<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER 0-25435
---------------------
SYMPOSIUM CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-402921
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
410 PARK AVENUE, SUITE 830
NEW YORK, NEW YORK 10022
(212) 754-9901
(Address of principal executive offices, including zip code, and telephone
number, 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 of 1934 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 [ ]
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes [X] No [ ]
As of May 5, 2000 the issuer had 23,014,345 of shares of Common Stock,
par value $0.001 per share, outstanding.
<PAGE> 2
SYMPOSIUM CORPORATION
FORM 10-QSB
March 31, 2000
C O N T E N T S
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets March 31, 2000 (unaudited)
and December 31, 1999
Consolidated Statements of Income (unaudited) for the three
months ended March 31, 2000 and March 31, 1999
Consolidated Statements of Stockholders' Equity (unaudited)
for the three Months ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 2000 and March 31, 1999
Notes to consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SYMPOSIUM CORPORATION AND SUBSIDIARY
Condensed Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------
<S> <C>
Assets:
Current assets
Cash and cash equivalents $ 364,519
Trade accounts receivable, net of collection and
cancellation reserve of $21,059,269 28,266,829
Other accounts receivable 1,699,184
Prepaid expenses 545,242
Deferred expense 1,484,621
-----------------
Total current assets 32,360,395
-----------------
Equipment (at cost, less accumulated depreciation) 283,619
Deferred financing costs 1,044,556
Goodwill and other intangible assets 5,718,917
Other assets 323,066
-----------------
$ 39,730,553
=================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Revolving credit facility $ 14,326,601
Acquisition bridge note 157,450
Trade accounts payable 3,455,104
Accrued closing costs 1,925,000
Amounts due to publishers 5,421,593
Deferred revenue 3,227,438
-----------------
Total current liabilities 28,513,186
-----------------
Commitments and contingencies
Mandatorily redeemable preferred stock, par value
$.001 per share; authorized 10,000,000 shares;
68,242 outstanding at March 31, 2000 4,712,264
Stockholders' equity:
Common stock, par value $.001 per share; authorized,
25,000,000 shares; 23,014,345 issued and outstanding 23,014
Additional paid in capital 41,211,778
Note receivable - common stock (2,497,500)
Accumulated deficit (32,232,189)
-----------------
Total stockholders' equity 6,505,103
-----------------
-----------------
$ 39,730,553
=================
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 4
SYMPOSIUM CORPORATION AND SUBSIDIARY
Condensed Consolidated Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
2000 1999
----------------- ---------------
<S> <C> <C>
Revenues, net $ 12,686,613 $ -
Direct costs and expenses
Commission expense 6,251,547 -
Magazine costs 1,573,649 -
Other direct costs 1,707,072 -
----------------- ---------------
9,532,268 -
Gross profit 3,154,345 -
Salaries and benefits 668,011 134,562
Consulting expenses 1,558,379 54,600
Other operating expenses 809,951 255,622
Amortization of goodwill 96,931 -
----------------- ---------------
Total expenses 3,133,272 444,784
----------------- ---------------
Income (loss) from operations 21,073 (444,784)
Other income, (expense)
Interest expense (2,108,637) -
Other income 126,704 1,196
----------------- ---------------
Net loss (1,960,860) (443,588)
Preferred dividends 20,441,927 -
----------------- ---------------
Net loss to common stockholders $(22,402,787) $ (443,588)
================= ===============
Basic and diluted loss per share $ (1.39) $ (0.06)
================= ===============
Weighted - average shares of common
stock outstanding - basic and diluted 16,136,457 7,458,853
================= ===============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 5
SYMPOSIUM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
2000 1999
----------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) from continuing operations $ (1,960,860) $ (443,588)
Adjustments to reconcile results of operations to
net cash effect of operating activities:
Value of common stock and common stock purchase warrants
issued for services 1,614,523 -
Non cash interest expense 1,688,667 -
Depreciation and amortization 227,475 185
Net change in asset and liability accounts:
Accounts receivable (1,699,003) -
Prepaid expenses 268,150 -
Other assets (988,162) (24,455)
Accounts payable and other accrued expenses 1,202,073 244,318
----------------- --------------
Net cash provided by (used in) operating activities 352,863 (223,540)
----------------- --------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Purchase of equipment (22,870) (9,931)
Acquisition of DSI, net of cash on hand at closing date (23,235,190) -
Deferred acquisition costs - (82,110)
----------------- --------------
Net cash used in investing activities (23,258,060) (92,041)
----------------- --------------
CASH FLOWS PROVIDED BY /(USED IN) FINANCING ACTIVITIES:
Proceeds from sales of preferred stock 8,418,000 -
Proceeds from sales of common stock - 495,000
Payments received on note receivable 2,500 -
Proceeds from acquisition bridge notes 1,100,000 -
Repayment of bridge note (500,000) -
Net funds drawn on Revolving Credit
Agreement for DSI Acquisition 15,775,000 -
Repayments of Revolving Credit Agreement (1,673,399) -
Deferred financing costs (190,000) -
----------------- --------------
Net cash provided by financing activities 22,932,101 495,000
----------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 26,904 179,419
Cash and cash equivalents at beginning of period 337,615 276,243
----------------- --------------
Cash and cash equivalents at end of period $ 364,519 $ 455,662
================= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 414,545 $ -
================= ==============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 6
SYMPOSIUM CORPORATION AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders' Equity
For the Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
ADDITIONAL
NUMBER OF PAID-IN NOTE ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 .................. 14,043,214 $ 14,043 $ 12,848,277 $ (2,500,000) $(9,829,402) $ 532,918
Shares issued in connection with
preferred stock ............................. 7,586,483 7,586 21,872,558 -- -- 21,880,144
Shares issued in connection with
bridge notes ................................ 816,548 817 1,497,501 -- -- 1,498,318
Common stock issued for consulting
services .................................... 535,000 535 1,125,090 -- -- 1,125,625
Adjustment of shares issued from
1999 sales of stock ......................... 33,100 33 (33) -- -- --
Stock options and warrants issued
in connection with acquisition financings ... -- -- 2,850,185 -- -- 2,850,185
Stock options and warrants issued
for services ................................ -- -- 1,018,200 -- -- 1,018,200
Repayment of stock note receivable .......... 2,500 -- 2,500
Dividends on preferred stock ................ -- -- -- -- (20,441,927) (20,441,927)
Net loss for the three months
ended March 31, 2000 ........................ -- -- -- -- (1,960,860) (1,960,860)
-------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2000 ................... 23,014,345 $ 23,014 $ 41,211,778 $ (2,497,500) $(32,232,189) $ 6,505,103
====================================================================================
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 7
Symposium Corporation and Subsidiary
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 three months ended March 31, 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.
Certain amounts in the statements have been reclassified to conform to the
2000 classifications.
Use of estimates in the Preparation of Financial Statements: The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-1
<PAGE> 8
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
Estimated 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 three months
ended March 31,
2000 1999
---- ----
(in thousands except
per share data)
<S> <C> <C>
Total revenues As reported $12,687 $ -
Pro forma 17,728 14,246
Income (loss) from As reported $(1,961) $(444)
continuing Pro forma (1,565) (40)
operations
Basic and diluted As reported $(1.39) $(0.06)
earnings (loss) Pro forma (0.09) (0.12)
per share
</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 is also required to
maintain certain minimum earnings ratios and levels of net worth as defined in
the agreement and MOS is restricted from making distributions to Symposium in
excess of $1.8 million annually plus any amounts necessary for tax obligations
attributable to its operations. All of MOS's assets are pledged as collateral
for this obligation. As of March, 31, 2000 the Company had an outstanding
balance on the Coast facility of approximately $14.3
<PAGE> 9
million compared to total availability of $16.2 million resulting in $1.9
million of funds available to MOS at March 31, 2000.
