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, 2000
[ ] 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)
(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 14, 2000 - 6,476,350 shares of Common Stock
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
GENESISINTERMEDIA.COM, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2000 2-3
Condensed Consolidated Statements of Operations for
the three months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Operations for
the nine months ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Change in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 21
Part III. EXHIBITS
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GENESISINTERMEDIA.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(unaudited)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,571,541
Accounts receivable, net 7,491,351
Inventories 1,194,881
Revenue earning equipment 6,807,263
Prepaid advertising 2,781,056
Advances receivable 1,159,682
Deposits and other prepaid assets 2,905,712
------------------
TOTAL CURRENT ASSETS 23,911,486
PROPERTY AND EQUIPMENT, NET 21,900,564
CUSTOMER LISTS 1,432,928
GOODWILL, NET 4,771,612
OTHER ASSETS 1,121,061
------------------
TOTAL ASSETS $ 53,137,651
==================
</TABLE>
2
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF SEPTEMBER 30, 2000
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Current portion of notes payable $ 381,928
Current portion of capital lease obligations 310,489
Convertible debentures 105,000
Line of credit 7,129,601
Accounts payable 3,823,818
Accrued payroll taxes 1,194,714
Other accrued liabilities 2,189,695
Income taxes payable 65,000
------------------
TOTAL CURRENT LIABILITIES 15,200,245
NOTES PAYABLE, NET OF CURRENT PORTION 32,940,511
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 281,925
------------------
TOTAL LIABILITIES 48,422,681
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 5,000,000 authorized
Convertible preferred stock
142,858 shares issued and outstanding
($7.00 per share liquidation preference
Dividends of $138,542 in arrears) 143
Series B convertible preferred stock
4,000 shares issued and outstanding
($1,000 per share liquidation preference
Dividends of $100,000 in arrears) 4
Common stock, $0.001 par value
25,000,000 shares authorized
6,476,350 shares issued and outstanding 6,476
Additional paid-in capital 31,969,256
Common stock committed 28,440
Accumulated deficit (24,886,866)
Treasury stock (2,402,483)
------------------
TOTAL STOCKHOLDERS' EQUITY 4,714,970
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 53,137,651
==================
</TABLE>
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,
2000 1999
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
REVENUE $ 16,691,151 $ 8,782,009
COST OF REVENUE 4,174,244 1,778,706
------------------ ------------------
GROSS PROFIT 12,516,907 7,003,303
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 15,641,758 9,700,781
------------------ ------------------
INCOME (LOSS) FROM OPERATIONS (3,124,851) (2,697,478)
OTHER INCOME (EXPENSES)
Gain on sale of assets - 258,011
Interest expense (1,071,883) (187,826)
Financing costs (50,000) (44,179)
------------------ ------------------
TOTAL OTHER INCOME (EXPENSES) (1,121,883) 26,006
------------------ ------------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (4,246,734) (2,671,472)
PROVISION (BENEFIT) FOR INCOME TAXES - (399,000)
------------------ ------------------
NET INCOME (LOSS) $ (4,246,734) $ (2,272,472)
================== ==================
BASIC EARNINGS (LOSS) PER COMMON SHARE $ (0.69) $ (0.43)
================== ==================
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (0.69) $ (0.43)
================== ==================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 6,178,257 5,308,872
================== ==================
</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,
2000 1999
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
REVENUE $ 32,211,906 $ 22,647,443
COST OF REVENUE 9,212,407 7,137,019
------------------ ------------------
GROSS PROFIT 22,999,499 15,510,424
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 37,259,813 17,062,665
------------------ ------------------
INCOME (LOSS) FROM OPERATIONS (14,260,314) (1,552,241)
OTHER INCOME (EXPENSES)
Gain on sale of assets - 258,011
Interest expense (2,306,625) (276,552)
Financing costs (153,125) (108,207)
------------------ ------------------
TOTAL OTHER INCOME (EXPENSES) (2,459,750) (126,748)
------------------ ------------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (16,720,064) (1,678,989)
PROVISION (BENEFIT) FOR INCOME TAXES - (38,000)
------------------ ------------------
NET INCOME (LOSS) $ (16,720,064) $ (1,640,989)
================== ==================
BASIC EARNINGS (LOSS) PER COMMON SHARE $ (2.90) $ (0.40)
================== ==================
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (2.90) $ (0.40)
================== ==================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 5,760,923 4,077,935
================== ==================
</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,
2000 1999
