UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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) (Zip Code)
(818) 902-4100
(Issuer's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, $.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by referenced in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
Revenue for the year ended December 31, 1999: $31,671,263
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant at March 31, 2000 was $43,223,872. The number
of shares outstanding of the registrant's Common Stock as of March 31, 2000 was
5,310,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated herein by reference: Part
III -- The Registrant's Proxy Statement for its 2000 Annual Meeting (the "2000
Proxy").
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I
This Annual Report on Form 10-KSB contains statements that are
forward-looking, including statements relating to anticipated operating results,
growth, financial resources, the development of new markets, the development,
distribution, and commercial acceptance of new products and new applications for
GenesisIntermedia.com, Inc.'s existing product lines. Investors are cautioned
that, although Genesis believes that its expectations are based on reasonable
assumptions, forward-looking statements involve risks and uncertainties which
may affect Genesis 's business and prospects, including changes in economic and
market conditions, acceptance of Genesis 's products, maintenance of strategic
alliances and other factors discussed under the caption "Risk Factors" in the
Company's Registration Statement No. 333-66281 filed with the Securities and
Exchange Commission and declared effective on June 14, 1999.
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY AND BACKGROUND
GenesisIntermedia.com, Inc. ("The Company") was incorporated on October
28, 1993 under the name Genesis Media Group, Inc., and changed its name to
GenesisIntermedia.com, Inc. on December 3, 1998. It began operations in late
1993 by marketing its own products, and products owned by others, through
various platforms. These products included audio and videotapes and mentoring
services on topics related primarily to interpersonal relationships and
financial planning.
Until 1997, some of its operational and sales functions, including
media purchasing and sales, inventory management and customer service were
outsourced to third parties. In 1997, the Company purchased an office building
and hired additional personnel, enabling it to perform most of the functions
relevant to its business in-house. Additionally, its strengthened its
infrastructure by purchasing sophisticated outbound telemarketing and computer
equipment, enabling it to sell its own proprietary products and those of its
customers, who were by that time beginning to enter into contracts with the
Company for marketing services on an outsourced basis, to a greater number of
consumers. In July 1999, less than a month after its Initial Public Offering of
2,000,000 shares of Common stock, the Company purchased a larger office building
in Van Nuys, California to accommodate the significant growth in operations and
personnel.
GENERAL 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. The Company has been building an infrastructure to build,
develop and nurture new Internet technology companies and businesses. The
company markets products and services, which it develops, licenses exclusively
or distributes for third parties, utilizing network and cable television, radio,
newspapers, magazines, the Internet and the company's CENTERLINQ network. As it
has done with CENTERLINQ, the Company leverages its strength in operations,
marketing and the deployment of traditional and new media to advance new and
innovative technologies within strategically identified market segments.
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Historically, the Company's operations have consisted of the marketing,
advertising and sales of its own products and those of its clients utilizing
traditional marketing channels. While it continues to utilize conventional media
to fulfill its marketing needs and those of its clients, the Company's focus
more recently has been on investing in and bringing to market innovative
technology-based concepts that center around use of the Internet.
The old generation of "incubators" offered startup companies space, but
little else. Then came the modern model of incubators, pioneered by idealab!,
Pasadena, California, that offer office and development space, money, skills,
people, and services. CMGI, Inc., a publicly-held entity based in Wilmington,
Massachusetts, also took the incubator concept and molded it into a scalable
business model that can be applied to various forms of e-commerce while keeping
the intention of creating shareholder value. GenesisIntermedia.com, Inc. adapted
the idealab! and CMGI concepts into its own business model of creating a
hands-on, direct interaction environment focused more on development of
business-to-business and business-to-consumer Internet networking and marketing
concepts, with an investment criteria that looks at businesses that are already
into their lifecycles as well as newer, as-of-yet unfinanced projects.
The GenesisIntermedia.com, Inc. acquisition of Vision Digital in 1998
and the asset known as the CENTERLINQ network was the first step taken toward
the development and deployment of a true Internet based business through the
newly adapted business model. In constructing a nurturing environment to support
the operations and growth of CENTERLINQ, the Company fortified its
infrastructure of networked systems and extended the scope of internal services
available within the Company.
CENTERLINQ is an Internet-based interactive network consisting of
public access kiosks, 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.
Consistent with its development-oriented business model,
GenesisIntermedia.com, Inc. supplied CENTERLINQ with physical assets such as
office space, equipment, telephones; intellectual capital such as personnel,
management expertise, legal and accounting advice; and cash. It also gave
CENTERLINQ the marketing, creative, development and programming expertise to
bring the technology to critical mass. The Company invested heavily to support
the operational needs of CENTERLINQ and to attain a leadership position as a
network of public Internet portals. The initiatives include, but were not
limited to;
o Network architecture in software and hardware recreated to support a
centralized configuration for the entire network, versus the local one
that previously existed
o Information Services Department significantly expanded to include
network engineers
o Addition of an installation division, field maintenance teams and
client service specialists
o Complete tech support unit created to preserve customer relationships
o Hiring of Information Technology professionals, client service
specialists, and technical support managers
o Programming staff increased by 200%
o Metrics for support of future growth established
o R&D capabilities expanded to increase functionality of CENTERLINQ
o Delivery of next generation of interactive multi-media kiosks ahead of
schedule
o Quality assurance undertook measurement of unique requirements of each
mall environment containing CENTERLINQ
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o Built out office and technical workspace; telephony, electrical and
anti-static environment needs covered
o Invested significantly in software development resulting in
customization of shopping programs for mall developers
o Management tools for extracting data from rich CENTERLINQ demographic
databases created and packaged
o Online version of CENTERLINQ developed, tested and released via the
World Wide Web
In December 1999, GenesisIntermedia.com, Inc. announced that CENTERLINQ
had reached critical mass. By that time, the systems were installed in 20
shopping malls across the United States;
o The Beverly Center, Los Angeles, CA
o Galleria at South Bay, Redondo Beach, CA
o Galleria at Tyler, Riverside, CA
o Antelope Valley Mall, Palmdale, CA
o MainPlace, Santa Ana, CA
o Stonestown, San Francisco, CA
o Sun Valley Shopping Center, Concord, CA
o Stoneridge Shopping Center, Pleasanton, CA
o Hilltop Mall, Richmond, CA
o The Promenade at Temecula, Temecula, CA
o Galleria at Sunset, Henderson, NV
o Tucson Mall, Tucson, AZ
o Great Lakes Crossing, Auburn Hills, MI
o Twelve Oaks Mall, Novi, MI
o Logan Valley Mall, Altoona, PA
o Lycoming Mall, Williamsport, PA
o Nittany Mall, State College, PA
o Viewmont Mall, Wilkes-Barre, PA
o Wyoming Valley Mall, Scranton, PA
o Circle Centre, Indianapolis, IN
Traffic at these malls thus far enable CENTERLINQ to create approximately
22 million impressions on consumers per month. Consequently, while CENTERLINQ
continues to be developed under the Company's supervision, it has proven that
the GenesisIntermedia.com, Inc. process of business development is an effective
model.
The Company is currently in negotiations with mall developers to install
the CENTERLINQ Network in additional malls throughout North America, and with
interested parties to expand the CENTERLINQ concept into Europe and Latin
America.
With the CENTERLINQ experience not only proving successful, but teaching
the Company how to apply those same development standards and resources to other
businesses and technologies in order to achieve an effective roll out of
product, the Company's management now views its role as a creator of long-term
shareholder value more closely in alignment with its ability to propagate
additional Internet-based companies in accordance with its established
"incubation" process.
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The Company, therefore, seeks to identify acquisition candidates, whose
core competencies include the development of Internet technology (ies),
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.
Even though GenesisIntermedia.com, Inc. is entering emerging markets and
has begun to generate revenue from CENTERLINQ, it continues to rely on marketing
products for a substantial part of its revenues. The Company expects that
revenues from the marketing of products will continue to account for a major
percentage of its 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 its refined business
plan that concentrates on the development of business-to-business and
business-to-consumer enterprises that utilize Internet technology continues
onward.
The need for resources that enable companies to effectively compete via
the Internet is growing, as direct marketing undergoes a rapid, fundamental
change. Interactive marketing has become the most prominent subset of direct
marketing, with much more flexibility and control on the consumer end, as he or
she has more power to tune out what is being presented. Recognizing this,
GenesisIntermedia.com, Inc. offers the capabilities of target advertising to
reach specific audiences, taken from the rich sources of demographic data that
have been gathered through its traditional and new media segments.
The Company believes that its assessment of the importance of the Internet
as a new source of revenue for growing businesses is substantiated, as recently
reflected in a report issued by eMarketer, a comprehensive, objective Internet
market research firm recognized worldwide as an authority on business online.
According to eMarketer's 1999 eAdvertising Report, Volume II, U.S. web
advertising spending will grow from $3.1 billion in 1999 to $4.82 billion in
2000 and to $13.3 billion by 2003.
Moving forward, GenesisIntermedia.com, Inc. expects to be a significant
Internet business and technologies developer, and expects to be on the leading
edge of testing and employing web tools for both significantly increased
customer fulfillment and revenue generation.
The Company's marketing segment, historically responsible for a
significant revenue stream, has of late been active in selling proprietary
products through integrated marketing capabilities, such as the 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. The Company has also focused
on direct response telemarketing, utilizing sophisticated dialing technologies
to effectively sell high margin services related to prior product sales.
In the 1980s and 1990s telemarketing services, infomercials and home
shopping networks emerged as additional marketing channels. These channels are
also known as direct response marketing, because they enable businesses to
deliver a marketing message to targeted consumers and to elicit an immediate
consumer response.
The market for Internet advertising has recently begun to develop is
rapidly evolving and is characterized by an increasing number of market
entrants. Still, banner-type Internet advertising continues to be dominated by
the larger web sites. Non-advertising marketing solutions utilizing the Internet
as a base, such as direct sales and on-line shopping, have also only recently
been developed.
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GenesisIntermedia.com, Inc.'s strategy for increased penetration of this
market, and of the net-based interactive market is through acquisition-based
expansion, the development and acquisition of new technological capability and
the hiring of additional personnel.
Growth Opportunities
The Company believes that its ability to generate increased revenue
will depend on, among other factors:
o the continued development of the Internet as an advertising medium;
o pricing of marketing and advertising services by other Internet participants;
o its ability to develop new marketing solutions, like the CENTERLINQ kiosks,
that use the Internet and that appeal to both its clients and their
customers;
o its ability to achieve and demonstrate user demographic characteristics that
are attractive to clients;
o the development and expansion of marketing and advertising sales forces; and
o the establishment and maintenance of desirable marketing and advertising
sales agency relationships.
PRODUCTS AND GROWTH OPPORTUNITIES
Traditional Products
The Company began by producing infomercials and performing
telemarketing services for its own products and for products owned by others.
More recently, it diversified product offerings and marketing channel
capabilities through the acquisition of rights to market and distribute new
consumer products developed by third parties.
The Company also intends to further enhance its scope of its mentoring
capabilities, which it has traditionally offered either as an adjunct to, or
primary service of, some of the proprietary and third party products and
services it has offered. With GenesisIntermedia.com, Inc. positioned to
capitalize on the explosive growth associated with the need for experienced,
innovative web site developers and programmers, as well as the tools, resources
and marketing expertise that new and experienced webmasters desire, the Company
is forming a bridge between new media and the core competencies it continues to
maintain in its more traditional mentoring services. It is applying the
mentoring concept to new media development, in essence creating a hybrid between
what is traditional and what is evolving. Acting in the capacity of a mentor for
new media professionals and amateurs, the Company believes it will benefit from
opportunities to cross-sell additional products and services, including
advertising products. Furthermore, GenesisIntermedia.com, Inc. anticipates that
its mentoring capabilities will help it identify possible acquisition
candidates, fueling even additional future profit potential.
Depending on the availability of capital to acquire media time, the
Company intends to continue to increase activity in this media group in 2000.
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CENTERLINQ
In 1998, the Genesis Intermedia, Inc. subsidiary was formed, and the
Company hired approximately 20 persons experienced in multimedia technologies
for this subsidiary. To accelerate multimedia technology capabilities, the
Company acquired substantially all of the assets of Vision Digital
Communications, Inc. and AniMagic Corporation and hired some of their
experienced personnel. This division has launched the CENTERLINQ kiosk
initiative with the deployment of kiosks in twenty regional malls in the United
States as of the end of 1999, as well as the Company's progress into Internet
marketing initiatives. The purpose of these initiatives is to target consumers
utilizing interactive multimedia technologies and to position
GenesisIntermedia.com, Inc. and subsidiaries to deliver multi-disciplinary
marketing to clients, and to augment sales for the Company's proprietary
products. This technology, and the resulting e-commerce division, has performed
services for a number of clients since its formation. Some of the Company's past
clients include Hallmark Entertainment, Lexus, Serena Software, and Legacy
Interactive.
All of the services for the clients listed above were performed
pursuant to contracts. The CENTERLINQ kiosk program provides the Company with
the competitive edge of boasting a capability that provides advertising
opportunities for businesses in highly trafficked malls across the United
States. The Company has obtained clients for the CENTERLINQ network by
developing solid and credible relationships with major mall developers,
establishing a sales and marketing department that is experienced in the field
of advertising sales, and making substantial investments in collateral material,
as well as developing a unified corporate identity and product focus.
Clients who participate in the CENTERLINQ network agree to advertise,
through contract(s), their products or services on the kiosks and accompanying
television monitors that are placed in highly trafficked areas of the mall such
as the food courts. They agree to pay the advertising fees published in the rate
card. They may also participate by including direct access through the
interactive kiosks to their website(s) or conducting e-commerce directly through
the kiosk. Through CENTERLINQ, the Company has signed contracts with new clients
to participate in both the kiosk advertising and the interactive e-commerce
capabilities of the interactive kiosks.
GenesisIntermedia.com, Inc. intends 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. The Company intends to seek additional national advertisers and
participants in CENTERLINQ once the deployment of the network has sufficient
national scope.
MARKET OPPORTUNITY:
Continued Emphasis on Targeted Marketing
The demand for targeted marketing strategies has continued through the
development of new marketing channels. The Company believes that many businesses
will be unable to ignore the competitive challenge posed by the emerging
e-commerce market and, as a result, will demand that their marketing strategies
target a generation accustomed to the fast-paced power of the Internet and other
interactive technologies, as well as those individuals who continue to rely on
conventional media for information and entertainment. Systems that enable a
business to deliver customized messages to customers in an interactive format
and to instantaneously evaluate the success of their promotional activities
address that demand.
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As a creator and implementer of multi-disciplinary marketing, the
Company is pro-actively developing and deploying strategies that use the
Internet and other interactive platforms, as well as more traditional
marketing-based strategy. The Company also benefits from having the ancillary
support services necessary to ensure the success of its clients' marketing and
distribution efforts.
Conventional Media
The Company provides multi-disciplinary marketing for its proprietary
products and for those of its clients. These include radio, television and print
advertising, business-to-consumer and business-to-business outbound
telemarketing services, and inbound telemarketing services, which typically
involve responding to customer inquiries and electronic order processing.
The success of these campaigns depends on the ability to rapidly develop
positive customer response to the products and services marketed. Future results
in product sales will be dependent upon the Company's ability to rapidly
generate positive customer response to products and services. This is
particularly the case with directly marketed products. Customer response to
direct marketing depends on many variables, including
o the appeal of the products being marketed,
o the effectiveness of the marketing medium chosen and the marketing script,
o the availability of competing products, and
o the timing and frequency of consumer presence, phone contacts and airtime.
Radio, Television and Print Advertising. Radio, television and print
advertisements convey marketing information to a large number of consumers and
position a product within a broad market context. When the client's, or
product's, marketing strategy calls for coverage to the public at large, the
Company develops and implements marketing that use these forms of traditional
media.
Telemarketing Services. Business-to-consumer and business-to-business
outbound telemarketing services involve the use of client-generated,
electronically transmitted lists of customers selected to match the demographic
profile of the targeted customer for the offered product or service. The Company
is a specialist at marketing products at price points that typically range from
$100 to $5,000, with an average of approximately $2,000.
The Company invested in improved computer and telecommunications
technology to supplement its telemarketing business and to enable it to expand
this segment of the business. This technology assists telemarketers to more
accurately identify and contact potential customers, and provides telemarketing
sales representatives with more complete on-line guidance and support. The
computerized call management systems use predictive dialers to:
o automatically dial telephone numbers;
o determine if a live connection is made; and
o present connected calls to a telephone sales representative who has been
specifically trained for the particular sales program.
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The Company's ability to train and retain sales personnel is critical to
its success because of the need to develop an in-depth knowledge of the complex
products typically sold. Because of the complexity of its products, the in-depth
knowledge of its telemarketing personnel and its success in retaining those
personnel following training the Company believes that such factors serve to
differentiate it from many of its competitors. Sales personnel are compensated
by salary, commissions and bonuses based on individual performance and overall
profitability.
Inbound telemarketing services typically include:
o the electronic receipt and processing of all sales information;
o the communication of necessary sales information to a contracted order
fulfillment center; and
o the administration of customer order and service inquiries.
Infomercial production and teleservices for proprietary products are
still performed by the Company. It also performs these services for products
owned by other companies, and typically the Company is compensated by retention
of total sales revenue for these services. The pricing for inbound teleservices
may vary, depending upon several factors, including the time spent, the number
of calls received by personnel and sales-based performance fees. The Company
also works on a fee-for-service basis.
Per the Company's normal course of business, it enters into various
agreements under which it's obligated to pay royalties on the products it sells.
The royalties vary by agreement and are based on percentages of net revenue
generally not to exceed 25% or a percentage of the net profits of the venture
generally not to exceed 50%.
Media Placement
Historically, a segment of GenesisIntermedia.com, Inc. has been engaged in
the planning, buying and placement of media through media purchasers and sellers
within the Company . The placement of media time is a capital-intensive segment
of the Company's business because media time, unavailable on an as-needed basis,
must be purchased in advance and stored in inventory. In accordance with the
Company's refined business model, it does not view media placement as a
cost-effective use of corporate resources moving forward, therefore it plans to
phase out this activity in the near future.
REVENUE STREAMS
o offerings of proprietary products
o telemarketing
o new technologies that include public access network, and CENTERLINQ
STRATEGY
Pioneering, Developing Technologies and New Internet Companies
The mission of GenesisIntermedia.com, Inc. is to develop Internet
technologies and Internet companies. The Company intends to position each of its
companies under development to become the leader within its respective market
niche. Factors that will lead to success, in the Company's estimation, include
understanding, developing and applying information technology to the interactive
media markets. Backing this up with data access and software tools, as well as
the focus on strategic alliances to complement product offerings will provide
strong bases of
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support for new products. The Company seeks to invest in strategic Internet and
interactive media while balancing its technology development with an acute
understanding of customer needs.
Thus far, the Company has invested significantly in products and services
that seek to capitalize on the growth of the Internet and interactive marketing.
The Company intends to continue to do so, and continue to pursue the growth and
development of its technologies and services, and to introduce its products
commercially. Concurrently, the Company will continue to identify, evaluate and
pursue new opportunities that further its mission and complement its investments
in Internet-related business, interactive media and innovative technologies.
An in-house product development and marketing department researches,
develops and analyzes products and product ideas. The development of
relationships with third parties and the active solicitation of new clients
seeking multi-disciplinary marketing opportunities augment the activities of the
product development and marketing department. This fuels the Company's objective
of creating additional profit centers by seeking out innovative consumer
products to market and distribute.
The Company's marketing operations are dependent on a continuing ability
to develop or obtain rights to new products to supplement or replace existing
products as they mature through their product life cycles. Historically, most
products in the direct marketing industry generate their most significant
revenue in their introductory year. Men Are From Mars, Women Are From Venus
audio, video and companion materials products were introduced in 1994. While its
has experienced continuing revenue from these products, the Company is bringing
on additional products to supplant, supplement and eventually replace those that
are expected to experience slowdown in their lifecycles.
Future results of operations will also depend on the ability to spread
revenue (sales) stream over a larger number of products in a given period and to
more effectively exploit the full revenue potential of each product introduced
through all levels of consumer marketing, whether directly or through third
parties. The future revenues of the business will depend substantially on the
Company's ability to:
o create and maintain an effective, integrated organization that develops,
introduces and markets products that address changing consumer needs on a
timely basis;
o establish and maintain effective delivery platforms for products; and
o develop new and expand established geographic markets.
The Company believes that the infrastructure investments made in 1998 and
the number of new products acquired in 1998 and brought to market in 1999,
provide the foundation for a solid, diversified revenue base.
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Growth By Strategic Acquisitions and Alliances
In accordance with its development business model,
GenesisIntermedia.com, Inc. actively identifies acquisition opportunities that
will enable it to build a group of high-growth companies engaged in
Internet-related business-to-business and business-to-consumer commerce. It is
seeking to expand product offerings, core multimedia marketing capabilities, and
the geographic scope of its operations. To this end, it intends to acquire
well-regarded niche companies or leaders in specific marketing and
communications disciplines. The Company will also look at product lines, or
companies that have products that can be integrated into product offerings, and
successfully market through its marketing channels, for potential acquisition.
The Company also examines joint venture and strategic alliance candidates.
It will focus on acquiring or forming alliances with relatively
well-established, revenue producing, e-commerce businesses, or businesses that
can be marketed and sold effectively in e-commerce, which will complement
existing capabilities. Key personnel who possess technical expertise will be
encouraged to remain with the Company on a long-term basis. Thus far, two
acquisitions have been made to date, and the Company recently entered into a
strategic alliance that gives it an option to acquire new marketing capability
targeted to the travel industry.
Acquisition-oriented growth, as well as non-acquisition growth, will both
need to be managed effectively to keep the Company moving in its intended
direction. Because internal and external growth are critical elements of its
business strategy, the ability to manage that growth effectively will be
critical to the success of GenesisIntermedia.com, Inc. In addition to the
specific risks associated with acquisition-based growth, the Company is refining
systems that control operations, administration, and financial and accounting
processes. The potential for increased complication exists since the Company
will be integrating diverse product and distribution channel companies, and
assets that may or may not have common administrative or other support needs.
Unlike companies proving single-industry "roll up" strategies, because of the
diverse nature of these potential acquisitions, GenesisIntermedia.com, Inc. is
not able to fix a single acquisition model or anticipate precisely what issues
it could face in analyzing, closing or assimilating particular acquisitions.
Future acquisitions will involve a number of risks, including:
o increased management time devoted to unique or tailored acquisition types
and structures;
o the risks of acquiring undiscovered, undisclosed or undesired liabilities;
o integration difficulties or difficulties in achieving desired economies of
scale; and
o diffusion of management or marketing skills across diverse companies or
product lines.
COMPETITION
GenesisIntermedia.com, Inc.'s investments compete in the technology and
service segments of industry. These are comprised of numerous small and large
companies, some of which were founded as true Internet companies, some of which
migrated to a net-based infrastructure and some of which utilize the Internet in
some capacity and are seeking to increase their net- presence. Management
believes that the competition in its areas of concentration is highly
competitive. Although the Company believes that diverse segments of the Internet
market will provide opportunities for one supplier of products and services
similar to those of the Company, it is possible that a single supplier may
dominate one or more market segments. The
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Company believes that principal competition factors in this market are
recognition, performance, facility, variety of value-added service functionality
and features and level of support.