The Company incurred fees and expenses in connection with this facility of
approximately $1.1 million which are being amortized over three years.
NOTE E: 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 of 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 is initially convertible
into 767,500 shares of common stock at a conversion ratio of $2.00 per
share and carries a 10% cumulative dividend, payable quarterly. The common
stock purchase warrants are exercisable for three years from their date of
issuance at an exercise price of $1.50 per share.
The Series B Preferred is 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. If the Company does
not redeem the shares by July 26, 2000, the conversion ratio is reduced to
$.50 per share (representing 3,070,000 shares of the Company's common
stock).
Series C Mandatorily Redeemable Convertible Preferred Stock ("Series C
Preferred")
On January 28, 2000, in a private placement, the Company sold 52,892
units, each unit consisting of one share of Series C mandatorily
redeemable convertible preferred stock with a face value of $100 each and
33.33 shares of the Company's common stock for approximately $5 million.
Additionally, the Company reduced the exercise price on 2 million warrants
previously issued to a Series C holder from $3.50 per share to $1.00 per
share. The Series C Preferred is initially convertible into 2,644,600
shares of common stock at a conversion ratio of $2.00 per share and
carries a 10% cumulative dividend, payable quarterly.
The Series C Preferred is also 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. If the Company does
not redeem the shares by July 26, 2000, the conversion ratio is reduced to
$.25 per share (representing 21,156,800 shares of the Company's common
stock) and the Company must issue 370,244 five-year common stock purchase
warrants with an exercise price of $.25 per share each month until the
shares are fully redeemed.
<PAGE> 10
On April 24, 2000 the holders of the Series C preferred extended the due
date of the redemption of their shares to December 26, 2000 in exchange
for 2,247,067 shares of the Company's 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 issued and change in the conversion rate will be
reflected during the second quarter as an additional deemed dividend.
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, (ii) the preferred stock dividends and reduction in retained
earnings resulting from the beneficial conversion feature and (iii) the
incremental preferred stock dividends and reduction in retained earnings that
would result from contractual changes in conversion prices in the event of a
default:
<TABLE>
<CAPTION>
Series A Series B Series C
------------ ------------ ------------
<S> <C> <C> <C>
Mandatory redemption amount $ 2,150,000 $ 1,535,000 $ 5,289,200
============ ============ ============
Allocation of proceeds to:
Preferred stock $ 1,428,571 $ 1,173,715 $ 2,401,352
Common stock 430 -- 1,763
Additional paid-in capital 1,860,999 1,282,285 4,948,237
Retained earnings (1,290,000) (921,000) (2,401,352)
------------ ------------ ------------
Gross proceeds $ 2,000,000 $1,535,000 $ 4,950,000
============ ============ ============
Additional dividends resulting from
extension and conversion of Series $ 14,574,590
A preferred stock ============
Contingent dividends if default
occurs on Series B and C $ 7,368,000 $ 60,011,208
============ ============
</TABLE>
The following table summarizes the preferred stock dividends recorded for
the three months ended March 31, 2000.
<TABLE>
<CAPTION>
Series A Series B Series C Total
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Deemed dividends $1,290,000 $921,000 $2,401,352 $4,612,352
at issuance
Deemed dividends 14,574,590 126,450 1,010,747 15,711,787
accreted/
conversion
Contractual ____ 26,495 91,293 117,788
dividends
-------------------------------------------------------
Totals $15,864,590 $1,073,945 $3,503,392 $20,441,927
=========== ========== ========== ===========
</TABLE>
NOTE F: ACQUISITION BRIDGE LOANS
Commtel Services LTD Note
On January 20, 2000, the Company entered into a note agreement with
Commtel Services, Ltd. (the "Commtel Note") 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.
<PAGE> 11
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 a 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 its common stock to Commtel pursuant to the
default provisions of the note under which Commtel was entitled to 2,500
additional shares of the Company's common for each day the note remained
in default. As a result of the above, Commtel now owns an aggregate of
816,548 shares of the Company's 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 (the "Fontenelle Note") 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
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 D2 Loan is
repayable with interest at 10% per annum on July 26, 2000. The D2 Loan is
initially convertible into 150,000 shares of the Company's common stock at
a conversion ratio of $2.00 per share. The Company issued 100,000 three-
year common stock purchase warrants with an exercise price of $1.50 per
share. The proceeds received from the issuance of the note was allocated
to each component based upon the relative fair values resulting in a
discounted carrying value of the note of $126,000 and an increase to
stockholders' equity of $174,000. If the Company does not redeem the note
by July 26, 2000, the conversion ratio is reduced to $0.50 per share
(representing 600,000 shares of the Company's common stock).
The reduction in the conversion price to $.50 per share (that would take
effect if the Company fails to repay the note on its due date) is
considered a contingency that is not recognized for accounting purposes on
the date of issuance. The reduction of the conversion price to $.50 per
share would result in additional interest expense $1 million based upon
the difference between the intrinsic value of the conversion feature
pursuant to the default provisions of the note and the intrinsic value on
the date of issuance.
NOTE G - NET LOSS PER SHARE
Net loss per share is presented under Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share." In accordance with
SFAS No. 128, basic and diluted net loss per share has been computed using
the weighted-average number of shares of common stock outstanding during the
period. Potentially dilutive securities have been excluded from the
computation, as their effect is antidilutive. If the Company had reported net
income, diluted earnings per share would have included the shares used in the
computation of net loss per share plus common equivalent shares related to
approximately 11.2 million and 3.5 million outstanding options and warrants
for the three months ended March 31, 2000 and 1999 respectively.
NOTE H - INCOME TAXES
<PAGE> 12
The Company has 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. No current tax has been
accrued during the first quarter as a result of the Company's continuing
losses and the uncertainty of the Company's effective tax rate.
NOTE I - COMMON STOCK
At March 31, 2000 the Company is authorized to issue 25,000,000 shares of
common stock, $.001 par value and 10,000,000 shares of preferred stock, $.001
par value. As of March 31, 2000 there were 23,014,345 shares of common stock
outstanding and the Company had reserved 2,500,000 shares of common stock for
issuance under the Company's stock option plan. The Company received
shareholder approval to increase the authorized number of common shares to
75,000,000 and effective May 4, 2000 has amended its Certificate of
Incorporation to reflect such increase.
NOTE J - CONSULTING EXPENSES
The Company recorded consulting expenses totaling $1.6 million for the
three-month period ended March 31, 2000. Included in these charges are
approximately $225,000 of non-cash charges reflecting the estimated fair value
of warrants granted to purchase 1,025,000 shares of common stock at a range of
between $1.00 to $5.00 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 $980,000 of the consulting costs incurred
reflects the fair value of 535,000 shares of the Company's common stock issued
for professional services rendered during the three-month period ending March
31, 2000.
NOTE K - RELATED PARTY TRANSACTIONS
Dreferred 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.
<PAGE> 13
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 of 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.
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 months ended March 31, 2000.
Introduction
- ------------
The Company was incorporated in Delaware in May 1997 as "Brack Industries,
Inc.", changed its name to "Symposium Telecom Corporation" in June 1998 and to
"Symposium Corporation" in May 1999. The Company commenced business operations
in the quarter ended December 31, 1998. From December 1998 through June 30,
1999, the Company, through its wholly-owned subsidiary Publishers Advantage
Corporation ("PAC"), had minimal operations and was engaged principally in
telemarketing magazine and periodical subscription renewals to persons whose
subscriptions had recently expired. The Company discontinued the operations of
PAC as of June 30, 1999.