--------------------- ---------------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ (16,720,064) $ (1,640,989)
Net income (loss)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 4,062,635 857,246
Stock issued for financing costs 103,125 -
Deferred taxes - (38,000)
(Increase) decrease in operating assets (9,494,226) (6,249,193)
Increase (decrease) in operating liabilities (2,275,519) 3,934,159
--------------------- ---------------------
Net cash used in operating activities (24,324,049) (3,136,777)
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (5,684,856) (12,765,555)
Purchase of customer list - (2,270,330)
Purchase of Contour system - (3,155,000)
Purchase of AniMagic - (145,000)
Cash acquired with purchase of Dynamedia and CRD 266,131 -
Other (261,889) (715,085)
--------------------- ---------------------
Net cash used in investing activities (5,680,614) (19,050,970)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from related parties - (15,495)
Net proceeds from line of credit 451,572 1,058,955
Distribution to stockholder - (2,000,000)
Proceeds from notes payable 29,419,980 8,406,250
Proceeds from sale of stock, net 3,798,035 15,274,479
Proceeds from exercise of options and warrants 887,701 -
Repurchase of common stock (2,296,813) (51,320)
Payment on notes payable and capital leases (1,458,330) (2,004,754)
Other 184,314 -
--------------------- ---------------------
Net cash provided by financing activities 30,986,459 20,668,115
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents
during period 981,796 (1,519,632)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 589,745 1,841,562
--------------------- ---------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,571,541 $ 321,930
===================== =====================
</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 nine months ended September 30, 2000 are not necessarily indicative of
the results to be expected for the full year ending December 31, 2000.
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. The following potential common shares have been
excluded from the computation of diluted net loss per share for all periods
presented because the effect would have been anti-dilutive.
For the Nine Months Ended
September 30,
----------------------------
2000 1999
------------ ------------
(Unaudited) (Unaudited)
Options outstanding under the
Company's stock option plans 443,512 476,720
Convertible debenture 6,176 -
Convertible preferred stock 246,154 -
Warrants issued in conjunction
with notes payable 242,321 78,571
Warrants issued in conjunction
with common stock 250,000 250,000
Warrants issued in conjuction
with preferred stock 254,857 142,857
Warrants issued in conjunction
with convertible debentures 22,500 -
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2000 consisted of the following:
Land $ 1,450,000
Building and improvements 10,988,538
Vehicles 161,927
Furniture and equipment 11,435,841
---------------
24,036,306
Less accumulated depreciation (2,135,742)
---------------
Total $ 21,900,564
===============
7
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4 - NOTES PAYABLE
In February 2000, the Company issued a $1,000,000 convertible debenture,
warrants to purchase 22,500 shares of the Company's common stock at an exercise
price of $12.00 per share and 15,000 shares of the Company's common stock. The
debenture is convertible into the Company's common stock at $5.00 per share if
it is held to maturity. The debenture was due on April 7, 2000 and was repaid by
the Company on April 14, 2000. The Company took a charge to earnings for the
issuance of the 15,000 shares of common stock in the amount of $103,125.
During the nine months ended September 30, 2000, the Company received
$29,303,935 from the same lender to whom the Company had the unsecured note
payable at December 31, 1999 of $1,463,403. The payment terms for these are the
same as for the previous funds. In August 2000, the holder of the unsecured note
payable exercised 700,000 warrants to purchase the Company's common stock at
$7.00 per share. The proceeds of $4,900,000 were paid through a reduction of
$4,900,000 of debt to the holder. The Company also paid the holder $100,000 to
fully repay the original $5,000,000 note.
NOTE 5 - STOCKHOLDERS' EQUITY
On May 2, 2000, the Company issued 4,000 shares of its Series B Convertible
Preferred Stock to two investors for gross proceeds of $4,000,000. The Series B
Convertible Preferred Stock has a liquidation preference of $1,000 per share and
carries a 5% cumulative dividend payable at the end of each calendar quarter.
The Company also issued to the investors an aggregate of 112,000 warrants to
purchase the Company's common stock at $17.74 per share, which represents 115%
of the market value of the Company's stock at the closing date. The Series B
Convertible Preferred Stock is convertible into common stock at 110% of the
market value of the Company's common stock at the closing date ("Fixed Price")
if converted within 45 days after the closing date, and the lesser of the Fixed
Price or the market value of the Company's common stock at the conversion date
if converted 45 days or more after the closing date.
