SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(For the Quarter ended March 31, 1999)
Commission File Number 0-29188
Genisys Reservation Systems, Inc. And Subsidiaries
(Exact Name of registrant as specified in its charter)
New Jersey 22-2719541
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification no.)
2401 Morris Avenue, Union, New Jersey 07083
(Address of principal executive offices) (Zip Code)
(908) 810-8767
Issuer's Telephone Number including Area Code
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter periods that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 31, 1999: 7,295,409
shares of Common Stock
Transitional Small Business Disclosure Format (check one)
Yes X No
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March December
31, 1999 31, 1998
------------- -------------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful $101,563 $145,921
accounts of $15,000
Prepaid expenses 50,364 67,174
Total Current Assets 14,670 835
------------- -------------------
166,597 213,930
INVESTMENT IN, AND ADVANCES TO, GEN 02, INC.
547,184 664,204
PROPERTY AND EQUIPMENT
112,429 91,400
COMPUTER SOFTWARE, TECHNOLOGY LICENSE AND
RELATED ASSETS, LESS ACCUMULATED AMORITIZATION
2,328,014 2,376,265
OTHER ASSETS
77,303 94,638
------------- -------------------
$3,231,527 $3,440,437
============= ===================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $31,250 $21,875
Accounts payable and accrued expenses 389,976 208,509
Accrued interest payable - related party 182,069 179,758
------------- -------------------
Total current liabilities 603,295 410,142
------------- -------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 81,250 90,625
------------- -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Preferred Stock, $.0001 par value: 24,294,000 shares
authorized: none oustanding
Series A preferred stock, $.0001 par vlaue, 706,000 shares - -
authorized; Issued and outstanding 381,177 shares
Common Stock, $.0001 par value; 75,000,000 shares 38 38
authorized; issued and outstanding 7,295,409 * shares (1999)
and 6,913,965* shares (1998)
Additional paid in capital 730 691
Deficit Accumulated During the Development Stage 9,075,951 8,518,558
(6,529,737) (5,579,617)
------------- -------------------
Total Stockholders Equity
2,546,982 2,939,670
------------- -------------------
$3,231,537 $3,440,437
============= ===================
*2,000,000 shares issued are subject to shareholder approval (See Note 3).
See Accompanying Notes to Consolidated Financial Statements
2
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Period from
March 7, 1994
(Commencement of
Three Months Three Months Development
Ended Ended Stage Activites) to
March 31, 1999 March 31, 1998 March 31, 1999
--------------- -------------- --------------
SERVICE REVENUES $ 80,533 $ 14,821 $ 222,073
--------- --------- ---------
EXPENSES:
Cost of Service 31,299 19,665 210,569
General and Administrative:
Payroll 190,743 202,253 2,151,278
Professional Fees 272,347 78,425 1,225,901
Travel & Entertainment 12,035 16,510 227,688
Advertising & Promotion 5,925 16,735 208,150
Other 103,154 98,838 1,099,449
Depreciation and Amortization 221,658 96,032 1,109,666
Interest Expense (Income), net (818) 7,327 204,881
836,343 535,785 6,437,582
------- ------- ---------
LOSS BEFORE EQUITY IN GEN 02, INC. (755,810) (520,964) (6,215,509)
EQUITY IN LOSS FOR GEN 02, INC. (194,310) - (314,228)
--------- ---------
NET (LOSS) INCURRED DURING
THE DEVELOPMENT STAGE ($950,120) ($520,964) ($6,529,737)
========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,282,802 4,378,927 3,501,018
--------- ---------
BASIC AND DILUTED LOSS PER
COMMON SHARE ($0.13) ($0.12) ($1.87)
------- ------- -------
See Accompanying Notes to Consolidated Financial Statements
3
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Deficit
Accumulated
Common Stock * Additional During the
Series A Preferred Stock Paid-in Development
Shares Par Value Shares Par Value Capital Stage Total
------ --------- ------ --------- ------- ----- -----
Balance - December 31, 1998 6,913,965 $691 381,177 38 $8,518,558 ($5,579,617) $2,939,670
PROCEEDS FROM PRIVATE PLACEMENT 340,000 34 - - 487,966 - 488,000
OF COMMON STOCK, NET EXPENSES
ISSUANCE OF STOCK UPON
SAMMYS TRAVEL WORLD
ACQUISITION 36,600 4 - - 54,896 - 54,900
COMMON STOCK ISSUED TO FORMER OFFICERS 4,844 1 - - 14,531 - 14,532
NET LOSS - - - - - (950,120) (950,120)
BALANCE AT MARCH 31, 1999 7,295,409 $ 730 381,177 $ 38 $9,075,951 ($6,529,737) $2,546,982
========== ====== ======== ===== =========== ============ ==========
*2,000,000 SHARES ISSUED ARE SUBJECT TO SHAREHOLDER APPROVAL (NOTE 3)
See Accompanying Notes to Consolidated Financial Statements
4
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GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
Development Stage Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Period From
March 7, 1994
(Commencement of
Development Stage
Three Months Ended Three Months Ended Activities to
March 31,1999 March 31,1998 March 31,1999
------------------ ------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($950,120) ($520,964) ($6,529,737)
Adjustments to reconcile net loss to net
cash flows from operating activities
Equity in loss of Gen 02, Inc. since its inception 194,310 - 314,228
Depreciation and amoritization 221,658 96,032 1,090,055
Contribution to capital for services rendered - - 49,600
Changes in operating assets and liabilities:
Accounts receivable 16,810 (995) (51,270)
Prepaid expenses (15,505) (13,970) (28,350)
Deposits and other 11,063 - (57,620)
Accounts payable and accrued expenses 176,934 (26,848) 558,691
Net cash flows from operating acctivities (344,850) (466,745) (4,654,403)
------------------ ------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and software (124,750) (93,238) (1,674,732)