The Company's principal business strategy is to acquire well established
direct marketing companies and then leverage the existing marketing
infrastructure and management techniques of those companies to attain
significant market presence in the new web-based economy. Targeted acquisitions
will have one or more of the following characteristics:
- - a history of profitability
- - an on-going base of current customers
- - the ability to reach millions of consumers annually
- - direct marketing expertise in such areas as outbound/inbound
telemarketing, mass market print and broadcast advertising and mass
market direct mail campaigns
- - the opportunity for significant growth within each company's present
business.
Symposium's strategy is to "piggyback" on the direct marketing skills of
an acquired company and its consumer contacts to recruit members to a web-based
discount buying club being developed by Symposium, to provide E-mail addresses
to third party web sites and/or to sell a variety of targeted web services. By
following this strategy, Symposium believes that it can obtain new web customers
for either Symposium's own use or for third party web retailers at or below the
cost of other recruiting techniques. There can be no assurance, however, that
the Company will be able to identify and acquire companies that meet these
criteria .As the first step in the implementation of this strategy, in January
2000, Symposium completed its acquisition of Direct Sales International LP
("DSI") (see "DSI Acquisition" below).
<PAGE> 14
DSI Acquisition
On January 28, 2000 Symposium, through its wholly-owned subsidiary Media
Outsourcing, Inc. ("MOS"), acquired substantially all the assets and assumed
certain liabilities of DSI, a magazine subscription agency based in Atlanta,
Georgia which works on behalf of US magazine publishers to generate new magazine
subscriptions. The purchase price paid by Symposium to acquire the net assets of
DSI was approximately $27.6 million including: (i) $25.0 million in cash paid to
the Seller, (ii) an agreement to loan $1.5 million to AmeriNet, Inc.
("AmeriNet") a company in which Richard Prochnow, DSI's former owner and seller
of DSI, holds a majority interest and (iii) approximately $1.1 million in
closing costs and fees incurred in connection with the acquisition.. Symposium
financed the cash portion of the purchase price by borrowing $16.0 million under
a credit facility provided by Coast Business Credit, resulting in net proceeds
of $15.8 million net of fees, and by using proceeds totaling approximately $9.2
million from the issuance of common stock, warrants for the purchase of common
stock, convertible preferred stock and convertible debentures. (See
"MD&A--Financial Condition and Liquidity" for a further description of such
financing).
Results of Operations
- ---------------------
Revenues: During the three months ended March 31, 2000, the Company
recorded revenues totaling $12.7 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 $12.1 million and commission
revenues from sales of memberships in a third party discount-buying club of
$636,000. There were no revenues in the comparable period in 1999.
Commission Expense: The Company recorded approximately $6.3 million in
commission costs reflecting payments made to brokers on MOS magazine sales from
January 28, through March 31, 2000.
Magazine Costs: The Company incurred approximately $1.6 million of
magazine costs resulting from the magazine sales by MOS from January 28, through
March 31, 2000.
Other Direct Costs: For the three months ended March 31, 2000, the Company
recorded $1.7 million of other direct costs related to the magazine sales by
MOS. Other direct costs primarily consisted of wages of approximately $933,000,
bank charges related to the processing of payments received by credit cards of
approximately $222,000 and other costs of approximately $545,000.
Salaries and Benefits: Salary and benefits increased by $533,449 (or
396.4%) to $668,011 for the three months ended March 31, 2000 from $134,562 for
the same period in 1999. This increase reflects increased salary expense of
approximately $400,000 related to MOS and approximately $133,000 of increased
costs related to increased staff at Symposium Corporation (parent company).
Consulting Expenses: Consulting expenses increased by $1.5 million (or
2,754.2%) to $1.6 million for the three months ended March 31, 2000 from $54,600
for the three months ended March 31, 1999. Included in consulting expenses for
the first quarter 2000 are approximately $225,000 of non-cash charges reflecting
the estimated fair value of warrants granted to purchase 1,025,000 shares of
common stock with exercise prices varying from $1.00 to $5.00 per share with
terms ranging from two to five years. The fair value of such warrants was
estimated using the Black-Scholes Option Pricing Formula. Additionally, $980,000
of the consulting expenses incurred reflects the fair value of 535,000 shares of
the Company's common stock issued for professional services rendered during the
three month period ended March 31, 2000. See Part II, Item 2 "Changes in
Securities."
Other Operating Expenses: Other operating expenses increased by $554,329
(or 216.9%) to $809,951 for the three months ended March 31, 2000 from $255,622
for the three months ended March 31, 1999. This increase was primarily 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 $237,000 of other operating costs at MOS that were incurred
during the first quarter 2000, offset by losses incurred on PAC and costs
related to its former UK based office during the three months ended March 31,
1999. The fair value of the directors' options was estimated using the
Black-Scholes Option Pricing Formula.
Amortization of Goodwill: During the first quarter of 2000, the Company
recorded $96,931 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.
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<PAGE> 15
Interest Expense: The Company recorded interest expense totaling $2.1
million, primarily consisting of $1.7 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 $ 400,000 related to the amortization of deferred financing fees
and interest on the Coast Business Credit Financing Facility.
Income Taxes: No provision was recorded for federal and state 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 three months ended March 31, 2000, the
Company recorded $20.4 million of dividends including $20.3 million of non-cash
deemed dividends recorded in connection with the Series A, B and C preferred
stock issued to complete the DSI Acquisition on January 28, 2000. 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 also dividends
received in connection with the conversion of the Series A preferred stock into
common stock on March 27, 2000.
Net Loss and Net Loss per Share: The net loss to common stockholders for
the three months ended March 31, 2000 was $22.4 million, or $1.39 per share,
compared to a loss of $443,588, or $0.06 per share, for the three months ended
March 31, 1999. The increase in the net loss to common shareholders for the
first quarter of 2000 reflects (1) the impact of the $20.4 million of
preferred stock dividends recorded during the period, (2) increased interest
charges related to the acquisition financings, (3) increased consulting costs
primarily related to issuances of warrants and shares of the Company's stock,
offset by (4) MOS's earnings from January 28, 2000 through March 31, 2000.
Financial Condition and Liquidity
- ---------------------------------
At March 31, 2000, the Company had cash on hand of $364,519. For the three
months ended March 31, 2000 the Company generated $352,863 from operations and
$22.9 million from financing activities and used $23.3 million in investing
activities. Through the operations of MOS, the Company generates cash flow from
the sale and collection of trade receivables, commissions earned from publishers
in connection with originating paid subscriptions for certain publications, and
commissions earned on the sale of third party discount buying club memberships.
MOS uses these funds, as well as funds available under its revolving credit
facility, to fund its working capital needs. Under the Coast Facility, MOS is
not permitted to make distributions to Symposium in excess of $1.8 million per
annum, plus any amounts necessary for tax obligations attributable to its
operations. While the Company believes that the cash flow from operations at MOS
and the amount available under the terms of the revolving credit facility are
currently sufficient to meet the day-to-day operating requirements of MOS and
the Company, 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 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 and to provide for additional
working capital.
There can be no assurance that the Company will be successful in raising
the additional funds needed to retire its outstanding commitments. If the
Company is unable to redeem the convertible securities that are outstanding
as of March 31, 2000 (see below), the Company would be required to issue
a significant amount of additional shares of its common stock and warrants
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 former owner of DSI) is a majority
owner of AmeriNet. The Company is treating its commitment to provide additional
funding to AmeriNet as an increase in the purchase price of DSI due to the
uncertainty of AmeriNet's ability to repay any of the loans. The credit facility
requires that the Company fund AmeriNet $100,000 per month for the ten months
beginning in March 2000 through December 2000, inclusive, plus a payment of
$500,000 by July 28, 2000.
