UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
001-15029
(Commission file number)
GENESISINTERMEDIA.COM, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 95-4710370
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5805 Sepulveda Boulevard, Van Nuys, CA 91411
(Address of principal executive offices)
(818) 902-4100
(Issuer's telephone number)
13063 Ventura Boulevard, Studio City, CA 91604
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity. As of November 15, 1999 - 5,288,900 shares of Common Stock
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
7
GENESISINTERMEDIA.COM, INC.
Index
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 1999 2-3
Condensed Consolidated Statements of Operations for
the three months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Operations for
the nine months ended September 30, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-20
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 21-22
Item 2. Change in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
Part III. EXHIBITS
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GENESISINTERMEDIA.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 321,930
Accounts receivables, net 2,733,110
Inventories 407,628
Prepaid advertising 5,360,717
Deposits and other prepaid assets 1,729,224
Deferred tax asset 38,000
-----------
Total current assets 10,590,609
Property and equipment, net 14,625,099
Customer lists 3,343,492
Computer software 3,155,000
Goodwill, net 434,953
Other assets 907,314
-----------
Total assets $33,056,467
===========
2
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (continued)
AS OF SEPTEMBER 30, 1999
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of notes payable $ 480,716
Current portion of capital lease obligations 32,934
Line of credit 1,728,990
Accounts payable 5,164,471
Other accrued liabilities 1,356,409
Income taxes payable 65,000
Deferred revenue 267,500
-----------
Total current liabilities 9,096,020
Notes payable, net of current portion 8,110,455
Capital lease obligations, net of current portion 266,806
-----------
Total liabilities 17,473,281
Commitments and contingencies
Stockholders' equity
Convertible preferred stock, $0.001 par value
5,000,000 shares authorized
142,858 shares issued and outstanding 143
Common stock, $0.001 par value
25,000,000 shares authorized
5,299,600 shares issued and outstanding 5,300
Additional paid-in capital 17,218,732
Accumulated deficit (1,640,989)
-----------
Total stockholders' equity 15,583,186
-----------
Total liabilities and stockholders' equity $33,056,467
===========
See the accompanying notes
3
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
3 Months 3 Months
Ended Ended
September 30, September 30,
1999 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Net Revenue
Media sales - affiliate $ - $ 238,830
Media sales 529,237 -
Product sales 7,837,646 471,942
Commission and royalties - affiliate - 359,986
Commission and royalties 261,345 280,399
Other 153,781 -
----------- ----------
Total net revenue 8,782,009 1,351,157
----------- ----------
Operating costs and expenses
Media purchases 485,625 205,168
Direct costs 1,293,081 50,663
Selling, general and administrative expenses 9,700,781 990,851
----------- ----------
Total operating costs and expenses 11,479,487 1,246,682
----------- ----------
Income (loss) from operations (2,697,478) 104,475
Other (income) expenses
Gain on sale of assets (258,011) -
Interest expense 187,826 35,510
Financing costs 44,179 -
----------- ----------
Total other (income) expenses (26,006) 35,510
----------- ----------
Income (loss) before provision for income taxes (2,671,472) 68,965
Provision (benefit) for income taxes (399,000) -
----------- ----------
Net income (loss) $(2,272,472) $ 68,965
=========== ==========
Basic earnings (loss) per common share $ (0.43) $ 0.02
=========== ==========
Diluted earnings (loss) per common share $ (0.43) $ 0.02
=========== ==========
Weighted-average common shares outstanding 5,308,872 4,000,000
=========== ==========
</TABLE>
See the accompanying notes
4
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
9 Months 9 Months
Ended Ended
September 30, September 30,
1999 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Net Revenue
Media sales - affiliate $ - $3,043,329
Media sales 5,605,104 -
Product sales 16,305,902 3,565,936
Commission and royalties - affiliate - 1,789,415
Commission and royalties 574,333 965,515
Other 162,104 13,482
----------- ----------
Total net revenue 22,647,443 9,377,677
----------- ----------
Operating costs and expenses
Media purchases 4,971,427 2,582,408
Direct costs 2,165,592 299,921
Selling, general and administrative expenses 17,062,665 5,618,173
----------- ----------
Total operating costs and expenses 24,199,684 8,500,502
----------- ----------
Income (loss) from operations (1,552,241) 877,175
Other (income) expenses
Gain on sale of assets (258,011) -
Interest expense 276,552 72,173
Financing costs 108,207 -
----------- ----------
Total other (income) expenses 126,748 72,173
----------- ----------
Income (loss) before provision for income taxes (1,678,989) 805,002
Provision (benefit) for income taxes (38,000) 10,000
=========== ==========
Net income (loss) $(1,640,989) $ 795,002
=========== ==========
Basic earnings (loss) per common share $ (0.40) $ 0.20
=========== ==========
Diluted earnings (loss) per common share $ (0.40) $ 0.20
=========== ==========
Weighted-average common shares outstanding 4,077,935 4,000,000
=========== ==========
</TABLE>
See the accompanying notes
5
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
9 Months 9 Months
Ended Ended
September 30, September 30,
1999 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (1,640,989) $ 795,002
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities
Depreciation and amortization 857,246 72,166
Deferred taxes (38,000) -
(Increase) decrease in operating assets (6,249,193) (3,038)
Increase (decrease) in operating liabilities 3,934,159 (691,622)
------------ ----------
Net cash provided by (used in) operating activities (3,136,777) 172,508
------------ ----------
Cash flows from investing activities
Purchase of property and equipment (12,765,555) (266,759)
Purchase of customer list (2,270,330) -
Purchase of Contour system (3,155,000) -
Purchase of AniMagic (145,000) -
Development costs (715,085) (41,563)
============ ==========
Net cash used in investing activities (19,050,970) (308,322)
------------ ----------
Cash flows from financing activities
Net proceeds from related parties (15,495) 411,576
Net proceeds from line of credit 1,058,955 322,399
Distribution to stockholder (2,000,000) (375,000)
Proceeds from notes payable 8,406,250 800,000
Proceeds from initial public offering, net 12,855,729 -
Proceeds from sale of common stock, net 1,548,750 -
Proceeds from sale of preferred stock, net 870,000 -
Payments on notes payable and capital leases (2,004,754) (43,859)
Repurchase of common stock (51,320) -
Other - (117,607)
------------ ----------
Net cash provided by financing activities 20,668,115 997,509
------------ ----------
Net increase (decrease ) in cash and cash equivalents
during period (1,519,632) 861,695
Cash and cash equivalents, beginning of period 1,841,562 280,289
------------ ----------
Cash and cash equivalents, end of period $ 321,930 $1,141,984
============ ==========
</TABLE>
See the accompanying notes
6
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited Condensed Consolidated Financial Statements have been prepared by
GenesisIntermedia.com, Inc. (the "Company" or "Genesis"), pursuant to the rules
and regulations of the Securities and Exchange Commission. The information
furnished herein reflects all adjustments (consisting of normal recurring
accruals and adjustments) which are, in the opinion of management, necessary to
fairly present the operating results for the respective periods. Certain
information and footnote disclosures normally present in annual consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. The results
of the three and nine months ended September 30, 1999 are not necessarily
indicative of the results to be expected for the full year ending December 31,
1999.
