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 JUNE 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 August 14, 2000 - 6,462,600 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 June 30, 2000 2-3
Condensed Consolidated Statements of Operations for
the three months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Operations for
the six months ended June 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows for
the six months ended June 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 JUNE 30, 2000
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 407,923
Accounts receivable, net 4,735,558
Inventories 1,227,476
Revenue earning equipment 4,808,647
Prepaid advertising 1,994,015
Advances receivable 1,162,625
Deposits and other prepaid assets 2,914,441
--------------
TOTAL CURRENT ASSETS 17,250,685
PROPERTY AND EQUIPMENT, NET 19,425,661
CUSTOMER LISTS 1,910,569
GOODWILL, NET 4,963,665
OTHER ASSETS 1,299,697
--------------
TOTAL ASSETS $44,850,277
==============
2
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 2000
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of notes payable $ 381,928
Current portion of capital lease obligations 314,487
Convertible debentures 244,000
Line of credit 4,946,784
Accounts payable 4,349,210
Accrued payroll taxes 1,298,311
Other accrued liabilities 2,226,212
Income taxes payable 65,000
------------------
TOTAL CURRENT LIABILITIES 13,825,932
NOTES PAYABLE, NET OF CURRENT PORTION 26,971,172
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 292,515
------------------
TOTAL LIABILITIES 41,089,619
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 $116,667 in arrears) 143
Series B convertible preferred stock
4,000 shares issued and outstanding
($1,000 per share liquidation preference
Dividends of $50,000 in arrears) 4
Common stock, $0.001 par value
25,000,000 shares authorized
5,757,745 shares issued and outstanding 5,758
Additional paid-in capital 26,768,928
Common stock committed 28,440
Accumulated deficit (20,640,132)
Treasury stock (2,402,483)
------------------
TOTAL STOCKHOLDERS' EQUITY 3,760,658
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 44,850,277
==================
See the accompanying notes
3
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
3 MONTHS 3 MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
REVENUE $ 7,625,152 $ 6,067,820
COST OF REVENUE 3,142,882 1,484,797
------------------ ------------------
GROSS PROFIT 4,482,270 4,583,023
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 10,863,602 4,062,196
------------------ ------------------
INCOME (LOSS) FROM OPERATIONS (6,381,332) 520,827
OTHER EXPENSES
Interest expense 958,853 42,519
Financing costs - 64,028
------------------ ------------------
TOTAL OTHER EXPENSES 958,853 106,547
------------------ ------------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (7,340,185) 414,280
PROVISION (BENEFIT) FOR INCOME TAXES - 166,000
------------------ ------------------
NET INCOME (LOSS) $ (7,340,185) $ 248,280
================== ==================
BASIC EARNINGS (LOSS) PER COMMON SHARE ` $ (1.29) $ 0.07
================== ==================
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (1.29) $ 0.07
================== ==================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 5,692,426 3,661,648
================== ==================
</TABLE>
See the accompanying notes
4
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
6 MONTHS 6 MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
REVENUE $ 15,520,755 $ 13,865,434
COST OF REVENUE 5,038,163 5,358,313
------------------ ------------------
GROSS PROFIT 10,482,592 8,507,121
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 21,618,055 7,361,884
------------------ ------------------
INCOME (LOSS) FROM OPERATIONS (11,135,463) 1,145,237
OTHER EXPENSES
Interest expense 1,234,742 88,726
Financing costs 103,125 64,028
------------------ ------------------
TOTAL OTHER EXPENSES 1,337,867 152,754
------------------ ------------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (12,473,330) 992,483
PROVISION (BENEFIT) FOR INCOME TAXES - 361,000
------------------ ------------------
NET INCOME (LOSS) $ (12,473,330) $ 631,483
================== ==================
BASIC EARNINGS (LOSS) PER COMMON SHARE $ (2.25) $ 0.18
================== ==================
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (2.25) $ 0.18
================== ==================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 5,549,963 3,452,265
================== ==================
</TABLE>
See the accompanying notes
5
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
6 MONTHS 6 MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
--------------------- ---------------------
<S> <C> <C>
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(12,473,330) $ 631,483
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities
Depreciation and amortization 2,236,524 193,819
Stock issued for financing costs 103,125 -
Deferred taxes - 13,000
(Increase) decrease in operating assets (3,394,605) (3,977,408)
Increase (decrease) in operating liabilities (1,610,013) 344,004