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<PAGE> 16
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 granted Coast 300,000 five-year options 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). Coast extended the
facility to the Company with 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 (a) $750,000 through April 30, 2000, (b) $1.0
million from May 1, 2000 through June 30, (c) $2.0 million thereafter. If the
Company raises additional equity of $3.0 million, this availability requirement
is reduced to $750,000.
The Company and MOS are also required to maintain certain minimum earnings
ratios and levels of net worth as defined in the agreement and MOS is restricted
from making Cash 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 March 31, 2000, the outstanding balance on the Coast facility was
approximately $14.3 million compared to total availability of $16.2 million
resulting in $1.9 million of funds available for borrowing by MOS at March 31,
2000.
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). As a result of the Company's failure to
redeem the Series A Preferred on February 27, 2000, the Company was required to
issue to the holders of the outstanding Series A Preferred (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.
If the Series A Shares were not redeemed by March 28, 2000 (the "Series A
Trigger 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 per Series A Share at an exercise price of $.10 per share, for each
30-day period the Series A Shares remained outstanding from and after March 28,
2000. In addition, on March 29, 2000, 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 23, 2000, the holders of the Series A Shares agreed to
extend the Series A Trigger Date until April 12, 2000 in consideration for the
issuance to such holders of an aggregate of 275,000 shares of Common Stock.
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 a 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.
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<PAGE> 17
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 is initially convertible into
767,500 shares of Common Stock at a conversion price of $2.00 per share and is
entitled to a 10% cumulative dividend, payable quarterly. The Series B Preferred
is mandatorily redeemable on July 26, 2000 for an aggregate redemption price of
$1,535,000, together with accrued dividends ($26,495 as of March 31, 2000 and
accruing thereafter at a rate of 10% per annum). The Company is also required to
redeem the Series B Preferred out of the proceeds of any subsequent financing
greater than $10 million. If the Series B Preferred is not redeemed in full on
or December 28, 2000, the conversion price automatically decreases from $2.00
per share to $.50 per share. The Company is currently in discussions with
holders of the Series B Preferred Stock regarding a possible extension of the
Series B mandatory redemption date. Consideration for such extension may include
the issue of additional securities and a reduction in the effective conversion
price of such preferred and a modification of the terms of the warrants that
were issued in connection with such preferred. There can be no assurance that
the Company and the Series B holders will reach an agreement on such matters.
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 net 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
quarterly. In connection with the issuance and sale of the Series C Preferred,
the Company issued to the holders of the Series C Preferred 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 is mandatorily redeemable on
July 26, 2000 at an aggregate redemption price of $5,289,200, together with
accrued dividends ($91,923 as of March 31, 2000). The Company is also required
to redeem the Series C Preferred out of the proceeds of any subsequent debt or
equity security financing greater than $10 million. If the Series C Preferred is
not redeemed in full on or prior to July 26, 2000, the conversion price
automatically decreases from $2.00 per share to $.25 per share and the Company
will be required to issue to the holders of the Series C Preferred, monthly in
advance until the Series C Preferred is redeemed in full, five-year warrants to
purchase 370,244 shares of Common Stock at a exercise price of $.25 per share.
On April 24, 2000 the holders of the Series C preferred extended the due
date of the redemption of their shares to December 26, 2000 in exchange for
2,247,067 shares of the Company's common stock and a reduction in the
effective conversion ratio from $2.00 per share to $1.00 per share. The value of
the shares issued and change in the conversion rate will be reflected during the
second quarter as an additional deemed dividend.
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 and
accompanying Common Stock are being allocated among the Note and Common Stock
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
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<PAGE> 18
market value of additional common shares issued under the penalty provisions 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 borrowing is payable 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 accrues on the D2 Loan at an annual rate of 10% and is due
and payable along with the outstanding principal at maturity. The Company issued
100,000 three-year common stock purchase warrants with an exercise price of
$1.50 per share. The proceeds received from the issuance of the note was
allocated to each component based upon the relative fair value resulting in
discounted carrying value of due note of $126,000 and an increase to
Stockholders' equity of $174,ooo..The outstanding principal amount of the D2
Loan is initially convertible into 150,000 shares of the Company's Common Stock
at a conversion price of $2.00 per share. If the Company does not pay the D2
Loan by July 26, 2000, the conversion price is reduced to $0.50 per share
(representing 600,000 shares of the Company's Common Stock).
The reduction in the conversion price to $.50 per share that will take
effect if the Company fails to repay the D2 note on its due date is considered a
contingency that is not recognized for accounting purposes on the date of
issuance. The reduction of the conversion price to $.50 per share, if it occurs,
will result in additional interest expense of approximately $1 million based
upon the difference between the intrinsic value of the conversion feature
pursuant to the default provisions of the D2 note and the intrinsic value on the
date of issuance.
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 as 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.
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 Company's acquisition of Direct Sales
International, Inc. ("DSI"), the Company's wholly-owned subsidiary Media
Outsourcing, Inc. ("MOS") entered into the Coast Credit Facility (the "Coast
Facility") with Coast Business Credit (the "Bank") pursuant to a Loan and
Security Agreement dated January 28, 2000 (the "Loan"). The Company has
guaranteed MOS's obligations under the Loan.
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 Series B and Series C
Preferred Stock, which are redeemable on or before July 26 and December 28,
2000, respectively, to pay the outstanding principal balances of and accrued
interest on the D2 Note which matures on July 26, 2000 and to meet its
obligations to provide additional funding to AmeriNet during calendar year 2000.
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
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<PAGE> 19
failure timely to obtain such financing could prevent the Company from
continuing its business strategy or responding to changing business or economic
conditions, could cause the Company to experience difficulty in withstanding any
adverse operating results or competing effectively and could, therefore,
materially adversely affect the Company. The Company financed its January 2000
acquisition of DSI with the proceeds of borrowings under the Coast Facility, the
proceeds of certain bridge financing and the proceeds from the issuance and sale
of shares of the Company's Series A, B and C Preferred Stock. The terms of the
Coast Facility, the Series A, B and C Preferred Stock and the bridge financing
are described above.
The Company's failure timely to redeem the B and C Preferred Stock will
trigger certain requirements under their respective Certificates of Designation
and the Company's agreements with the holders thereof, that the Company issue
shares of Common Stock or warrants to purchase Common Stock to the holders of
Preferred Stock, and will result in a significant reduction of the applicable
prices at which such Preferred Stock is convertible into Common Stock. Such
issuances and reductions 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
approximately 52% of the Company's issued and outstanding Common Stock as of
March 31, 2000. As a result, these stockholders possess significant
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<PAGE> 20
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 acquiror 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 May 15, 2000, there were 23,014,345 issued and outstanding shares of
Common Stock and the Company was required to reserve approximately an additional
19.8 million shares of Common Stock for issuance upon exercise of outstanding
options and warrants and conversion of outstanding convertible securities (the
"Derivative 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 convertible securities, options,
warrants or convertible debt are convertible, which may facilitate the sale of
these shares in the public market.
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 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 (the "Prochnow Shares") within 120
days following January 28, 2000.
The Company has not yet filed a registration statement covering the
Prochnow Shares or the Unit Shares.