NOTE 2 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standard Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. Basic earnings per
share is computed using the weighted-average number of common shares outstanding
during the period. Common equivalent shares are excluded from the computation if
their effect is anti-dilutive. There are no common stock equivalents for the
three or nine months ended September 30, 1999 as the exercise price on all
options and warrants outstanding is greater than the Company's current stock
price.
NOTE 3 - NOTES PAYABLE
In May 1999, the Company issued three notes payable in a private placement for
aggregate proceeds of $550,000 net of commissions of approximately $92,000. In
connection with these three notes payable agreements, the Company also issued
warrants to purchase 78,571 shares of common stock. The notes bear interest at
the rate of 8.75% per annum and are due the earlier of nine months from the date
of issuance or 30 days after the closing of the Company's initial public
offering. The Company repaid these notes in July 1999.
In July 1999, the Company purchased an office building in Van Nuys, California
for $11,100,000 of which $7,856,250 was financed through a financial
institution. The note bears interest at prime plus 1.5% (9.75% as of September
30, 1999). The note calls for monthly interest payments for the first 60 months
and the note is due at the end of the 60th month.
7
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
NOTE 4 - STOCKHOLDERS' EQUITY
In January and April 1999, the Company sold a total of 250,000 shares of common
stock and warrants to purchase an additional 250,000 shares of common stock in a
private placement at $7 per share for an aggregate of $1,750,000, with
underwriting commissions and expenses of $201,250 and in April 1999 the Company
sold 142,858 shares of convertible preferred stock and warrants to purchase
142,858 shares of common stock in a private placement at $7 per share for an
aggregate of $1,000,000 with underwriting commissions and expenses of $115,000.
In June 1999 the Company sold 2,000,000 shares of common stock in its initial
public offering at $8.50 per share for an aggregate of $17,000,000 with
underwriting commissions and expenses of $1,870,000 and offering expenses of
$2,963,803. During September 1999, the Company repurchased 10,400 shares of its
common stock for $51,320.
NOTE 5 - RELATED PARTY TRANSACTION
During the second quarter of 1999, and in connection with the termination of its
business relationship with Trade Your Way To Riches, Inc. ("TYWR"), a company
wholly owned by the Company's majority stockholder, the Company exercised its
option to purchase the customer lists of TYWR, which option TYWR had granted to
the Company prior to the Company's initial public offering. The purchase price
of $3,821,134 for the customer lists was fair market value, based on the
projected revenues from sales from the lists' use. Under the terms of the
transaction, if the gross profit to the Company from use of the list during the
first 18 months does not meet or exceed the purchase price, then TYWR must
refund to the Company the difference between actual gross profit during such
period and the purchase price. The Company had the right to use the customer
list during the second quarter of 1999 in consideration of the customary 25%
commission for customer list use. Under the terms of the option, the Company did
not have to pay this commission if it exercised the option to purchase prior to
September 30, 1999. During the second and third quarters of 1999, the Company
generated sales of $751,008 and $629,408, respectively, from these customer
lists and, as a result of the exercise of the purchase option, the Company did
not pay any commissions on such sales. None of the proceeds of the Company's
initial public offering were used to fund this purchase.
In connection with the sales efforts "road show" and visits to regulatory
agencies in connection with the Company's initial public offering, the Company
leased an airplane from Genesis Aviation, Inc. ("Aviation"), a company wholly
owned by the Company's majority stockholder. During the second quarter of 1999,
the Company reimbursed Aviation for use of the airplane in the amount of
$362,149. The lease charges to the Company by Aviation were below the lease
charges by Aviation to third parties for the same services.
Each of the foregoing transactions was approved by the Company's audit committee
and are on terms no less favorable than could be obtained from unaffiliated
third parties.
8
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
NOTE 6 - CONTINGENCIES
On November 14, 1997, the Commodity Futures Trading Commission issued an order
authorizing the issuance of subpoenas and depositions in a private investigation
involving Jake Bernstein and MBH Commodity Advisors, a company not affiliated
with Genesis. Although the order does not reference Genesis, its employees or
affiliates, the CFTC has nonetheless requested that the Company provide various
documents arising out of our involvement in the production and marketing of an
infomercial titled Success and You which promotes and markets a video series
titled Trade Your Way To Riches. To date, the CFTC has directed one subpoena to
Genesis. Various documents have been produced on our behalf in response to the
subpoena. Additionally, the CFTC has taken the deposition of Ramy El-Batrawi,
our president, in connection with its investigation. The Company has not to date
been required to discontinue sales of Trade Your Way To Riches products or
services as a result of the CFTC's actions.