During the nine months ended September 30, 2000, the Company received $304,920
and $5,482,782 from the exercise of 44,208 employee stock options and 757,142
warrants, respectively. Included in the warrants exercised are 700,000 warrants
exercised through the reduction of $4,900,000 of notes payable. The Company also
received $184,314 from a stockholder who disgorged to the Company "short-swing"
profits in such amount.
8
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 6 - ACQUISITION
On April 1, 2000, the Company purchased all of the issued and outstanding stock
of Car Rental Direct, Inc. for 260,000 shares of the Company's common stock
valued at $4,420,000. The transaction was accounted for using the purchase
method of accounting; accordingly, the purchase price has been allocated to the
assets acquired and liabilities assumed based on the estimated fair values at
the date of acquisition. The excess of the purchase price over the estimated
fair value of the net assets acquired is attributed to goodwill which is being
amortized over seven years.
The fair value of assets acquired and liabilities assumed is summarized as
follows:
Cash $ 91,421
Revenue generating equipment (rental cars) 5,119,992
Furniture and equipment 309,573
Goodwill 4,652,544
Other assets 282,269
Line of credit (5,172,623)
Other liabilities (619,176)
Convertible debenture (244,000)
---------------
Purchase price $ 4,420,000
===============
The convertible debentures assumed by the Company are non-interest bearing,
mature on August 1, 2000 and are convertible into the Company's common stock at
$17 per share at the option of the holder. In August 2000, the Company repaid
$139,000 of these convertible notes and paid the remaining $105,000 in October
2000.
The revenue generating equipment represents rental cars that are being
depreciated over three years.
9
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 7 - CONTINGENCIES
The Company may be involved from time to time in various 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 it or its clients by third parties. As the Company acquires the rights
to diverse new products and increases its 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 its 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 the Company.
The case involving the former chief executive officer of Genesis Intermedia,
Inc., a wholly owned subsidiary of the Company, was dismissed in August 2000.
In April 2000, the Commodity Futures Trading Commission ("CFTC") amended its
rules and as a result no longer requires that persons rendering impersonalized
trading advice register as commodity trading advisors. This rule change,
combined with the fact that the CFTC has not asked for additional documents or
requested additional dispositions in many months, leads the Company to believe
that the CFTC may no longer be actively pursuing its investigation. Although, no
assurance can be made that the investigation is inactive, has been abandoned or
will conclude at any time soon, the Company believes that any ensuing action or
proceedings by the CFTC would not have a material adverse effect on the Company.
The Company has been subject to claims of intellectual property infringement and
may increasingly be subject to these types of claims as the number of products
and services and competitors in its markets grows and the functionality of
products and services in other industry segments overlaps. Although the Company
does not believe that any of its products or services infringes upon the
proprietary rights of third parties, there can be no assurance that third
parties will not claim infringement by the Company with respect to current or
future products or services. In addition, the Company periodically acquires
intellectual property from third parties, including in connection with its
acquisitions. In some instances this intellectual property is prepared on a
work-for-hire or similar basis. In some instances the Company licenses the
intellectual property and in others it is acquired. In the future the Company
may be party to disputes about ownership, license scope and royalty or fee terms
with respect to some of this intellectual property. Any claims, with or without
merit, could be time-consuming, result in costly litigation, cause product or
service delays or require the Company to enter into royalty or licensing
agreements, any of which could have an adverse effect upon the Company. We may
also initiate claims or litigation against third parties for infringement of its
proprietary rights or to establish the validity of its proprietary rights, which
could result in significant expense to the Company and divert the efforts of its
technical and management personnel from productive tasks, whether or not the
litigation were determined in its favor.
10
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 7 - CONTINGENCIES, CONTINUED
In addition, the contracts the Company enters into with its clients sometimes
require the Company 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
that the Company believes is adequate for our operations, adequate insurance
coverage may not be available in the future or the insurance held by the Company
may not be sufficient if a significant adverse claim is made.
NOTE 8 - SEGMENT INFORMATION
The Company has five business units that have separate management and reporting
infrastructures that offer different products and services. The business units
have been aggregated into five reportable segments: Media, Intermedia,
Properties, Dynamedia and Car Rental. The Media group conducts direct response
advertising campaigns and buys media time and either sells it to third parties
or uses it to market its own products. The Intermedia group is deploying the
CENTERLINQ network of public access Internet kiosks in shopping malls within the
United States. The Properties group maintains the Company's building and
generates revenue from the building's tenants. Dynamedia provides creative
design and graphic services to clients including Fortune 500 companies. Car
Rental rents vehicles principally to the replacement market. Most corporate
expenses, such as internal administrative costs, legal expenses and debt
issuance costs, are included in the Media group.