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 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 Mandatorily
Redeemable Convertible Preferred Stock of the Company, the Company has agreed to
register, upon demand, (i) the Common Stock issued to the holders of the Series
A and C Preferred in connection with the original issuance and sale thereof, and
the Common Stock issued or issuable, upon conversion of the Series A, B and C
Convertible Preferred Stock (collectively, the "Preferred Stock"), (ii) the
Common Stock issued, or issuable, upon exercise of warrants of the Company
issued to the holders of Series B Convertible Preferred Stock; (iii) the Common
Stock issuable upon exercise of warrants issued to the holders of the Series A
Preferred Stock to induce such holders to convert shares of Series A Preferred
Stock; (iv) the Common Stock issued to the holders of the Series A Preferred
Stock to induce such holders to extend the Series A Trigger Date from March 28,
to April 12, 2000; (v) the Common Stock issued or issuable to the holders of the
Series C Preferred Stock to induce such holders to extend the Series C Trigger
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 Stock if the Series C Preferred is not
redeemed on or before the Series C Trigger 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,
reclassification, 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.
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 (a) $750,000 through
April 30, 2000, (b) $1.0 million from May 1 through June 30, 2000 and (c) $2.0
million thereafter. If the Company raises additional equity of $3.0 million, the
excess availability requirement is reduced to $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 $14.3 million is outstanding as of March
31, 2000 and to enforce its security interest in the Company's assets.
8
<PAGE> 21
Preferred Stock; Possible Anti-Takeover Effect
- ----------------------------------------------
The Company's Certificate of Incorporation, as amended, authorizes the
board of directors (the "Board of Directors") to issue up to 10,000,000 shares
of preferred stock, par value $.001 per share. The preferred stock may be issued
in one or more series, the terms of which may be determined at the time of
issuance by the Board of Directors, without further action by stockholders, and
may include, among other things, voting rights (including the right to vote as a
series on particular matters), preferences as to dividends and liquidation,
conversion and redemption rights, and sinking fund provisions. After giving
effect to the conversion of the series A preferred into common stock, there are
two series of preferred stock currently outstanding which have a liquidation
preference. In addition, specific rights granted to future holders of preferred
stock could be used to restrict the Company's ability to merge with, or sell its
assets to a third party. The ability of the Board of Directors to issue
preferred stock could discourage, delay, or prevent a takeover of the Company,
hereby preserving control of the Company by the current stockholders.
Dependence on Key Personnel
- ---------------------------
The Company's and MOS' success depends to a significant extent upon a
number of key employees and management. The loss of the services of key
employees could adversely affect our business, operating results or financial
condition.
Year 2000
- ---------
The Year 2000 issue is one where computer systems recognize the
designation "00" as 1900 instead of 2000, potentially resulting in system
failure or miscalculations. In recognition of this Year 2000 issue, commencing
in the second quarter of 1999, MOS initiated a review of its information
technology systems, on which we are dependent for the conduct of our business
operations, as well as the computer hardware and software products, components
and other equipment supplied to us by third parties in order to determine the
adequacy of those systems in light of our future business requirements. We
completed our review in the fourth quarter of 1999.
As a result of our review, we determined that our internal financial
software systems are adequate for our future business needs, including Year 2000
compliance, and do not need to be replaced. The cost of our Year 2000 efforts
was immaterial. To date, we have not experienced any material Year 2000
compliance problems relating to our internal financial software systems or our
other information technology systems, computer hardware, software products and
components or other equipment.
We have not assessed the Year 2000 readiness of any third parties with
whom we have relationships. Due to our uncertainty of the Year 2000 readiness of
these third parties, we cannot determine whether the failure by one or more of
these parties to be Year 2000 compliant will materially impact our business,
financial condition or results of operations. Through March 31, 2000, we have
not experienced any material Year 2000 compliance failures by any third parties.
If we or the third parties with which we have relationships were to fail
to meet Year 2000 requirements, we would likely encounter disruptions to our
business that could have a material adverse effect on our business, financial
position or results of operations. We could be materially and adversely impacted
by widespread economic or financial market disruption or by Year 2000 computer
system failures of third parties with which we have relationships.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
Recent Issuances of Unregistered Securities to Consultants:
During the quarter ended March 31, 2000, Symposium issued an aggregate
of 535,000 shares of Common Stock and warrants to purchase an aggregate of
1,025,000 shares of Common Stock in consideration for various consulting,
financial public relations and similar services, as described below.
On January 13, 2000 Symposium issued to Weil Consulting 130,000 shares of
common stock for financial public relations services and investment relations
services rendered to the Company. The issuance and sale of these
9
<PAGE> 22
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering, because: (1) Weill Consulting
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 January 13, 2000 Symposium issued to Fontennelle LLC 50,000 shares of
common stock for financial public relations services and investment relations
services rendered to the Company. The issuance and sale of these securities was
made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering, because: (1) Fontenelle LLC 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 February 23, 2000 Symposium issued 3-year warrants to purchase an
aggregating 250,000 shares of common stock at an exercise price of $2.00 per
share to various telemarketers that originate business for MOS. 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
telemarketers represented that they were accredited investors and were 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 March 1, 2000 Symposium issued 5-year warrants to purchase 75,000
shares of common stock at an exercise price of $2.50 per share to Metropolitan
Capital Partners for financial public relations services and investment
relations activities 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) Metropolitan Capital
Partners 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 March 8, 2000 Symposium issued to Sodages SA 100,000 shares of common
stock for financial public relations services and investment relations
activities 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) Sodages SA 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 March 8, 2000 Symposium issued to Shawn Becker 60,000 shares of common
stock for financial public relations services and investment relations
activities rendered to the Company. The issuance and sale of these securities
was made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering, because: (1) Mr. Becker represented that he was
an accredited investor and was acquiring the securities for investment purposes;
and (2) the Company did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.
On March 8, 2000 Symposium issued to Robert Schwartz 60,000 shares of
common stock for financial public relations services and investment relations
activities rendered to the Company. The issuance and sale of these securities
was made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering, because: (1) Mr. Schwartz represented that he was
an accredited investor and was acquiring the securities for investment purposes;
and (2) the Company did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.
On March 8, 2000 Symposium issued to David Parker 60,000 shares of common
stock for financial public relations services and investment relations
activities 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) that Mr. Parker 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 March 10, 2000 Symposium issued 3-year warrants to purchase 10,000
shares of common stock at an exercise price of $2.00 per share to Focus Partners
for financial public relations services and investment relations activities
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) Focus Partners represented that it
10
<PAGE> 23
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 March 10, 2000 Symposium issued to Metropolitan Capital Partners 75,000
shares of common stock for financial public relations services and investment
relations activities 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) Metropolitan Capital
Partners 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 March 10, 2000 Symposium issued 2-year warrants to purchase 100,000
shares of common stock at an exercise price of $2.13 per share to Kanin, Corbin,
Schupak & Aronow, Inc. ("KCSA") for financial public relations services and
investment relations activities 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) KCSA
represented that he was an accredited investor and was acquiring the securities
for investment purposes; and (2) the Company did not engage in any general
advertisement or general solicitation in connection with the issuance of the
securities.
On March 23, 2000 Symposium issued 3-year warrants to purchase 25,000
shares of common stock at an exercise price of $2.00 per share to Neal Andres
for financial public relations services and investment relations activities
rendered to the Company. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering, because: (1) Mr. Andres represented that he was an
accredited investor and was acquiring the securities for investment purposes;
and (2) the Company did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.
On March 23, 2000 Symposium issued 3-year warrants to purchase 65,000
shares of common stock at an exercise price of $2.00 per share to Douglas Weill
Consulting for financial public relations services and investment relations
activities rendered to the Company. The issuance and sale of these securities
was made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering, because: (1) Mr. Weill represented that he was an
accredited investor and was acquiring the securities for investment purposes;
and (2) the Company did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.