Although the CFTC has articulated its belief that Genesis, by virtue of our
involvement in the production and marketing of the infomercial, may be required
to be registered in some capacity to continue to engage in our sales activities
related to the Trade products, the Company believes the CFTC's analysis and
conclusions are incorrect and are based on incomplete information. In October
1998, the Company issued a written response to the CFTC's position setting forth
the reasons why the Company is not required to register in any capacity with the
CFTC. The CFTC has indicated that registration may be required. The Company has
been advised by our counsel that the initiation of a CFTC enforcement action
against us requiring registration or seeking the imposition of sanctions is
unwarranted. As of the date of this prospectus, there has been no indication
that the CFTC seeks any relief other than registration. To date, no complaint or
enforcement action has been asserted against Genesis, our officers, directors or
employees.
If it is determined in the investigation or any resulting proceeding that
registration is required, the Company intends promptly to effect any required
registration. It is estimated that the cost of registering Genesis with the CFTC
will be less than $1,000. In the event that the CFTC were to bring an
enforcement action against Genesis by virtue of our failure to register, which
the Company believes would be unwarranted, any adverse determination or
settlement in this action could adversely affect us. The range of possible
sanctions available to the CFTC in enforcement actions generally includes a
simple request to become registered, a cease and desist order--which could, if
successfully applied to the Company or TYWR, terminate sales of some Trade Your
Way To Riches products or services--and a possible order of disgorgement of
profits--which could, again if applied to us, result in substantial payments by
us. In February 1999, the Company commenced negotiations with the CFTC to
terminate the investigation and settle all underlying claims against us and all
other persons subject to the investigation. Although the Company believes that a
settlement can be reached that will not have a material adverse impact on us,
the Company can not predict whether any settlement proposal the Company may make
will be accepted by the CFTC or by what time. For the reasons discussed in the
preceding paragraph, the Company believes that if the Company is unable to reach
agreement on a consensual resolution with the CFTC, then the final resolution of
the investigation or any ensuing action or proceeding will not have a material
adverse effect on the Company.
9
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
NOTE 6 - CONTINGENCIES, continued
On February 5, 1999, the former chief executive officer of our Genesis
Intermedia, Inc. subsidiary commenced a suit for wrongful termination in
California Superior Court in Los Angeles County. The plaintiff is Sam Hassabo
and the principal defendants are Genesis, our Genesis Intermedia, Inc.
subsidiary and our chief executive officer, Mr. El-Batrawi. The complaint
alleges wrongful termination and breach of employment contract. The complaint
also alleges that the defendants engaged in fraud and negligent
misrepresentation in connection with the plaintiff's hiring and the termination
of his employment. Mr. Hassabo was terminated from his position as director and
chief executive officer of Genesis Intermedia, Inc. in December 1998. The
complaint primarily seeks monetary and punitive damages. The Company believes
the suit is frivolous and the Company intends to defend it vigorously. The
Company carries employment practices and general liability insurance which the
Company believes is adequate to cover any potential liability.
The Company may also be involved from time to time in various other claims and
legal actions incident to its operations, either as plaintiff or defendant. As
an advertiser, the Company may be exposed to unforeseen liability to consumers,
competitors or others, against which the Company is not insured. The Company
from time to time may be, or may be joined as, a defendant in litigation brought
against us or our clients by third parties. As the Company acquires the rights
to diverse new products and increases our client base, the likelihood of that
type of suit will increase. These possible claims include those brought by
clients' competitors, regulatory bodies or consumers alleging that advertising
claims are false, deceptive or misleading, that our clients' products are
defective or injurious or that marketing and communications materials infringe
on the proprietary rights of third parties. The Company does not maintain
insurance designed specifically for advertising agency liability. If the Company
is not adequately insured or indemnified, then the damages, costs, expenses or
attorneys' fees could have an adverse effect on us.
In addition, the contracts the Company enters into with our clients sometimes
require us to indemnify clients for claims brought by competitors or others
claiming that advertisements or other communications infringe on intellectual
property rights. Although the Company maintains business insurance the Company
believes is adequate for our operations, adequate insurance coverage may not be
available in the future or the insurance held by us may not be sufficient if a
significant adverse claim is made.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and related footnotes for the year
ended December 31, 1998 included in the Company's prospectus filed with the
Securities and Exchange Commission on June 14, 1999. The discussion of results,
causes and trends should not be construed to imply any conclusion that such
results or trends will necessarily continue in the future.
Overview
GenesisIntermedia.com, Inc. (the "Company" or "Genesis") is an integrated
marketing company that utilizes conventional media and emerging, interactive
multimedia technologies to market its products and its clients' products. The
interactive multimedia technologies the Company uses include the Internet,
CD-ROMs and DVDs. Incorporated on October 28, 1993, the Company did not commence
substantial operations until 1994. From inception until June 1997, the Company
devoted substantially all our resources to selling products the Company owned or
had purchased rights to sell through conventional marketing methods. The Company
sold these products to the general public through the use of infomercials, radio
advertisements, print media and retail outlets. A substantial portion of the
Company's product revenue has come from its Men Are From Mars, Women Are From
Venus product series authored by John Gray, Ph.D. Prior to June 1997, the
Company contracted with an unrelated third party to administer its product
sales, including buying media time, managing inventory levels and contracting
order fulfillment. For these services, the Company paid the third party an
administrative fee and a share of the profits generated from the product sales.
In June 1997, the Company brought the operations of its product sales in-house,
which resulted in the hiring of additional personnel and buying an office
building. This allowed the Company to better manage the profitability of its
product sales and also gave it the resources to expand its products and
services. Since moving into a corporate office building in July 1997, the
Company has:
* increased the number of products it sells;
* established outbound telemarketing services to sell its products, as well as
products of other companies;
* established a media sales department that sells media time to other companies
as well as buys media time for our own products at a 10-15% discount; and
* focused its advertising on markets that yielded higher responses.
During the later part of 1997, after creating its infrastructure, the Company
began contracting with other companies to sell their products via our outbound
telemarketing capabilities. In performing these services the Company is
typically given a database of customer names and telephone numbers from the
contracting company and the Company receives a sales commission ranging from 35%
to 70%.
11
<PAGE>
The Company keeps a database of customers who have purchased its products and
then sells additional related products to these customers through its outbound
telemarketing capabilities. The Company has also been able to generate revenue
from the sale of customer names in its database to unrelated third parties.