Summarized financial information concerning the Company's reportable segments is
shown in the following table as of and for the nine months ended September 30,
2000:
<TABLE>
<CAPTION>
Net
Income Total
Revenue (Loss) Assets
---------------- ---------------- -----------------
<S> <C> <C> <C>
Media $ 26,301,673 $ (8,400,984) $ 18,330,259
Intermedia 229,241 (6,118,166) 9,908,033
Properties 749,412 (791,809) 12,069,431
Dynamedia 1,043,509 (58,360) 397,540
Car Rental 3,888,071 (1,350,745) 12,432,388
---------------- ---------------- -----------------
Total $ 32,211,906 $ (16,720,064) $ 53,137,651
================ ================ =================
</TABLE>
11
<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 our consolidated financial statements and related footnotes for the year
ended December 31, 1999 included in our Annual Report on Form 10-KSB. 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. uses its core competencies to develop
Internet technologies and Internet companies. It owns distinct marketing
channels, and through CENTERLINQ, is a leading provider of public Internet
access portals in shopping malls. We have been building an infrastructure to
build, develop and nurture new Internet technology companies and businesses. We
market products and services, which we develop, license exclusively or
distribute for third parties, utilizing network and cable television, radio,
newspapers, magazines, the Internet and our CENTERLINQ network. As we have done
with CENTERLINQ, we leverage our strength in operations, marketing and the
deployment of traditional and new media to advance new and innovative
technologies within strategically identified market segments.
Historically, our operations have consisted of the marketing,
advertising and sales of our own products and those of our clients utilizing
traditional marketing channels. While we continue to utilize conventional media
to fulfill our marketing needs and those of our clients, our focus more recently
has been on investing in and bringing to market innovative technology-based
concepts that center around use of the Internet.
CENTERLINQ is an Internet-based interactive network consisting of
public access kiosks, currently located exclusively in shopping malls but
adaptable to a wide range of venues. CENTERLINQ is also accessible through the
Internet at www.CENTERLINQ.com. Advertising displayed on large screen monitors
on and adjacent to the public access kiosks enhances network usage and revenues.
We invested heavily to support the operational needs of CENTERLINQ and
to attain a leadership position as a network of public Internet portals.
Investments in CENTERLINQ included those made in network architecture, expansion
of information services, installation, field maintenance and client service
personnel, programming and information technology professionals, research and
development, quality assurance and the build out of physical space and
infrastructure to support the operations.
These investments enabled us to announce in December 1999 that
CENTERLINQ had reached critical mass. Currently, the systems are installed in 21
shopping malls across the United States including malls in California, Nevada,
Arizona, Michigan, Pennsylvania and Indiana. Traffic at these malls thus far
enable CENTERLINQ to create approximately 22 million impressions per month. We
foresee CENTERLINQ network expansion in additional malls throughout North
America, and are discussing expansion into Europe and Latin America. We
currently have 31 malls scheduled for deployment over the next few months and we
are in conversations with mall owners for the deployment of 115 new malls next
year. We currently have contracts with some of the country's largest mall
owners, including The Taubman Company, Forest City Enterprises, Urban Retail
Properties, Colonial Properties and Crown American Realty Trust.
12
<PAGE>
The CENTERLINQ experience has not only been successful, but has taught
us how to apply those same development standards and resources to other
businesses and technologies to achieve an effective rollout of product. Our
management now views its role as a creator of long-term shareholder value more
closely in alignment with our ability to propagate additional Internet-based
companies in accordance with its established "incubation" process.
We seek to identify acquisition candidates whose core competencies
include the development of Internet technology, networking solutions,
interactive concepts and a variety of other high-growth areas that can be
integrated into valuable business-to-business and business-to-consumer
companies. We intend to expand client participation in interactive e-commerce
and the CENTERLINQ programs, particularly as CENTERLINQ is rolled out throughout
regional shopping malls across the United States and into additional public
access areas. Presently, the focus is on marketing efforts with local or
regional advertisers, or local representatives of national organizations. We
intend to seek additional national advertisers and participants in CENTERLINQ
once the deployment of the network has sufficient national scope.