Competitors of GenesisIntermedia.com, Inc. would primarily include a wide
span of companies and organizations, including Internet software, content
providers, technology companies, telecommunication providers and developers,
cable companies, equipment suppliers, and quite possibly certain types of
e-commerce enterprises.
The Company believes that it may possibly be affected by competition from
licensees of interactive properties and technologies. There can be no assurances
that the Company's competition will not develop Internet products and services
that are superior to those of the Company, or that achieve greater market
acceptance than the Company's. Furthermore, some of the Company's current
advertising partners may have at some point or shall in the future establish
relationships with certain of the Company's existing and/or future competitors.
In addition, the Company competes with operators of web sites as well as
traditional off-line media, such as print and television for a share of the
advertisers' total advertising expenditures. There can be no assurances that the
Company will be able to compete sufficiently against its current or future
competitors or that competition will not have a material adverse effect on the
Company's business, results of operation or financial conditions.
Due to the market for "new media" being relatively new and subject to
rapid technological change, the Company anticipates that overall competition it
will face will persist, intensify and increase in the future. There are
relatively low barriers to entry into this market. The Company relies heavily on
the skill of its personnel and the quality of its client service, and there is
no patented technology that would preclude or inhibit competitors from entering
the market. The Company's management expects to face additional competition from
new entrants into the market in the future. Principal competitive factors
include:
o a company's creative reputation,
o knowledge of media,
o financial controls,
o geographical coverage and diversity,
o relationships with clients,
o technological capability, and
o quality and breadth of services.
If existing or future competitors develop or offer services that
provide significant performance, price, creative or other advantages over those
offered by GenesisIntermedia.com, Inc., then the Company anticipates that its
business, results of operations and financial condition would be negatively
affected.
Some current and potential competitors have longer operating histories,
larger installed customer bases, and longer relationships with clients and
significantly greater financial, technical, marketing and public relations
resources than the Company does. These competitors could decide at any time to
increase their resource commitments to compete directly with the Company in
certain markets, such as shopping malls with a kiosk program. In addition, the
relatively new market for e-commerce is subject to continuing definition, and,
as a result, may better position the Company's competitors to compete in this
market as it matures.
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INTELLECTUAL PROPERTY
The Company's trademarks, trade secrets and similar intellectual
property are regarded as critical to its success. Although it currently has no
registered copyrights, trademarks or patents covering any of its proprietary
technology, the Company currently relies on a combination of common law
copyright and trademark laws, trade secret protection, confidentiality and
non-disclosure agreements and contractual provisions with employees and with
third parties to establish and protect its proprietary rights. For the
development of marketing channel capabilities and technologies, the Company
intends to rely upon unpatented trade secrets and know-how and on the expertise
of its employees. Possibly, these steps may not be adequate.
GenesisIntermedia.com, Inc. intends to pursue the registration of its
copyrights and trademarks based upon anticipated use internationally. It may not
be able to secure copyright or trademark registrations for all of its marks in
the United States or other countries. The Company filed trademark claims for
"Genesis Intermedia" and "Show Super Star Interactive Video Presentation
Systems," which is an interactive media presentation software product developed
for the entertainment industry.
Owners of other registered or unregistered copyrights, trademarks or
service marks could bring potential copyright or trademark infringement claims.
If the Company's technology infringes on the rights of other companies, it may
be required to seek licenses from third parties. However, it may not be able to
do so on commercially reasonable terms, if at all. In addition, the Company may
be subject to litigation to defend against claims of infringement of the rights
of others or to determine the scope and validity of the intellectual property
rights of others. Likewise, and particularly because of its acquisition and
growth strategy, disputes may arise with respect to ownership of technology
developed by current GenesisIntermedia.com, Inc. employees who were previously
employed by other companies.
If competitors prepare and file applications in the United States that
claim trademarks used or registered by the Company, it may oppose those
applications and be required to participate in proceedings before the United
States Patent and Trademark Office to determine priority of rights to the
trademark, which could result in substantial costs. Similarly, actions could be
brought by third parties claiming that the Company's products or technology
infringe patents or copyrights owned by others. An adverse outcome could require
the Company to license disputed rights from third parties or to cease using a
trademark or infringing product or technology. Any litigation regarding
proprietary rights could be costly and divert management's attention, result in
the loss of some of proprietary rights, require the Company to seek licenses
from third parties and prevent it from selling its products and services.
The Company generally licenses intellectual property from third
parties, such as the rights to John M. Gray, Ph.D.'s book Men Are From Mars,
Women Are From Venus for creation and marketing of the video and audio products
that it directly marketed. The Company had also licensed the rights to produce
and market other products, such as Hawaiian Tropic Swimwear.
GenesisIntermedia.com, Inc. is dependent upon the protection of these
intellectual properties by their licensors and is responsible for protecting
them as well. In addition, it is anticipated that the Company will license its
content, or a portion thereof, from third parties in the near future. As a
result, exposure to copyright infringement actions may increase because the
Company must rely upon those third parties for information as to the origin and
ownership of the licensed content. The Company intends to obtain representations
as to the origin and ownership of licensed content and to indemnification to
cover any breach of any representations. However, the representations may not be
accurate and the indemnification may not adequately protect the Company.
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REGULATION
Advertising is regulated by the government, by private organizations,
including self-regulatory bodies and trade associations, and by consumer groups.
The Federal Trade Commission Act
The Federal Trade Commission may seek cease and desist orders, impose
monetary penalties, or pursue other remedies in the event that an advertising
company violates this Act's rules or regulations pertaining to false, misleading
and unfair advertising. GenesisIntermedia.com, Inc. believes that it is in
compliance with the Act and the regulations promulgated under the Act.
The Federal Telemarketing and Consumer Fraud and Abuse Prevention Act
A variety of deceptive, unfair or abusive practices in telemarketing
sales have been prohibited under this Act. Generally, these rules prohibit
misrepresentations of the cost, quantity, terms, restrictions, performance or
characteristics of products or services offered by telephone solicitation or of
refund, cancellation or exchange policies. The regulations also regulate the use
of prize promotions in telemarketing to prevent deception and require that a
telemarketer identify promptly and clearly the seller on whose behalf the
telemarketer is calling, the purpose of the call, the nature of the goods or
services offered and, if applicable, that no purchase or payment is necessary to
win a prize. The regulations also require that telemarketers maintain records on
various aspects of their business. GenesisIntermedia.com, Inc. believes that it
is in compliance with the Act and the regulations promulgated under the Act.
Violation of the rules and regulations applicable to telemarketing
practices may result in injunctions against violative operations, monetary
penalties or disgorgement of profits. Violations may also give rise to private
actions for damages.
The Federal Telephone Consumer Protection Act of 1991
This Act imposes restrictions on unsolicited automated telephone calls
to residential telephone subscribers. Under the Act it is unlawful to initiate
telephone solicitations to residential telephone subscribers before 8:00 a.m. or
after 9:00 p.m., local time at the subscriber's location, or to use automated
telephone dialing systems or artificial or prerecorded voices to call specified
subscribers. Additionally, the Act requires teleservice firms to develop a
written policy which
o clearly delineates the types of calls that the firms are prohibited from
making under the Act,
o lists specific individuals or groups of individuals that the firms are
prohibited from contacting under the Act, and
o prohibits its personnel from making the calls.
The Company's call management system has been modified to eliminate some
of its capabilities to help prevent violations of the Act. These modifications
prevent personnel from initiating telephone calls during restricted hours or to
individuals listed on a "do not call" list. GenesisIntermedia.com, Inc. also
educates its personnel on the restrictions and prohibitions of the Act.
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State Regulation
Most states have enacted statutes similar to the Federal Trade
Commission Act prohibiting unfair or deceptive acts and practices. A number of
states have enacted legislation and other states are considering enacting
legislation to regulate telemarketing. For example, telephone sales in some
states are not final until a written contract is delivered to and signed by the
buyer, and that contract may often be canceled within three business days. At
least one state also prohibits telemarketers from requiring credit card payment,
and several other states require some telemarketers to obtain licenses, post
bonds or submit sales scripts to the state's attorney general. State regulation
has not materially affected the Company's operations as it currently conducts
them and it does not presently anticipate that state regulation will materially
and adversely affect its operations in the future.
International Regulation
Advertising is subject to regulation in countries other than the United
States in which the Company may choose to do business. It will need to review
any of these regulations before conducting business in any other country.
Self-Regulatory Bodies, Trade Associations and Consumer Groups
Self-regulatory activities have become significant in the advertising
business. The Council of Better Business Bureaus has created the National
Advertising Division and the National Advertising Review Board. These are
private organizations that review and process allegations that a company has
violated state or federal rules or regulations pertaining to advertising.
Additionally,
o the national television networks and various other media have adopted
extensive regulations for advertising that is acceptable for broadcast or
publication,
o trade associations in some industries publish advertising guidelines for
their members, and
o various consumer groups have been and continue to be powerful advocates of
increased regulation of advertising.
Industry Regulation
Some industries served by the Company are also subject to government
regulation. GenesisIntermedia.com, Inc. employees who complete the sale of
insurance products are required, for example, to be licensed by various state
insurance commissions and to participate in regular continuing education
programs. GenesisIntermedia.com, Inc. provides this continuing education to its
employees and believes that it has, in all material respects, complied with this
and other relevant industry regulations. The Company may also be subject to
regulation by the Commodity Futures Trading Commission, which regulates
commodities trading. The Commission has initiated an investigation that may
affect the infomercial titled Success and You based on Jake Bernstein's Trade
Your Way To Riches product. See Item 3. Legal proceedings below.
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The Communication Decency Act of 1996
The Communications Decency Act of 1996 was enacted in 1996. Although
those sections of this Act that, among other things, proposed to impose criminal
penalties on anyone distributing "indecent" material to minors over the Internet
were held to be unconstitutional by the U.S. Supreme Court, similar laws may be
proposed and adopted. Although GenesisIntermedia.com, Inc. does not currently
distribute the types of materials that this Act may have deemed illegal, the
nature of this legislation and the manner in which it may be interpreted and
enforced cannot be fully determined, and legislation similar to the
Communications Decency Act could subject it to potential liability, which in
turn could have an adverse effect on its business. These types of laws could
also damage the growth of the Internet generally and decrease the demand for the
Company's products and services.
Regulatory Compliance
GenesisIntermedia.com, Inc. has developed internal review procedures
to help ensure that its work product is accurate and fairly discloses the nature
of the products marketed and sold by the Company. GenesisIntermedia.com, Inc.
believes it is in compliance with federal, state and local laws and regulations
pertaining to advertising and the pre-clearance procedures of the broadcast
media.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Recent expansion into new interactive multimedia markets has not yet
generated significant revenue.
In 1998, the Company expanded its media offerings to include
interactive multimedia technologies, including the Internet, and interactive
kiosks through the CENTERLINQ network to businesses seeking to conduct
electronic commerce. The expansion included the formation of Genesis Intermedia,
Inc. subsidiary. However, revenue generated by this subsidiary has not been
significant. It is also expected that the Company will continue to invest in the
building of its infrastructure, and expansion, thus probably experiencing losses
in these areas in the year 2000.
High dependence on the Chief Executive Officer to execute the business
plan
The Company's ability to maintain its competitive position is dependent on
the services of its senior management, in particular the chief executive
officer, Ramy El-Batrawi. Mr. El-Batrawi has been principally responsible for
developing the corporate vision and leading the product and personnel growth to
date. Although the Company has a $4 million key-man life insurance policy
covering Mr. El-Batrawi, and it is developing a strong management team around
him, the loss of Mr. El-Batrawi would be extremely damaging to
GenesisIntermedia.com, Inc. at its early stage of growth.
Dependence on a small number of clients and products
A relatively small number of clients and products have historically
contributed significantly to the Company's revenues. If there is a significant
reduction in product sales or in a large client's marketing expenditures or the
loss of one or more of its largest products or clients, and this is not replaced
by new products or client accounts or an increase in business from existing
products or clients, then it will have a significant adverse impact on the
Company. However, because it intends to continue to rely on broad-or
multi-market products like the Men From Mars, it is possible that the dependence
on revenues from a limited number of products will continue in the future. If
the Company does not diversify its product line and client base, it may put
itself in a position of risk that the loss or under-performance of a single
product or client may materially affect it.
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Related party transaction has historically generated a substantial
portion of its revenue
Selling media time to Trade Your Way To Riches, Inc., a corporation
owned by the Company's majority stockholder, represented none of its revenue in
1996, approximately 41% in 1997 and approximately 25% in 1998. In addition, in
1997 and 1998, revenue from Trade represented approximately 90% and 78% of the
Company's revenue from telemarketing for products owned by its clients. Although
total revenue related to Trade in 1999 had declined to less than 1% of total
revenue, and the Company anticipates that Trade-related revenue will continue to
represent less than 1% of future revenue, it has only since October 1998 begun
to sell media time to a significant number of new clients. In addition, the
Company has recently begun marketing the new products it acquired in the late
1998. Any inability to continue media sales to third parties or failure of the
Company's new products could significantly and adversely affect it.
Quarterly results can fluctuate
The Company's management believes that its business structure of offering
multi-disciplinary marketing for its own and third parties' disparate products
and services is unique. It believes the uniqueness of this structure, as well as
the inherent uncertainty of forecasting product sales generally will make
quarterly forecasts difficult and quarterly results will fluctuate. These
quarterly fluctuations and resulting deviations from forecast results may cause
volatility in the price for the common stock that may not reflect long-term
results or prospects. The Company expects these fluctuations to be exaggerated
as it executes its acquisition strategy, which will involve direct expenses, as
well as new product development and marketing expenses. The magnitude and timing
of these expenses will vary. Integration of disparate products, services and
distribution channels that are developed internally, acquired or contracted with
third parties to market, will also contribute to the unpredictability of
quarterly results.
Acceptance of marketing channels and technologies are key to the Company's
ability to compete
The Company is developing multi-disciplinary marketing that it believes
will be competitive. This development includes choices about the right marketing
channel--such as CENTERLINQ and its versatile kiosk system for deployment in
regional shopping malls and other public access areas--and the right technology
to exploit that channel--the Internet and the interface of the kiosks.
A number of factors related to those choices may adversely affect
competitiveness, including:
o rapid technological changes that make these or future offerings obsolete;
o changes in, or mistakes in gauging user and client requirements and
preferences; and
o frequent new product and service introductions by others or evolving
industry standards and practices in emerging markets that may promote
adoption of technologies other than those chosen by the Company.
Oral agreements are terminable at will
The Company frequently markets products on the basis of oral agreements
that may be terminated by either party at any time, and there is no written
contracts relating to the sale of media time to clients. Because of those
terminable arrangements, any of the Company's clients may discontinue utilizing
its services at any time in the future.
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A Pending CFTC Investigation May Involve Additional Expense, Management
Diversion or Limits On Its Business
The Company may also be subject to regulation by the Commodity Futures
Trading Commission, which regulates commodities trading. On November 14, 1997,
the CFTC issued an order authorizing the issuance of subpoenas and depositions
in a private investigation involving Jake Bernstein and MBH Commodity Advisors.
Although the order does not reference GenesisIntermedia.com, Inc., its employees
or affiliates, the CFTC has nonetheless requested that the Company provide
various documents arising from its involvement in the production and marketing
of an infomercial titled Success and You which promotes and markets a video
series titled Trade Your Way To Riches. The infomercial Success and You involves
the marketing of videos that provide instruction regarding trading strategies.
The CFTC has contended that, by virtue of the Company's activities in producing
and marketing the video, there may be a requirement to be registered in some
capacity with the CFTC. In the event that the CFTC brings an enforcement action
against the Company by virtue of its failure to register, or against Trade Your
Way To Riches, Inc., with whom the Company had done significant business in the
past, and which is owned by the Company's majority stockholder, any adverse
determination or settlement could adversely affect the Company. The range of
possible sanctions available to the CFTC in enforcement actions generally
include a simple request to become registered, a cease and desist order-- which
may, if successfully applied to the Company or Trade, terminate sales of some
Trade Your Way To Riches products or services--and a possible order of
disgorgement of profits--which could, again if applied to the Company, result in
substantial payments by the Company. The CFTC may still bring an enforcement
action against the Company or it may seek to settle the matter. Based on
analysis of all of the facts and legal advice from the Company's regulatory
counsel, the Company believes that the CFTC proceeding can be settled on terms
that will not materially adversely affect it, or that, if not settled, the final
resolution will not have a material adverse effect on it.
Future Expansion is Dependent on Raising Additional Capital.
The Company is currently negotiating with certain lenders to obtain
additional financing for the expansion of CENTERLINQ. If the negotiations do not
materalize and the Company is unable to obtain additional financing, the future
expansion of CENTERLINQ will be slowed significantly and will adversely
affect the Company.
The Company is also seeking additional financing to expand it's existing
business to purchase new products and purchase media time to advertise for
these products. If the company is unable to obtain this financing it's ability
to purchase media time to advertise it's products will be significantly limited.
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EMPLOYEES
As of March 30, 2000, the Company had 240 full-time employees. None of
these employees are covered by collective bargaining agreements and management
believes that its relations with its employees are good.
ITEM 2. DESCRIPTION OF PROPERTY
Prior to September 1999, we owned an office building at 13063 Ventura
Boulevard, Studio City, California 91604-2238. The building consists of 6,300
square feet and is entirely occupied by us. In July 1999 to house our expanding
business, we purchased an 80,000 square foot building at 5805 Sepulveda
Boulevard, Van Nuys, California 91411 and sold our previous corporate office in
Studio City, California. The new office building gives us room to expand as
we continue to increase our workforce. We occupy approximately 60% of the new
building and sublease the remaining 40% under lease arrangements ranging from
one to four years. Most of our administrative, telemarketing and media time
operations are conducted at our office building in Van Nuys, California. We
lease production facilities for the production of direct marketing programming
on an as-needed basis from third parties on commercially available terms. We
also operate a call center in St. George, Utah, in approximately 2,000 square
feet of space under a lease ending May 31, 2001. The lease provides for monthly
rental payments of $6,720.
ITEM 3. LEGAL PROCEEDINGS
On November 14, 1997, the Commodity Futures Trading Commission issued
an order authorizing the issuance of subpoenas and depositions in a private
investigation involving Jake Bernstein and MBH Commodity Advisors, a company not
affiliated with Genesis. Although the order does not reference Genesis, its
employees or affiliates, the CFTC has nonetheless requested that the Company
provide various documents arising out of our involvement in the production and
marketing of an infomercial titled Success and You which promotes and markets a
video series titled Trade Your Way To Riches. To date, the CFTC has directed one
subpoena to Genesis. Various documents have been produced on our behalf in
response to the subpoena. Additionally, the CFTC has taken the deposition of
Ramy El-Batrawi, our president, in connection with its investigation. The
Company has not to date been required to discontinue sales of Trade Your Way To
Riches products or services as a result of the CFTC's actions.
Although the CFTC has articulated its belief that Genesis, by virtue of our
involvement in the production and marketing of the infomercial, may be required
to be registered in some capacity to continue to engage in our sales activities
related to the Trade products, the Company believes the CFTC's analysis and
conclusions are incorrect and are based on incomplete information. In October
1998, the Company issued a written response to the CFTC's position setting forth
the reasons why the Company is not required to register in any capacity with the
CFTC. The CFTC has indicated that registration may be required. The Company has
been advised by our counsel that the initiation of a CFTC enforcement action
against us requiring registration or seeking the imposition of sanctions is
unwarranted. As of the date of this prospectus, there has been no indication
that the CFTC seeks any relief other than registration. To date, no complaint or
enforcement action has been asserted against Genesis, our officers, directors or
employees.
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If it is determined in the investigation or any resulting proceeding that
registration is required, the Company intends promptly to effect any required
registration. It is estimated that the cost of registering Genesis with the CFTC
will be less than $1,000. In the event that the CFTC were to bring an
enforcement action against Genesis by virtue of our failure to register, which
the Company believes would be unwarranted, any adverse determination or
settlement in this action could adversely affect us. The range of possible
sanctions available to the CFTC in enforcement actions generally includes a
simple request to become registered, a cease and desist order--which could, if
successfully applied to the Company or TYWR, terminate sales of some Trade Your
Way To Riches products or services--and a possible order of disgorgement of
profits--which could, again if applied to us, result in substantial payments by
us. In February 1999, the Company commenced negotiations with the CFTC to
terminate the investigation and settle all underlying claims against us and all
other persons subject to the investigation. Although the Company believes that a
settlement can be reached that will not have a material adverse impact on us,
the Company can not predict whether any settlement proposal the Company may make
will be accepted by the CFTC or by what time. For the reasons discussed in the
preceding paragraph, the Company believes that if the Company is unable to reach
agreement on a consensual resolution with the CFTC, then the final resolution of
the investigation or any ensuing action or proceeding will not have a material
adverse effect on the Company.
On February 5, 1999, the former chief executive officer of our Genesis
Intermedia, Inc. subsidiary commenced a suit for wrongful termination in
California Superior Court in Los Angeles County. The plaintiff is Sam Hassabo
and the principal defendants are Genesis, our Genesis Intermedia, Inc.
subsidiary and our chief executive officer, Mr. El-Batrawi. The complaint
alleges wrongful termination and breach of employment contract. The complaint
also alleges that the defendants engaged in fraud and negligent
misrepresentation in connection with the plaintiff's hiring and the termination
of his employment. Mr. Hassabo was terminated from his position as director and
chief executive officer of Genesis Intermedia, Inc. in December 1998. The
complaint primarily seeks monetary and punitive damages. The Company believes
the suit is frivolous and the Company intends to defend it vigorously. The
Company carries employment practices and general liability insurance which the
Company believes is adequate to cover any potential liability.
The Company may also be involved from time to time in various other claims and
legal actions incident to its operations, either as plaintiff or defendant. As
an advertiser, the Company may be exposed to unforeseen liability to consumers,
competitors or others, against which the Company is not insured. The Company
from time to time may be, or may be joined as, a defendant in litigation brought
against us or our clients by third parties. As the Company acquires the rights
to diverse new products and increases our client base, the likelihood of that
type of suit will increase. These possible claims include those brought by
clients' competitors, regulatory bodies or consumers alleging that advertising
claims are false, deceptive or misleading, that our clients' products are
defective or injurious or that marketing and communications materials infringe
on the proprietary rights of third parties. The Company does not maintain
insurance designed specifically for advertising agency liability. If the Company
is not adequately insured or indemnified, then the damages, costs, expenses or
attorneys' fees could have an adverse effect on us.
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 ans 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.
In addition, the contracts the Company enters into with our clients sometimes
require us to indemnify clients for claims brought by competitors or others
claiming that advertisements or other communications infringe on intellectual
property rights. Although the Company maintains business insurance the Company
believe is adequate for our operations, adequate insurance coverage may not be
available in the future or the insurance held by us may not be sufficient if a
significant adverse claim is made.