In July 1998, the Company formed its Genesis Intermedia, Inc. subsidiary and
hired key personnel experienced in creating interactive multimedia marketing
solutions--marketing and sales plans and capabilities that allow businesses to
convey a combination of text, graphics, sound, video and animation content to
their customers in a way that the customers can actively manipulate or interact
with the content. Through its subsidiary the Company is exploiting digital media
to market and distribute the Company's and the Company's clients' products and
services via the Internet and other interactive delivery platforms, including
interactive publicly available kiosks through its Centerlinq Network, CD-ROMs
and DVDs.
During the latter part of 1998, the Company was successful in adding four new
telemarketing campaigns and a total of 13 new products to its existing product
line. The Company has acquired the rights to distribute these products and has
agreed to pay royalties of approximately 5% of net sales to the licensors of the
products.
In October 1998 and April 1999, respectively, the Company completed the
acquisitions of assets of Vision Digital Communications, Inc., a company that
places interactive kiosks in shopping malls, and AniMagic Corporation, an
interactive technology company. In addition, in April 1999 the Company entered
into a strategic alliance with Global Leisure Travel, Inc. ("Global"), a leading
travel company, which grants the Company the right to be the exclusive
e-Commerce marketing and advertising agent for Global. In June 1999, the Company
acquired all of the assets comprising Global's computerized Contour System
travel-package marketing system. Global's majority stockholder is a company that
is wholly owned by Mr. El-Batrawi. The Company will continue to evaluate
acquisition opportunities that will enable it to expand its core multimedia
marketing capabilities, its product offerings and the geographic scope of its
operations. The Company plans to acquire well-regarded niche companies or
leaders in specific marketing and communications disciplines as well as products
or services which the Company believes have strong earnings potential. The
Company will also review joint venture and strategic alliance possibilities.
In the third quarter of 1999, the Company significantly increased its
infrastructure in sales, programming, installation, creative services and other
administrative areas to prepare for the aggressive "roll out" and the
implementation of the Company's plan for the installing of its Centerlinq
Network of public Internet access portals (kiosks) in 20 upscale, high-end
shopping malls by the end of 1999. During the third quarter the Company
installed its kiosks in four shopping malls and obtained contracts to install
its kiosks in another 16 malls before year-end. The Centerlinq "roll out" will
continue in 2000 with a substantial number of additional mall installations
planned allowing the Company to maintain its first-mover position. The Company
expanded its workforce, invested in infrastructure and implemented an expanded
promotional marketing campaign for new products and programs. This rapid
expansion resulted in the Company incurring a net loss of $2,272,472 during the
third quarter of 1999.
12
<PAGE>
To house its expanding business, the Company purchased an 80,000 square foot
building in Van Nuys, California and sold its previous corporate office in
Studio City, California. The new office building will give the Company room to
expand as it continues to increase its workforce. The Company believes that the
capital expended in promotional marketing campaigns for its new products and the
expansion of the Centerlinq Network will result in additional losses for the
fourth quarter of 1999, but the Company believes it will return to profitability
by the first quarter of 2000, while continuing to increase its sales.
Results of Operations
Three Months Ended September 30, 1999 vs. September 30, 1998
<TABLE>
<CAPTION>
3 Months 3 Months
Ended Ended Percentage of net revenue
September 30, September 30, --------------------------
1999 1998 1999 1998
---------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Net Revenue
Media sales - affiliate $ - $ 238,830 0.0% 17.7%
Media sales 529,237 - 6.0% 0.0%
Product sales 7,837,646 471,942 89.3% 34.9%
Commissions and royalties - affiliate - 359,986 0.0% 26.6%
Commissions and royalties 261,345 280,399 3.0% 20.8%
Other 153,781 - 1.7% 0.0%
----------- ----------- --------- ---------
Total net revenue 8,782,009 1,351,157 100.0% 100.0%
Operating expenses
Media purchases 485,625 205,168 5.5% 15.2%
Direct costs 1,293,081 50,663 14.7% 3.8%
Selling, general and administrative 9,700,781 990,851 110.5% 73.3%
----------- ----------- --------- ---------
Total operating expenses 11,479,487 1,246,682 130.7% 92.3%
----------- ----------- --------- ---------
Income (loss) from operations (2,697,478) 104,475 (30.7%) 7.7%
(Gain) on sale of assets (258,011) (2.9%)
Interest expense 187,826 35,510 2.1% 2.6%
Financing costs 44,179 - 0.5% 0.0%
----------- ----------- --------- ---------
Income (loss) before income taxes (2,671,472) 68,965 (30.4%) 5.1%
Provision (benefit) for income taxes (399,000) - (4.5%) 0.0%
=========== =========== ========= =========
Net income (loss) $(2,272,472) $ 68,965 (25.9%) 5.1%
=========== =========== ========= =========
</TABLE>
Revenue for the three months ended September 30, 1999 increased by $7,430,852 or
550.0%% from $1,351,157 for the three months ended September 30, 1998 to
$8,782,009 for the same period in 1999. The increase in revenue was due to the
following:
13
<PAGE>
* Product sales increased $7,365,704 or 1,560.7% principally as a result of the
Company's success in selling its new products and programs;
* Media sales to unrelated third parties increased from $0 in 1998 to $539,237
in 1999 due to the Company hiring personnel with media buying experience and
contacts in the industry. The Company has been able to retain several large
customers who began purchasing media time in the latter part of 1998 and have
increased their media buys during the first nine months of 1999. The Company
expects media sales to unrelated third parties to continue for 1999 to
continue to exceed those for 1998;
* Media sales to a company owed by the Company's majority stockholder decreased
from $238,830 for the three months ended September 30, 1998 to $0 for the same
period in 1999. The Company has discontinued selling media to this affiliate;
and
* Commissions and royalties--affiliate decreased from $359,986 for the three
months ended September 30, 1998 to $0 for the same period in 1999. These
commissions are amounts received from the sale of mentoring programs for the
TradeYour Way To Riches products during the three months ended September 30,
1998. There were no Trade-related sales for the same period in 1999. During
the fourth quarter of 1998 the Company discontinued selling the mentoring
programs for Trade Your Way To Riches, Inc.