Even though we are entering emerging markets and have begun to generate
revenue from CENTERLINQ, we continue to rely on marketing products for a
substantial part of our revenues. Proprietary products sold by us through
integrated marketing capabilities include audio and video tapes and companion
material products based on the book Men Are From Mars, Women Are From Venus, by
John M. Gray, Ph.D., the Money Mastery financial mentoring products, Diet ZX and
other new products recently acquired. We expect that revenues from the marketing
of products will continue to account for a major percentage of our revenues in
the foreseeable future. While revenues are expected to rise, we also expect the
overall percentage of revenues that can be attributed to marketing activities
will decline as our refined business plan that concentrates on the development
of business-to-business and business-to-consumer enterprises that use Internet
technology continues.
In April 2000, we purchased Dynatype Design and Graphics Centers, Inc.
("Dynamedia"), a company that provides creative design and graphic services. Its
clients include Fortune 500 companies. We issued 90,000 shares of our common
stock for all of the issued and outstanding shares of common stock of Dynamedia.
We have accounted for this business combination using the pooling of interest
method.
Also in April 2000 we purchased all of the issued and outstanding stock
of Car Rental Direct, Inc. for 260,000 shares of our common stock valued at
$4,420,000. The transaction was accounted for using the purchase method of
accounting; accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on the estimated fair values at the date
of acquisition. The excess of the purchase price over the estimated fair value
of the net assets acquired is attributed to goodwill, which is being amortized
over seven years.
In April 2000 and June 2000, we entered into note payable agreements
with Ultimate Holdings, Ltd, ("Ultimate"), a Bermuda limited company, wherein we
borrowed up to $6,000,000 and $10,000,000, respectively, in exchange for secured
promissory notes.
We plan to aggressively grow our business both internally and through
strategic acquisitions. We are aggressively looking to acquire business that
will fit into our business model.
13
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 vs. September 30, 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERCENTAGE OF
SEPTEMBER 30, NET REVENUE
-------------------------------- -----------------------------
2000 1999 2000 1999
-------------------------------- -------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
REVENUE $16,691 $8,782 100.0% 100.0%
COST OF REVENUE 4,174 1,779 25.0% 20.2%
---------------- -------------- -------------- -------------
GROSS PROFIT 12,517 7,003 75.0% 79.8%
---------------- -------------- -------------- -------------
SELLING, GENERAL AND ADMINISTRATIVE 15,642 9,700 93.7% 110.5%
---------------- -------------- -------------- -------------
INCOME FROM OPERATIONS (3,125) (2,697) (18.7%) (30.7%)
---------------- -------------- -------------- -------------
Gain on sale of assets - 258 - 2.9%
Interest expense (1,072) (188) (6.4%) (2.1%)
Financing costs (50) (44) (0.3%) (0.5%)
---------------- -------------- -------------- -------------
TOTAL OTHER INCOME EXPENSES (1,122) 26 (6.7%) 0.3%
---------------- -------------- -------------- -------------
INCOME (LOSS) BEFORE TAXES (4,247) (2,671) (25.4%) (30.4%)
Income taxes - (399) - (4.5%)
---------------- -------------- -------------- -------------
NET INCOME (LOSS) $(4,247) $(2,272) (25.4%) (25.9%)
================ ============== ============== =============
</TABLE>
Revenue for the three months ended September 30, 2000 increased by
$7,909,000, or 90.1%, from $8,782,000 for the three months ended September 30,
1999 to $16,691,000 for the same period in 2000. The increase in revenue was due
to the following:
o Product sales and commissions from sales of products increased $4,924,000,
or 61.1%, from $8,063,000 for the three months ended September 30, 1999 to
$12,987,000 for the same period in 2000. We are continuing to increase our
product and commissions sales through the sale of new products. Sales of
Diet ZX increased significantly during the three months ended September 30,
2000;
o Revenue from our Car Rental Direct ("CRD") subsidiary was $2,828,000 for
three months ended September 30, 2000. Since we just purchased CRD in April
2000, there was no corresponding revenue for the three months ended
September 30, 1999.
14
<PAGE>
Cost of revenues for the three months ended September 30, 2000
increased by $2,395,000, or 134.7%, from $1,779,000 for the three months ended
September 30, 1999 to $4,174,000 for the same period in 1999. As a percentage of
revenue, cost of revenue was 25.0% for the three months ended September 30, 2000
compared to 20.3% for the same period in 1999. The increase is due to the higher
cost of revenue associated with the revenue generated from our CRD and Dynamedia
subsidiaries. The cost of revenue for CRD and Dynamedia for the three months
ended September 30, 2000 was 85.8% and 66.7%, respectively. Cost of revenue
associated with our product sales for the three months ended September 30, 2000
was 11.5% compared to 16.3% for the same period in 1999. The decrease is due to
lower product costs associated with the products and programs we are currently
selling when compared to the products sold in 1999.