--------------------- ---------------------
Net cash provided by (used in) operating activities (15,138,299) (2,795,102)
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,655,974) (537,971)
Purchase of customer list - (2,270,330)
Purchase of Contour system - (2,500,000)
Purchase of AniMagic - (145,000)
Cash acquired with purchase of Dynamedia and CRD 266,131 -
Other (440,525) (394,706)
--------------------- ---------------------
Net cash used in investing activities (2,830,368) (5,848,007)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from related parties - (15,495)
Net proceeds from line of credit (1,731,245) 79,965
Distribution to stockholder - (2,000,000)
Proceeds from notes payable 18,334,596 550,000
Proceeds from sale of stock, net 3,798,035 15,440,871
Proceeds from exercise of options and warrants 770,969 -
Repurchase of common stock (2,296,813) -
Payment on notes payable and capital leases (1,088,697) (566,665)
Other - (7,710)
--------------------- ---------------------
Net cash provided by financing activities 17,786,845 13,480,966
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents
during period (181,822) 4,837,857
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 589,745 1,841,562
--------------------- ---------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 407,923 $ 6,679,419
===================== =====================
</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 six months ended June 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. There are no common stock equivalents for the six
months ended June 30, 2000 since the Company incurred a net loss; therefore any
common stock equivalents would be anti-dilutive.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2000 consisted of the following:
Land $ 1,450,000
Building and improvements 10,795,598
Vehicles 161,927
Furniture and equipment 8,599,895
---------------
21,007,420
Less accumulated depreciation (1,581,759)
---------------
Total $ 19,425,661
===============
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 six months ended June 30, 2000, the Company received $17,969,628 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.
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 quarter ended June 30, 2000 the Company received $188,188 and
$582,781 from the exercise of 25,603 employee stock options and 57,142 warrants,
respectively.
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
these convertible notes.
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 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.
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 depositions in many months, leads the Company 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 the Company believes that any
ensuing action or proceeding by the CFTC would not have a material adverse
effect on the Company.
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.
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 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 that the
Company believe is adequate for our operations, adequate insurance that 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.
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 include Fortune 500 companies. Car Rental
rents vehicles principally to 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 six months ended June 30, 2000:
<TABLE>
<CAPTION>
Net
Income Total
Revenue (Loss) Assets
---------------- --------------- -----------------
<S> <C> <C> <C>
Media $ 13,165,742 $ (7,563,621) $ 14,709,208
Intermedia 158,522 (3,831,554) 7,213,903
Properties 403,865 (616,971) 11,939,455
Dynamedia 732,745 69,361 398,810
Car Rental 1,059,881 (530,545) 10,588,901
---------------- --------------- -----------------
Total $ 15,520,755 $ (12,473,330) $ 44,850,277
================ =============== =================
</TABLE>
NOTE 9 - SUBSEQUENT EVENT
In August 2000, the holder of the unsecured promissory notes 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
promissory note.
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 have 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, located exclusively in shopping malls currently 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 those 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.
12
<PAGE>
With the CENTERLINQ experience not only proving successful, but teaching us how
to apply those same development standards and resources to other businesses and
technologies in order 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, therefore, 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, 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 but that while revenues are expected to rise, the overall
percentage of revenues that can be attributed to the aforementioned marketing
activities will decline as our refined business plan that concentrates on the
development of business-to-business and business-to-consumer enterprises that
utilize Internet technology continues onward.
On April 1, 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.
On April 1, 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.