Media purchases for the three months ended September 30, 1999 increased by
$280,457 or 136.7% from $205,168 for the three months ended September 30, 1998
to $485,625 for the same period in 1999. The increase was due to more media time
sold during the third quarter of 1999. Media purchases as a percentage of media
sales increased from 85.9% for the three months ended September 30, 1998 to
91.8% for the same period in 1999. The increase is due to discounts offered to
some of the Company's larger media buying customers.
Direct costs for the three months ended September 30, 1999 increased by
$1,242,418 or 2,452.3% from $50,663 for the three months ended September 30,
1998 to $1,293,081 for the same period in 1999. The increase was due to
significant increased product sales during the third quarter of 1999,
principally the sale of the Company's new products and programs. Direct costs as
a percentage of product sales decreased from 21.2% for the three months ended
September 30, 1998 to 16.5% for the same period in 1999. The decrease is due to
lower product costs associated with the Company's new products and programs when
compared to the products sold by the Company during the third quarter of 1999.
14
<PAGE>
Selling, general and administrative expenses for the three months ended
September 30, 1999 increased by $8,709,930 or 879.0% from $990,851 for the three
months ended September 30, 1998 to $9,700,781 for the same period in 1999. The
increase was due principally to an increase in payroll and related benefits of
$1,909,248 and an increase in selling related expenses of $5,805,571. Selling
related expenses include the cost of acquiring customer names, purchasing media
time for airing of infomercials, royalties and telemarketing costs. The Company
expensed $3,549,662 in media airtime during the third quarter of 1999. As a
result of expanding operations through the creation of Genesis Intermedia, the
Company's general and administrative costs have increased. Most of the expenses
incurred by Genesis Intermedia to develop its Centerlinq Network are classified
as general and administrative expenses. The Company took steps to significantly
expand its Centerlinq Network of kiosks in shopping malls during the third
quarter. During the third quarter the Company installed its kiosks in four
shopping malls and obtained contracts to install its kiosks in 16 malls before
year-end.
During the third quarter of 1999, the Company sold its corporate office building
in Studio City, California that resulted in a gain on sale of $258,011. In July
1999, the Company purchased a new corporate office building in Van Nuys,
California.
Interest expense for the three months ended September 30, 1999 increased by
$152,316 or 428.9% from $35,510 for the three months ended September 30, 1998 to
$187,826 for the same period in 1999. The increase in interest expense was due
to the issuance of a note payable secured by the Company's new corporate office
building in Van Nuys, California, an increase in the Company's line of credit,
and notes payable and capitalized lease obligations assumed as a result of the
purchase of Vision Digital assets.
Financing costs for the three months ended September 30, 1999 increased by
$44,179 from $0 for the three months ended September 30, 1998 to $44,179 for the
same period in 1999. The increase is due to the amortization of commissions and
other expenses paid in connection with three notes payable the Company issued in
May of 1999.
Income taxes for the three months ended September 30, 1999 decreased by $399,000
from $0 for the three months ended September 30, 1998 to a tax benefit of
$399,000 for the same period in 1999. The tax benefit recognized in the third
quarter of 1999 is equal to the current tax provision recorded during the first
and second quarters of 1999. Due to the loss incurred in the third quarter of
1999, the current income tax expense recognized during the first six months of
1999 was reduced to $0. Prior to January 1, 1999 the Company was taxed as an S
corporation.
Net income for the three months ended September 30, 1999 decreased by $2,341,437
or 3,395.1% from net income of $68,965 for the three months ended September 30,
1998 to a net loss of $2,272,472 for the same period in 1999. The decrease is
principally due to significantly higher sales offset by higher selling, general
and administrative expenses incurred to promote the Company's new products and
programs and to expand its Centerlinq Network of kiosks.
15
<PAGE>
Nine Months Ended September 30, 1999 vs. September 30, 1998
<TABLE>
<CAPTION>
9 Months 9 Months
Ended Ended Percentage of net revenue
September 30, September 30, --------------------------
1999 1998 1999 1998
---------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Net Revenue
Media sales - affiliate $ - $ 3,043,329 0.0% 32.5%
Media sales 5,605,104 - 24.8% 0.0%
Product sales 16,305,902 3,565,936 72.0% 38.0%
Commissions and royalties - affiliate - 1,789,415 0.0% 19.1%
Commissions and royalties 574,333 965,515 2.5% 10.3%
Other 162,104 13,482 0.7% 0.1%
------------ ------------ --------- ---------
Total net revenue 22,647,443 9,377,677 100.0% 100.0%
Operating expenses
Media purchases 4,971,427 2,582,408 21.9% 27.5%
Direct costs 2,165,592 299,921 9.6% 3.2%
Selling, general and administrative 17,062,665 5,618,173 75.3% 59.9%
------------ ------------ --------- ---------
Total operating expenses 24,199,684 8,500,502 106.8% 90.6%
------------ ------------ --------- ---------
Income (loss) from operations (1,552,241) 877,175 (6.8%) 9.4%
(Gain) on sale of assets (258,011) - (1.1%)
Interest expense 276,552 72,173 1.2% 0.8%
Financing costs 108,207 - 0.5% 0.0%
------------ ------------ --------- ---------
Income (loss) before income taxes (1,678,989) 805,002 (7.4%) 8.6%
Provision (benefit) for income taxes (38,000) 10,000 (0.2%) 0.1%
=========== ============ ========= =========
Net income (loss) $(1,640,989) $ 795,002 (7.2%) 8.5%
=========== ============ ========= =========
</TABLE>
Revenue for the nine months ended September 30, 1999 increased by $13,269,766 or
141.5% from $9,377,677 for the nine months ended September 30, 1998 to
$22,647,443 for the same period in 1999. The increase in revenue was due to the
following:
* Product sales increased $12,739,966 or 357.3% principally as a result of the
Company success in selling its new products and programs. The Company acquired
the right to sell these product in the latter half of 1998 and has
aggressively marketed these products through infomercials during the latter
part of the second quarter of 1999 and throughout the third quarter of 1999;
* Media sales to unrelated third parties increased from $0 in 1998 to $5,605,104
in 1999 due to the Company hiring personnel with media buying experience and
contacts in the industry. Media sales to unrelated third parties was
$3,938,020 in the first quarter of 1999 and only $1,137,847 and $529,237 for
the second and third quarter of 1999, respectively. The Company does not
expect a significant increase in media sales during the fourth quarter of
1999;
16
<PAGE>
* Media sales to a company owed by the Company's majority stockholder decreased
from $3,043,329 for the nine months ended September 30, 1998 to $0 for the
same period in 1999. The Company has discontinued selling media to this
affiliate; and
* Commissions and royalties--affiliate decreased from $1,789,415 for the nine
months ended September 30, 1998 to $0 for the same period in 1999. These
commissions are amounts received from the sale of mentoring programs for the
TradeYour Way To Riches products during the nine months ended September 30,
1998. There were no Trade-related sales for the same period in 1999. During
the fourth quarter of 1998 the Company discontinued selling the mentoring
programs for Trade Your Way To Riches, Inc.