Selling, general and administrative expenses for the three months ended
September 30, 2000 increased by $5,941,000, or 61.2%, from $9,701,000 for the
three months ended September 30, 1999 to $15,642,000 for the same period in
2000. The increase was due principally to an increase in payroll and related
benefits and an increase in selling related expenses. Selling related expenses
include the cost of acquiring customer names, purchasing media time for airing
of infomercials, royalties and telemarketing costs. We expensed $2,005,000 in
media airtime during the three months ended September 30, 2000. As a result of
expanding operations through the creation of Genesis Intermedia, the purchase of
Dynamedia and CRD, our 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. We have taken steps to
significantly expand its CENTERLINQ Network of kiosks in shopping malls.
Interest expense for the three months ended September 30, 2000
increased by $884,000, or 470.1%, from $188,000 for the three months ended
September 30, 1999 to $1,072,000 for the same period in 2000. The increase in
interest expense was due to the issuance of a note payable secured by our new
corporate office building in Van Nuys, California, unsecured notes payable and
capitalized lease obligations.
Financing costs for the nine months ended September 30, 2000 increased
by $6,000 from $44,000 for the three months ended September 30, 1999 to $50,000
for the same period in 2000. The financing costs incurred during the three
months ended September 30, 1999 relate to costs paid to a broker who was engaged
by us to raise capital.
Income taxes for the three months ended September 30, 2000 increased by
$399,000 from a benefit of $399,000 for the three months ended September 30,
1999 to $0 for the same period in 2000. There is no provision for income taxes
due to the net loss incurred by us during the three months ended September 30,
2000.
15
<PAGE>
Nine Months Ended September 30, 2000 vs. September 30, 1999
<TABLE>
<CAPTION>
NINE MONTHS ENDED PERCENTAGE OF
SEPTEMBER 30, NET REVENUE
-------------------------------- ------------------------------
2000 1999 2000 1999
-------------------------------- --------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
REVENUE $32,212 $22,647 100.0% 100.0%
COST OF REVENUE 9,212 7,137 28.6% 31.5%
---------------- -------------- -------------- -------------
GROSS PROFIT 23,000 15,510 71.4% 68.5%
---------------- -------------- -------------- -------------
SELLING, GENERAL AND ADMINISTRATIVE 37,260 17,062 115.7% 75.3%
---------------- -------------- -------------- -------------
INCOME (LOSS) FROM OPERATIONS (14,260) (1,552) (44.3%) (6.8%)
---------------- -------------- -------------- -------------
Gain on sale of assets - 258 - 1.1%
Interest expense (2,307) (277) (7.2%) (1.2%)
Financing costs (153) (108) (0.5%) (0.5%)
---------------- -------------- -------------- -------------
TOTAL OTHER INCOME EXPENSES (2,460) (127) (7.7%) (0.6%)
---------------- -------------- -------------- -------------
INCOME (LOSS) BEFORE TAXES (16,720) (1,679) (52.0%) (7.4%)
Income taxes - (38) - (0.2%)
---------------- -------------- -------------- -------------
NET INCOME (LOSS) $(16,720) $(1,641) (52.0%) (7.2%)
================ ============== =============== =============
</TABLE>
Revenue for the nine months ended September 30, 2000 increased by
$9,565,000, or 42.2%, from $22,647,000 for the nine months ended September 30,
1999 to $32,212,000 for the same period in 2000. The increase in revenue was due
to the following:
o Product sales and commissions from sales of products increased $8,747,000,
or 52.4%, from $16,687,000 for the nine months ended September 30, 1999 to
$25,434,000 for the same period in 2000. Approximately 56.3% of the
increase in product sales and commission took place in the quarter ended
September 30, 2000. We are continuing to increase our product and
commissions sales through the sale of new . Sales of Diet ZX increased
significantly during the three months ended September 30, 2000;
o Revenue from CRD was $3,888,000 for nine months ended September 30, 2000.