On April 28, 2000 and June 16, 2000, we entered into Notes 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 are planning 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 June 30, 2000 vs. June 30, 1999
<TABLE>
THREE MONTHS ENDED PERCENTAGE OF
JUNE 30, NET REVENUE
-------------------------------- -----------------------------
2000 1999 2000 1999
-------------------------------- -----------------------------
(in thousands)
<S> <C> <C> <C> <C>
REVENUE $ 7,625 $ 6,068 100.0% 100.0%
COST OF REVENUE 3,143 1,485 41.2% 24.5%
-------------------- ----------- ------------------- --------
GROSS PROFIT 4,482 4,583 58.8% 75.5%
-------------------- ----------- ------------------- --------
SELLING, GENERAL AND ADMINISTRATIVE 10,863 4,062 142.5% 66.9%
-------------------- ----------- ------------------- --------
INCOME FROM OPERATIONS (6,381) 521 -83.7% 8.6%
-------------------- ----------- ------------------- --------
Interest expense 959 43 12.6% 0.7%
Financing costs - 64 0.0% 1.1%
-------------------- ----------- ------------------- --------
TOTAL OTHER INCOME EXPENSES 959 107 12.6% 1.8%
-------------------- ----------- ------------------- --------
INCOME BEFORE TAXES (7,340) 414 -96.3% 6.8%
Income taxes - 166 0.0% 2.7%
-------------------- ----------- ------------------- --------
NET INCOME (LOSS) $ (7,340) $ 248 -96.3% 4.1%
==================== =========== =================== ========
</TABLE>
Revenue for the three months ended June 30, 2000 increased by $1,557,000 or
25.7% from $6,608,000 for the three months ended June 30, 1999 to $7,625,000 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 $878,000 or
17.9% from $4,902,000 for the three months ended June 30, 1999 to
$5,780,000 for the same period in 2000. We are continuing to increase our
product and commissions sales through the sale of new products;
o Revenue from our Car Rental Direct ("CRD") subsidiary was $1,060,000 for
three months ended June 30, 2000. Since we just recently purchased CRD on
April 1, 2000, there was no corresponding revenue for the three months
ended June 30, 1999.
o Revenue from our Dynatype Design and Graphics Centers ("Dynamedia")
subsidiary was $310,000 for the three months ended June 30, 2000 as
compared to $0 from the same period in 1999 since the purchase of this
subsidiary occurred in 2000.
o Media sales decreased from $1,138,000 for the three months ended June 30,
1999 to $324,000 for the same period in 2000 due to the Company focusing
more time and resources on promoting its new products and not focusing on
selling media time to third parties;
14
<PAGE>
Cost of revenues for the three months ended June 30, 2000 increased by
$1,658,000 or 111.7% from $1,485,000 for the three months ended June 30, 1999 to
$3,143,000 for the same period in 1999. As a percentage of revenue, cost of
revenue was 41.2% for the three months ended June 30, 2000 compared to 24.5% 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 June 30,
2000 was 87.0% and 56.0%, respectively. Cost of revenue associated with our
product sales for the three months ended June 30, 2000 was 21.2% compared to
10.6% for the same period in 1999. The increase is due to higher product costs
associated with the products and programs the Company is currently selling when
compared to the products sold by the Company in 1999.
Selling, general and administrative expenses for the three months ended June 30,
2000 increased by $6,801,000 or 167.4% from $4,062,000 for the three months
ended June 30, 1999 to $10,863,000 for the same period in 2000. The increase was
due principally to an increase in payroll and related benefits of $1,128,000 and
an increase in selling related expenses of 4,165,000. Selling related expenses
include the cost of acquiring customer names, purchasing media time for airing
of infomercials, royalties and telemarketing costs. The Company expensed
$2,378,000 in media airtime during the three months ended June 30, 2000. As a
result of expanding operations through the creation of Genesis Intermedia, the
purchase of Dynamedia and CRD, 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 has taken steps to significantly expand its Centerlinq Network of
kiosks in shopping malls.
