
shares of Common Stock at an exercise price of $2.00 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.
29
<PAGE> 31
OTHER RECENT SALES OF REGISTERED SECURITIES:
As described in Part I, Item 2 above under the heading "Financial Condition
and Liquidity -- Series A Convertible Preferred Stock," on August 1, 2000, the
Company issued 20,250 shares of Series A Preferred and five-year warrants to
purchase an additional 150,000 shares of Common Stock at $1.485 per share. 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 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 C Mandatorily Redeemable Convertible Preferred Stock,"
on July 18, 2000, the Company issued 1,523,750 shares of Common Stock ratably,
to the holders of 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 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 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.
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 share 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
(a) The Company's Annual Meeting of Stockholders was held on September 15,
2000.
(b) At the annual meeting the shareholders elected the following directors:
Ronald Altbach, Richard Kaufman, Richard Cohen, Bruce Dorskind, Ken
Lambert.
(c) There were three matters voted on at the Meeting. A brief description
of each of these matters, and the results of the votes thereon, are as
follows:
1. Election of Directors
<TABLE>
<CAPTION>
NOMINEE WITH WITHOUT
------- ---------- -------
<S> <C> <C>
Ronald Altbach................................. 21,858,216 4,388
Richard Kaufman................................ 21,858,216 6,388
Richard Cohen.................................. 21,858,216 4,388
Bruce Dorskind................................. 21,858,216 4,388
Ken Lambert.................................... 21,858,216 4,388
</TABLE>
2. Charter Amendment increasing capital stock from 85,000,000 to
110,000,000.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NONVOTES
---------- ------- ------- --------
<S> <C> <C> <C>
21,509,564 2,200 -0- 350,790
</TABLE>
30
<PAGE> 32
3. Stock Option plan amendment to increase the number of shares of
Common Stock available for issuance under the Option Plan from
2,500,000 shares to 6,500,000 shares and to limit the number of
shares with respect to which options may be granted in a year to any
optionee to 2,000,000 shares.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NONVOTES
---------- ------- ------- ---------
<S> <C> <C> <C>
18,779,135 9,200 -0- 3,074,218
</TABLE>
(d) Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
3.1 Certificate of Amendment to Amended and Restated Certificate
of Incorporation of Symposium Corporation, filed with the
Secretary of State of Delaware on October 11, 2000.
4.1 Corrected Certificate of Designation of Series A Convertible
Preferred Stock of Symposium Corporation filed with the
Secretary of State of Delaware on August 1, 2000.
4.2 Form of Revised Common Stock Purchase Warrant to Purchase
225,000 shares of Symposium Corporation Common Stock issued
to The Shaar Fund, Ltd., dated June 9, 2000.
4.3 Form of Common Stock Purchase Warrant to Purchase 150,000
shares of Symposium Corporation Common Stock issued to The
Shaar Fund, Ltd., dated August 1, 2000.
10.1 Employment Agreement between the Company and Richard
Kaufman, dated as of May 1, 2000.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
On July 21, 2000, the Company filed an Item 5 current report on Form 8-K.
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/ Ronald Altbach
------------------------------------
Ronald Altbach
Chairman and Chief Executive Officer
Date: November 14, 2000
By: /s/ Tim S. Ledwick
------------------------------------
Tim S. Ledwick
Chief Financial Officer
Date: November 14, 2000
32