Since we just purchased CRD in April 2000, there was no corresponding
revenue for the nine months ended September 30, 1999.
o Media sales decreased from $5,605,000 for the nine months ended September
30, 1999 to $868,000 for the same period in 2000. This was due to more of
our time and resources being focused on promoting our new products rather
than on selling media time to third parties. During the first quarter of
1999 the we had media sales of $3,938,000;
Cost of revenues for the nine months ended September 30, 2000 increased
by $2,075,000, or 29.1%, from $7,137,000 for the nine months ended September 30,
1999 to $9,212,000 for the same period in 1999. As a percentage of revenue, cost
16
<PAGE>
of revenue was 28.6% for the nine months ended September 30, 2000 compared to
31.5% for the same period in 1999. The decrease is due to the mix of sales. For
the nine months ended September 30, 1999 we had $5,605,000 in media sales which
had an associated cost of revenue of 88.7%. The cost of revenue for CRD and
Dynamedia for the nine months ended September 30, 2000 was 86.1% and 53.8%,
respectively. Cost of revenue associated with our product sales for the nine
months ended September 30, 2000 was 18.5% compared to 13.0% for the same period
in 1999. The increase is due to higher product costs associated with the
products and programs we are currently selling when compared to the products
sold by us in 1999.
Selling, general and administrative expenses for the nine months ended
September 30, 2000 increased by $20,197,000, or 118.4%, from $17,063,000 for the
nine months ended September 30, 1999 to $37,260,000 for the same period in 2000.
The increase was due principally to an increase in payroll and related benefits
and an increase in selling related expenses. Selling related expenses include
the cost of acquiring customer names, purchasing media time for airing of
infomercials, royalties and telemarketing costs. We expensed $7,975,000 in media
airtime during the nine months ended September 30, 2000. As a result of
expanding operations through the creation of Genesis Intermedia, the purchase of
Dynamedia and CRD, our 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. We have taken steps to
significantly expand our CENTERLINQ Network of kiosks in shopping malls.
Interest expense for the nine months ended September 30, 2000 increased
by $2,030,000, or 732.8%, from $277,000 for the nine months ended September 30,
1999 to $2,307,000 for the same period in 2000. The increase in interest expense
was due to the issuance of a note payable secured by our new corporate office
building in Van Nuys, California, unsecured notes payable and capitalized lease
obligations.
Financing costs for the nine months ended September 30, 2000 increased
by $45,000, or 41.7% from $108,000 for the nine months ended September 30, 1999
to $153,000 for the same period in 2000. The increase is due to the issuance of
15,000 shares of our common stock in connection with a note payable issued in
February 2000 and $50,000 paid to a broker engaged to raise capital for us.
Income taxes for the nine months ended September 30, 2000 increased by
$38,000 from a benefit of $38,000 for the nine months ended September 30, 1999
to $0 for the same period in 2000. There is no provision for income taxes due to
the net loss incurred by us during the nine months ended September 30, 2000. .
LIQUIDITY AND CAPITAL RESOURCES
We financed our operations initially from cash generated from
operations. More recently, we have financed our operations through the sale of
common and preferred stock in private placement offerings, sale of common stock
in our initial public offering, a long-term mortgage and a line of credit.
In January and April 1999, we 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 $7.00 per share for an aggregate of $1,750,000, with
underwriting commissions and expenses of $201,250.
17
<PAGE>
In April 1999, we sold 142,858 shares of convertible preferred stock
and warrants to purchase 142,858 shares of common stock in a private placement
at $7.00 per share for an aggregate of $1,000,000 with underwriting commissions
and expenses of $115,000.
In May 1999, we issued three notes payable in a private placement for
aggregate proceeds of $550,000, net of commissions and expenses of $108,000. In
connection with these three note payable agreements, we also issued warrants to
purchase 78,571 shares of common stock.
In June 1999, we sold 2,000,000 shares of common stock in our 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
$2,722,803.
In July 1999, we purchased an office building in Van Nuys, California
for $11,100,000 for which we issued a note payable in the amount of $7,856,250.
In the third quarter of 1999, we increased our $750,000 line of credit
to $1,500,000 from a major financial institution that is collateralized by
substantially all of our assets, except our office building. The loan is
guaranteed by our majority stockholder. This line of credit was not renewed and
we repaid the outstanding balance in full during the second quarter of 2000.
From November 1999 to September 2000, we borrowed $30,883,383 from
debentures secured by the same party as the initial debenture secured in
November 1999. In connection with the debenture secured in November 1999, we
issued warrants to purchase 750,000 shares of common stock with an exercise
price of $7.00. Such warrant to purchase 750,000 shares of common stock was
reduced to 700,000 in exchange for a removal of a 60-day waiting period
requirement in the original warrant. The warrant for 700,000 was exercised in
August 2000. The exercise price for these warrants of $4,900,000 was paid via a
reduction of the debenture.