Interest expense for the three months ended June 30, 2000 increased by $916,000
or 2,155% from $43,000 for the three months ended June 30, 1999 to $958,000 for
the same period in 2000. 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, unsecured notes payable and capitalized lease
obligations.
Financing costs for the six months ended June 30, 2000 decreased by $64,000%
from $64,000 for the six months ended June 30, 1999 to $0 for the same period in
2000. There were no financing costs incurred during the three months ended June
30, 2000. The financing cost incurred during the three months ended June 30,
1999 relate to costs of obtaining three notes payable aggregating $550,000 prior
to our initial public offering.
Income taxes for the three months ended June 30, 2000 decreased by $166,000 or
100% from $166,000 for the three months ended June 30, 1999 to $0 for the same
period in 2000. The decrease in the provision for income taxes is due to the net
loss incurred by the Company during the three months ended June 30, 2000.
15
<PAGE>
Six Months Ended June 30, 2000 vs. June 30, 1999
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERCENTAGE OF
JUNE 30, NET REVENUE
-------------------------------- -----------------------------
2000 1999 2000 1999
----------------- -------------- -----------------------------
(in thousands)
<S> <C> <C> <C> <C>
SALES $ 15,521 $ 13,865 100.0% 100.0%
COST OF SALES 5,038 5,358 32.5% 38.6%
----------------- -------------- ----------------- -----------
GROSS PROFIT 10,483 8,507 67.5% 61.4%
----------------- -------------- ----------------- -----------
SELLING, GENERAL AND ADMINISTRATIVE 21,618 7,362 139.3% 53.1%
----------------- -------------- ----------------- -----------
INCOME FROM OPERATIONS (11,135) 1,145 -71.8% 8.3%
----------------- -------------- ----------------- -----------
Interest expense 1,235 89 8.0% 0.6%
Financing costs 103 64 0.7% 0.5%
----------------- -------------- ----------------- -----------
TOTAL OTHER INCOME EXPENSES 1,338 153 8.6% 1.1%
----------------- -------------- ----------------- -----------
INCOME BEFORE TAXES (12,473) 992 -80.4% 7.2%
Income taxes 361 0.0% 2.6%
----------------- -------------- ----------------- -----------
NET INCOME (LOSS) $ (12,473) $ 631 -80.4% 4.6%
================= ============== ================= ===========
</TABLE>
Revenue for the six months ended June 30, 2000 increased by $1,655,000 or 11.9%
from $13,865,000 for the six months ended June 30, 1999 to $15,521,000 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 $3,665,000
or 41.7% from $8,781,000 for the six months ended June 30, 1999 to
$12,446,000 for the same period in 2000. Approximately 76% of the
$3,665,000 increase is due to first quarter 2000 sales exceeding first
quarter 1999 sales. We are continuing to increase our product and
commissions sales through the sale of new products;
o Revenue from our Car Rental Direct ("CRD") subsidiary was $1,060,000 for
six months ended June 30, 2000. Since we just recently purchased CRD on
April 1, 2000, there was no corresponding revenue for the six months ended
June 30, 1999.
o Revenue from our Dynatype Design and Graphics Centers ("Dynamedia")
subsidiary was $733,000 for the six months ended June 30, 2000 as compared
to $0 from the same period in 1999 since the purchase of this subsidiary
occurred in 2000.
o Media sales decreased from $5,076,000 for the six months ended June 30,
1999 to $719,000 for the same period in 2000 due to the Company focusing
more time and resources on promoting its new products and not focusing on
selling media time to third parties. During the first quarter of 1999 the
we had media sales of $3,938,000;
16
<PAGE>
Cost of revenues for the six months ended June 30, 2000 decreased by $320,000 or
6.0% from $5,358,000 for the six months ended June 30, 1999 to $5,038,000 for
the same period in 1999. As a percentage of revenue, cost of revenue was 32.5%
for the six months ended June 30, 2000 compared to 38.6% for the same period in
1999. The decrease is due to the mix of sales. For the six months ended June 30,
1999 we had $5,076,000 in media sales which has an associated cost of revenue of
88.4%. The cost of revenue for CRD and Dynamedia for the six months ended June
30, 2000 was 87.0% and 48.4%, respectively. Cost of revenue associated with our
product sales for the six months ended June 30, 2000 was 21.3% compared to 10.3%
for the same period in 1999. The increase is due to higher product costs
associated with the products and programs the Company is currently selling when
compared to the products sold by the Company in 1999.