On March 24, 2000 Symposium issued 5-year warrants to purchase an
aggregate of 500,000 shares of common stock as follows: 150,000 shares at an
exercise price of $2.50 per share, 100,000 shares at an exercise price of $3.50
per share, 150,000 shares at an exercise price of $4.50 per share, and 100,000
shares for an exercise price of $5.00 per share to Adolph Komorsky Investments
for financial public relations services and investment relations activities
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) Adolph Komorsky Investments 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 Bridge Financings:
On January 25, 2000 Symposium issued to Commtel Inc. ("Commtel") 75,000
shares of common stock in connection with acquisition bridge note issued by the
Company to Commtel related to the DSI acquisition. 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) Commtel Inc.
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 March 21, 2000 Symposium issued to Commtel 741,548 shares of common
stock in connection with the conversion of the Commtel Note. The issuance and
sale of these securities was made in reliance on Section 4(2) of the Securities
Act as a transaction not involving any public offering, because: (1) Commtel
Services, Inc. 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.
11
<PAGE> 24
On January 25, 2000, Symposium issued 3-year warrants to purchase 35,000
shares of common stock at an exercise price of $1.50 per share to George Todt in
consideration for placement agent services rendered in connection with the
Fontenelle Note 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 fact that Mr. Todt represented that he was
an accredited investor and was acquiring the securities for investment purposes;
and (2) the Company did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.
On January 25, 2000, Symposium issued 3-year warrants to purchase 250,000
shares of common stock at an exercise price of $1.00 per share to Fontenelle LLC
in connection with the Fontenelle Note 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 fact that
Fontenelle LLC 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 January 25, 2000, Symposium issued 3-year warrants to purchase 100,000
shares of common stock at an exercise price of $1.50 per share to D2 Co LLC in
connection with the D2 Co LLC 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 fact that D2Co
LLC represented that he was an accredited investor and was acquiring the
securities for investment purposes; and (2) the Company did not engage in any
general advertisement or general solicitation in connection with the issuance of
the securities.
Recent Issuances of Unregistered Convertible Preferred Stock
On January 28, 2000, in connection with the acquisition of DSI, the
Company issued the following shares of Series A and C Convertible Preferred
Stock and Common Stock in the amounts and to the persons set forth below. The
issuance and sale of these securities was made in reliance on Rule 506 of
Regulation D under the Securities Act of 1933. Each of such purchasers
represented that they were accredited investors.
<TABLE>
<CAPTION>
SERIES A and SERIES C INVESTOR SCHEDULE
- --------------------------------------------------------------------------------
Recipient Shares of Shares of Shares of Shares of Common
Series A Common Stock Series C Stock issued to
Convertible issued to Convertible Series C Preferred
Preferred Series A Preferred Investors
Stock, par Preferred Stock, par
value $.001 Investors value $.001
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lancer 20,000 400,000 45,000 1,500,000
Offshore Inc.
- --------------------------------------------------------------------------------
Joseph 3,000 100,000
Giamanco
- --------------------------------------------------------------------------------
Gary Herman 1,500 50,000
- --------------------------------------------------------------------------------
Capital 1,500 30,000 3,392 113,067
Research LTD
- --------------------------------------------------------------------------------
</TABLE>
Capital Research LTD received such securities as consideration for its
role as placement agent for the Series A and C investments of Lancer Offshore
Inc., Joseph Giamanco and Gary Herman.
Also on January 28, 2000 and in connection with the acquisition of DSI,
the Company issued the following shares of Series B Convertible Preferred Stock
and Warrants to purchase shares of Common Stock (at an initial exercise price of
$1.50 per share of Common Stock) in the amounts and to the persons set forth
below. The issuance and sale of these securities was made in reliance on Rule
506 of Regulation D under the Securities Act of 1933. Each purchaser represented
that they were an accredited investor.
12
<PAGE> 25
SERIES B INVESTOR SCHEDULE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Recipient Series B 3-Year Warrants to Purchase
Convertible Shares of Common Stock, at an
Preferred Stock, exercise price of $1.50 per share
par value $.001
- --------------------------------------------------------------------------------
<S> <C> <C>
Dominic Chang 1,500 37,500
- --------------------------------------------------------------------------------
Krishnan Thampi 500 12,500
- --------------------------------------------------------------------------------
Dublin Holding, LTD 1,000 25,000
- --------------------------------------------------------------------------------
JRSquared, LLC 1,500 37,500
- --------------------------------------------------------------------------------
Kerry Fleming 4,500 112,500
- --------------------------------------------------------------------------------
Dominic Basani 1,500 37,500
- --------------------------------------------------------------------------------
David Jan Mitchell 1,500 37,500
- --------------------------------------------------------------------------------
TCMP3 Capital LLC 600 15,000
- --------------------------------------------------------------------------------
Jodi Kirsch 2,000 50,000
- --------------------------------------------------------------------------------
Stephen J. Posner 250 6,250
- --------------------------------------------------------------------------------
Jean Fresa 500 12,500
- --------------------------------------------------------------------------------
</TABLE>
In addition, the Company issued three year warrants to purchase 208,163
shares of Common Stock, at exercise prices ranging from $1.50 to $4.50 per
share, to D2 Co LLP as consideration for its role as placement agent for the
Series B Preferred Stock.
On March 27, 2000 in connection with the Series A Settlement, the Company
issued to Lancer Offshore Investments 4,806,000 shares of common stock and 5
year warrants to purchase 2,000,000 shares of common stock at a weighted average
exercise price of $0.75 per share.
On March 27, 2000 in connection with the Series A Settlement, the Company
issued to Capital Research Ltd. 586,750 shares of Common Stock and 5 year
warrants to purchase 317,334 shares of common stock at a weighted average
exercise price of $0.75 per share.
OPTION GRANTS TO MANAGEMENT
During the fiscal quarter ended March 31, 2000, the Company granted
options to the following Officers and/or Directors of the Company. The grant of
these securities was made in reliance on Rule 506 of Regulation D of the
Securities Act of 1933. Each of the following individuals qualifies as an
"accredited investor" as defined in Rule 501(a) of the Securities Act of
1933.
<TABLE>
<CAPTION>
Common Stock
Name Underlying Option Term Exercise Price
<S> <C> <C> <C>
Ronald Altbach 250,000 5 years $2.00
Richard Cohen 150,000 5 years $2.00
Bruce Dorskin 150,000 5 years $2.00
Dennis Gougion 150,000 4 years $3.20
Richard Kaufman 150,000 5 years $2.00
Ken Lambert 150,000 5 years $2.00
Sally Smith 150,000 4 years $3.20
</TABLE>
MISCELLANEOUS
On February 8, 2000 Symposium issued to Kreditbank SA Luxembourgeoise (
"Kreditbank") 8,558 shares of common stock as an adjustment to the shares issued
in the December 23, 1999 placement.
On February 8, 2000 Symposium issued to Banque Diamantaire Anveroise
(Suisse) SA 24,542 shares of common stock as an adjustment to the shares issued
in the December 23, 1999 placement.