In February 2000, we issued a convertible debenture in the amount of
$1,000,000 along with a warrant to purchase 22,500 shares of common stock at an
exercise price of $12.00 and the issuance of 15,000 shares of our common stock.
The debenture is convertible into common stock at $5.00 per share if it is held
to maturity. The debenture was due on April 7, 2000 and has been repaid. We took
a charge to earnings for the 15,000 common shares issued in connection with this
debenture in the amount of $103,125.
Also in May 2000, we issued 4,000 shares of our Series B Convertible
Preferred Stock to two investors for gross proceeds of $4,000,000. The Series B
Convertible Preferred Stock has a liquidation preference of $1,000 per share and
carries a 5% cumulative dividend payable at the end of each calendar quarter. We
also issued to the investors warrants to purchase an aggregate of 112,000 shares
of our common stock at $17.74 per share, which represents 115% of the market
value of our stock at the closing date. The Series B Convertible Preferred Stock
is convertible into common stock at 110% of the market value of our common stock
at the closing date ("Fixed Price") if converted within 45 days after the
closing date, and the lesser of the Fixed price or the market value of our
common stock at the conversion date if converted 45 days or more after the
closing date.
In connection with our acquisition of Car Rental Direct, Inc. in April
2000, we assumed a convertible debenture in the amount of $244,000 and lines of
credit to purchase vehicles. The outstanding balance on these lines of credit as
of September 30, 2000 was $7,129,601.
During the nine months ended September 30, 2000, we spent $5,684,856
on capital expenditures and used $24,324,049 in operations.
18
<PAGE>
We expect to spend additional capital to expand our product lines and
our telemarketing division, and to make strategic acquisitions. We anticipate
spending $15 to 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.
We believe that our current cash and cash equivalents on hand, together
with existing credit facilities, the cash flow expected to be generated from
operations and cash generated from future sales of our equity, will be adequate
to satisfy our current and planned operations through the middle of 2001.
However, we are currently seeking to acquire a bank credit line or similar
credit facility and seeking to refinance our mortgage on our new office building
to help finance future operations and acquisitions. We are currently in the
process of raising additional equity capital in a private placement offering
that is being underwritten by a major financial institution. If we are not
successful, our ability to expand CENTERLINQ and make strategic acquisitions
will be adversely affected. We are also seeking additional financing to expand
our existing business to purchase new products and purchase media time to
advertise for these products. If we are unable to obtain this financing, our
ability to purchase media time to advertise our products will be significantly
limited.
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 us to install new kiosks, general market conditions,
competition and pricing. Although we believe 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.
19
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The case involving, the former chief executive officer of our Genesis
Intermedia, Inc. subsidiary was dismissed in August 2000.
In April of 2000, the Commodity Futures Trading Commission ("CFTC") amended its
rules and as a result no longer requires that persons rendering impersonalized
trading advice register as commodity trading advisors. This rule change,
combined with the fact that the CFTC has not asked for additional documents or
requested additional dispositions in many months, leads us to believe that the
CFTC may no longer be actively pursuing the investigation. However, no assurance
can be made that the investigation is inactive, has been abandoned or will
conclude at any time soon, but in any event we believe that any ensuing action
or proceedings by the CFTC would not have a material adverse effect on us.
We have been subject to claims of intellectual property infringement and may
increasingly be subject to these types of claims as the number of products and
services and competitors in our markets grows and the functionality of products
and services in other industry segments overlaps. Although we do not believe
that any of our products or services infringes upon the proprietary rights of
third parties, there can be no assurance that third parties will not claim
infringement by us with respect to current or future products or services. In
addition, we periodically acquire intellectual property from third parties,
including in connection with our acquisitions. In some instances this
intellectual property is prepared on a work-for-hire or similar basis, in some
instances we license the intellectual property and in others we acquire it. We
may in the future be party to disputes about ownership, license scope and
royalty or fee terms with respect to some of this intellectual property. Any
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product or service delays or require us to enter into royalty
or licensing agreements, any of which could have an adverse effect upon us. We
may also initiate claims or litigation against third parties for infringement of
our proprietary rights or to establish the validity of our proprietary rights,
which could result in significant expense to us and divert the efforts of our
technical and management personnel from productive tasks, whether or not the
litigation were determined in our favor.
Item 2. Changes in Securities and Use of Proceeds
None
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
20
<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 14, 2000
21