Selling, general and administrative expenses for the six months ended June 30,
2000 increased by $14,256,000 or 193.7% from $7,362,000 for the six months ended
June 30, 1999 to $21,618,000 for the same period in 2000. The increase was due
principally to an increase in payroll and related benefits of $2,624,000 and an
increase in selling related expenses of 8,240,000. Selling related expenses
include the cost of acquiring customer names, purchasing media time for airing
of infomercials, royalties and telemarketing costs. The Company expensed
$5,970,000 in media airtime during the six months ended June 30, 2000. As a
result of expanding operations through the creation of Genesis Intermedia, the
purchase of Dynamedia and CRD, 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 has taken steps to significantly expand its Centerlinq Network of
kiosks in shopping malls.
Interest expense for the six months ended June 30, 2000 increased by $1,146,000
or 1,292% from $89,000 for the six months ended June 30, 1999 to $1,235,000 for
the same period in 2000. 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, unsecured notes payable and capitalized lease
obligations.
Financing costs for the six months ended June 30, 2000 increased by $39,000 or
61.1% from $64,000 for the six months ended June 30, 1999 to $103,000 for the
same period in 2000. The increase is due to the issuance of 15,000 shares of the
Company's common stock in connection with a note payable issued in February
2000.
Income taxes for the six months ended June 30, 2000 decreased by $361,000 or
100% from $361,000 for the six months ended June 30, 1999 to $0 for the same
period in 2000. The decrease in the provision for income taxes is due to the net
loss incurred by the Company during the six months ended June 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 per share for an aggregate of $1,750,000, with underwriting commissions
and expenses of $201,250 and 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 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 notes
payable agreements, we also issued warrants to purchase 78,571 shares of common
17
<PAGE>
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, 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, and 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 June 2000 we have borrowed $19,433,030 from debenture
secured in November 1999. In connection with this debenture, we issued warrants
to purchase 750,000 shares of common stock with an exercise price of $7.00. Such
warrant was 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 shares was exercised in August 2000. 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. On May 2, 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 an aggregate
of 112,000 warrants to purchase the 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. 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 June 30, 2000 was $4,946,784.
During the six months ended June 30, 2000, we spent $2,655,974, on capital
expenditures and used $15,138,299 in operations.
We expect to spend additional capital to expand our product lines, expand our
telemarketing division, and make strategic acquisitions. We anticipate 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.
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 negotiating
with a financial institution to secure financing through a sale of equity
securities. 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.
18
<PAGE>
IMPACT OF YEAR 2000
We instituted a comprehensive program to address potential Year 2000 impacts and
as a result, critical systems and infrastructure operated smoothly through the
arrival of Year 2000 and leap year boundaries. Additionally, we experienced no
Year 2000 related disruptions in the products and services provided by our
significant suppliers or other third-party business relationships. Many of the
improvements made in preparation for the Year 2000 are expected to provide us
with long-term benefits.
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 depositions 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 proceeding 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. Change 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
20
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On May 15, 2000 the Company filed a Current Report on Form 8-K announcing that
on May 3, 2000, the Company had completed its latest round of private placement
offerings for a total of $10 million in additional financing. The offerings
consisted of $4 million of Series B Convertible Preferred Stock and related
Warrants and $6 million in long-term debt. The Company granted certain
registration rights to purchasers of the Series B Convertible Preferred Stock
and related warrants in connection with the private placement.
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: August 14, 2000
21