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ITEM 4. SUBMISSION OR MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock commenced trading on the Nasdaq National Market
under the symbol "GENI" on June 14, 1999. The following table sets forth, for
the periods indicated, the high and low closing sales prices per share of Common
Stock on the Nasdaq National Market.
HIGH LOW
------------ ------------
For the quarter ended March 31, 2000 $28.00 $5.63
For the quarter ended December 31, 1999 $ 7.81 $4.00
For the quarter ended September 30, 1999 $ 8.81 $4.50
June 14, 1999 to June 30, 1999 $ 8.56 $5.75
RECORD HOLDERS
The last reported sale price of the Common Stock on the Nasdaq National
Market on March 31, 2000 was $18.20. As of March 31, 2000, there were
approximately 2700 stockholders of record of the Company's Common Stock.
DIVIDENDS
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain all available funds for use in
its business and therefore does not anticipate paying any cash dividends in the
foreseeable future. Any future determination relating to dividend policy will be
made in the discretion of the Board of Directors of the Company and will depend
on a number of factors, including the future earnings, capital requirements,
financial condition and future prospects of the Company and such other factors
as the Board of Directors may deem relevant.
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ITEM 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and related footnotes for
the year ended December 31, 1999 included in this 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. The Company has been building an infrastructure to build,
develop and nurture new Internet technology companies and businesses. The
company markets products and services, which it develops, licenses exclusively
or distributes for third parties, utilizing network and cable television, radio,
newspapers, magazines, the Internet and the company's CENTERLINQ network. As it
has done with CENTERLINQ, the Company leverages its strength in operations,
marketing and the deployment of traditional and new media to advance new and
innovative technologies within strategically identified market segments.
Historically, the Company's operations have consisted of the marketing,
advertising and sales of its own products and those of its clients utilizing
traditional marketing channels. While it continues to utilize conventional media
to fulfill its marketing needs and those of its clients, the Company's 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, 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.
The Company 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 the Company to announce in December 1999 that
CENTERLINQ had reached critical mass. The systems were installed in 20 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 on consumers per
month. The Company foresees CENTERLINQ network expansion in additional malls
throughout North America, and is discussing expansion into Europe and Latin
America.
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With the CENTERLINQ experience not only proving successful, but teaching
the Company how to apply those same development standards and resources to other
businesses and technologies in order to achieve an effective rollout of product,
the Company's management now views its role as a creator of long-term
shareholder value more closely in alignment with its ability to propagate
additional Internet-based companies in accordance with its established
"incubation" process.
The Company, therefore, seeks 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. GenesisIntermedia.com, Inc. intends 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. The Company intends to seek
additional national advertisers and participants in CENTERLINQ once the
deployment of the network has sufficient national scope.
Even though GenesisIntermedia.com, Inc. is entering emerging markets and
has begun to generate revenue from CENTERLINQ, it continues to rely on marketing
products for a substantial part of its revenues. Proprietary products sold by
the Company 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. The Company expects that
revenues from the marketing of products will continue to account for a major
percentage of its 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 its refined business
plan that concentrates on the development of business-to-business and
business-to-consumer enterprises that utilize Internet technology continues
onward.
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RESULTS OF OPERATIONS
Year Ended December 31, 1999 vs. Year Ended December 31, 1998
<TABLE>
<CAPTION>
YEAR
ENDED YEAR PERCENTAGE OF NET
DECEMBER ENDED REVENUE
31, DECEMBER 31, --------------------------
1999 1998 1999 1998
---------------- ----------------- ------------ ------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net Revenue
Media sales - affiliate $ - $ 3,703 0.0% 24.8%
Media sales 5,793 1,220 18.3% 8.2%
Product sales 23,621 6,326 74.6% 42.4%
Commissions & royalties - affiliate - 1,789 0.0% 12.0%
Commissions & royalties 1,915 1,855 6.0% 12.5%
Other 342 13 1.1% 0.1%
---------------- ----------------- ------------ ------------
Total net revenue 31,671 14,906 100.0% 100.0%
Operating expenses
Media purchases 4,849 4,198 15.3% 28.1%
Direct costs 3,421 937 10.8% 6.3%
Selling, general and administrative 31,202 8,179 98.5% 54.9%
---------------- ----------------- ------------ ------------
Total operating expenses 39,472 13,314 124.6% 89.3%
---------------- ----------------- ------------ ------------
Income (loss) from operations (7,801) 1,592 (24.6%) 10.7%
(Gain) on sale of assets (282) - (0.9%) 0.0%
Interest expense 670 135 0.3% 0.9%
Financing costs 108 - 2.1% 0.0%
---------------- ----------------- ------------ ------------
Income (loss) before income taxes (8,297) 1,457 (26.2%) 9.8%
Provision (benefit) for income taxes - 30 0.0% 0.2%
================ ================= ============ ============
Net income (loss) $ (8,297) $ 1,427 (26.2%) 9.6%
================ ================= ============ ============
</TABLE>
Revenue for the year ended December 31, 1999 increased by $16,765,000 or 112.5%
from $14,906,000 for the year ended December 31, 1998 to $31,671,000 for the
same period in 1999. The, increase in revenue was due to the following:
o Product sales increased $17,295,000 or 273.4% principally as a result of
the Company's success in selling its new products and programs;
o Media sales to unrelated third parties increased from $1,220,000 in 1998 to
$5,793,000 in 1999 due to the Company hiring personnel with media buying
experience and contacts in the industry. The Company has been able to
retain several large customers who began purchasing media time in the
latter part of 1998 and have increased their media buys during 1999;
o Media sales to a company owed by the Company's majority stockholder
decreased from $3,703,000 for the year ended December 31, 1998 to $0 for
the same period in 1999. The Company has discontinued selling media to this
affiliate; and
23
<PAGE>
o Commissions and royalties--affiliate decreased from $1,789,000, for the
year ended December 31, 1998 to $0 for the same period in 1999. These
commissions are amounts received from the sale of mentoring programs for
the Trade Your Way To Riches products during the year ended December 31,
1998. There were no Trade-related sales for the same period in 1999. During
the fourth quarter of 1998 the Company discontinued selling the mentoring
programs for Trade Your Way To Riches, Inc.
Media purchases for the year ended December 31, 1999 increased by $651,000 or
15.5% from $4,198,000 for the year ended December 31, 1998 to $4,849,000 for the
same period in 1999. The increase was due to more media time sold in 1999. Media
purchases as a percentage of media sales decreased from 85.3% for the year ended
December 31, 1998 to 83.7% for the same period in 1999. The increase is in the
profit margin is due to the Company selling to unrelated third parties at higher
margins.
Direct costs for the year ended December 31, 1999 increased by $2,484,000 or
265.1% from $937,000 for the year ended December 31, 1998 to $3,421,000 for the
same period in 1999. The increase was due to significant increased product sales
during 1999, principally the sale of the Company's new products and programs.
Direct costs as a percentage of product sales decreased from 14.8% for the year
ended December 31, 1998 to 14.5% for the same period in 1999. The decrease is
due to lower product costs associated with the Company's new products and
programs when compared to the products sold by the Company during 1999.
Selling, general and administrative expenses for the year ended December 31,
1999 increased by $23,023,000 or 281.5% from $8,179,000 for the year ended
December 31, 1998 to $31,202,000 for the same period in 1999. The increase was
due principally to an increase in payroll and related benefits of $4,591,000 and
an increase in selling related expenses of $8,270,000. Selling related expenses
include the cost of acquiring customer names, purchasing media time for airing
of infomercials, royalties and telemarketing costs. The Company expensed
$9,867,000 in media airtime during 1999. As a result of expanding operations
through the creation of Genesis Intermedia, the Company's general and
administrative costs have increased. Most of the expenses incurred by Genesis
Intermedia to develop its Centerlinq Network are classified as general and
administrative expenses. The Company took steps to significantly expand its
Centerlinq Network of kiosks in shopping malls during the latter part of 1999.
By the end of 1999, the Company had installed its kiosks in 20 shopping malls.
During the third quarter of 1999, the Company sold its corporate office building
in Studio City, California that resulted in a gain on sale of $282,000. In July
1999, the Company purchased a new corporate office building in Van Nuys,
California.
Interest expense for the year ended December 31, 1999 increased by $535,000 or
396.3% from $135,000 for the year ended December 31, 1998 to $670,000 for the
same period in 1999. The increase in interest expense was due to the issuance of
a note payable secured by the Company's new corporate office building in Van
Nuys, California, an increase in the Company's line of credit, and notes payable
and capitalized lease obligations assumed as a result of the purchase of Vision
Digital assets and as part of the expansion of Centerlinq.
Financing costs for the year ended December 31, 1999 increased by $108,000 from
$0 for the year ended December 31, 1998 to $108,000 for the same period in 1999.
The increase is due to the amortization of commissions and other expenses paid
in connection with three notes payable the Company issued in May of 1999.
24
<PAGE>
Income taxes for the year ended December 31, 1999 decreased by $30,000 from
$30,000 for the year ended December 31, 1998 to $0 for the same period in 1999.
Due to the loss incurred in 1999, the current income tax expense recognized
during the first six months of 1999 was reduced to $0. Prior to January 1, 1999
the Company was taxed as an S corporation.
Net income for the year ended December 31, 1999 decreased by $9,724,000 or
681.4% from net income of $1,427,000 for the year ended December 31, 1998 to a
net loss of $8,297,000 for the same period in 1999. The decrease is principally
due to significantly higher sales offset by higher selling, general and
administrative expenses incurred to promote the Company's new products and
programs and to expand its Centerlinq Network of kiosks.
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 July
1997, we purchased an office building in Studio City, California with cash and a
Small Business Administration loan in the amount of $583,000. This loan was
being repaid with monthly payments of $5,823 over 25 years. In December 1997, we
sold 116,504 (29,126 of which were surrendered on November 1, 1998) shares of
common stock to Dr. Gray for $900,000. In January 1998 and April 1998, we
obtained two short-term loans from an unrelated third party for $300,000 and
$200,000, respectively. These loans bear interest at the rate of 8% per annum
and were repaid during the first quarter of 1999. In addition, in June 1997, we
obtained a $750,000 line of credit (increased to $1,500,000 during the third
quarter of 1999) from a major financial institution that is collateralized by
substantially all of our assets, except our office building, and the loan is
guaranteed by our majority stockholder. In August 1998, we obtained a working
capital loan in the amount of $300,000 collateralized by a second trust deed on
our land and office building. In January and April 1999, 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 stock. In June 1999 we sold 2,000,000 shares of
common stock in its initial public offering at $8.50 per share for an aggregate
of $17,000,000 with underwriting commissions and expenses of $1,870,000 and
offering expenses of $2,722,803. 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. We also sold our old office building in Studio City,
California in September 1999 and repaid the original mortgage note in the amount
of $583,000 and the $300,000 working capital loan that were secured by the
building. During November 1999, the Company secured a $5 million debenture of
which $1,463,403 was drawn down in 1999. The Company will take a charge to
earnings for the beneficial conversion feature and for the exercise price of the
warrants being below the fair market value of the grant dates. The Company will
also take a charge to earnings for the 15,000 common shares issued. During the
first quarter of 1999, the Company had drawn down the remainder of the
debenture. In February, the Company issued a convertible debenture in the amount
of $1 million along with a warrant to purchase 15,000 shares of the Company's
common stock at an exercise price of $6.00 and the issuance of 15,000 shares of
the Company's common stock. The debenture is convertible into common stock at
$5.00 per share. In connection with this debenture the Company issued warrants
to purchase 750,000 shares of common stock with an exercise price of $7.00.
25
<PAGE>
During the second quarter of 1999, and in connection with the termination of our
business relationship with Trade Your Way To Riches, Inc. ("TYWR"), a company
wholly owned by our majority stockholder, we exercised our option to purchase
the customer lists of TYWR, which option TYWR had granted to us prior to our
initial public offering. The purchase price of $3,821,134 for the customer lists
was approximately the fair market value, based on the projected revenues from
sales from the lists' use. The purchase price was paid through the exchange of
advances made by the Company to TYWR of $3,821,134, of which $2,270,330 of
these advances were made in 1999, for the customer lists. Under the terms of the
transaction, if the gross profit from use of the list during the first 18 months
does not meet or exceed the purchase price, then TYWR must refund to us the
difference between actual gross profit during such period and the purchase
price. We had the right to use the customer list during the second quarter of
1999 in consideration of the customary 25% commission for customer list use.
Under the terms of the option, we did not have to pay this commission if we
exercised the option to purchase prior to September 30, 1999. During the year
ended December 31, 1999 we generated sales from these customer lists which
resulted in gross profits of $2,645,459. In 2000, the gross profit generated
from sales from these customer lists exceeded the purchase price. None of the
proceeds of our initial public offering were used to fund this purchase. The
foregoing transaction was approved by our audit committee.
In June 1999, we acquired all of the assets comprising Global Leisure Travel,
Inc.'s ("Global") computerized Contour System travel-package marketing system
for $2,500,000. Global's majority stockholder is a company that is wholly owned
by Mr. El-Batrawi. In December 1999, we sold the Contour System back to Global
by transferring the asset and certain notes payable in the amount of $3,000,000
to Global. There was no gain or loss on this transaction as our basis in the
Contour System had increased by approximately $500,000 from additional
development costs we paid.
During the year ended December 31, 1999, we spent $15,943,742, on capital
expenditures including $11,865,935 on our new office building and building
improvements and used $5,274,022 in operations. In addition to capital
expenditures, we spent a significant amount of capital on the purchase of media
for our own use and for resale to others. The purchase of media time is capital
intensive because media time, unavailable on an as-needed basis, must be
purchased in advance. During 1999, we significantly increased the
amount of media purchased for our new products and programs. In 1999 we incurred
$9,866,824 in media airtime.
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 and the cash flow expected to be generated from
operations, 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 certain lenders to obtain additional financing to
expand CENTERLINQ. If we are not successful, our ability to expand CENTERLINQ
will be adversely affected. The Company is also seeking additional financing to
expand its existing business to purchase new products and purchase media time to
advertise for those products. If the Company is unable to obtain this financing
its ability to purchase media time to advertise its products will be
significantly limited.
IMPACT OF YEAR 2000
The Company 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, the
Company experienced no Year 2000 related disruptions in the products and
services provided by its significant suppliers or other third-party business
relationships. Many of the improvements made in preparation for the Year 2000
are expected to provide the Company 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.
26
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
INDEX
- --------------------------------------------------------------------------------
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 28
FINANCIAL STATEMENTS
Consolidated Balance Sheet as of December 31, 1999 29-30
Consolidated Statements of Operations for the Two Years
Ended December 31, 1999 31
Consolidated Statements of Stockholders' Equity for the Two
Years Ended December 31, 1999 32
Consolidated Statements of Cash Flows for the Two Years
Ended December 31, 1999 33-34
Notes to Consolidated Financial Statements 35-54
27
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
GenesisIntermedia.com, Inc.
We have audited the accompanying consolidated balance sheet of
GenesisIntermedia.com, Inc. and subsidiaries as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of
GenesisIntermedia.com, Inc. and subsidiaries as of December 31, 1999, and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 7, 2000
28
<PAGE>
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
1999
----------
CURRENT ASSETS
Cash and cash equivalents $ 589,745
Accounts receivable - trade, net of allowance for doubtful
accounts of $10,000 1,176,853
Inventory 888,546
Prepaid advertising 2,499,400
Advances receivable 1,190,532
Deposits and other prepaid assets 2,719,355
-----------
Total current assets 9,064,431
PROPERTY AND EQUIPMENT, net 16,694,510
CUSTOMER LISTS, net 2,865,851
GOODWILL, net 429,063
OTHER ASSETS 805,094
-----------
TOTAL ASSETS $29,858,949
===========
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
1999
----------
CURRENT LIABILITIES
Current portion of notes payable $ 582,805
Current portion of capital lease obligations 77,158
Line of credit 1,505,406
Accounts payable 6,475,317
Accrued payroll taxes 1,313,913
Other accrued liabilities 899,608
Income taxes payable 65,000
-----------
Total current liabilities 10,919,207
NOTES PAYABLE, net of current portion 9,435,699
CAPITAL LEASE OBLIGATIONS, net of current portion 281,329
-----------
Total liabilities 20,636,235
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible preferred stock, $0.001 par value
5,000,000 shares authorized
142,858 shares issued and outstanding 143
Common stock, $0.001 par value
25,000,000 shares authorized
5,310,000 shares issued and outstanding 5,310
Additional paid-in capital 17,591,041
Common stock committed 28,440
Accumulated deficit (8,296,550)
Treasury stock (105,670)
-----------
Total stockholders' equity 9,222,714
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $29,858,949
===========
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, AND 1998
- --------------------------------------------------------------------------------
1999 1998
------------- --------------
NET REVENUE
Media sales - affiliate $ - $ 3,702,731
Media sales 5,793,282 1,219,977
Product sales 23,621,061 6,325,887
Commissions and royalties - affiliate - 1,789,415
Commissions and royalties 1,915,392 1,854,450
Rental income and other 341,528 13,264
----------- -----------
Total net revenue 31,671,263 14,905,724
----------- -----------
OPERATING COSTS AND EXPENSES
Media purchases 4,849,008 4,198,159
Direct costs 3,420,833 936,567
Selling, general, and administrative expenses 31,202,137 8,179,150
----------- -----------
Total operating costs and expenses 39,471,978 13,313,876
----------- -----------
INCOME (LOSS) FROM OPERATIONS (7,800,715) 1,591,848
OTHER (INCOME) EXPENSES
Gain on sale of asset (282,491) -
Interest expense 670,120 135,135
Financing costs 108,206 -
----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (8,296,550) 1,456,713
PROVISION FOR INCOME TAXES - 30,000
----------- -----------
NET INCOME (LOSS) $(8,296,550) $ 1,426,713
=========== ===========
BASIC EARNINGS (LOSS) PER COMMON SHARE $ (1.89) $ 0.35
=========== ===========
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (1.89) $ 0.35
=========== ===========
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 4,383,464 4,082,746
=========== ===========
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Common
--------------- -------------- Paid-in Stock Retained Treasury
Shares Amount Shares Amount Capital Committed Earnings Stock Total
------ ------ ------ ------ ---------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 - $ - 4,000,000 $ 4,000 $ 920,582 $ - $2,694,252 $ - $ 3,618,834
DISTRIBUTION TO STOCKHOLDER (955,000) (955,000)
SURRENDER OF SHARES OF COMMON STOCK (1,000,000) (1,000) 1,000 -
ISSUANCE OF COMMON STOCK FOR ACQUISITION 60,000 60 599,940 600,000
NET INCOME 1,426,713 1,426,713
------ ---- ---------- ------- ---------- ------- ---------- -------- -----------
BALANCE, DECEMBER 31, 1998 - - 3,060,000 3,060 1,521,522 - 3,165,965 - 4,690,547
TRANSFER OF S CORPORATION EARNINGS 1,165,965 (1,165,965) -
DISTRIBUTION TO STOCKHOLDER (2,000,000) (2,000,000)
PRIVATE PLACEMENT OFFERINGS OF COMMON
STOCK, NET 250,000 250 1,548,500 1,548,750
PRIVATE PLACEMENT OFFERING OF PREFERRED
STOCK, NET 142,858 143 869,857 870,000
OPTIONS GRANTED TO CONSULTANTS 80,000 80,000
STOCK ISSUED FOR SERVICES RENDERED 28,440 28,440
PROCEEDS FROM INITIAL PUBLIC OFFERING,
NET 2,000,000 2,000 12,405,197 12,407,197
STOCK REPURCHASE (105,670) (105,670)
NET LOSS (8,296,550) (8,296,550)
------- ---- ---------- ------- ----------- ------- ------------ --------- -----------
BALANCE, DECEMBER 31, 1999 142,858 $143 5,310,000 $ 5,310 $17,591,041 $28,440 $(8,296,550) $(105,670) $ 9,222,714
======= ==== ========== ======= =========== ======= ============ ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (8,296,550) $ 1,426,713
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 1,702,456 142,609
Options issued for services 80,000 -
Common stock issued for services 28,440 -
Gain on sale of building (284,491) -
(Increase) decrease in
Accounts receivable - trade 814,313 (887,269)
Accounts receivable - affiliates 125,415 707,444
Inventory (708,338) 98,371
Prepaid advertising (1,948,577) 508,600
Advance receivable (1,190,532) -
Deposits and other prepaid assets (1,432,775) (83,478)
Increase (decrease) in
Accounts payable 4,449,166 33,731
Other accrued liabilities 1,674,414 390,031
Income taxes - 30,000
Deferred revenue (288,963) 6,830
---------------- ----------------
Net cash provided by (used in) operating activities (5,274,022) 2,373,582
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (15,943,742) (345,554)
Cash acquired in acquisition - 19,673
Purchase of AniMagic (165,000) -
Purchase of customer list (2,270,330) -
Purchase and development of Contour system (3,000,000) -
Proceeds from sale of building 1,240,000 -
Other (612,865) (192,229)
---------------- ----------------
Net cash used in investing activities (20,751,937) (518,110)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (payments to) related parties (15,495) (46,133)
Net proceeds from line of credit 835,371 670,035
Distribution to stockholder (2,000,000) (955,000)
Proceeds from sale of common stock to related party - -
Proceeds from notes payable 12,810,217 800,000
Proceeds from sale of common and preferred stock 19,750,000 -
Payment of offering costs (4,234,522) (689,531)
Repurchase of common stock (105,670) -
Payments on capital lease obligations (45,868) (8,745)
Payments on notes payable (2,219,891) (64,825)
---------------- ----------------
Net cash provided by (used in) financing activities 24,774,142 (294,199)
--------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (1,251,817) $ 1,561,273
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,841,562 280,289
--------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 589,745 $ 1,841,562
=============== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ 670,120 $ 135,135
=============== ================
INCOME TAXES PAID $ - $ -
=============== ================
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1999 the Company: (1) sold the Contour
system back to Global Leisure Travel, Inc. by transferring to Global the assets
and notes payable in the amount of $3,000,000; (2) issued a note payable in
connection with an insurance policy for $836,140; (3) entered into capital lease
obligations of $303,373; and (4) exchanged advances to a related party in the
amount of $3,821,134, of which advances of $2,270,330 were made in 1999, for
customer lists.
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
GenesisIntermedia.com, Inc. (the "Company") was incorporated in the
State of Florida on October 28, 1993 under the name Genesis Media
Group, Inc. The Company re-domesticated to Delaware in 1998. On
December 3, 1998, the Company amended its Certificate of Incorporation
to change its name to GenesisIntermedia.com, Inc. The Company is an
integrated marketing and business solutions provider utilizing
conventional, emerging and interactive multimedia technologies. The
Company has devoted substantially all its resources to selling products
it owned or had purchased the rights to sell through conventional
marketing methods. The Company sold these products to the general
public through the use of infomercials, radio advertisements, print
media and retail outlets.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiaries Genesis Intermedia, Inc. from
its inception in August 1998 and Genesis Properties, Inc. from its
inception in July 1999. All intercompany accounts and transactions have
been eliminated.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, and other accrued liabilities,
the carrying amounts approximate fair value due to their short
maturities. The amounts shown for notes payable and capital lease
obligations also approximate fair value because current interest rates
offered to the Company for debt or leases of similar maturities are
substantially the same.
Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Stock Options
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," establishes and encourages
the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined
using the fair value of stock-based compensation determined as of the
date of grant and is recognized over the periods in which the related
services are rendered. The statement also permits companies to elect to
continue using the current implicit value accounting method specified
in Accounting Principles Bulletin ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," to account for stock-based
compensation. The Company has elected to use the implicit value based
method and has disclosed the pro forma effect of using the fair value
based method to account for its stock-based compensation.
35
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
For purpose of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents.
Advances Receivable
The balance represents advances to a third party that buys and sells
media time on behalf of the Company. The amount outstanding is
unsecured and will be repaid by commissions earned by the third party
on media transactions it processes for the Company.
Inventory
Inventory consists principally of products purchased for resale and are
stated at the lower of cost (determined by the first-in, first-out
method) or market.
Production Costs
Costs related to the production of the Company's direct response
televised advertising programs are capitalized and amortized over the
estimated useful life of the production, generally from 12 to 24
months. The estimated useful life of each production is regularly
evaluated and adjusted as sales response becomes available. Included in
other assets in the accompanying consolidated balance sheets as of
December 31, 1999 are capitalized production costs of $438,813, net of
accumulated amortization of $252,328.
Deposits and Other Prepaid Assets
The balance consists primarily of deposits held by credit card
processing companies as security for future charge-backs and returns by
customers who have purchased the Company's products during the year.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided
on a straight-line basis over estimated useful lives of the assets as
follows:
Building and improvements 7 to 39 years
Vehicles 5 years
Furniture and equipment 5 to 7 years
Expenditures for maintenance and repairs are charged to operations as
incurred while renewals and betterments are capitalized. Gains and
losses on disposals are included in the results of operations.
Accrued Payroll Taxes
The balance consists of payroll taxes related to payroll paid to the
Company's employees during 1997, 1998 and 1999. Included in the balance
is an estimated amount for penalties and interest that will be due when
the payroll taxes are paid.
36
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Product sales are recognized when the product is shipped. Generally, it
is the Company's policy to refund unconditionally the total price of
merchandise returned within 30 days of the customer's receipt of the
merchandise. The Company provides an allowance, based upon experience,
for returned merchandise. Revenue from media sales is recognized when
the media time is aired. Commissions, royalties, and rental income are
recognized when earned.
Income Taxes
From inception to December 31, 1998, the Company elected to be taxed as
an S corporation; accordingly, the stockholders were liable for federal
and state income taxes on their respective shares of Genesis's taxable
income. In addition, there was a minimal franchise tax on the Company's
taxable income for state purposes.
Effective January 1, 1999, the Company revoked its S corporation status
and elected to be taxed as a C corporation. At that date, the retained
earnings of the S corporation of $1,165,965 were transferred to
additional paid-in capital.
Effective January 1, 1999, the Company began utilizing SFAS No. 109,
"Accounting for Income Taxes," which requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
37
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising Costs
The Company expenses advertising costs when the advertisement takes
place, except for direct-response advertising costs that elicits a
customer to respond to a specific advertisement and that results in
future benefits. These costs are capitalized and amortized using an
accelerated method over its expected period of future benefit, not to
exceed twelve months. The Company is able to identify to which
advertisement a customer is responding by using a separate toll free
number for each ad. The Company evaluates the probable future benefits
of direct-response advertising costs based on recent historical
experience based on the type of advertisement, the target audience and
the product being sold.
Direct response advertising consists principally of television airtime
purchased to broadcast the Company's infomercials and print media. At
December 31, 1999, $2,499,400 of advertising was reported as an asset
which consisted of the unamortized portion of the capitalized direct
response advertising, net of accumulated amortization of $14,915,539.
The Company incurred $9,866,824 and $2,808,716 in advertising
expense for the years ended December 31, 1999 and 1998, respectively.
Concentration of Credit Risk
The Company places its cash with high-credit, quality financial
institutions. At times, such amounts may be in excess of the Federal
Deposit Insurance Corporation limit. As of December 31, 1999, the
uninsured portions of the balances held at these financial institutions
aggregated to $325,845. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant
credit risk on cash and cash equivalents.
During the years ended December 31, 1999 and 1998, 0% and 41%,
respectively, of the Company's revenue was derived from selling media
time to a corporation owned by the Company's majority stockholder.
Earnings Per Share
The Company reports earnings per share in accordance with SFAS No. 128,
"Earnings per Share." Basic earnings per share is computed by dividing
income available to common stockholders by the weighted average number
of common shares available. Diluted earnings per share is computed
similar to basic earnings per share except that the denominator is
increased to include the number of additional common shares that would
have been outstanding if the potential common shares had been issued
and if the additional common shares were dilutive.
Impairment of Long-Lived Assets
The Company continually monitors its long-lived assets to determine
whether any impairment of these assets has occurred. In making such
determination, the Company evaluates the performance, on an
undiscounted cash flow basis, of the underlying assets or group of
assets that gave rise to this amount. Goodwill is being amortized on
the straight-line basis over 60 months. Customer lists are being
amortized on the straight-line basis over 24 months.
38
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill
The Company continually monitors its goodwill to determine whether any
impairment of this asset has occurred. In making such determination
with respect to goodwill, the Company evaluates the performance, on an
undiscounted cash flow basis, of the underlying assets or group of
assets that gave rise to this amount. Goodwill is being amortized on
the straight-line basis over 60 months. As of December 31, 1999,
goodwill was $429,063, net of accumulated amortization of $108,737.
Software Development Costs
Software development costs are capitalized in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Cost of Computer Software to Be Sold, Leased, or Otherwise Marketed."
Capitalization of software development costs begins upon the
establishment of technological feasibility and is discontinued when the
product is available for sale. The establishment of technological
feasibility and the ongoing assessment for recoverability of
capitalized software development costs require considerable judgment by
management with respect to certain external factors, including, but not
limited to, technological feasibility, anticipated future gross
revenues, estimated economic life, and changes in software and hardware
technologies. Capitalized software development costs are comprised
primarily of salaries and payroll costs.
Amortization of capitalized software development costs is provided on a
product-by-product basis on the straight-line method over the estimated
economic life of the products (not to exceed three years). Management
periodically compares estimated net realizable value by product to the
amount of software development costs capitalized for that product to
ensure the amount capitalized is not in excess of the amount to be
recovered through revenues. Any such excess of capitalized software
development costs over expected net realizable value is expensed at
that time. Software development costs are included in Other Assets and
amount to $366,281, net of accumulated amortization of $33,299.
Risks and Uncertainties
The Company operates in an industry that is highly competitive. The
Company's principal competitors are marketing and communication
companies that operate in the United States. In order to maintain its
current sales levels, the Company must continue to maintain existing
client relationships, and attract new clients by demonstrating its
creative reputation, knowledge of media and high quality service.
The majority of the Company's revenue has come from selling media time
to a related party and from product sales from one group of products.
The Company must continue to develop new sources of revenue and obtain
new products to sell because the majority of products generate their
most significant revenue in their introductory year.
The Company also relies on third party fulfillment facilities to store
inventory, process orders and ship products. The termination of or
adverse change in the Company's relationship with such fulfillment
facilities or the partial or total loss of any of these facilities or
the Company's inventories stored there may have a material adverse
effect upon the Company's business.
39
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income
For the year ended December 31, 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards
for reporting comprehensive income and its components in a financial
statement. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources. Examples of
items to be included in comprehensive income, which are excluded from
net income, include foreign currency translation adjustments and
unrealized gains and losses on available-for-sale securities.
Comprehensive income is not presented in the Company's financial
statements since the Company did not have any of the items of
comprehensive income in any period presented.
Recently Issued Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 136, "Transfer of Assets to a Not-for-Profit Organization or
Charitable Trust that Raises or Holds Contributions for Others." This
statement is not applicable to the Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities." The Company does not expect
adoption of SFAS No. 137 to have a material impact, if any, on its
financial position or results of operations.
Reclassifications
Certain amounts in the 1998 financial statements have been reclassified
to conform with the 1999 presentation.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 consisted of the following:
Land $ 1,450,000
Building and improvements 10,415,935
Vehicles 113,269
Furniture and equipment 5,489,158
--------------
17,468,362
Less accumulated depreciation (773,852)
--------------
TOTAL $ 16,694,510
==============
Depreciation expense for the years ended December 31, 1999 and 1998 was
$649,196 and 131,849, respectively.
40
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 3 - NOTES PAYABLE
Notes payable at December 31, 1999 consisted of the following:
<TABLE>
<S> <C>
Note payable - bank is collateralized by a 1st Trust Deed on
the land and building located in Van Nuys, California. The
note bears interest at prime (7.75% at December 31, 1999)
plus 2.75%. Monthly interest only payments with any unpaid
principal and interest due on July 20, 2004. $7,856,250
Note payable - investor is unsecured and bears interest at
11.5% per annum and is due on March 31, 2001. The note
permits the Company to borrow up to $5 million. The
Company also issued to the investor 750,000
warrants to purchase the Company's common stock at $7 per
share. This note is senior to any future borrowings. 1,463,403
Note payable - bank is collateralized by certain furniture
and equipment. The note bears interest at 8.5%. Monthly
principal and interest payments are $4,127 with any unpaid
principal and interest due in August 2003. This note was
called by the bank in April 1999 151,569
Notes payable to an insurance company. The note is unsecured
and bear interest at 6.99% Monthly principal and interest
payments, are $44,596 with any unpaid principal and interest
due December 10, 2000. The Company is three months in arrears on
its payment on this note. 547,282
-----------
10,018,504
Current portion 582,805
-----------
LONG-TERM PORTION $ 9,435,699
===========
</TABLE>
41
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 3 - NOTES PAYABLE (CONTINUED)
The following is a schedule by years of future maturities of notes
payable:
Year Ending
December 31,
------------
2000 $ 582,805
2001 1,504,613
2002 44,972
2003 29,864
2004 7,856,250
-----------
TOTAL $10,018,504
===========
In May 1999, the Company 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, the Company also issued warrants to purchase 78,571 shares
of common stock at 120% of the IPO price. The notes bear interest at
the rate of 8.75% per annum and are due the earlier of nine months from
the date of issuance or 30 days after the closing of the Company's
initial public offering. The Company repaid these notes in July 1999.
NOTE 4 - LINE OF CREDIT
The Company has a $1,750,000 line of credit with a financial
institution. The Company is currently in default. The Company has
obtained a forbearance from the financial institution allowing the
Company until May 1, 2000 to cure the default. Under the terms of
the forbearance the Company must make certain payments on specific
dates through May 1, 2000 at which time the balance owed is due in
full. The line of credit bears interest at prime, plus 2.9%, is
collateralized by substantially all of the Company's assets, except
real estate, and is guaranteed by the Company's majority stockholder.
NOTE 5 - RELATED PARTY TRANSACTIONS
Media Sales and Accounts Receivable - Affiliate
The Company purchases media airtime and resells it to other companies.
For the years ended December 31, 1999 and 1998, media sold to a company
owned by the Company's majority stockholder amounted to $0 and
$3,702,731, respectively. The above mentioned media sales resulted in a
gross profit of $0 and $555,410, respectively. The mark-up on the media
sales was approximately 15% which is the standard industry mark-up and
consistent with amounts that could be realized from sales to unrelated
third parties.
42
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 5 - RELATED PARTY TRANSACTIONS (CONTINUED)
Customer List
During the second quarter of 1999, and in connection with the
termination of its business relationship with Trade Your Way To Riches,
Inc. ("TYWR"), a company wholly owned by the Company's majority
stockholder, the Company exercised its option to purchase the customer
lists of TYWR, which option TYWR had granted to the Company prior to
the Company's initial public offering. The purchase price of $3,821,134
for the customer lists was the approximate fair market value, based on
the projected revenues from sales from the lists' use. The purchase
price was paid through the exchange of advances made by the Company to
TYWR of $3,821,134, of which $2,270,330 of these advances were made in
1999, for the customer list. Under the terms of the transaction, if the
gross profit to the Company from use of the list during the first 18
months does not meet or exceed the purchase price, then TYWR must
refund to the Company the difference between actual gross profit during
such period and the purchase price. The Company had the right to use
the customer list during the second quarter of 1999 in consideration of
the customary 25% commission for customer list use. Under the terms of
the option, the Company did not have to pay this commission if it
exercised the option to purchase prior to September 30, 1999. During
1999, (subsequent to the purchase of this list) the Company generated
sales from these customer lists which resulted in gross profits of
$2,645,459. In 2000, the gross profits generated from sales from these
customer lists exceeded the purchase price. None of the proceeds of the
Company's initial public offering were used to fund this purchase.
Genesis Aviation
In connection with the sales efforts "road show" and visits to
regulatory agencies in connection with the Company's initial public
offering, the Company leased an airplane from Genesis Aviation, Inc.
("Aviation"), a company wholly owned by the Company's majority
stockholder. During 1999, the Company reimbursed Aviation for use of
the airplane in the amount of $510,593. The lease charges to the
Company by Aviation were below the lease charges by Aviation to third
parties for the same services.
Contour System
In April 1999, the Company entered into a strategic alliance with
Global Leisure Travel, Inc. ("Global"), a leading provider of wholesale
travel to travel agents and consumers. Global's majority stockholder is
a company that is wholly owned by the Company's majority stockholder.
The strategic alliance provided that the Company would become the
principal marketing and advertising agent and the exclusive Internet
marketing and advertising agent and eCommerce consultant and provider
to Global and all of its subsidiaries and affiliates.
Global also granted the Company an option to acquire all of the
technology and assets comprising its proprietary computerized travel
marketing system known as the Contour System. The agreed purchase price
is the actual cost of development. In June 1999, the Company exercised
this option and purchased the Contour System for $2.5 million.
In December 1999, the Company sold the Contour System back to Global by
transferring the Contour System and certain notes payable in the amount
of $3,000,000 to Global. There was no gain or loss on this transaction
as the Company's basis in the Contour System had increased by
approximately $500,000 from additional development cost paid by the
Company.
43
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 5 - RELATED PARTY TRANSACTIONS (CONTINUED)
Commission Revenue
For the years ended December 31, 1999 and 1998, the Company earned $0
and $1,789,415, respectively, in commission from selling products for
companies owned by the Company's majority stockholder. The commission
received from selling these products ranged from 35% to 55%.
Transactions with Dr. Gray
On December 31, 1997, the Company sold 116,504 shares of its common
stock to Dr. John Gray for $900,000. On November 1, 1998, 29,126 of
those shares were surrendered. Royalties paid to Dr. Gray for the years
ended December 31, 1999 and 1998 were $0 and $0, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Royalties
In the normal course of business, the Company has entered into various
agreements under which it is obligated to pay royalties on products it
sells. The royalties vary by agreement and are based on percentages of
net revenue generally not to exceed 25% or a percentage of the net
profits of the venture generally not to exceed 50%. Royalty expense for
the years ended December 31, 1999, and 1998 was $1,403,487 and
$454,997, and respectively.
Litigation
On November 14, 1997, the Commodity Futures Trading Commission issued
an Order authorizing the issuance of subpoenas and depositions in a
private investigation involving Jake Bernstein and MBH Commodity
Advisors, a company not affiliated with the Company. Although the Order
does not reference the Company, its employees or affiliates, the CFTC
has nonetheless requested that the Company provide various documents
arising out of the Company's involvement in the production and
marketing of an infomercial titled Success and You which promotes and
markets a video series titled Trade Your Way To Riches. To date, the
CFTC has directed one subpoena to the Company. Various documents have
been produced on behalf of the Company in response to the subpoena.
Additionally, the CFTC has taken the deposition of Ramy El-Batrawi,
president of the Company, in connection with its investigation. The
Company has not to date been requested to discontinue sales of Trade
Your Way To Riches products or services as a result of the CFTC's
actions.
Although the CFTC has articulated its belief that the Company, by
virtue of its involvement in the production and marketing of the
infomercial, may be required to be registered in some capacity to
continue to engage in the referenced activities, the Company believes
the CFTC's analysis and conclusions are incorrect and are based on
incomplete information. In October 1998, the Company issued a written
response to the CFTC's position setting forth the reasons why the
Company is not required to register in any capacity with the CFTC. The
CFTC has indicated that registration may be required.
44
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation (Continued)
The Company has been advised by its counsel that the initiation of a
CFTC enforcement action against the Company requiring registration or
seeking the imposition of sanctions is unwarranted. As of the date of
this prospectus, there has been no indication that the CFTC seeks any
relief other than registration. To date, no complaint or enforcement
action has been asserted against the Company, its officers, directors
or employees.
If it is determined in the investigation or any resulting proceeding
that registration is required, the Company intends promptly to effect
any required registration. It is estimated that the cost of registering
the Company with the CFTC will be less than $1,000. In the event that
the CFTC brings an enforcement action against the Company by virtue of
its failure to register, any adverse determination or settlement in
this action could adversely affect the Company. The range of possible
sanctions available to the CFTC include a simple request to become
registered, a cease and desist order - which may terminate sales of
certain Trade Your Way To Riches products or services - and a possible
order of disgorgement of profits which could, if applied to the
Company, result in substantial payments by the Company. In February
1999, the Company commenced negotiations with the CFTC to terminate the
investigation and settle all underlying claims against us and all other
persons subject to the investigation. Although the Company believes
that a settlement can be reached that will not have a material adverse
impact on us, the Company can not predict whether any settlement
proposal the Company may make will be accepted by the CFTC or by what
time. For the reasons discussed in the preceding paragraph, the Company
believes that if the Company is unable to reach agreement on a
consensual resolution with the CFTC, then the final resolution of the
investigation or any ensuing action or proceeding will not have a
material adverse effect on the Company.
On February 5, 1999, the former chief executive officer of Genesis
Intermedia, Inc. commenced a suit for wrongful termination in
California Superior Court in Los Angeles County. The plaintiff is Sam
Hassabo and the principal defendants are the Company, Genesis
Intermedia, Inc. and the Company's chief executive officer, Mr.
El-Batrawi. The complaint alleges wrongful termination and breach of
employment contract. The complaint also alleges that the defendants
engaged in fraud and negligent misrepresentation in connection with the
plaintiff's hiring and the termination of his employment. Mr. Hassabo
was terminated from his position as director and chief executive
officer of Genesis Intermedia, Inc. in December 1998. The complaint
primarily seeks monetary and punitive damages. The Company believes the
suit is frivolous and intends to defend it vigorously. The Company
carries employment practices and general liability insurance which the
Company believes is adequate to cover any potential liability.
The Company may also be involved from time to time in various other
claims and legal actions incident to its operations, either as
plaintiff or defendant.
45
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Leases
The Company leases certain office space, office equipment, an
automobile and mall space for its kiosks under a non-cancelable
operating lease. The Company also leases certain office furniture and
equipment under capitalized lease obligations. Future minimum rental
commitments under lease agreements with initial or remaining terms of
one year or more are as follows:
Year Ending Operating Capital
December 31, Leases Leases
------------ ---------- --------
2000 $ 471,276 $158,434
2001 422,110 149,343
2002 353,660 96,626
2003 232,560 18,600
2004 190,900
Thereafter 5,040
---------- --------
423,003
$1,675,546
==========
Less amount representing
interest (64,516)
--------
358,487
Less current portion 77,158
--------
$281,329
========
Included in property and equipment is capitalized lease equipment of
$418,271 with accumulated amortization of $54,284 at December
31, 1999.
Rent expense for the years ended December 31, 1999 and 1998 was
$226,852, and $24,405, respectively.
Employment Agreements
In September 1998, the Company entered into an employment agreement
with its President which continues until September 30, 2003, unless
terminated earlier by the Company, either for cause, death or certain
other circumstances. Pursuant to the terms of the Employment Agreement,
the President is to be paid an annual salary of $250,000 and is
eligible to receive bonuses at the discretion of the Board of
Directors.
46
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements (Continued)
In October, 1998 the Company entered into employment agreements with
two employees retained as a result of the acquisition of certain of the
assets of Vision Digital Communications, Inc. The term of each of the
employment agreements commenced on November 1, 1998 and will terminate
on October 31, 2001, unless terminated earlier by the Company for
cause, death or under certain other circumstances. The employment
agreements provide that each of the employees is to be paid an annual
salary of $84,000 and is eligible to receive an annual bonus at the
discretion of the Board of Directors.
NOTE 7 - STOCKHOLDERS' EQUITY
Stock Split
On October 27, 1998, the Company effected a 38,834.95-for-1 stock split
of its common stock, increased the number of authorized shares to
25,000,000 and changed the par value of its common stock to $0.001. All
share and per share data have been retroactively restated to reflect
this stock split, change in the authorized shares and par value. In
addition, the Company authorized 5,000,000 shares of $0.001 par value
preferred stock. No preferred shares were issued or outstanding as of
December 31, 1999.
Stock Surrender
On November 1, 1998, the Company's two principal stockholders
surrendered an aggregate of 1,000,000 shares of the Company's common
stock.
Private Placement Offerings
In January, 1999, the Company completed a private placement of 175,000
shares of common stock at $10.00 per share, net of commissions and
expenses of approximately $201,250. In March 1999 the board of
directors authorized the issuance of one series of preferred stock -
series A convertible preferred stock. There are 450,000 authorized
shares of series A convertible preferred stock. This stock has a cash
dividend of 8.75% per annum, payable quarterly. The holders of this
stock have no voting rights. In April, 1999, the Company sold 142,857
shares of convertible preferred stock at $7.00 per share, net of
commissions of $115,000, and warrants to purchase 142,857 shares of
common stock at 120% of the IPO price to the same investors.
In connection with this transaction, the Company issued 75,000
additional shares of common stock and warrants to purchase an
additional 250,000 shares of common stock at 120% of the IPO price to
the investors, which brought the effective purchase price of the shares
issued in connection with the private placement which occurred in
January to $7.00 per share.
Initial Public Offering
In June 1999 the Company sold 2,000,000 shares of common stock in its
initial public offering at $8.50 per share for an aggregate of
$17,000,000 with underwriting commissions and expenses of $1,870,000
and offering expenses of $2,722,803
Treasury Stock
During third and fourth quarters of 1999, the Company repurchased
22,400 shares of its common stock for $105,670.
47
<PAGE>
NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plan
In October 1998, the board of directors adopted and the stockholders
approved the Company's 1998 Stock Incentive Program ("Stock Option
Plan"). Under the Stock Option Plan, the board of directors, or its
designated administrators, has the flexibility to determine the type
and amount of awards to be granted to eligible participants. The Stock
Option Plan is intended to secure for the Company and its stockholders
the benefits arising from ownership of the Company's common stock by
individuals employed or retained by the Company who will be responsible
for the future growth of the Company. The Stock Option Plan is designed
to help attract and retain superior personnel for positions of
substantial responsibility, and to provide individuals with an
additional incentive to contribute to the Company's success.