Media purchases for the nine months ended September 30, 1999 increased by
$2,389,019 or 92.5% from $2,582,408 for the nine months ended September 30, 1998
to $4,971,427 for the same period in 1999. The increase was due to more media
time sold during 1999. Media purchases as a percentage of media sales increased
from 84.9% for the nine months ended September 30, 1998 to 88.7% for the same
period in 1999. The increase is due to discounts offered to some of the
Company's larger media buying customers.
Direct costs for the nine months ended September 30, 1999 increased by
$1,865,671 or 622.0% from $299,921 for the nine months ended September 30, 1998
to $2,165,592 for the same period in 1999. The increase was due to increased
product sales during 1999. Direct costs as a percentage of product sales
increased from 9.8% for the nine months ended September 30, 1998 to 13.3% for
the same period in 1999. The increase is due to higher product costs for the
Company's new products and programs when compared to the Company's Men Are From
Mars, Women Are From Venus programs sold during 1998.
Selling, general and administrative expenses for the nine months ended September
30, 1999 increased by $11,444,492 or 203.7% from $5,618,173 for the nine months
ended September 30, 1998 to $17,062,665 for the same period in 1999. The
increase was due principally to an increase in payroll and related benefits of
$3,654,866 and an increase in selling related expenses of $5,979,811. Selling
related expenses include the cost of acquiring customer names, purchasing media
time for airing of infomercials, royalties and telemarketing costs. The Company
expensed $4,690,921 in media airtime during the first nine months of 1999. As a
result of expanding operations through the creation of Genesis Intermedia, the
Company's general and administrative costs have increased. Most of the expenses
incurred by Genesis Intermedia to develop its Centerlinq Network are classified
as general and administrative expenses.
During the third quarter of 1999, the Company sold its corporate office building
in Studio City, California that resulted in a gain on sale of $258,011. In July
1999, the Company purchased a new corporate office building in Van Nuys,
California.
17
<PAGE>
Interest expense for the nine months ended September 30, 1999 increased by
$204,379 or 283.2% from $72,173 for the nine months ended September 30, 1998 to
$276,552 for the same period in 1999. The increase in interest expense was due
to the issuance of a note payable secured by the Company's new corporate office
building in Van Nuys, California, the issuance of a note payable secured by the
Company's old corporate office building in Studio City, California (this note
has subsequently been repaid), an increase in the Company's line of credit, and
notes payable and capitalized lease obligations assumed as a result of the
purchase of Vision Digital assets.
Financing costs for the nine months ended September 30, 1999 increased by
$108,207 from $0 for the nine months ended September 30, 1998 to $108,207 for
the same period in 1999. The increase is due to the amortization of commissions
and other expenses paid on three notes payable the Company issued in May of
1999.
Income taxes for the nine months ended September 30, 1999 decreased by $48,000
or 480.0% from $10,000 for the nine months ended September 30, 1998 to a tax
benefit of $38,000 for the same period in 1999. The income tax benefit of
$38,000 is due to a one time deferred tax benefit of $38,000 recognized upon the
implementation of SFAS No. 109. Prior to January 1, 1999, the Company was an S
corporation resulting in the income being reported on the personal income tax
returns of the Company's stockholders. There is no current income tax provision
due the loss incurred by the Company during the nine months ended September 30,
1999.
Net income for the nine months ended September 30, 1999 decreased by $2,435,991
or 306.4% from net income of $795,002 for the nine months ended September 30,
1998 to a net loss of $1,640,989 for the same period in 1999. The decrease is
principally due to significantly higher sales offset by higher selling, general
and administrative expenses incurred to promote the Company's new products and
programs and to expand its Centerlinq Network of kiosks incurred during the
third quarter of 1999.
Liquidity and capital resources
The Company financed its operations initially from cash generated from
operations. More recently, the Company has financed operations through the sale
of common and preferred stock in private placement offerings, sale of common
stock in its initial public offering, a long-term mortgage and a line of credit.
In July 1997, the Company purchased an office building in Studio City,
California with cash and a Small Business Administration loan in the amount of
$583,000. This loan was being repaid with monthly payments of $5,823 over 25
years. In December 1997, the Company sold 116,504 (29,126 of which were
surrendered on November 1, 1998) shares of common stock to Dr. Gray for
$900,000. In January 1998 and April 1998, the Company obtained two short-term
loans from an unrelated third party for $300,000 and $200,000, respectively.
These loans bear interest at the rate of 8% per annum and were repaid during the
first quarter of 1999. In addition, in June 1997, the Company obtained a
$750,000 line of credit (increased to $1,500,000 during the third quarter of
1999) from a major financial institution that is collateralized by substantially
all of the Company's assets, except its office building, and the loan is
guaranteed by the Company's majority stockholder. In August 1998, the Company
obtained a working capital loan in the amount of $300,000 collateralized by a
second trust deed on our land and office building. In January and April 1999,
the Company sold a total of 250,000 shares of common stock and warrants to
purchase an additional 250,000 shares of common stock in a private placement at
$7 per share for an aggregate of $1,750,000, with underwriting
18
<PAGE>
commissions and expenses of $201,250 and in April 1999 the Company
sold 142,858 shares of convertible preferred stock and warrants to purchase
142,858 shares of common stock in a private placement at $7 per share for an
aggregate of $1,000,000 with underwriting commissions and expenses of $115,000.