Limitation on Rights of Common Stock
As a result of the issuances of the Series A, B and C Preferred, the
rights of the holders of the Company's Common stock have become subordinate to
the holders of the Preferred with respect to distributions upon a liquidation of
the Company.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
On January 28, 2000, in connection with the acquisition of DSI, the
Company issued an aggregate of 89,742 shares of Series A, B and C Convertible
Preferred Stock. Under the terms of the respective certificates of designations,
the Company was obliged to reserve a sufficient number of shares of Common Stock
so as to permit the issuance of Common Stock upon conversion of the Preferred
Stock. The Company may be deemed to have been in default of its obligation to
reserve shares of Common Stock during the period from the date of issuance of
the Preferred Stock until May 4, 2000 (when it amended its Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
25,000,000 to 75,000,000) because the sum of the number of issued and
outstanding shares of Common Stock and the aggregate number of shares required
to be reserved upon exercise of all outstanding options and warrants and upon
conversion of all outstanding shares of Preferred Stock exceeded 25,000,000
during such period. However, the Company had sufficient available shares of
Common Stock to issue to the Series A Holders upon conversion of the Series A
Preferred on March 27, 2000. There were no other conversions of convertible
securities or exercises of options or warrants during such period. As of May 4,
2000, the Company had a sufficient number of authorized shares of Common Stock
to satisfy fully its obligations to reserve shares of Common Stock issuable upon
exercise of outstanding options and warrants and upon conversion of convertible
securities. See ITEM 4, "Submission of Matters to a Vote of Security Holders"
below.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On or about April 10, 2000, the Company initiated a consent solicitation
(the "Consent Solictation") under Section 14 of the Securities Exchange Act
seeking stockholder approval of an amendment (the "Amendment") to the
13
<PAGE> 26
Company's Certificate of Incorporation increasing the Company's authorized
Common Stock from 25,000,000 to 75,000,000 shares. Shareholders holding
9,407,088, shares of common stock, representing 57.71% of the Company's total
outstanding Common Stock as of the record date for the Consent Solicitation,
responded to the Consent Solictation. The voting results of the Consent
Solicition are as follows:
- shareholders holding 9,399,061 shares of common stock, or
57.67% of the Company's total outstanding Common Stock as of
the record date, voted in favor of the amendment
- shareholders holding 7,300 shares of common stock, or .004% of
the Company's total outstanding Common Stock as of the record
date, voted against the amendment
- 727 abstentions
The Amendment required the approval of at least a majority of the total
outstanding Common Stock as of the record date. The Company filed the Amendment
with the Secretary of State of Delaware on May 4, 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2.1 Asset Purchase Agreement made and entered into as of January
28, 2000, by and among Direct Sales International, Inc.,
Symposium Corporation and Richard Prochnow, incorporated by
reference to Registrant's Current Report on from Form 8-K,
filed with the Securities & Exchange Commission, February 14,
2000.
2.2 Option Agreement dated June 9, 1999 by and among Symposium
Corporation, Direct Sales International L.P. and Richard
Prochnow, incorporated herein by reference to Exhibit 2.2 to
the Registrant's Quarterly Report on Form 10-QSB for the
period ended June 30, 1999.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, incorporated by reference to the Registrant's
Form 10-12G, filed with the Securities Exchange Commission on
February 24, 1999.
3.2 Certificate of Designation of Series A Convertible Preferred
Stock, par value $.001, filed with the Secretary of State of
Delaware on January 28, 2000, incorporated by reference to the
Registrant's Form 10K, filed with the Securities Exchange
Commission April 12, 2000.
3.3 Certificate of Designation of Series B Convertible Preferred
Stock, par value $.001 filed with the Secretary of State of
Delaware on January 28, 2000 incorporated by reference to the
Registrant's Form 10K, filed with the Securities Exchange
Commission April 12, 2000.
3.4 Certificate of Designation of Series C Convertible Preferred
Stock, par value $.001 filed with the Secretary of State of
Delaware on January 28, 2000 incorporated by reference to the
Registrant's Form 10K, filed with the Securities Exchange
Commission April 12, 2000.
3.5 By-Laws of the Registrant, incorporated by reference to the
Registrant's Form 10-12G, filed with the Securities &
Exchange Commission on February 24, 1999.
10.1 Coast Credit Loan and Security Agreement, between Coast
Business Credit, a division of Southern Pacific Bank ("Coast")
and Direct Sales International, Inc., dated as of January 28,
2000 incorporated by reference to the Registrant's Form 10K,
filed with the Securities Exchange Commission April 12, 2000.
</TABLE>
14
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
10.2 Amendment to Coast Credit Loan and Security Agreement,
between Coast Business Credit, a division of Southern Pacific
Bank ("Coast") and Direct Sales International, Inc., dated as
of January 28, 2000 incorporated by reference to the
Registrant's Form 10KSB for the fiscal year ended December
31, 1999, filed with the Securities Exchange Commission April
12, 2000.
10.3 Second Amendment to Coast Credit Loan and Security Agreement,
between Coast Business Credit, a division of Southern Pacific
Bank ("Coast") and Direct Sales International, Inc., dated as
of March 6, 2000 incorporated by reference to the
Registrant's Form 10KSB for the Fiscal year ended December
31, 1999, filed with the Securities Exchange Commission April
12, 2000.
10.4 Amendment to Coast Credit Loan and Security Agreement,
between Coast Business Credit, a division of Southern Pacific
Bank ("Coast") and Direct Sales International, Inc., dated as
of March 30, 2000 incorporated by reference to the
Registrant's Form 10KSB for the fiscal year ended December
31, 1999, filed with the Securities Exchange Commission April
12, 2000.
10.5 Continuing Guaranty executed by Symposium Corporation as
Guarantor, in favor of Coast Business Credit, with respect to
the indebtedness of Direct Sales International, Inc., dated
as of January 28, 2000 incorporated by reference to the
Registrant's Form 10KSB for the fiscal year ended December
31, 1999, filed with the Securities Exchange Commission April
12, 2000.
10.6 Employment agreement between Polly Bauer and the Company,
dated as of August 20, 1999, incorporated by reference to the
Registrant's Form 10QSB for the period ended September 30,
1999, filed with the Securities Exchange Commission on October
15, 1999. [Incorporation]?
10.7 Employment Agreement between Tim Ledwick and the Company,
dated as of September 21, 1999, incorporated by reference to
the Registrant's Form 10QSB for the period ended September 30,
1999, filed with the Securities Exchange Commission on October
15, 1999.
10.8 Employment Agreement between Ronald Altbach and the Company,
dated as of January 1, 1999 incorporated by reference to the
Registrant's Form 10-KSB/A, filed with the Securities Exchange
Commission on May 1, 2000.
10.9 Consulting Agreement among Executive Management Services,
Rupert Galliers-Pratt and the Company, dated as January 1,
1999 incorporated by reference to the Registrant's Form
10-KSB/A, filed with the Securities Exchange Commission on May
1, 2000.
10.10 Letter Agreement Among Lancer Offshore, Inc., Capital
Research Ltd. and Symposium Corporation, dated March 23,
2000.*
21 List of subsidiaries of Symposium incorporated by reference to
the Registrant's Annual Report on Form 10-KSB, for the year
ended December 31, 1999 filed with the Securities Exchange
Commission April 12, 2000.
27.1 Financial Data Schedule.*
99.1 Registration Rights Agreement made and entered into as of
January 28, 2000 by and between Symposium Corporation and
Richard Prochnow, incorporated by reference to Registrant's
Current Report on Form 8-K, filed with the Securities &
Exchange Commission February 14, 2000.
99.2 Amended Non-Negotiable Secured Promissory Note made by Richard
Prochnow payable to the order of Symposium Corporation, dated
January 28, 2000, incorporated by reference to Registrant's
Current Report on Form 8-K, filed with the Securities &
Exchange Commission on February 14,
2000.
99.3 Consulting Agreement between Symposium Corporation, Direct
Sales International, Inc. and Richard Prochnow, incorporated
by reference to Registrant's Current Report on Form 8-K,
filed with the Securities & Exchange Commission on February
14, 2000.
</TABLE>
15
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
99.4 Loan Agreement made and entered into as of January 28, 2000,
between Symposium Corporation and amanita, incorporated by
reference to Registrant's Current Report on Form 8-K, filed
with the Securities & Exchange Commission, on February 14,
2000.