The Stock Option Plan is composed of seven parts and the program
administrators may make the following types of awards under the Stock
Option Plan: (1) incentive stock options under the Incentive Stock
Option Plan; (2) nonqualified stock options under the Nonqualified
Stock Option Plan; (3) restricted shares under the Restricted Shares
Plan; (4) rights to purchase stock under the Employee Stock Purchase
Plan; (5) stock appreciation rights under the Stock Appreciation Rights
Plan; (6) grants of options under the Non-Employee Director Stock
Option Plan; and (7) certain other stock rights under the Stock Rights
Plan, which may include the issuance of units representing the
equivalent of shares of common stock, payments of compensation in the
form of shares of common stock and rights to receive cash or shares of
common stock based on the value of dividends paid with respect to a
share of common stock.
The Company has authorized and reserved for issuance an aggregate of
600,000 shares of common stock under the Stock Option Plan. The
aggregate number of shares of common stock which may be granted through
awards under the Stock Option Plan, other than stock payments and the
purchase of stock under the Employee Stock Purchase Plan, to any
employee in any calendar year may not exceed three percent of the
then-outstanding shares of common stock. The shares of common stock
issuable under the Stock Option Plan may be authorized but unissued
shares, shares issued and reacquired by the Company or shares purchased
by the Company on the open market. If any of the awards granted under
the Stock Option Plan expire, terminate or are forfeited for any reason
before they have been exercised, vested or issued in full, the unused
shares subject to those expired, terminated or forfeited awards will
again be available for purposes of the Stock Option Plan.
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting
Principles Bulletin ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its
Stock Option Plan and does not recognize compensation expense for its
Stock Option Plan other than for restricted stock and options issued to
outside third parties. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for
awards under the Stock Option Plan consistent with the methodology
prescribed by SFAS No. 123, the Company's net income and earnings per
share would be reduced to the pro forma amounts indicated below for the
years ended December 31, 1999 and 1998:
48
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plan (Continued)
1999 1998
---- ----
Net income (loss)
As reported $(8,296,550) ($1,426,713)
Pro forma $(8,986,973) ($1,074,630)
Basic earnings (loss) per common share
As reported $(1.89) $ (0.35)
Pro forma $(2.05) $ (0.26)
Diluted earnings (loss) per common share
As reported $(1.89) $ (0.35)
Pro forma $(2.05) $ (0.26)
For purposes of computing the pro forma disclosures required by SFAS
No. 123, the fair value of each option granted to employees and
directors is estimated using the Black-Scholes option-pricing model.
The fair value is computed as of the date of grant using the following
assumptions: (i) dividend yield of 0% and 0%, (ii) expected volatility
of 100% and 65%, (iii) weighed-average risk-free interest rate of
approximately 6.2% and 5.5%, and (iv) expected life of 2 and 2 years,
respectively.
The following is table summarizes the options and warrants outstanding:
<TABLE>
<CAPTION>
Weighted- Weighted-
Stock Average Other Average
Option Exercise Options/ Exercise
Plan Price Warrants Price
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Balance, December 31,
1997 - $ - - $ -
Granted 450,000 $ 8.05 50,000 $ 9.57
Exercised - $ - - $ -
Canceled 200,000 $ 8.50 - $ -
--------------- ---------------
Balance, December 31,
1998 250,000 $ 8.50 50,000 $ 9.57
Granted 231,220 $ 6.38 - $ -
Canceled (13,500) $ 6.38 - $ -
--------------- ---------------
BALANCE, DECEMBER 31,
1999 467,720 $ 7.96 50,000 $ 9.57
=============== ===============
Exercisable, December 31,
1999 302,044 $ 8.34 50,000 $ 9.57
=============== ===============
</TABLE>
The weighted average remaining contractual life of options outstanding
issued under the Stock Option Plan and the other options is 3.09 and
1.83 years, respectively, at December 31, 1999. The exercise price for
the options outstanding under the Stock Option Plan at December 31,
1999 ranged from $6.00 to $8.50
49
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 8 - ACQUISITIONS
On October 26, 1998, the Company acquired certain assets of Vision
Digital Communications, Inc., ("Vision Digital") a company that places
interactive kiosks in shopping malls. The Company purchased current
assets, equipment and intangible assets in exchange for 60,000 shares
of the Company's common stock valued at $600,000 plus the assumption of
certain liabilities. The common stock was valued at $10 per share which
approximates the per share price the Company received when it sold
stock in December 1997. The Company also issued to the seller options
to purchase up to an additional 50,000 shares of common stock at a
weighted average exercise price of $9.57 per share. The options will be
exercisable if the acquired division meets certain targeted levels of
total revenue over a three-year period. These options were issued
outside the Stock Option Plan. Such options will expire at the end of
such three-year period.
The Company entered into employment agreements with two former
employees of Vision Digital, each providing for three-year terms and
annual salaries of $84,000. Each such employee is also eligible to
receive grants of options to purchase an aggregate of 75,000 shares of
common stock, upon the achievement of three separate performance
hurdles. The 25,000 options that may be granted to each employee at
each such hurdle will have per share exercise prices of $11.00, $13.00
and $15.00, respectively. In addition, each employee is to receive an
interest free loan of $40,000 of which $30,000 will be forgiven upon
the achievement of certain performance goals. These loans were made by
the Company during 1999.
Listed below are the assets purchased from Vision Digital:
Cash $ 19,673
Other current assets 76,911
Property and equipment 582,895
Goodwill 372,800
Current liabilities (213,914)
Long-term debt and Capital leases (238,365)
---------
PURCHASE PRICE $ 600,000
=========
In March 1999, the Company acquired substantially all the assets of
AniMagic Corporation, an interactive multimedia company that produces
CD-ROMs for the edutainment industry, for $165,000. The operations of
AniMagic Corporation in 1998 and through the date of acquisition in
1999 were immaterial and not presented in the unaudited pro forma
information below.
50
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 8 - ACQUISITIONS (CONTINUED)
The following table presents the unaudited pro forma condensed
consolidated statements of operations for the year ended December 31,
1998 and reflects the results of operations of the Company as if the
acquisition of Vision Digital had been effective January 1, 1998. The
pro forma amounts are not necessarily indicative of the combined
results of operations had the acquisition been effective as of that
date, or of the anticipated results of operations, due to cost
reductions and operating efficiencies that are expected as a result of
the acquisition.
1998
-----------
(unaudited)
Total net revenue $15,069,347
Direct costs $ 998,057
Selling, general and administrative expenses $ 8,696,034
Income from operations $ 1,177,097
Net income $ 1,011,162
Basic earnings per share $ 0.25
NOTE 9 - PROVISION FOR INCOME TAXES
The following table presents the current and deferred income tax
provision for federal and state income taxes for the years ended
December 31, 1999 and 1998:
1999 1998
--------------- ---------------
Current
Federal $ - $ -
State - 30,000
--------------- ---------------
- 30,000
--------------- ---------------
Deferred
Federal - -
State - -
--------------- ---------------
- -
--------------- ---------------
PROVISION FOR INCOME TAXES $ - $ 30,000
=============== ===============
51
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 9 - PROVISION FOR INCOME TAXES
The provision for income taxes differs from the amount that would
result from applying the federal statutory rate as follows. No
reconciliation is shown for the years ended December 31, 1998 as the
Company elected to be taxed as an "S" corporation until December 31,
1998.
Year Ended
December 31,
1999
------------
Statutory regular federal income tax rate 34.0%
Effect of valuation allowance (34.0%)
------
TOTAL 0.0%
======
The components of the deferred income tax assets (liabilities) as of
December 31, 1999 are as follows:
Deferred tax assets
Amortization of goodwill $ 20,000
Accounts receivable allowance 4,000
Net operating loss carryforward 3,265,000
----------------
Total deferred tax assets 3,289,000
----------------
Deferred tax liabilities
Depreciation of property and equipment 380,000
----------------
Total deferred tax liabilities 380,000
----------------
Net deferred tax asset 2,909,000
Valuation allowance (2,909,000)
----------------
$ -
================
At December 31, 1999, the Company has provided a valuation allowance
for the deferred tax asset since management has not been able to
determine that the realization of that asset is more likely than not.
The net change in the valuation allowance for the year ended December
31, 1999, was an increase of $2,909,000. Net operating loss carry
forwards expire starting in 2014.
52
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 10 - SEGMENT INFORMATION
The Company has three business units that have separate management and
reporting infra-structures that offer different products and services.
The business units have been aggregated into three reportable segments:
Media, Intermedia, and Properties. 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. Most corporate expenses, such as internal
administrative costs, legal expenses, and debt issuance costs, are
included in the Media group.
The accounting policies of the reportable segments are the same as
those described in Note 1. The Company evaluates the performance of its
operating segments based on income from operations, before income
taxes, accounting changes, non-recurring items, and interest income and
expense.
Summarized financial information concerning the Company's reportable
segments is shown in the following table for the years ended December
31, 1999 and 1998:
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------------------------------------
Media Intermedia Properties Consolidated
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 31,060,083 $ 269,652 $ 341,528 $ 31,671,263
Operating loss $ (4,375,118) $ (3,218,351) $ (207,247) $ (7,800,715)
Depreciation and
amortization $ 1,268,630 $ 520,785 $ 126,212 $ 1,915,627
Interest expense $ 329,901 $ 23,159 $ 317,660 $ 670,120
Identifiable assets $ 12,741,652 $ 5,305,650 $ 11,811,647 $ 29,858,949
Capital expenditures $ 489,998 $ 3,830,258 $ 11,886,239 $ 16,206,495
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------------
Media Intermedia Properties Consolidated
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 9,262,384 $ 151,214 $ - $ 9,413,598
Operating income (loss) $ 1,946,481 $ (354,633) $ - $ 1,591,848
Depreciation and
amortization $ 106,132 $ 36,477 $ - $ 142,609
Interest expense $ 125,500 $ 9,635 $ - $ 135,135
Identifiable assets $ 8,717,276 $ 1,271,042 $ - $ 9,988,318
Capital expenditures $ 264,856 $ 156,538 $ - $ 421,394
</TABLE>
53
<PAGE>
GENESIDINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 11 - SUBSEQUENT EVENT
In February 2000, the Company issued a $1 million convertible debenture
and warrants to purchase 15,00 shares of the Company's common stock at
an exercise price of $6.00 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. The Company will take a charge to earnings
for the beneficial conversion feature and for the exercise price of the
warrants being below the fair market value at the date of grant. The
Company will also take a charge to earnings for the issuance of the
15,000 shares of Common Stock.
The Company granted 47,000 incentive stock option to employees under
the Company's stock option plan in February 2000.
During the first quarter of 2000, the Company received $5 million 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 funds are
the same as for the previous funds.
During the first quarter of 2000, the company made payments totaling
$63,156 on the note payable that had been called by the bank.
54
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTER AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Information with respect to Directors and Executive Officers of the Company
is incorporated by reference to the Company's definitive Proxy Statement for its
annual meeting of stockholders to be filed not later than 120 days after
December 31, 1999 with the Securities and Exchange Commission (the "2000
Proxy").
ITEM 10. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated by reference to the
Company's 2000 Proxy.
ITEM 11. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is incorporated by reference to the
Company's 2000 Proxy.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item is incorporated by reference to the
Company's 2000 Proxy.
Mr. El-Batrawi filed late, a Form 4 related to a disposition of common
stock and rights to acquire common stock that occurred in November 1999.
55
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on Form
10-KSB or are incorporated herein by reference:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION FILED
<S> <C> <C>
1.1 Form of Underwriting Agreement *
2.1 Agreement and Plan of Merger between Genesis Media Group, Inc., a Florida
corporation ("Genesis Florida") and GenesisIntermedia.com, Inc. (formerly
Genesis Media Group, Inc.), a Delaware corporation ("Genesis Delaware") *
2.2 Asset Purchase Agreement between the Registrant and Vision Digital
Communications, Inc. dated as of October 26, 1998 *
2.3 Letter Agreement between the Registrant and AniMagic Corporation dated October
27, 1998 *
2.4 Letter of Agreement between the Registrant and Crown American Enterprises, Inc.
dated as of November 17, 1998 *
3.1 Articles of Incorporation of Genesis Florida filed with the Florida Secretary
of State on October 28, 1993 *
3.2 Articles of Amendment of Genesis Florida filed on October 27, 1998 *
3.3 Certificate of Incorporation of Genesis Delaware filed with the Delaware
Secretary of State on October 26, 1998 *
3.4 Bylaws of Genesis Florida *
3.5 Bylaws of Genesis Delaware *
3.6 Certificate of Amendment of Certificate of Incorporation of Genesis Delaware
filed with the Delaware Secretary of State on December 3, 1998 *
3.7 Certificate of Merger of Genesis Florida into Genesis Delaware filed with the
Delaware Secretary of State on December 9, 1998 *
3.8 Certificate of Designation, Rights and Preferences of the Series A Convertible
Preferred Stock of Genesis Intermedia.com, Inc *
4.1 Specimen Stock Certificate *
10.1 Genesis Intermedia.com, Inc. Amended and Restated 1998 Stock Incentive Program *
10.2 Form of Indemnification Agreement with Directors and Executive Officers *
10.3 Form of Representative's Warrant *
10.4 Form of Lock-Up Agreement *
10.5 Employment Agreement between the Registrant and Ramy El-Batrawi *
10.6 Employment Agreement between the Registrant and Sam I. Hassabo *
10.7 Deed of Trust (dated July 24, 1997) *
10.8 Note U.S. Small Business Administration (dated July 24, 1997 *
10.9 Promissory Note (dated January 1, 1998) *
10.10 Promissory Note (dated April 23, 1998) *
10.11 Note U.S. Small Business Administration (dated August 20, 1998) *
10.12 Commercial Security Agreement (dated August 20, 1998) *
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION FILED
<S> <C> <C>
10.13 Lease Agreement (dated July 24, 1998) *
10.14 WCMA Note, Loan and Security Agreement between the Registrant and Merrill Lynch
Business Financial Services, Inc. *
10.15 Addendum to that Lease dated July 24, 1998 between the Registrant and Southern
California Sunbelt Developers, Inc. *
10.16 License Agreement between the Registrant (as assignee) and John Gray, Ph.D.
dated September 29, 1993 *
10.17 Amendment to Agreement between the Registrant (as assignee) and John Gray, Ph.D. *
10.18 Employment Agreement between Registrant and Michael F. Costa *
10.19 Employment Agreement between Registrant and Christopher Miglino *
10.20 Assignment between Registrant (as Assignee) and Ramy El-Batrawi (as Assignor) *
10.21 Surrender and Cancellation Agreement among the Registrant, Ramy El-Batrawi and
John M. Gray *
10.22 Term Sheet between the Registrant and Global Leisure Travel, Inc. *
10.23 Letter Amendment to Employment Agreement between Registrant and Michael F.
Costa dated as of April 9, 1999 *
10.24 Letter Amendment to Employment Agreement between Registrant and Christopher
Miglino dated as of April 9, 1999 *
10.25 Lease Agreement between Winter Quarters Resort Properties Ltd. and the
Registrant dated April 29, 1999 *
10.26 Registration Rights Agreement between Registrant and Purchases of Genesis
Intermedia.com, Inc. Series A Convertible Preferred Stock and Warrants *
10.27 Stock Purchase Agreement between Registrant and Global Leisure Travel, Inc.
dated June 1999 F
10.28 Stock Purchase Agreement between Registrant and Global Leisure Travel, Inc.
dated December 1999 F
10.29 Securities Purchase Agreement between Registrant and Ultimate Holding, Ltd., a
Bermuda Ltd. dated November 1999 F
10.30 Securities Purchase Agreement and Warrants dated November 25, 1999 with
Ultimate Holding, Ltd., a Bermuda Ltd. F
10.31 Securities Purchase Agreement for Convertible Debenture dated February 7, 2000 F
21.1 Subsidiaries of the Registrant F
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP F
27.1 Financial Data Schedule F
(b) Reports on Form 8-K
None.
</TABLE>
* Incorporated by reference to the Company's Registration Statement on
Form SB-2 (Commission File No. 333-66281).
F Filed herewith
57
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Action of 1934, as amended, the registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
GENESISINTERMEDIA.COM, INC
By: /s/ RAMY EL-BATRAWI
-----------------------------
Ramy El-Batrawi
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ RAMY EL-BATRAWI
- -----------------------------------------
Ramy El-Batrawi Chairman of the Board and Chief Executive
Officer (Principal Executive Officer) April 14, 2000
/s/ DOUGLAS E. JACOBSON
- -----------------------------------------
Douglas E. Jacobson Director, Chief Financial Officer (Principal
Financial and Accounting Officer) April 14, 2000
/s/ GEORGE W. HEYWORTH
- -----------------------------------------
George W. Heyworth Director April 14, 2000
/s/ MICHAEL R. FUGLER
- -----------------------------------------
Michael R. Fugler Director April 14, 2000
</TABLE>
EXHIBIT 10.27
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is entered into as of June 22, 1999, by
and between GenesisIntermedia.com, Inc., a Delaware corporation ("Purchaser")
and Global Leisure Travel, Inc., a Washington corporation ("GLTI") and The
Newton Group, Inc., a Washington corporation and a wholly owned subsidiary of
GLTI ("Newton" and together with GLTI, the "Seller").
RECITALS
WHEREAS, Purchaser and GLTI entered into a Term Sheet (the "Term
Sheet"), pursuant to which Seller had agreed to sell transfer, convey, assign
and deliver to Purchaser and Purchaser had agreed to purchase from Seller
substantially all of the assets of Newton and any assets of GLTI used or held
for use by GLTI in connection with the conduct of Newton's business relating the
computer hardware and software known as the "Contour System" or "Contour" and
comprising Seller's business of providing travel related technology services to
third parties utilizing Newton's rights under that certain Contour System
Software License, Customization and Support Agreement between Newton and Fourth
Dimension Software, and Purchaser had agreed, in partial consideration therefor,
to assume certain obligations in connection therewith by executing an assumption
agreement, and
WHEREAS, GLTI owns all of the issued and outstanding shares of capital
stock of Newton and now desires to sell such shares to Purchaser and Purchaser
desires to purchase all such shares from GLTI at the purchase price and upon the
terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, GLTI and the Purchaser
hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following
definitions shall apply:
"Agreement" means this Stock Purchase Agreement by and between
the Purchaser and the GLTI, as it may be amended or supplemented from time to
time pursuant to the provisions hereof.
"Stock" means all of the issued and outstanding shares of
capital stock of The Newton Group, Inc. to be sold to the Purchaser.
1
<PAGE>
SECTION 2. PURCHASE OF STOCK
2.1 PURCHASE OF STOCK. Subject to the terms and conditions of
this Agreement and on the basis of and in reliance upon the representations,
warranties, covenants and agreements set forth herein, GLTI hereby sells to the
Purchaser, and the Purchaser hereby purchases from GLTI all of Newton's Stock in
exchange for the Purchase Price (as defined in Section 2.2). GLTI hereby agrees
to promptly deliver the certificate(s) evidencing the Stock to Purchaser.
2.2 PURCHASE PRICE. For the purposes of this Agreement, the
Purchase Price shall be Two Million Five Hundred Thousand Dollars ($2,500,000).
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER. In order to
induce the Purchaser to enter into this transaction, the Seller represents and
warrants as follows:
a. Organization and Standing. GLTI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington. Newton is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington.
b. Corporate Power. GLTI has all necessary corporate power and
authority to execute, deliver and perform this Agreement, and has all requisite
corporate power and authority to sell the Stock hereunder and to carry out the
transactions contemplated hereby.
c. Stock. Upon issue, the Stock will be duly authorized,
validly issued, fully paid and nonassessable, and issued in accordance with
applicable laws.
3.2. REPRESENTATION AND WARRANTIES OF THE PURCHASER. In order
to induce the Seller to enter into this transaction, the Purchaser represents
and warrants as follows:
a. Organization and Standing. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
b. Capitalization. The Purchaser is a corporation, not formed
for purposes of purchasing the Stock, with total assets in excess of US $5
million.
c. Corporate Power. The Purchaser has all necessary power and
authority to execute, deliver and perform this Agreement and the transactions
contemplated hereby.
d. Restriction on Transfer. The Purchaser hereby acknowledges
and agrees that the Stock has not been registered under the Securities Act of
1933, as amended (the "Act"), or qualified with the securities regulatory agency
of any state and may not be resold or otherwise disposed of unless registered
under the Act or qualified with the securities regulatory agency of any state
which has jurisdiction over any such transfer or unless an exemption from such
registration or qualification is available. The Purchaser will transfer the
Stock only in accordance with the applicable requirements of all federal and
state securities laws. The Purchaser acknowledges that the certificate(s)
evidencing the Stock will bear a legend regarding restriction on transfer.
2
<PAGE>
e. Investment. The Purchaser is purchasing the Stock for its
own account, for investment purposes only, and not for the account of any other
person, and not with a view to, or for offer or sale in connection with, any
distribution, assignment or resale to others or to fractionalization in whole or
in part.
f. Risk. The Purchaser recognizes that investment in Newton
involves substantial risks, and it has taken full cognizance of and understands
all of the risk factors related to the purchase of the Stock and its knowledge
of Newton and experience in financial and business matters is such that it is
capable of evaluating the risks of an investment in the Stock. The Purchaser is
able to bear the substantial economic risks of an investment in Newton for an
indefinite period of time, has no need for liquidity in such investment, and at
the present time, could afford a complete loss of such investment.
g. Due Diligence. The Purchaser acknowledges that all
documents, records and books pertaining to this investment have been made
available for inspection by the Purchaser. The Purchaser has had a reasonable
opportunity to ask questions of and receive answers from the Seller concerning
the investment and all such questions have been answered to the full
satisfaction of the Purchaser.
SECTION 4. GENERAL
4.1. GOVERNING LAW. This Agreement, and the legal relations
between the parties with respect hereto, shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and performed in such state without regard to conflict of law doctrines.
4.2. HEADINGS. The descriptive heading of the Sections of this
Agreement are for convenience only and do not constitute a part of this
Agreement.
4.3. ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding of the parties hereto, and incorporates all prior
and contemporaneous discussions, agreements and understanding between the
parties with respect to the subject matter hereof.
4.4 COUNTERPARTS. This Agreement and any amendment hereto may
be executed in one or more counterparts and by different parties in separate
counterparts. Such counterparts shall constitute one and the same agreement and
shall become effective when the counterparts have been signed by each party and
delivered to the other party.
4.5. ATTORNEY'S FEES. In the event of any action by any party
arising under or out of, in connection with or in respect of the Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
expenses incurred in such action.
3
<PAGE>
4.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of both the Purchaser and the Seller contained in
or made pursuant to this Agreement shall survive the execution and delivery of
this Agreement.
4.7. MODIFICATION. Neither this Agreement, nor any provisions
hereof, shall be waived, modified, changed, discharged, terminated, revoked or
canceled except by an instrument in writing signed by the party against whom any
change, discharge or termination is sought.
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IN WITNESS WHEREOF, the undersigned have caused this Stock
Purchase Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized of the date first written above.