In May 1999, the Company issued three notes payable in a private placement for
aggregate proceeds of $550,000 net of commissions of $96,042. In connection with
these three notes payable agreements, the Company also issued warrants to
purchase 78,571 shares of common stock. In June 1999 the Company sold 2,000,000
shares of common stock in its initial public offering at $8.50 per share for an
aggregate of $17,000,000 with underwriting commissions and expenses of
$1,870,000 and offering expenses of $2,797,410. In July, the Company purchased
an office building in Van Nuys, California for $11,100,000 for which the Company
issued a note payable in the amount of $7,856,250. The Company also sold its old
office building in Studio City, California in September 1999 and repaid the
original mortgage note in the amount of $583,000 and the $300,000 working
capital loan that were secured by the building.
During the second quarter of 1999, and in connection with the termination of its
business relationship with Trade Your Way To Riches, Inc. ("TYWR"), a company
wholly owned by the Company's majority stockholder, the Company exercised its
option to purchase the customer lists of TYWR, which option TYWR had granted to
the Company prior to the Company's initial public offering. The purchase price
of $3,821,134 for the customer lists was fair market value, based on the
projected revenues from sales from the lists' use. Under the terms of the
transaction, if the gross profit to the Company from use of the list during the
first 18 months does not meet or exceed the purchase price, then TYWR must
refund to the Company the difference between actual gross profit during such
period and the purchase price. The Company had the right to use the customer
list during the second quarter of 1999 in consideration of the customary 25%
commission for customer list use. Under the terms of the option, the Company did
not have to pay this commission if it exercised the option to purchase prior to
September 30, 1999. During the second and third quarters of 1999, the Company
generated sales of $751,008 and $629,408, respectively, from these customer
lists and, as a result of the exercise of the purchase option, the Company did
not pay any commissions on such sales. None of the proceeds of the Company's
initial public offering were used to fund this purchase. The foregoing
transaction was approved by the Company's audit committee.
In June 1999, the Company acquired all of the assets comprising Global's
computerized Contour System travel-package marketing system. Global's majority
stockholder is a company that is wholly owned by Mr. El-Batrawi.
In July 1999, the Company signed an agreement to acquire cyberXpo.com, Inc., a
privately held multimedia and e-commerce marketing company. During the third
quarter of 1999, the Company terminated this agreement.
During the nine months ended September 30, 1999, the Company spent $12,765,555,
on capital expenditures including $11,687,447 on its new office building and
building improvements and used $3,136,777 in operations. In addition to capital
expenditures, the Company spent a significant amount of capital on the purchase
of media for its own use and for resale to others. The purchase of media time is
capital intensive because media time, unavailable on an as-needed basis, must be
purchased in advance. During the second and third quarters of 1999, the Company
significantly increased the amount of media purchased for its new products and
programs.
19
<PAGE>
The Company expects to spend additional capital to expand its product lines,
expand its telemarketing division, and make strategic acquisitions. The Company
anticipates spending $15 - 20 million over the next 18 months to develop and
deploy interactive multimedia kiosks in regional shopping malls across the
United States and in other entertainment centers.
The Company believes that its current cash and cash equivalents on hand,
together with existing credit facilities and the cash flow expected to be
generated from operations, will be adequate to satisfy its current and planned
operations through the middle of 2000. However, the Company is currently seeking
to acquire a bank credit line or similar credit facility and it seeking to
refinance its mortgage on its new office building to help finance future
operations and acquisitions.
Year 2000
The Company has completed a comprehensive review of our computer systems to
identify all software applications that could be affected by the inability of
many existing computer systems to process time-sensitive data accurately beyond
the year 1999, referred to as the Year 2000 or Y2K issue. The Company is also
continuing to monitor our computer systems and monitoring the adequacy of the
processes and progress of third-party vendors of systems that may be affected by
the Year 2000 issue. The Company is dependent on third-party computer systems
and applications, particularly with respect to critical tasks such as
accounting, billing and buying, planning and paying for media. The Company also
relies on our own computer systems. The Company expects to complete our Year
2000 compliance program by mid-1999 and anticipate that our total expenditures
on the program will not exceed $20,000. However, the Company may experience cost
overruns or delays in the future, which could have a material adverse effect on
us. While the Company believe our procedures are designed to be successful,
because of the complexity of the Year 2000 issue and the interdependence of
organizations using computer systems, our efforts, or those of third parties
with whom the Company interact, may not be satisfactorily completed in a timely
fashion or may cost substantially more to remedy than the amount the Company
anticipates. Failure to satisfactorily address the Year 2000 issue could have a
material adverse effect on us.
Impact of recently issued accounting standards
In February 1999, the FASB issued SFAS No. 135, "Recession of FASB Statement No.
75 and Technical Corrections." This statement is not applicable to us.
Forward looking statements
This report contains certain 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. Stockholders are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to install new kiosks, general market
conditions, competition and pricing. Although the Company believes the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements contained in the report will
prove to be accurate.
20
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 14, 1997, the Commodity Futures Trading Commission issued an order
authorizing the issuance of subpoenas and depositions in a private investigation
involving Jake Bernstein and MBH Commodity Advisors, a company not affiliated
with Genesis. Although the order does not reference Genesis, its employees or
affiliates, the CFTC has nonetheless requested that the Company provide various
documents arising out of our involvement in the production and marketing of an
infomercial titled Success and You which promotes and markets a video series
titled Trade Your Way To Riches. To date, the CFTC has directed one subpoena to
Genesis. Various documents have been produced on our behalf in response to the
subpoena. Additionally, the CFTC has taken the deposition of Ramy El-Batrawi,
our president, in connection with its investigation. The Company has not to date
been required to discontinue sales of Trade Your Way To Riches products or
services as a result of the CFTC's actions.