99.5 Share Purchase and Sale Agreement, by and between Symposium
Telecom Corporation and Hamilton Telecommunications Limited,
dated December 14, 1998, as amended.
99.6 Option Agreement by and between Symposium Telecom Corporation,
Robert Green, Marilyn Shein, Fabrice Thomas, Shropshire Fine
Investment Limited and Automated Communications Limited, dated
December 14, 1998, as amended, incorporated by reference to
Registrant's Form 10-12G, filed with the Securities Exchange
Commission on February 24, 1999.
* Filed Herewith
</TABLE>
- -----------------
(b) The Company filed the following Current Reports on Form 8-K during the
fiscal quarter ended March 31, 2000:
(i) the Company's Current Report on Form 8-K, filed on February 14,
2000, in which the Company reported, among other things, the acquisition of DSI;
(ii) amendment number one to the Company's Form 8-K of February 14,
2000, filed on April 12, 2000 including the financial statements of DSI, as
required by Item 7(a) and 7(b) of Form 8-K; and
(iii) amend number two to the Company's Form 8-K/A of April 12, 2000,
filed on April 14, 2000, containing certain technical correction to 8-K/A
amendment number one.
16
<PAGE> 29
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
Date: May 15, 2000 By: /s/ Ronald Altbach
-----------------------------
Ronald Altbach
Chairman of the Board of Directors and Chief
Executive Officer
Date: May 15, 2000 By: /s/ Tim S. Ledwick
-----------------------------
Tim S. Ledwick
Chief Financial Officer
17
<PAGE> 1
Exhibit 10.10
SYMPOSIUM CORPORATION
410 PARK AVENUE
SUITE 830
NEW YORK, NEW YORK 10022
March 23, 2000
Lancer Offshore Inc.
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Capital Research, Ltd.
27241 Paseo Peregrino
San Juan Capo, California 92675
Gentlemen:
Reference is made to the Certificate of Designation (the "Certificate")
creating the series of preferred stock of Symposium Corporation, a Delaware
corporation (the "Company"), designated as the Series A Preferred Stock, par
value $.10 per share (the "Series A Shares") and the Term Sheet (the "Term
Sheet") describing the terms upon which the Series A Shares were offered and
sold to Lancer Offshore Inc. and Capital Research, Ltd. (collectively, the
"Holders"). The Certificate and the Term Sheet are hereinafter collectively
referred to as the "Documents."
The Documents provide that the if the Series A Shares are not redeemed
in full within 60 days following issuance (such 60th day being March 28, 2000):
(A) the price at which the Series A Shares are convertible into shares of the
Company's Common Stock will be reduced from $2.00 per share to $0.10 per share;
and (B) the Company will be required to issue to the holders of the Series A
Shares, an aggregate of 215,000 five year warrants per month (the "Warrants")
until the Series A Shares are redeemed in full, such Warrants to be issued on
the first day of each thirty day period, and to have an exercise price of $0.10
per share.
The Company and the Holders hereby agree as follows:
1. Notwithstanding any provision of the Documents to the contrary, the
reduction of the conversion price of the Series A Shares referred to in clause
(A) above and the requirement that the Company issue Warrants on a monthly basis
referred to in clause (B) above will not become effective if the Company redeems
the Series A Shares in full on or before April 12, 2000 (such date being the
75th day following issuance of the Series A Shares). If the Company fails to
redeem the Series A Shares in full on or prior to April 12, 2000, then the
reduction of the conversion price of the Series A Shares referred to in clause
(A) above and the
<PAGE> 2
requirement that the Company issue Warrants on a monthly basis referred to in
clause (B) above will become effective as of April 13, 2000 and will remain
effective thereafter unless and until the Series A Shares are redeemed in full.
2. The agreements of the Company and the Holders set forth in paragraph
1 will not abrogate or amend any other obligations of the Company set forth in
the Documents with respect to the Series A Shares (which other obligations shall
remain in full force and effect), including without limitation the obligation of
the Company to issue to the Holders an aggregate of 16,125 shares of Common
Stock per day for each day from March 1 through March 28, 2000; and to issue to
the Holders an aggregate of 26,875 shares of Common Stock per day for each day
after March 28, 2000, such obligations to continue in effect until the day on
which the Series A Shares are redeemed in full.
3. The Holders will irrevocably consent, with respect to all shares of
the Common Stock owned beneficially or of record by the Holders, to the proposed
amendment (the "Amendment") to the Company's Amended and Restated of
Incorporation increasing the number of authorized shares of the Common Stock
from 25,000,000 shares to 75,000,000 shares (and thereby increasing the total
number of authorized shares of capital stock of the Company from 35,000,000 to
85,000,000 shares).
4. In consideration of the agreements of the Holders set forth herein,
the Company hereby agrees to issue to the Lancer Offshore Inc. an aggregate of
250,000 shares of Common Stock and to Capital Research, Ltd. an aggregate of
25,000 shares of Common Stock (such 250,000 shares and 25,000 shares being
collectively referred to as the "Additional Shares"), such issuances to become
effective on the date the Amendment is filed with the Secretary of State of
Delaware.
5. Each of the Holders each hereby severally represents to the Company,
on behalf of itself, that each of such Holder is (and on the date of issuance of
such Additional Shares will be) an "accredited investor" within the meaning of
Regulation D, as promulgated by the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended (the "Act"), and has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment in the Additional Shares; that
such Holder is acquiring the Additional Shares to be issued to such Holder for
investment and without a view to the sale, assignment, transfer or other
distribution thereof; the Additional Shares may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration statement
under the Act and in compliance with the applicable securities laws of any state
or other jurisdiction, or pursuant to an opinion of counsel satisfactory to the
Company that such registration is not required and such compliance has been
obtained. The Company may affix an appropriate legend to any certificate(s)
representing the Additional Shares to reflect the foregoing.
6. This letter will be governed by the laws of the State of New York
applicable to contracts made and to be performed entirely within such State. Any
claims or disputes relating in any way to this Agreement shall be submitted to
the New York State courts or the United States District Court for the Southern
District of New York. The parties hereby
<PAGE> 3
consent to such venue and the personal jurisdiction of such courts and agree not
to contest such venue or assert any claim to move the claim or dispute to
another venue or forum.
If the foregoing correctly reflects our understanding, please so
indicate by signing the enclosed copy of this letter in the space indicated
below and returning it to the Company, whereupon it will constitute a binding
agreement among us.
Very truly yours,
SYMPOSIUM CORPORATION
By:________________________
Ronald Altbach
Accepted and agreed to as of the date first above written:
Lancer Offshore, Inc.
By:_______________________
Capital Research, Ltd.
By:_______________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
condensed consolidated statement of Symposium Corporation as of and for the nine
months ended March 31, 2000, 1999 included in this report on Form 10-QSB and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 364,519
<SECURITIES> 0
<RECEIVABLES> 49,326,098
<ALLOWANCES> (21,059,269)
<INVENTORY> 0
<CURRENT-ASSETS> 3,729,047
<PP&E> 309,207
<DEPRECIATION> (25,588)
<TOTAL-ASSETS> 39,730,553
<CURRENT-LIABILITIES> 28,513,186
<BONDS> 0
4,712,264
0
<COMMON> 23,014
<OTHER-SE> 6,482,089
<TOTAL-LIABILITY-AND-EQUITY> 39,730,553
<SALES> 12,686,613
<TOTAL-REVENUES> 12,686,613
<CGS> 9,532,268
<TOTAL-COSTS> 3,133,272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,108,637
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,960,860)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,960,860)
<EPS-BASIC> (1.39)
<EPS-DILUTED> (1.39)
</TABLE>