GENESISINTERMEDIA.COM, INC.
By: ________________________
Name:
Title:
THE NEWTON GROUP
By: _______________________
Name:
Title:
GLOBAL LEISURE TRAVEL, INC.
By: _______________________
Name:
Title:
5
<PAGE>
GENERAL ASSIGNMENT AND BILL OF SALE
This GENERAL ASSIGNMENT AND BILL OF SALE is entered into this 22nd day
of June 1999 by and between GenesisIntermedia.com, Inc., a Delaware corporation
("Purchaser"), and Global Leisure Travel, Inc., a Washington corporation
("GLTI") and The Newton Group, a Washington corporation and a wholly owned
subsidiary of GLTI ("Newton" and together with GLTI, the "Seller").
WHEREAS, Purchaser and GLTI have entered into a Term Sheet (the "Term
Sheet"), pursuant to which Seller has agreed to sell, transfer, convey, assign
and deliver to Purchaser and Purchaser has agreed to purchase from Seller
substantially all of the assets of Newton and any assets of GLTI used or held
for use by GLTI in connection with the conduct of Newton's business relating to
the computer hardware and software known as the "Contour System" or "Contour"
and comprising the Seller's business (the "Business") of providing travel
related technology services to third parties utilizing Newton's rights under
that certain Contour System Software License, Customization and Support
Agreement (the "License Agreement") between Newton and Fourth Dimension
Software, and Purchaser has agreed, in partial consideration therefor, to assume
certain obligations in connection therewith by executing an Assumption Agreement
of even date herewith; and
WHEREAS, Seller desires to transfer and assign to Purchaser the assets
described below pursuant to Section IV.C of the Term Sheet of the Asset Purchase
Agreement and Purchaser desires to accept the sale, transfer, conveyance,
assignment and delivery thereof.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Seller hereby irrevocably sells,
transfers, conveys, assigns and delivers to Purchaser free and clear of all
liens, charges, security interests, adverse claims or other encumbrances
("Liens"), other than Liens specifically referenced or contemplated herein
("Permitted Liens"), all of Seller's right, title and interest in, to and under
the following assets and properties of Seller used or held for use in connection
with the Business, other than the Excluded Assets (as defined below), as the
same shall exist on the date hereof: (i) the License Agreement; (ii) all
inventories of raw materials, work-in-process, finished goods, products under
research and development, demonstration equipment, office and other supplies,
parts, packaging materials and other accessories related thereto which are held
at, or are in transit from or to, the locations at which the Business is
conducted, or located at customers' premises on consignment, in each case, which
are used or held for use by Seller in the conduct of the Business, including any
of the foregoing purchased subject to any conditional sales or title retention
agreement in favor of any other person, together with all rights of Seller
against suppliers of such inventories ("Inventory"); (iii) all trade accounts
receivable and all notes, bonds and other evidences of indebtedness of and
rights to receive payments arising out of sales occurring in the conduct of the
Business and any security agreements related thereto, including any rights of
Seller with respect to any third-party
6
<PAGE>
collection procedures or any other actions or proceedings which have been
commenced in connection therewith; (iv) all furniture, fixtures, equipment,
machinery and other tangible personal property (other than Inventory and
vehicles) used or held for use in the conduct of the Business at the locations
at which the Business is conducted or at customers' premises on consignment, or
otherwise used or held for use by Seller in the conduct of the Business
(including but not limited to all computer equipment and supplies used in
connection with the development or operation of the Contour System), including
any of the foregoing purchased subject to any conditional sales or title
retention agreement in favor of any other person, (v) the leases of tangible
personal property identified by Purchaser within 90 days hereof as to which
Seller is the lessee or sublessee, together with any options to purchase the
underlying property (the "Personal Property Leases"); (vi) to the extent their
transfer is permitted under the terms thereof, all agreements, leases, licenses,
evidences of indebtedness, mortgages, indentures, security agreements or other
contracts (whether written or oral) ("Contracts") (other than real property
leases, the Personal Property Leases and the Accounts Receivable) to which
Seller is a party and which are utilized in the conduct of the Business (the
"Business Contracts"), including without limitation the License Agreement and
Contracts relating to computer suppliers, purchase orders and marketing
arrangements; (vii) all prepaid expenses relating to the Business; (viii) all
patents and patent rights, trademarks and trademark rights, trade names and
trade name rights, service marks and service mark rights, service names and
service name rights, brand names, inventions, processes, formulae, copyrights
and copyright rights, trade dress, business and product names, logos, slogans,
trade secrets, industrial models, processes, designs, methodologies, computer
programs (including all source codes) and related documentation, technical
information, manufacturing, engineering and technical drawings, know-how and all
pending applications for and registrations of patents, trademarks, service marks
and copyrights used or held for use in the conduct of the Business (including
Seller's goodwill therein) and all rights, privileges, claims, causes of action
and options relating or pertaining to the Business or the other assets described
herein; (ix) to the extent their transfer is permitted under the terms thereof
or under applicable laws, all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any governmental or regulatory authority (including
applications therefor) utilized in the conduct of the Business ("Business
Licenses"); (x) the all books and records used or held for use in the conduct of
the Business or otherwise relating to the assets described herein, other than
the minute books, stock transfer books and corporate seal of Seller; and (xi)
all other assets and properties of Seller used or held for use in connection
with the Business except as otherwise provided below (collectively, the
"Assigned Assets"), TO HAVE AND TO HOLD the same unto Purchaser, its successors
and assigns, forever.
The following assets and properties of Seller (the "Excluded Assets")
shall be excluded from and shall not constitute Assigned Assets: (i) cash,
commercial paper, certificates of deposit and other bank deposits, treasury
bills and other cash equivalents; (ii) life insurance policies of officers and
other employees of Seller and all other insurance policies relating to the
operation of the Business; (iii) all assets owned or held by any employee
benefit plans maintained by Seller; (iv) all refunds or credits, if any, of
taxes due to or from Newton which cannot be assigned by law; (v) real property;
(vi) the minute books, stock transfer books and corporate seal of Newton; (vii)
any rights (including indemnification) and claims and recoveries under
litigation of Seller
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<PAGE>
against third parties arising out of or relating to events prior to the date
hereof; (viii) the rights of Seller in, to and under all Contracts of any
nature, the obligations of Seller under which expressly are not assumed by
Purchaser pursuant hereto, including Contracts relating to the employment or
retention of employees or independent contractors of Seller; (ix) all of
Seller's right, title and interest in, to and under the name "Newton Group" and
the Newton Group logo; and (x) Seller's rights under the Term Sheet.
Purchaser hereby accepts the sale, transfer, conveyance, assignment and
delivery of the Assigned Assets.
Seller represents, warrants, covenants and agrees that it: (a) has good
and marketable title to the Assigned Assets, free and clear of all Liens other
than Permitted Liens; and (b) will warrant and defend the sale of the Assigned
Assets against all and every person or persons whomsoever claiming against any
or all of the same.
At any time or from time to time after the date hereof, at Purchaser's
request and without further consideration, Seller shall execute and deliver to
Purchaser such other instruments of sale, transfer, conveyance, assignment and
confirmation, provide such materials and information and take such other actions
as Purchaser may reasonably deem necessary or desirable in order more
effectively to transfer, convey and assign to Purchaser, and to confirm
Purchaser's title to, all of the Assigned Assets, and, to the full extent
permitted by Law, to put Purchaser in actual possession and operating control of
the Assigned Assets and to assist Purchaser in exercising all rights with
respect thereto.
Each of GLTI and Newton hereby constitutes and appoints Purchaser the
true and lawful attorney of such person, with full power of substitution, in the
name of GLTI, Newton or Purchaser, but on behalf of and for the benefit of
Purchaser: (i) to demand and receive from time to time any and all of the
Assigned Assets and to make endorsements and give receipts and releases for and
in respect of the same and any part thereof; (ii) to institute, prosecute,
compromise and settle any and all actions or proceedings that Purchaser may deem
proper in order to collect, assert or enforce any claim, right or title of any
kind in or to the Assigned Assets; (iii) to defend or compromise any or all
actions or proceedings in respect of any of the Assigned Assets; and (iv) to do
all such acts and things in relation to the matters set forth in the preceding
clauses (i) through (iii) as Purchaser shall deem desirable. Seller hereby
acknowledges that the appointment hereby made and the powers hereby granted are
coupled with an interest and are not and shall not be revocable by it in any
manner or for any reason. Purchaser shall indemnify and hold harmless Seller and
its officers, directors, employees, agents and affiliates from any and all
losses caused by or arising out of any violation of law by Purchaser in its
exercise of the aforesaid powers.
This General Assignment and Bill of Sale may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
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This General Assignment and Bill of Sale shall be governed by and
construed in accordance with the laws of the State of California applicable to a
contract executed and performed in such state without giving effect to the
conflicts of laws principles thereof, except that if it is necessary in any
other jurisdiction to have the law of such other jurisdiction govern this
General Assignment and Bill of Sale in order for this General Assignment and
Bill of Sale to be effective in any respect, then the laws of such other
jurisdiction shall govern this General Assignment and Bill of Sale to such
extent.
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
officers to execute this General Assignment and Bill of Sale on the day and year
first above written.
GENESISINTERMEDIA.COM, INC.
By: /s/ Ramy Y. El-Batrawi
---------------------------
Ramy Y. El-Batrawi
Chief Executive Officer
THE NEWTON GROUP
By: /s/ Ravi R. Rao
---------------------------
Ravi R. Rao
President
GLOBAL LEISURE TRAVEL, INC.
By: /s/ Ravi R. Rao
---------------------------
Ravi R. Rao
President
9
<PAGE>
ASSUMPTION AGREEMENT
This ASSUMPTION AGREEMENT is entered into this 22nd day of June 1999 by
and between GenesisIntermedia.com, Inc., a Delaware corporation ("Purchaser"),
and Global Leisure Travel, Inc., a Washington corporation ("GLTI") and The
Newton Group, a Washington corporation and a wholly owned subsidiary of GLTI
("Newton" and together with GLTI, the "Seller").
WHEREAS, Purchaser and Seller have entered into a Term Sheet (the "Term
Sheet"), pursuant to which Seller has agreed to sell, transfer, convey, assign
and deliver to Purchaser and Purchaser has agreed to purchase from Seller
substantially all of the assets of Newton and any assets of GLTI used or held
for use by GLTI in connection with the conduct of Newton's business relating to
the computer hardware and software known as the "Contour System" or "Contour"
and comprising the Seller's business (the "Business") of providing travel
related technology services to third parties utilizing Newton's rights under
that certain Contour System Software License, Customization and Support
Agreement (the "License Agreement") between Newton and Fourth Dimension
Software, and Purchaser has agreed, in partial consideration therefor, to assume
certain obligations in connection therewith by executing this Assumption
Agreement (capitalized terms used but not defined herein shall have the
meanings, if any ascribed thereto in the General Assignment and Bill of Sale
dated as of the date hereof (the "Bill of Sale")); and
WHEREAS, pursuant to Section IV.D of the Term Sheet, Purchaser is
required to execute and deliver to Seller this Agreement whereby Purchaser
assumes such obligations.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Purchaser hereby undertakes and
agrees from and after the date hereof, subject to the limitations contained
herein, to assume and to pay, perform and discharge when due the following
liabilities, as the same shall exist on the date hereof (the "Assumed
Liabilities"), and no others: (i) all obligations of Seller with respect to
accounts payable to FDS; (ii) all obligations of Seller under the Personal
Property Leases arising and to be performed on or after the Closing Date, and
excluding any such obligations arising or to be performed prior to the date
hereof; (iii) all obligations of Seller under the Business Contracts and
Business Licenses arising and to be performed on or after the date hereof, and
excluding any such obligations arising or to be performed prior to the date
hereof; (iv) all obligations of the Seller to pay for and complete and in
process technology development being conducted by FDS; and (v) all obligations
of the Seller under the License Agreement, including the obligation to pay the
royalty payment to FDS as required under the License Agreement.
Except for the Assumed Liabilities, Purchaser shall not assume by
virtue of this Assumption Agreement or the Bill of Sale or the transactions
contemplated hereby or thereby, and shall have no liability for, any liabilities
of Seller (including, without limitation, those related to the Business) of any
kind, character or description whatsoever (the "Retained Liabilities"). Seller
shall discharge in a timely manner or shall make adequate provision for all of
the Retained Liabilities, provided that Seller shall have the ability to
contest, in good faith, any such claim of liability asserted in respect thereof
by any person other than Purchaser and its affiliates. Nothing contained herein
shall require Purchaser to pay or discharge any debts or obligations expressly
assumed hereby so long as Purchaser shall in good faith contest or cause to be
contested the amount or validity thereof.
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Other than as specifically stated above or in the Bill of Sale,
Purchaser assumes no debt, liability or obligation of Seller, including without
limitation the Retained Liabilities, by this Assumption Agreement, and it is
expressly understood and agreed that all debts, liabilities and obligations not
assumed hereby by Purchaser shall remain the sole obligation of Seller, its
successors and assigns.
For and in consideration of the mutual covenants contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, GLTI hereby commits to subscribe to and use the Contour
System for a period of not less than * * *. For the * * *, GLTI hereby commits
to pay to Purchaser a transaction fee of * * * per transaction for such usage,
with a minimum monthly fee of * * *, payable on the fifth day of each calendar
month, commencing on * * *. This contract will be re-negotiated for the
remaining * * *.
No person other than Seller, its successors and assigns shall have any
rights under this Assumption Agreement or the provisions contained herein.
This Assumption Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
This Assumption Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to a contract
executed and performed in such state without giving effect to the conflicts of
laws principles thereof, except that if it is necessary in any other
jurisdiction to have the law of such other jurisdiction govern this Assumption
Agreement in order for this Assumption Agreement to be effective in any respect,
then the laws of such other jurisdiction shall govern this Assumption Agreement
to such extent.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
officers to execute this Assumption Agreement on the day and year first above
written.
GENESISINTERMEDIA.COM, INC.
By: /s/ Ramy Y. El-Batrawi
Ramy Y. El-Batrawi
Chief Executive Officer
THE NEWTON GROUP
By: /s/ Ravi R. Rao
Ravi R. Rao
President
GLOBAL LEISURE TRAVEL, INC.
By: /s/ Ravi R. Rao
Ravi R. Rao
President
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EXHIBIT 10.28
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is entered into as of December 29, 1999,
by and between Global Leisure Travel, Inc., a Washington corporation
("Purchaser"), GenesisIntermedia.com, Inc., a Delaware corporation ("Seller")
and The Newton Group, Inc., a Washington corporation and a wholly owned
subsidiary of Seller ("Newton").
RECITALS
WHEREAS, Seller owns all of the issued and outstanding shares of
capital stock of Newton, which it acquired from Purchaser; and
WHEREAS, Seller desires to sell such shares to Purchaser and Purchaser
desires to purchase all such shares from Seller at the purchase price and upon
the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein and for other good and valuable consideration, Seller
and Purchaser hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following
definitions shall apply:
"Agreement" means this Stock Purchase Agreement by and between
Purchaser and Seller, as it may be amended or supplemented from time to time
pursuant to the provisions hereof.
"Stock" means all of the issued and outstanding shares of
capital stock of The Newton Group, Inc. to be sold to the Purchaser.
SECTION 2. PURCHASE OF STOCK
2.1 PURCHASE OF STOCK. Subject to the terms and conditions of
this Agreement and on the basis of and in reliance upon the representations,
warranties, covenants and agreements set forth herein, Seller hereby sells to
Purchaser, and Purchaser hereby purchases from Seller all of the Stock in
exchange for the Purchase Price (as defined in Section 2.2). Seller hereby
agrees to promptly deliver the certificate(s) evidencing the Stock to Purchaser.
<PAGE>
2.2 PURCHASE PRICE. For the purposes of this Agreement, the
"Purchase Price" shall be Three Million Dollars ($3,000,000). The Purchase Price
shall be paid in one of the following three manners or a combination of any of
these three manners, as agreed to by Seller: (i) payment in cash by Purchaser;
(ii) assumption by Purchaser of outstanding debt of Seller; and/or (iii)
repayment of Seller's debt by Purchaser.
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF SELLER. In order to
induce Purchaser to enter into this transaction, Seller represents and warrants
as follows:
a. Organization and Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Newton is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington.
b. Corporate Power. Seller has all necessary corporate power
and authority to execute, deliver and perform this Agreement, and has all
requisite corporate power and authority to sell the Stock hereunder and to carry
out the transactions contemplated hereby.
c. Stock. Upon transfer, the Stock will be duly authorized,
validly issued, fully paid and nonassessable, and issued in accordance with
applicable laws.
3.2. REPRESENTATION AND WARRANTIES OF PURCHASER. In order to
induce Seller to enter into this transaction, Purchaser represents and warrants
as follows:
a. Organization and Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Washington.
b. Capitalization. Purchaser is a corporation, not formed for
purposes of purchasing the Stock, with total assets in excess of US $5 million.
c. Corporate Power. Purchaser has all necessary power and
authority to execute, deliver and perform this Agreement and the transactions
contemplated hereby.
d. Restriction on Transfer. Purchaser hereby acknowledges and
agrees that the Stock has not been registered under the Securities Act of 1933,
as amended (the "Act"), or qualified with the securities regulatory agency of
any state and may not be resold or otherwise disposed of unless registered under
the Act or qualified with the securities regulatory agency of any state which
has jurisdiction over any such transfer or unless an exemption from such
registration or qualification is available. Purchaser will transfer the Stock
only in accordance with the applicable requirements of all federal and state
securities laws. Purchaser acknowledges that the certificate(s) evidencing the
Stock will bear a legend regarding restriction on transfer.
e. Investment. Purchaser is purchasing the Stock for its own
account, for investment purposes only, and not for the account of any other
person, and not with a view to, or for offer or sale in connection with, any
distribution, assignment or resale to others or to fractionalization in whole or
in part.
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<PAGE>
f. Risk. Purchaser recognizes that investment in the Stock
involves substantial risks, and it has taken full cognizance of and understands
all of the risk factors related to the purchase of the Stock and its knowledge
of Newton and experience in financial and business matters is such that it is
capable of evaluating the risks of an investment in the Stock. Purchaser is able
to bear the substantial economic risks of an investment in Newton for an
indefinite period of time, has no need for liquidity in such investment, and at
the present time, could afford a complete loss of such investment.
g. Due Diligence. Purchaser acknowledges that all documents,
records and books pertaining to this investment have been made available for
inspection by Purchaser. Purchaser has had a reasonable opportunity to ask
questions of and receive answers from representatives of Seller and of Newton
concerning the investment and all such questions have been answered to the full
satisfaction of Purchaser.
SECTION 4. GENERAL
4.1. GOVERNING LAW. This Agreement, and the legal relations
between the parties with respect hereto, shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and performed in such state without regard to conflict of law doctrines.
4.2. HEADINGS. The descriptive heading of the Sections of this
Agreement are for convenience only and do not constitute a part of this
Agreement.
4.3. ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding of the parties hereto, and incorporates all prior
and contemporaneous discussions, agreements and understanding between the
parties with respect to the subject matter hereof.
4.4. COUNTERPARTS. This Agreement and any amendment hereto may
be executed in one or more counterparts and by different parties in separate
counterparts. Such counterparts shall constitute one and the same agreement and
shall become effective when the counterparts have been signed by each party and
delivered to the other party.
4.5. ATTORNEY'S FEES. In the event of any action by any party
arising under or out of, in connection with or in respect of the Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
expenses incurred in such action.
4.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of both Purchaser and Seller contained in or made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement.
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<PAGE>
4.7. MODIFICATION. Neither this Agreement, nor any provisions
hereof, shall be waived, modified, changed, discharged, terminated, revoked or
canceled except by an instrument in writing signed by the party against whom any
change, discharge or termination is sought.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Stock
Purchase Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized of the date first written above.
GLOBAL LEISURE TRAVEL, INC.
By: ________________________
Name:
Title:
GENESISINTERMEDIA.COM, INC.
By: ________________________
Name:
Title:
THE NEWTON GROUP, INC.
By: ________________________
Name:
Title:
<PAGE>
EXHIBIT 10.29
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED PURSUANT TO THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE SAME
ARE REGISTERED AND QUALIFIED IN ACCORDANCE WITH THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR AN EXEMPTION FROM SUCH REGISTRATION AND
QUALIFICATION IS AVAILABLE.
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is entered into
as of the 25th day of November, 1999, by Ultimate Holdings, Ltd., a Bermuda Ltd.
(the "Purchaser"), and GenesisIntermedia.com, Inc., a Delaware corporation (the
"Company").
WHEREAS: The Company would like to borrow from the Purchaser up to
USD$5,000,000 for use in connection with the Company's business; and the
Purchaser is willing to lend up to USD$5,000,000 to the Company, on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
SECTION 1 ISSUANCE OF SECURITIES.
SECTION 1.1 AUTHORIZATION. The Company has duly authorized (a)
the issuance to the Purchaser of a Promissory Note, in the aggregate principal
amount of up to Five Million Dollars ($5,000,000) (the "Note") payable on March
31, 2001, and (b) the issuance of a warrant or warrants to purchase 15,000
shares of the Company's common stock, par value $.001 per share (the "Common
Stock"), for each $100,000 loaned by the Purchaser through the purchase of the
Note, at an exercise price per share of Common Stock issuable upon the exercise
of the warrant(s) equal to $7.00 per share, (the "Warrants") and together with
the Note and the Common Stock issuable upon exercise of the Warrants (the
"Securities").
SECTION 1.2 PURCHASE AND SALE OF THE SECURITIES. In reliance
upon the representations of the Company contained in Section 1.6 and of the
representations of the Purchaser contained in Section 1.7, and subject to the
terms and conditions set forth herein, the Company shall sell to the Purchaser
and the Purchaser shall purchase from the Company at the Closings (as defined in
Section 1.5) the Securities, in consideration for the payment (a portion of
which may have occurred prior to the Closing) by the Purchaser to the Company of
up to Five Million Dollars ($5,000,000) (the "Purchase Price").
SECTION 1.3 THE NOTE. The Note shall mature, shall bear
interest, shall be payable and shall be otherwise as provided in the form of
Note attached hereto as Exhibit A.
SECTION 1.4 THE WARRANTS. The Warrants shall be substantially
in the form attached hereto as Exhibit B.
<PAGE>
SECTION 1.5 THE CLOSINGS. The initial closing of the purchase
and sale of the Securities (the "Initial Closing") shall be held at 12:00 noon,
Pacific Time on the next business day after the date hereof or such other date
and time as the parties hereto may mutually agree (the "Initial Closing Date").
Subsequent closings ("Subsequent Closings" and together with the Initial
Closing, the "Closings") shall take place at 12:00 p.m. Pacific Time on the
second business day following the date the Company shall deliver to the
Purchaser a borrowing request ("Subsequent Closing Dates"), provided that such
borrowing request, together with all prior borrowing requests that have been
funded, does not exceed USD$5,000,000 (the "Loan Commitment"). On the Initial
Closing Date, the Company will deliver to the Purchaser the Note and this
Agreement. On the Initial Closing Date and on each Subsequent Closing Date, the
Company shall deliver to the Purchaser certificates representing the number of
Warrants issuable to the Purchaser on such date. The Closings shall take place
at the principal executive offices of the Company, in Van Nuys, California or at
such other place or in such other manner as the parties hereto may mutually
agree.