Although the CFTC has articulated its belief that Genesis, by virtue of our
involvement in the production and marketing of the infomercial, may be required
to be registered in some capacity to continue to engage in our sales activities
related to the Trade products, the Company believes the CFTC's analysis and
conclusions are incorrect and are based on incomplete information. In October
1998, the Company issued a written response to the CFTC's position setting forth
the reasons why the Company is not required to register in any capacity with the
CFTC. The CFTC has indicated that registration may be required. The Company has
been advised by our counsel that the initiation of a CFTC enforcement action
against us requiring registration or seeking the imposition of sanctions is
unwarranted. As of the date of this prospectus, there has been no indication
that the CFTC seeks any relief other than registration. To date, no complaint or
enforcement action has been asserted against Genesis, our officers, directors or
employees.
If it is determined in the investigation or any resulting proceeding that
registration is required, the Company intends promptly to effect any required
registration. It is estimated that the cost of registering Genesis with the CFTC
will be less than $1,000. In the event that the CFTC were to bring an
enforcement action against Genesis by virtue of our failure to register, which
the Company believes would be unwarranted, any adverse determination or
settlement in this action could adversely affect us. The range of possible
sanctions available to the CFTC in enforcement actions generally includes a
simple request to become registered, a cease and desist order--which could, if
successfully applied to the Company or TYWR, terminate sales of some Trade Your
Way To Riches products or services--and a possible order of disgorgement of
profits--which could, again if applied to us, result in substantial payments by
us. In February 1999, the Company commenced negotiations with the CFTC to
terminate the investigation and settle all underlying claims against us and all
other persons subject to the investigation. Although the Company believes that a
settlement can be reached that will not have a material adverse impact on us,
the Company can not predict whether any settlement proposal the Company may make
will be accepted by the CFTC or by what time. For the reasons discussed in the
preceding paragraph, the Company believes that if the Company is unable to reach
agreement on a consensual resolution with the CFTC, then the final resolution of
the investigation or any ensuing action or proceeding will not have a material
adverse effect on the Company.
21
<PAGE>
On February 5, 1999, the former chief executive officer of our Genesis
Intermedia, Inc. subsidiary commenced a suit for wrongful termination in
California Superior Court in Los Angeles County. The plaintiff is Sam Hassabo
and the principal defendants are Genesis, our Genesis Intermedia, Inc.
subsidiary and our chief executive officer, Mr. El-Batrawi. The complaint
alleges wrongful termination and breach of employment contract. The complaint
also alleges that the defendants engaged in fraud and negligent
misrepresentation in connection with the plaintiff's hiring and the termination
of his employment. Mr. Hassabo was terminated from his position as director and
chief executive officer of Genesis Intermedia, Inc. in December 1998. The
complaint primarily seeks monetary and punitive damages. The Company believes
the suit is frivolous and the Company intends to defend it vigorously. The
Company carries employment practices and general liability insurance which the
Company believes is adequate to cover any potential liability.
The Company may also be involved from time to time in various other claims and
legal actions incident to its operations, either as plaintiff or defendant. As
an advertiser, the Company may be exposed to unforeseen liability to consumers,
competitors or others, against which the Company is not insured. The Company
from time to time may be, or may be joined as, a defendant in litigation brought
against us or our clients by third parties. As the Company acquires the rights
to diverse new products and increases our client base, the likelihood of that
type of suit will increase. These possible claims include those brought by
clients' competitors, regulatory bodies or consumers alleging that advertising
claims are false, deceptive or misleading, that our clients' products are
defective or injurious or that marketing and communications materials infringe
on the proprietary rights of third parties. The Company does not maintain
insurance designed specifically for advertising agency liability. If the Company
is not adequately insured or indemnified, then the damages, costs, expenses or
attorneys' fees could have an adverse effect on us.
In addition, the contracts the Company enters into with our clients sometimes
require us to indemnify clients for claims brought by competitors or others
claiming that advertisements or other communications infringe on intellectual
property rights. Although the Company maintains business insurance the Company
believe is adequate for our operations, adequate insurance coverage may not be
available in the future or the insurance held by us may not be sufficient if a
significant adverse claim is made.
22
<PAGE>
Item 2. Change in Securities and Use of Proceeds
The Company completed its initial public offering by selling 2,000,000 shares of
its $0.001 par value common stock for $8.50 per share pursuant to a registration
statement (commission file no. 333-66281) dated June 14, 1999. The managing
underwriters for this offering were Millennium Financial Group, Inc., HD Brous &
Co., Inc. and American Fronteer Financial Corporation. The Company received net
proceeds of approximately $12,332,590 after deducting underwriters' commissions,
non-accountable expense allowance and other offering expenses of approximately
$1,360,000, $510,000 and $2,963,803, respectively.
The following table sets forth the Company's use of proceeds from its initial
public offering, from the closing of the offering until September 30, 1999.
Purchase of office building $ 3,423,652
Purchase of the Contour System 3,155,000
Repayment of notes payable 550,000
Purchase of media and other working capital needs 5,037,545
-----------
Total net proceeds $12,166,197
===========
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
None
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENESISINTERMEDIA.COM, INC.
By: /s/ Douglas E. Jacobson
Douglas E. Jacobson
Chief Financial and Principal
Accounting Officer
Date: November 15, 1999
24
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 321930
<SECURITIES> 0
<RECEIVABLES> 2893110
<ALLOWANCES> (160000)
<INVENTORY> 407628
<CURRENT-ASSETS> 10590609
<PP&E> 15068558
<DEPRECIATION> (443459)
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<CURRENT-LIABILITIES> 9096020
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0
870000
<COMMON> 5300
<OTHER-SE> 14707886
<TOTAL-LIABILITY-AND-EQUITY> 33056467
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<CGS> 7137019
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<OTHER-EXPENSES> (258001)
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<INTEREST-EXPENSE> 384759
<INCOME-PRETAX> (1678989)
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</TABLE>