SECTION 1.6 GENERAL PAYMENT PROVISIONS. (a) The Company will
make each payment when due under the Note or this Agreement not later than 12:00
noon, Pacific Time, on the date such payment becomes due and payable, in lawful
money of the United States of America, without set-off, deduction or
counterclaim, and in immediately available funds sent by wire transfer to the
Purchaser at the address to be provided by the Purchaser. Any payment received
by the Purchaser after such time shall be deemed to have been made on the next
following business day. Should any such payment become due and payable on a day
other than a business day, the maturity of such payment shall be the next
business day. Any amount received by the Purchaser, whether as an interest
payment, principal payment or principal prepayment from or on behalf of the
Company, shall be applied as follows in descending order of priority: (i) to all
previously invoiced costs, fees and expenses of the Purchaser (including
reasonable attorneys' fees) incurred in connection with this Agreement or in
enforcing any obligations of, or in collecting any payments from, any obligor
hereunder; (ii) to interest which has accrued on past due payments under the
Note; (iii) to interest that is currently due and payable under the Note; (iv)
to payment of principal under the Note currently due and payable; (v) to the
payment of past due principal under the Note; and (vi) to the prepayment of
principal due under the Note.
(b) Other than the payment of the Purchase Price at the
Closing pursuant to the terms of this Agreement, which payment is subject to the
terms and conditions hereof, and regardless of whether the Company has repaid
such amounts in whole or in part, the Purchaser will have no obligation
whatsoever to lend, advance or otherwise pay any other monies to or on behalf of
the Company.
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SECTION 1.7 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANY.
The Company makes the following representations and warranties
to the Purchaser as the date hereof, the Closing Date and the date of any
subsequent disbursement of funds.
(a) The Company is duly organized, validly existing and in
good standing under the laws of its state of formation and is duly qualified as
a foreign corporation in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification. The
Company has all requisite power to transact the business it transacts and
proposes to transact, to execute and deliver this Agreement, the Note and the
Warrants, and upon exercise of the Warrants in accordance with their terms, the
Common Stock issuable thereupon, and all other documents and agreements
contemplated hereby and thereby, and to perform the provisions hereof and
thereof and to consummate the transactions contemplated hereby and thereby.
(b) The execution, delivery and performance of this Agreement,
the Note, the Warrants and all other documents and agreements contemplated
hereby or thereby to be executed, delivered and performed by the Company, and
the consummation of the transactions contemplated hereby or thereby, have been
duly authorized and approved by the Company. This Agreement, the Note, the
Warrants and all other documents and agreements contemplated hereby or thereby
to be executed and delivered by the Company have been duly authorized, executed
and delivered by, and are the valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as may be
limited by bankruptcy, reorganization, insolvency, moratorium or other similar
laws or by legal or equitable principles relating to or limiting creditors'
rights generally.
(c) The authorized and issued capital stock of the Company are
set forth in Schedule 1.7(c). Except as set forth in Schedule 1.7(c) hereto,
there are no outstanding options, warrants or similar rights of any person to
acquire any of the capital stock of the Company, and the Company has no
contingent obligations to issue additional shares. Except as set forth in
Schedule 1.7(c) hereto, the Company is not subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any of its capital
stock or other securities or obligation evidencing the right of any holder
thereof to purchase any of its capital stock or other securities.
(d) Except as set forth in Schedule 1.7(d) hereto, the Company
has no knowledge of any fact that materially adversely affects, or could
reasonably be expected to materially adversely affect, the business, prospects,
properties, assets, operations or financial condition of the Company, or the
ability of the Company to perform its obligations under this Agreement, the
Note, or the Warrants.
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(e) The consummation of the transactions contemplated by this
Agreement, the Note and the Warrants, and the performance of the terms and
provisions of this Agreement, the Note and the Warrants, will not (i)
contravene, result in any breach of, or constitute a default under any
indenture, mortgage, deed of trust, bank loan or credit agreement, corporate
charter, by-laws or other material agreement or instrument to which the Company
is a party or by which the Company or any of its properties is bound, (ii)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order of any court, arbitrator or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign (collectively, "Governmental Person")
applicable to the Company or (iii) violate any material provision of any statute
or other rule or regulation of any Governmental Person applicable to the
Company.
(f) No consent, approval or authorization of, or registration,
filing or declaration with, any person or entity is required for the transfer or
valid delivery of the Securities or for the performance by the Company of this
Agreement, the Note or the Warrants, other than the filings, registrations or
qualifications under securities laws or that may be required to be made or
obtained in connection with the offer, transfer, sale or delivery of the
Securities or any interest therein.
(g) Upon issuance against payment of the purchase price
therefor, including payment of the exercise price of the Warrants in accordance
with their terms, the Purchaser will acquire good and marketable title to the
Securities free and clear of all covenants, conditions, restrictions, liens,
pledges, charges, encumbrances, options and adverse claims or rights of any kind
whatsoever.
(h) Neither the Company nor anyone acting on its behalf has
offered the Securities, or any interest or participation therein, for sale to or
solicited any offer to buy the Securities, or any interest or participation
therein, from, or otherwise approached or negotiated in respect thereof with,
any person other than the Purchaser, and its partners, officers, affiliates and
representatives. Neither the Company nor anyone acting on its behalf has taken
or will take any action that would require the offer, issuance or sale of the
Securities or any interest or participation therein to be registered under
Section 5 of the Securities Act of 1933, as amended. The Company has not
authorized or appointed any person to act on its behalf in connection with the
offering of the Securities.
(i) No part of the proceeds from the sale of the Securities
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any "margin stock" within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CFR part 221), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Company in a violation of Regulation X of said Board (12 CFR part
224) or to involve any broker or dealer in a violation of Regulation T of said
Board (12 CFR part 220). The assets of the Company do not include any margin
stock, and the Company does not have any present intention of acquiring any
margin stock.
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(j) The Company is not an investment company subject to
registration under the Investment Company Act of 1940, as amended.
(k) Except as described in the Company's documents filed with
the Securities and Exchange Commission, there are no material (i) actions, suits
or legal, equitable, arbitrative or administrative proceedings pending, or to
the knowledge of the Company, threatened against the Company or (ii) judgments,
injunctions, writs, rulings or orders by any Governmental Person against the
Company or its directors or officers.
SECTION 1.8 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents, warrants and covenants to the
Company as of the date hereof, the Closing Date, the date of any subsequent
disbursement of funds, and the date of any transfer or exercise of the
Securities:
(a) The Purchaser has all requisite power to execute and
deliver this Agreement and any other related documents and to perform the
provisions hereof and thereof and to consummate the transactions contemplated
hereby and thereby.
(b) The execution, delivery and performance of this Agreement
and any other related documents and the consummation of the transactions
contemplated hereby or thereby, have been duly authorized and approved by the
Purchaser. This Agreement has been duly authorized, executed and delivered by,
and is the valid and binding obligation of, the Purchaser enforceable against
the Purchaser in accordance with its terms, except as may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other similar
laws or by legal or equitable principles relating to or limiting creditors'
rights generally.
(c) The Purchaser is an "accredited investor" within the
meaning of Regulation D under the Securities Act, and is acquiring the Note, the
Warrants and the Common Stock for investment for its own account, and not with a
view to distribution subject, nevertheless, to any requirement of law that the
disposition of its property shall at all times be within its control. If the
Purchaser is an entity funded for the purposes of purchasing the Securities, the
Purchaser further represents and warrants that each of its constituents is an
accredited investor. The Purchaser has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of purchasing the Securities. The Purchaser is aware that it may be
required to bear the economic risk of an investment in the Securities for an
indefinite period, and it is able to bear such risk for an indefinite period.
The Purchaser acknowledges (i) that the Securities being acquired by it are not
being registered under the Securities Act on the grounds that (A) such
Securities do not constitute securities subject to registration under the
Securities Act or (B) such issuance is exempt from registration under Section
4(2) of the Securities Act as not involving any public offering, or (C) such
issuance is exempt from registration under Regulation D and (ii) that the
Company's reliance on such exemptions is predicated in part on the
representations made to the Company by the Purchaser in this Section 1.8.
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SECTION 2 CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligation of
the Purchaser to purchase and pay for the Securities on each Closing Date or on
the date of any subsequent disbursement of funds shall be subject to the
satisfaction on or before such Closing Date of the conditions hereinafter set
forth:
SECTION 2.1 PROCEEDINGS SATISFACTORY. All proceedings taken on
or prior to such date in connection with the issuance of the Securities and the
consummation of the transaction contemplated hereby and all documents and papers
relating thereto shall be satisfactory in form and substance to the Purchaser
and its counsel.
SECTION 2.2 REPRESENTATIONS TRUE. All representations and
warranties of the Company contained herein shall be true and correct in all
respects on and as of such date with the same effect as though such
representations and warranties had been made on and as of such date and the
Company shall have performed in all respects all agreements on its part required
to be performed under this Agreement on or prior to such date.
SECTION 2.3 THE PURCHASE BY THE PURCHASER PERMITTED BY
APPLICABLE LAWS. The sale by the Company and the payment for the Securities to
be purchased by the Purchaser (i) shall not be prohibited by any applicable law
or governmental regulation, release, interpretation or opinion, (ii) shall not
subject the Purchaser to any penalty under or pursuant to any applicable law or
governmental regulation, and (iii) shall be permitted by the laws and
regulations of the jurisdictions to which the Purchaser is subject.
SECTION 2.4 EXECUTION AND DELIVERY OF DOCUMENTS. The Purchaser
shall have received the following, duly executed and delivered and in form and
substance satisfactory to the Purchaser and its counsel:
a) this Agreement;
b) the Note in the form of Exhibit A hereto;
c) the Warrants to be issued on such Closing
Date;
d) such other documents and information as the
Purchaser may reasonably request in
connection herewith
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SECTION 3 COVENANTS.
SECTION 3.1 COVENANTS OF THE COMPANY. The Company covenants
and agrees that:
(A) CORPORATE EXISTENCE. The Company will do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence in accordance with the rights (charter and statutory),
licenses and franchises of the Company; provided, however, that the foregoing
shall not restrict any merger involving the Company, as long as the Company is
the surviving corporation.
(B) TAXES. The Company will pay prior to delinquency all
taxes, assessments and governmental levies that may be imposed upon the Company,
except as contested in good faith and by appropriate proceedings.
(C) COMPLIANCE WITH LAWS. The Company will comply in all
respects with all applicable laws, statutes and regulations of any Governmental
Person, a violation of which would have a material adverse effect on the
financial condition, operations, business, profits, prospects or properties of
the Company or the validity or enforceability of this Agreement, the Note, or
the Warrants, or any of the transactions contemplated hereby or thereby.
(D) PAYMENT OF THE NOTE. The Company will pay the principal of
and interest on the Note on the dates and in the manner provided in such
instrument and this Agreement. The obligation of the Company described in the
preceding sentence is absolute and unconditional, irrespective of any tax or
accounting treatment of such obligation including without limitation any
documentary stamp, transfer, ad valorem or other taxes assessed by any
jurisdiction in connection with this transaction.
(E) PAYMENT OF EXPENSES. In the event the transactions
contemplated by this Agreement are consummated, the Company will promptly pay to
the Purchaser all reasonable costs and out-of-pocket expenses of Purchaser,
including without limitation their reasonable attorneys' fees, incurred in
connection with the negotiation, preparation, execution and delivery of this
Agreement, the Note and the Warrants, and defense or enforcement costs related
thereto.
(F) STAY, EXTENSION AND USURY LAWS. The Company agrees (to the
extent it may lawfully do so) that it will not at any time insist upon, plead or
in any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
Company from paying all or a portion of the principal of, or interest on, the
Note as contemplated herein, wherever enacted, now or at any time hereinafter in
force, or that may materially affect the covenants or the performance of this
Agreement in any manner inconsistent with the provisions of this Agreement. The
Company expressly waives all benefit or advantage of any such law. If a court of
competent jurisdiction prescribes that the Company may not waive its rights to
take the benefit or advantage of any stay or extension law or any usury law or
other law in accordance with the prior sentence, then the obligation to pay
interest on the Note will be reduced to the maximum legal limit under applicable
law governing the interest payable in connection with such Note, and any amount
of interest paid by the Company that is deemed illegal shall be deemed to have
been a prepayment of principal on the Note.
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(G) LIMITATION ON ACTIVITIES. The Company will not, and shall
not permit any of its 50% or greater owned subsidiaries to, engage in any
business or investment activities other than those necessary for, incident to,
connected with or arising out of the Company's principal activities in the
marketing, multimedia and internet industries.
(H) LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Company
will not make any payment to or investment in, or enter into any transaction
with, any Affiliate, including without limitation the purchase, sale or exchange
of property or the rendering of any service, except transactions entered into
with Affiliates (a) prior to the date hereof, (b) contemplated under this
Agreement, (c) in the ordinary course of business, (d) on terms and conditions
substantially similar to those that the Company would have received in an "arm's
length" transaction with a third party and (e) related to the Company's
principal activities. For purposes of this Agreement, "Affiliate" shall mean any
other person controlling or controlled by or under common control with such
specified person. For the purposes of this definition, "control" when used with
respect to any specified person means the power to direct the management and
policies of such person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing.
(I) SUBORDINATED INDEBTEDNESS. The Company will not purchase,
redeem, retire or otherwise acquire for value, or set apart any money for a
sinking, defeasance or other analogous fund for, the purchase, redemption,
retirement or other acquisition of, or make any voluntary payment or prepayment
of the principal of or interest on, or any other amount owing in respect of, any
Subordinated Indebtedness, except for regularly scheduled (but not accelerated)
payments of principal and interest in respect of such Subordinated Indebtedness
required pursuant to the instruments evidencing such Subordinated Indebtedness;
provided, however, that no payment of principal or interest made pursuant to
acceleration of any Indebtedness or made with respect to Indebtedness that does
not amortize principal evenly over the terms of the Indebtedness shall be
permitted hereby. For purposes of this paragraph (i), "Subordinated
Indebtedness" means, other Indebtedness (a) for which the Company and/or any of
its subsidiaries is directly, primarily, contingently or otherwise obligated and
(ii) which has not, by its terms, been made expressly senior or prior to the
obligations of the Company under this Agreement on terms, and pursuant to
documentation containing other terms (including interest, amortization,
covenants and events of default), in form and substance to which the Purchaser
has consented in writing. For purposes of this paragraph (i), "Indebtedness"
means, for any person (without duplication): (a) obligations created, issued or
incurred by such person for borrowed money (whether by loan, the issuance and
sale of debt securities or the sale of property to another person subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
from such person); (b) obligations of such person to pay the deferred purchase
or acquisition price of property or services, other than trade accounts payable
(other than for borrowed money) arising, and accrued expenses incurred, in the
ordinary course of business; (c) Indebtedness of others secured by a lien on the
property of such person, whether or not the respective indebtedness so secured
has been assumed by such person; (d) obligations of such person in respect of
letters of credit or similar instruments issued or accepted by banks and other
financial institutions for the account of such person; (e) capital lease
obligations of such person; and (f) Indebtedness of others guaranteed by such
person.
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SECTION 3.2 MAINTENANCE OF PROPERTIES.The Company will maintain,
preserve, protect and keep its properties in good repair, working order and
condition (ordinary wear and tear and obsolescence or consideration excepted),
and make necessary and proper repairs, renewals and replacements so that its
business carried on in connection therewith may be properly conducted at all
times consistent with past practices of the Company.
SECTION 4. EVENTS OF DEFAULT; REMEDIES
SECTION 4.1 EVENTS OF DEFAULT DEFINED; ACCELERATION OF
MATURITY. If any of the following events ("Events of Default") shall occur and
be continuing (for any reason whatsoever and whether it shall be voluntary or
involuntary or by operation of law or otherwise):
(a) Default shall be made in the payment of the principal of,
or interest on, the Note when and as the same shall become due and payable,
whether at stated maturity, by acceleration, upon demand, upon a mandatory
prepayment due date, or otherwise;
(b) Default shall be made in the performance or observance of
any covenant, agreement or condition contained herein or in the Note, and such
default shall have continued for a period of fifteen (15) business days;
(c) The Company shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property and
assets, (ii) be generally unable to pay its debts as such debts become due,
(iii) make a general assignment for the benefit of its creditors, (iv) commence
a voluntary case under the United States Bankruptcy Code or similar law or
regulation (as now or hereafter in effect), (v) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi) fail to
controvert in a timely or appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under such Bankruptcy Code or
other law or regulation, (vii) dissolve, (viii) take any corporate action under
any applicable law analogous to any of the foregoing, or (ix) take any corporate
action for the purpose of effecting any of the foregoing;
(d) A proceeding or case shall be commenced, without the
application or consent of the Company in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, dissolution, winding up or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of it or for all or any substantial
part of its assets, or (iii) similar relief in respect of the Company, under any
law providing for the relief of debtors, and such proceeding or case shall
continue undismissed, or unstayed and in effect, for a period of sixty (60)
days; or an order for relief shall be entered in an involuntary case under the
United States Bankruptcy Code or other similar law or regulation, against the
Company; or action under the laws of any jurisdiction affecting the Company
analogous to any of the foregoing shall be taken with respect to the Company and
shall continue unstayed and in effect for any period of sixty (60) days;
(e) Final judgment for the payment of money shall be rendered
by a court of competent jurisdiction against the Company and the Company shall
not discharge the same or provide for its discharge in accordance with its
terms, or procure a stay of execution thereof within sixty (60) days from the
date of entry thereof and within said period of sixty (60) days, or such longer
period during which execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal, and
such judgment together with all other such judgments shall exceed in the
aggregate US$500,000; or
(f) Any representation or warranty made by the Company in this
Agreement or in any instrument delivered hereunder or pursuant hereto or in
connection with any provision hereof shall be false or incorrect in any material
respect as of the date on which it was made or is deemed to have been made; then
(x) upon the occurrence of any Event of Default described in subsection (c) or
(d) the unpaid principal amount of the Note, together with the interest accrued
thereon and all other amounts payable by the Company hereunder, shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Company or (y) upon the occurrence of any other Event of Default,
the Purchaser may, by notice to the Company, declare the unpaid principal amount
of the Note to be, and the same shall forthwith become, due and payable,
together with the interest accrued thereon and all other amounts payable by the
Company hereunder.
<PAGE>
SECTION 4.2 SUITS FOR ENFORCEMENT. If any Event of Default
shall have occurred and be continuing, the Purchaser may proceed to protect and
enforce its rights against the Company, either by suit in equity or by action at
law, or both, whether for the specific performance of any covenant or agreement
contained in this Agreement or in aid of the exercise of any power granted in
this Agreement, or, the Purchaser may proceed to enforce the payment by the
Company of all sums due upon the Note or to enforce any other legal or equitable
right of the Purchaser.
The Company covenants that, if it shall default in the making
of any payment due under the Note or in the performance or observance of any
agreement contained in this Agreement, it will pay to the Purchaser such further
amounts, to the extent lawful, to cover any reasonable costs and expenses of
collection or of otherwise enforcing their respective rights, including without
limitation the reasonable counsel fees and costs and expenses incurred in
connection with such collection. The obligations set forth in this paragraph
will survive the payment in full of the Note.
SECTION 4.3 REMEDIES CUMULATIVE. No remedy herein conferred
upon the Purchaser is intended to be exclusive of any other remedy and each and
every such remedy will be cumulative and will be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise.
SECTION 4.4 REMEDIES NOT WAIVED. No course of dealing between
the Company and any other person and no delay or failure in exercising any
rights hereunder or under the Note in respect thereof shall operate as a waiver
of any rights of the Purchaser.
SECTION 5 TAXES.
The Company will pay all taxes (including interest and
penalties), other than taxes imposed on the income of the Purchaser which may be
payable in respect of the execution and delivery of this Agreement or of the
execution and delivery of (but not the subsequent transfer of or interest or
principal payable under) the Note or of any amendment of, or waiver or consent
under or with respect to, this Agreement or of the Note and will save the
Purchaser and all subsequent holders of the Note harmless against any loss or
liability resulting from nonpayment or delay in payment of any such tax.
<PAGE>
SECTION 6 MISCELLANEOUS.
SECTION 6.1 INDEMNIFICATION. The Company agrees to indemnify,
defend and hold harmless the Purchaser, and its successors, assigns, heirs,
subsidiaries, affiliates and all of the officers, directors, employees, partners
and agents (including attorneys and accountants) of each of the aforementioned
persons or entities, and each of them, from and against any and all losses,
claims, damages, liabilities, expenses, demands, causes of action, suits, debts,
obligations, rights, promises, acts, agreements and damages of any kind or
nature whatsoever, whether at law or in equity, whether known or unknown,
foreseen or unforeseen, heretofore or hereafter arising out of, relating to,
connected with or incidental to the failure of any representation or warranty
made by the Company in this Agreement, the Note or the Warrants or the failure
of the Company to comply in all material respects with the covenants contained
in this Agreement, the Note or the Warrants, or agreements contemplated hereby
or thereby.
SECTION 6.2 PRIVATE PLACEMENT; LEGENDS. The Purchaser
acknowledges and agrees that the Securities have not been registered under the
Securities Act and, to the extent they constitute securities subject to
registration under Section 5 of the Securities Act, may not be offered or sold
unless registered under the Securities Act, or an exemption from such
registration requirements is available. The certificates or instruments
representing or evidencing the Securities shall bear a legend in substantially
the following form, unless counsel to the Company shall have advised the Company
that such legend is no longer needed:
The securities [represented/evidenced] by this [instrument/certificate]
have not been registered under the Securities Act of 1933, as amended
(the "Act"), or any state securities law, and such securities may not
be sold, transferred or otherwise disposed of unless the same are
registered and qualified in accordance with the Act and any applicable
state securities laws, or in the opinion of counsel reasonably
satisfactory to the Company such registration and qualification are not
required under the Act and applicable state securities law.
SECTION 6.3 RELIANCE ON AND SURVIVAL OF REPRESENTATIONS. All
representations, warranties, covenants and agreements of the Company herein will
be deemed to be material and to have been relied upon by the Purchaser and will
survive the execution and delivery of this Agreement, the Note and the Warrants.
SECTION 6.4 SUCCESSORS AND ASSIGNS. This Agreement will bind
and inure to the benefit of and be enforceable by the Company, the Purchaser and
each of their respective successors and assigns. The Purchaser shall be
permitted to transfer the Note in accordance with its terms and the terms of
this Agreement and in accordance with applicable restrictions under applicable
federal and state securities laws; provided, however, that upon any assignment
of the Note that results in more than one Note being outstanding, the rights of
all holders of Notes to enforce any right, take any enforcement action or do any
other thing or action with respect to any Basic Document shall only be done upon
the consent or action of the holders of not less than 66-2/3% in aggregate
principal amount of all Notes outstanding, which action, if taken, shall bind
the holders of all Notes.
<PAGE>
SECTION 6.5 NOTICES. All notices and other communications
provided for in this Agreement shall be in writing and delivered by registered
or certified mail, postage prepaid, or delivered by overnight courier (for next
Business Day delivery) or telecopied, addressed as follows, or at such other
address as any of the parties hereto may hereafter designate by notice to the
other parties given in accordance with this Section 6.5:
1) if to the Company:
c/o Genesis Intermedia.com, Inc.
Fourth Floor
5805 Sepulveda Boulevard
Van Nuys, California 91411
Attn: Ramy El-Batrawi
Telephone: (818) 464-7270
Telecopier: (818) 464-7398
With a copy of any notice to:
Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, California 93101
Attn: Theodore R. Maloney, Esq.
Telephone: (805) 568-1151
Telecopier: (805) 568-1955
2) if to the Purchaser:
Ultimate Holdings, Ltd.
13 Parliament St.
Hamilton, HM 12
Bermuda
Any such notice or communication shall be deemed to have been duly given on the
fifth (5th) day after being so mailed, the next business day after delivery by
overnight courier, when received when sent by telecopy or upon receipt when
delivered personally.
SECTION 6.6 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. Signatures may be
exchanged by telecopy, with original signatures to follow. Each of the parties
hereto agrees that it will be bound by its own telecopied signature and that it
accepts the telecopied signatures of the other parties to this Agreement. The
original signature pages shall be forwarded to the Company or its counsel and
the Company or its counsel will provide all of the parties hereto with a copy of
the entire Agreement.
SECTION 6.7 AMENDMENTS. This Agreement may only be amended by
a writing duly executed by all of the parties hereto.
SECTION 6.8 SEVERABILITY. If any term or provision of this
Agreement or any other document executed in connection herewith shall be
determined to be illegal or unenforceable, all other terms and provisions hereof
and thereof shall nevertheless remain effective and shall be enforced to the
fullest extent permitted by applicable law.
SECTION 6.9 GOVERNING LAW. EXCEPT TO THE EXTENT THAT THE LAW
OF ANOTHER JURISDICTION IS EXPRESSLY SELECTED IN A DOCUMENT, THIS AGREEMENT, THE
NOTE, THE WARRANTS AND ALL AMENDMENTS, SUPPLEMENTS, WAIVERS AND CONSENTS
RELATING HERETO OR THERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
SECTION 6.10 ENTIRE AGREEMENT. This Agreement and the Note
contain the entire agreement of the parties hereto with respect to the
transactions contemplated hereby and thereby and supersede all previous oral and
written, and all previous contemporaneous oral negotiations, commitments and
understandings.
<PAGE>
SECTION 6.11 FURTHER ASSURANCES. Each party agrees promptly to
execute and deliver such documents and to take such other acts as are reasonably
necessary to effectuate the purposes of this Agreement.
SECTION 6.12 HEADINGS. The headings contained herein are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 6.13 WAIVER OF JURY TRIAL. EACH PARTY HEREBY AGREES TO
WAIVE ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT AND THE NOTE OR AGREEMENTS RELATING TO THE NOTE OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT, THE NOTE OR ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
NOTE.
SECTION 6.14 ASSIGNMENTS. The Company may not assign its
rights or obligations hereunder or under the Note without the prior written
consent of the Purchaser.
<PAGE>
IN WITNESS WHEREOF, the parties hereto execute this Agreement
as of the date first set forth above.
PURCHASER:
ULTIMATE HOLDINGS, LTD.
By: _____________________
Name:
Title:
THE COMPANY:
GENESISINTERMEDIA.COM, INC.
By: _____________________
Name:
Title:
<PAGE>
EXHIBIT A
FORM OF NOTE
<PAGE>
THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW, AND
SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE
SAME ARE REGISTERED AND QUALIFIED IN ACCORDANCE WITH THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS, OR IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE BORROWER SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAW.
PROMISSORY NOTE
$500,000,000 November 25, 1999
Van Nuys, California
FOR VALUE RECEIVED, GenesisIntermedia.com, Inc., a Delaware
corporation, (the "Borrower"), hereby jointly and severally promises to pay to
the order of Ultimate Holdings, Ltd., a Bermuda Ltd. ("Holder"), at Holder's
principal office, the principal sum of Five Million Dollars ($5,000,000) or such
aggregate amount as shall have been disbursed hereunder (this "Note"), in lawful
money of the United States of America and in immediately available funds,
together with interest on the unpaid principal amount for the period commencing
on the date or dates of disbursement shown on Schedule 1 attached hereto (some
which may precede the date hereof) at the rate of eleven and one-half percent
(11.5%) per annum. The Maturity Date of this Note shall be March 31, 2001.
This Note is subject to the further terms and conditions in
the Securities Purchase Agreement of even date herewith, between the Borrower
and the Holder, pursuant to which this Note was issued (the "Securities Purchase
Agreement"). Except as otherwise indicated, capitalized terms used herein have
the meanings ascribed to them in the Securities Purchase Agreement.
This Note may be prepaid in full or in part, at any time
without penalty. Principal and interest are payable in lawful money of the
United States of America.
Upon the occurrence of an Event of Default and without demand
or notice, Holder will have the option to declare the entire balance of
principal together with all accrued interest thereon immediately due and payable
and to exercise all rights and remedies available to it under any or all of the
Documents. Upon the occurrence of an Event of Default (and so long as such Event
of Default shall continue), the entire balance of principal together with all
accrued interest thereon shall bear interest at the then applicable rate plus
two percent (2%). No delay or omission on the part of Holder hereof in
exercising any right under this Note or the Securities Purchase Agreement shall
operate as a waiver of such right. The application of this default rate shall
not be interpreted or deemed to extend any cure period set forth in the
Securities Purchase Agreement or otherwise limit any of Holder's remedies
hereunder or thereunder.
<PAGE>
The Borrower hereby waives diligence, presentment, protest and
demand, notice of protest, dishonor and nonpayment of this Note and expressly
agrees that, without in any way affecting the liability of the Borrower
hereunder, Holder may extend any maturity date or the time for payment of any
installment due hereunder, accept security, release any party liable hereunder
and release any security now or hereafter securing this Note. The Borrower
further waives, to the full extent permitted by law, the right to plead any and
all statutes of limitations as a defense to any demand on this Note, or on any
deed of trust, security agreement, lease assignment, guaranty or other
agreement, if any, now or hereafter securing this Note.
If this Note is not paid when due or if any Event of Default
occurs, the Borrower promises to pay all costs of enforcement and collection,
including but not limited to, Holder's reasonable attorneys' fees, whether or
not any action or proceeding is brought to enforce the provisions hereof.
Every provision of this Note is intended to be severable. In
the event any term or provision hereof is declared by a court of competent
jurisdiction to be illegal or invalid for any reason whatsoever, such illegality
or invalidity shall not affect the balance of the terms and provisions hereof,
which terms and provisions shall remain binding and enforceable.
It is the intent of the Borrower and Holder in the execution
of this Note and all other instruments securing this Note that the loan
evidenced hereby be exempt from the restrictions of applicable usury laws of any
jurisdiction. In the event that, for any reason, it should be determined that
any applicable usury law of any jurisdiction is applicable to this Note, Holder
and the Borrower stipulate and agree that none of the terms and provisions
contained herein or in the Securities Purchase Agreement shall ever be construed
to create a contract for use, forbearance or detention of money requiring
payment of interest at a rate in excess of the maximum interest rate permitted
to be charged by such applicable laws. In such event, if any Holder of this Note
shall collect monies which are deemed to constitute interest which would
otherwise increase the effective interest rate on this Note to a rate in excess
of the maximum rate permitted to be charged by the applicable laws of such
jurisdiction, all such sums deemed to constitute interest in excess of such
maximum rate shall, at the option of Holder, be credited to the payment of the
sums due hereunder or returned to the Borrower.
In this Note, the singular shall include the plural and the
masculine shall include the feminine and neuter gender, and vice versa, if the
context so requires.
This Note shall be governed by, and construed in accordance
with, the law of the State of California applicable to contracts made and
performed within the State of California.
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed by its duly authorized officer.
BORROWER:
GENESISINTERMEDIA.COM, INC.,
a Delaware corporation
By: ________________________
Ramy Y. El-Batrawi
President
<PAGE>
SCHEDULE 1
DATE AND AMOUNT OF DISBURSEMENTS
DATE AMOUNTS
<PAGE>
EXHIBIT B
FORM OF WARRANT
<PAGE>
WARRANT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF ARE SUBJECT TO A SECURITIES PURCHASE AGREEMENT DATED AS OF
NOVEMBER 25, 1999, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
COMPANY AND WILL BE FURNISHED TO THE HOLDER ON REQUEST TO THE SECRETARY OF THE
COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT IN COMPLIANCE
WITH THE SECURITIES ACT OF 1933, AS AMENDED, THE RULES AND REGULATIONS
PROMULGATED THEREUNDER AND ALL APPLICABLE STATE SECURITIES LAWS.
No. _______ Dated: _______________
Warrant
GENESISINTERMEDIA.COM, INC.
This Warrant certifies that Ultimate Holdings, Ltd., a Bermuda Ltd., is
the registered holder of a warrant (the "Warrant") to purchase 750,000 shares of
common stock, par value $.001 per share (the "Common Stock"), of
GenesisIntermedia.com, Inc., a Delaware corporation (the "Company"), at an
exercise price per share of Common Stock issuable upon the exercise of this
Warrant equal to $7.00 per share (the "Exercise Price").
SECTION 1. Exercise; Expiration; Redemption.
To exercise this Warrant, the Warrant holder must elect and sign the
exercise election attached to this Warrant certificate and deliver to the
Company (a) this Warrant certificate and (b) cash or a check payable to the
Company for the Exercise Price for the Warrant.
Notwithstanding the payment provisions set forth in the paragraph
above, the Warrant holder may elect to receive Warrant Shares equal to the value
of this Warrant (or any portion thereof vested but unexercised), through a
cashless exercise, by surrender of this Warrant at the principal office of the
Company together with notice of such election, in which event the Company shall
issue to the Warrant holder that number of Warrant Shares computed using the
following formula:
<PAGE>
X = Y(A-B)
A
Where: X = the number of Warrant Shares to be issued to Warrant
holder;
Y = the number of Warrant Shares purchasable under this
Warrant at the time of such calculation;
A = the Fair Market Value of one share of Common Stock; and
B = the Exercise Price at the date of such calculation.
For purposes of this paragraph, the Fair Market Value of one
share of Common Stock shall mean (i) if the Company's Common Stock is
listed on any established stock exchange or national market system,
including, without limitation, the national market quotation system of
NASDAQ, the closing price of one share of the Company's Common Stock
(or the closing bid, if no sales were reported) as quoted on such
exchange or system (or the exchange with the greatest volume of trading
in the Company's Common Stock) on the last market trading day prior to
the day of determination, as reported in the Wall Street Journal or
such other source as the Board of Directors of the Company may deem
reliable; (ii) if the Company's Common Stock is quoted on NASDAQ, but
not the national market thereof, or regularly quoted by a recognized
securities dealer but selling prices are not quoted, the mean between
the high and low asked prices for the Company's Common Stock on the
last market trading day prior to the day of determination, as reported
in the Wall Street Journal, or (iii) as otherwise reasonably determined
by the Board of Directors of the Company, acting in good faith.
<PAGE>
This Warrant shall not be exercised by any holder hereof after 5:00
p.m., Los Angeles time on the day preceding such date which is three years after
the date of this Warrant, the date and time of the expiration of this Warrant.
To the extent that this Warrant has not been exercised by the date and time of
its expiration, this Warrant shall become void and all rights hereunder and all
rights in respect hereof shall cease as of such time.
This Warrant shall be exercisable at the election of any holder
thereof, either in full or from time to time in part (but in no event for less
than one whole Warrant Share) and, in the event that a certificate evidencing
this Warrant is exercised in respect of fewer than all of the Warrant Shares
issuable on such exercise at any time prior to the date of expiration of this
Warrant, a new Warrant certificate evidencing the remaining Warrant with respect
to whole Warrant Shares issuable upon exercise will be issued. No adjustment
shall be made for any dividends on any Warrant Shares issuable upon exercise of
this Warrant.
The Company covenants that all Warrant Shares which may be issued upon
exercise of this Warrant will, upon issue, be fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issue thereof.
The Company will pay all documentary stamp taxes attributable to the
issuance of Warrant Shares upon the exercise of this Warrant; provided, however,
that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer involved in the issue of any Warrant
certificates or any certificates for Warrant Shares in a name other than that of
the registered holder of this Warrant certificate surrendered upon the exercise
of this Warrant, and the Company shall not be required to issue or deliver such
Warrant certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Company shall not be required to issue fractional Warrant Shares on
the exercise of this Warrant. If any fraction of a Warrant Share would be
issuable on the exercise of this Warrant (or specified portion hereof), the
Company shall pay an amount in cash equal to the Exercise Price on the day
immediately preceding the date this Warrant certificate is presented for
exercise, multiplied by such fraction.
SECTION 2. Transfer or Exchange.
This Warrant and any Warrant Shares may only be transferred by the
holder in accordance with the registration requirements of the Securities Act of
1933, as amended (the "Securities Act") or an exemption therefrom.
<PAGE>
Subject to compliance with the preceding paragraph, the Company shall
from time to time register the transfer of this Warrant certificate upon the
records to be maintained by it for that purpose, upon surrender hereof
accompanied (if so required by it) by a written instrument or instruments of
transfer in form satisfactory to the Company, duly executed by the registered
holder hereof or by the duly appointed legal representative thereof or by a duly
authorized attorney and an opinion of counsel in form and substance satisfactory
to the Company that such transfer may be effected under the Securities Act. Upon
any such registration of transfer, a new Warrant certificate(s) shall be issued
to the transferee(s) and the surrendered Warrant certificate shall be canceled
by the Company.
This Warrant certificate may be exchanged at the option of the holder
hereof, when surrendered to the Company at its office for another Warrant
certificate or other Warrant certificates of like tenor and representing a
Warrant with respect to a like aggregate number of Warrant Shares. A Warrant
certificate surrendered for exchange shall be canceled by the Company.
Subject to the payment of any taxes as provided herein, upon an
exercise of this Warrant, the Company shall issue and cause to be delivered to
or upon the written order of the holder and in such name or names as the Warrant
holder may designate, a certificate or certificates for the number of full
Warrant Shares issuable upon the exercise of this Warrant. This Warrant shall be
deemed to have been exercised and any person so designated to be named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the date of the surrender of this Warrant certificate (and payment of the
Exercise Price or cashless exercise election).
The Company may deem and treat the registered holder hereof as the
absolute owner of this Warrant (notwithstanding any notation of ownership or
other writing hereon made by anyone), for the purpose of any exercise hereof, of
any distribution to the holder hereof, and for all other purposes, and the
Company shall not be affected by any notice to the contrary. Nothing contained
in this Warrant certificate shall be construed prior to the date of surrender of
the Warrant certificate for exercise in accordance with the terms hereof as
conferring upon the holder hereof the right to vote or to consent or to receive
notice as stockholders in respect of the meetings of stockholders or the
election of directors of the Company or any other matter, or any rights
whatsoever as stockholders of the Company.
SECTION 3. Mutilated, Lost, Stolen or Destroyed Warrant Certificate.
In case this Warrant certificate shall be mutilated, lost, stolen or
destroyed, the Company may in its discretion issue in exchange and substitution
for and upon cancellation of the mutilated Warrant certificate, or in lieu of
and substitution for the Warrant certificate lost, stolen or destroyed, a new
Warrant certificate of like tenor and representing an equivalent Warrant, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant certificate and indemnity, if requested, also
satisfactory to the Company.
<PAGE>
SECTION 4. Reservation of Shares for Issuance.
The Company will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued common
stock, for the purpose of enabling it to satisfy any obligation to issue Warrant
Shares upon exercise of this Warrant, the maximum number of Warrant Shares which
may then be issuable upon the exercise of this Warrant. The Company or, if
appointed, the transfer agent for the common stock and every subsequent transfer
agent for any of the Company's capital securities issuable upon the exercise of
any of the rights of purchase aforesaid will be irrevocably authorized and
directed at all times to reserve such number of authorized shares of common
stock as shall be required for such purpose. The Company will keep a copy of
this Warrant certificate on file with any such transfer agent for any of the
Company's capital securities issuable upon the exercise of the rights of
purchase represented by this Warrant certificate.
SECTION 5. Effect of Subdivision, Reclassification, Merger, Etc.
If the outstanding common stock shall be subdivided into a greater
number of shares of common stock, the Exercise Price in effect at the opening of
business on the day following the day upon which such subdivision becomes
effective shall be proportionately reduced, and, conversely, if the outstanding
common stock shall be combined into a smaller number of shares of common stock,
the Exercise Price in effect at the opening of business on the day following the
day upon which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day upon
which such subdivision or combination becomes effective.
If any of the following events occur: (i) any reclassification or
change of the outstanding shares of common stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), (ii) any consolidation, merger or
combination of the Company with another corporation or company as a result of
which holders of common stock shall be entitled to receive stock, securities or
other property or assets (including cash) with respect to or in exchange for
such common stock, or (iii) any sale or conveyance of the properties and assets
of the Company as, or substantially as, an entirety to any other corporation or
company as a result of which holders of common stock shall be entitled to
receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such common stock, then the Company or the
successor or purchasing corporation or company, as the case may be, shall
providing that this Warrant shall be convertible into the kind and amount of
shares of stock and other securities or property or assets (including cash)
receivable upon such reclassification, change, consolidation, merger,
<PAGE>
combination, sale or conveyance by a holder of a number of Warrant Shares
issuable upon exercise of this Warrant (assuming, for such purposes, a
sufficient number of authorized shares of common stock available to issue upon
exercise of the entirety of this Warrant) immediately prior to such
reclassification, change, consolidation, merger, combination, sale or conveyance
assuming such holder of common stock did not exercise his or her rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance (provided that, if the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale or
conveyance is not the same for each share of common stock in respect of which
such rights of election have not been exercised ("non-electing share"), then,
for the purposes of paragraph, the kind and amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale or
conveyance for each non-electing share shall be deemed to be the kind and amount
so receivable per share of common stock by a plurality of the non-electing
shares). In any such case, the revenue calculation necessary for exercise of
this Warrant shall be calculated on the basis of the business entity or assets
so consolidated, merged, exchanged, sold or conveyed, whether in whole or
incorporated into another business entity, and it shall be the responsibility of
such successor or acquiror entity to perform such calculation, which calculation
shall be conclusive and binding on the holder of this Warrant. If, in the case
of any such reclassification, change, consolidation, merger, combination, sale
or conveyance, the stock or other securities and assets receivable thereupon by
a holder of common stock includes shares of stock or other securities and assets
of a corporation other than the successor or purchasing corporation or company,
as the case may be, in such reclassification, change, consolidation, merger,
combination, sale or conveyance, then an acknowledgment of the obligations under
this paragraph shall be executed by such other corporation or company. The above
provisions of this paragraph shall similarly apply to successive
reclassifications, changes, consolidations, mergers, combinations, sales and
conveyances.
Upon any adjustment of the Exercise Price pursuant hereto, the Company
shall promptly thereafter cause to be given to the registered holder of this
Warrant certificate at its address appearing on the Warrant register maintained
by the Company written notice of such adjustments by first-class mail, postage
prepaid. Failure to deliver such notice shall not affect the legality or
validity of any such adjustment.
<PAGE>
SECTION 6. Miscellaneous.
This Warrant certificate and Warrant shall be deemed to be a contract
made under the law of the State of California and for all purposes shall be
construed in accordance with the internal law of said State.
Nothing in this Warrant certificate shall be construed to give to any
person or company other than the Company and the registered holder of this
Warrant certificate any legal or equitable right, remedy or claim under this
Warrant certificate; but this Warrant certificate shall be for the sole and
exclusive benefit of the Company and the registered holder of this Warrant.
IN WITNESS WHEREOF, GenesisIntermedia.com, Inc., a Delaware
corporation, has caused this Warrant certificate to be signed by its duly
authorized officer.
Dated:
GENESISINTERMEDIA.COM, INC., a
Delaware corporation
By: __________________________
Ramy El-Batrawi, President
<PAGE>
Election for Exercise
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant certificate, to receive ______ Shares of common
stock par value $.001 per share and herewith tenders payment for such Shares in
the amount of $___________ in accordance with the terms of this Warrant
certificate. The undersigned requests that a certificate for such shares be
registered in the name of ___________________, whose address is
___________________________________ and that such shares be delivered to
___________________ whose address is _______________________________________. If
said number of shares is less than all of the shares of common stock purchasable
hereunder, the undersigned requests that a new Warrant certificate representing
the remaining balance of such whole Shares be registered in the name of
_____________________, whose address is _________________________________ and
that such Warrant certificate be delivered to______________ whose address is
________________________________________________.
Signature: _________________________
Date:
Signature Guaranty:
<PAGE>
SCHEDULE 1.6(c)
Outstanding Options, Warrants or Obligations
GenesisIntermedia.com, Inc., a Delaware corporation has the following
list of authorized and issued capital stock and options and warrants:
Authorized capital stock 25,000,000
Issued capital stock 5,315,000
Outstanding Options & Warrants
Employee Options 250,000
Director Options 100,000
Consultant Options 50,000
Acquisitions 50,000
Investor Warrants 750,000
Loan Warrants 300,000
Consultant Warrants 200,000
Loan Warrants 163,750
----------
Total: 1,863,750
<PAGE>
SCHEDULE 1.6(d)
Material Adverse Effects
None.
EXHIBIT 21.1
Subsidiaries of the Registrant
Genesis Intermedia, Inc., a Florida Corporation
Genesis Properties, Inc., a Florida Corporation
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent the incorporation of our report, dated April 7, 2000,
included in this Form 10-KSB in the previously filed Registration
Statement of GenesisIntermedia.com Inc. and subsidiaries on Form S-8
(File No. 333-95417, effective January 26, 2000).
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN, LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN, LLP
Los Angeles, California
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 589,745
<SECURITIES> 0
<RECEIVABLES> 1,186,853
<ALLOWANCES> (10,000)
<INVENTORY> 888,546
<CURRENT-ASSETS> 9,064,431
<PP&E> 17,468,362
<DEPRECIATION> (773,852)
<TOTAL-ASSETS> 29,858,949
<CURRENT-LIABILITIES> 10,919,207
<BONDS> 0
0
143
<COMMON> 5,310
<OTHER-SE> 9,217,261
<TOTAL-LIABILITY-AND-EQUITY> 29,858,949
<SALES> 31,671,263
<TOTAL-REVENUES> 31,671,263
<CGS> 8,269,841
<TOTAL-COSTS> 31,202,137
<OTHER-EXPENSES> (282,491)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 778,326
<INCOME-PRETAX> (8,296,550)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,296,550)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,296,550)
<EPS-BASIC> (1.89)
<EPS-DILUTED> (1.89)
</TABLE>