Acquisition of Prosoft, Inc. - - (34,601)
Acquisition of Sammys Travel World (54,900) - (54,900)
Advanced to GEN 02, Inc. (77,290) - (117,290)
------------------ ------------------ -------------------
Net cash flows from investing activities (256,940) (93,238) (1,881,523)
------------------ ------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt - - (171,326)
Proceeds from public offering of common stock
and warrants net of deferred offering costs - - 4,507,915
Issuance of common stock for business acquisitions 54,900 - 92,400
Contribution to capital - stockholder/officer - - 205,400
Proceeds from issuance of notes payable - 9,093 955,000
Payments under computer equipment leases - (22,555) (63,076)
Proceeds from sale and lease-back - - 294,644
Proceeds from sale of common stock 502,532 - 812,532
Proceeds from issuance of 10% promissory notes
and related warrants, less related costs - - 517,500
Payments of 10% promissory notes - - (563,500)
Other - - 50,000
------------------ ------------------ -------------------
Net cash flows from financing activities 557,432 (13,462) 6,637,489
------------------ ------------------ -------------------
NET CHANGE IN CASH AND EQUIVALENTS (44,358) (573,445) 101,563
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 145,921 2,207,841 -
------------------ ------------------ ------------------
CASH AND EQUIVALENTS, END OF PERIOD $ 101,563 $ 1,634,396 $ 101,563
------------------ ------------------ -------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ $ 13,506 $ 168,322
------------------------------------- ---------
Issuance of common stock for UIT assets $ $ - $ 2,500,000
---------------------------------------------------------
Conversion of related party debt to common stock $ $ - $ 57,609
---------------------------------------------------------
Conversion of convertible notes payable to common
stock $ $ - $ 30,000
---------------------------------------------------------
Conversion of related party debt into Series A
preferred stock $ $ 810,000 $ 810,000
-------------------------------------------- ---------
Net assets exchanged for investment in GEN 02, Inc. $ $ - $ 744,122
---------------------------------------------------------
See Accompanying Notes to Financial Statements
5
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GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
DEVELOPMENT STAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 Basis of Presentation
The consolidated balance sheet at the end of the preceding fiscal year has been
derived from the audited consolidated balance sheet contained in the Company's
Form 10-KSB and is presented for comparative purposes. All other financial
statements are unaudited. In the opinion of management, all adjustments which
include only normal recurring adjustments necessary to present fairly the
financial position, results of operations and cash flows of all periods
presented have been made. The results of operations for interim periods are not
necessarily indicative of the operating results for the full year.
Footnote disclosures normally included in financial statements prepared in
accordance with the generally accepted accounting principles have been omitted
in accordance with the published rules and regulations of the Securities and
Exchange Commission. These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB for the most recent fiscal year.
In accordance with AICPA Statement of Position 98-1 the Company capitalizes the
direct cost of materials, services and interest consumed in the development of
computer software. Such costs, as well as the cost of acquired technology
licenses and related assets, are being amortized over five years, subject to
periodic evaluation for impairment.
Note 2 Activities of the Company
The accompanying financial statements of the Company have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Company has reported net losses since inception and expects to incur additional
operating losses over the next several quarters. The Company has also
experienced liquidity difficulties since inception, and in order to continue the
marketing and sales efforts of the Company's Internet travel business may need
additional financing. The Company has financed its operations since inception
with the proceeds from the issuance of long-term debt, with the proceeds from
its public and private offerings and loans from a related party.
As of November 5, 1998, the Company began generating revenues from shared
commissions earned by the network of Sterling Travel Consultants recently
acquired, although these revenues were not significant through the fiscal
quarter ended March 31, 1999. Management of the Company expects the Internet
travel business to be fully operational in mid-1999 and is planning to begin
television marketing of the Company's products in mid-1999. These efforts are
expected to significantly increase revenues in 1999. The Company plans to
continue an aggressive marketing campaign as well as expand its network of
travel consultants throughout 1999. The Company expects its operations to
achieve break-even by the end of fiscal 2000. The Company has also begun to
receive contingent payments from GEN 02 although these payments were not
significant through the fiscal quarter ended March 31, 1999. The Company
completed a private placement of common stock in January 1999 and received gross
proceeds of $1,500,000. Of this figure, $200,000 was received by the Company in
1998, $510,000 between January 1999 and February 1999 and the remaining $790,000
was received by the Company in June 1999. With these proceeds and anticipated
cash to be received from revenues, the Company believed it would have sufficient
resources to provide for its planned operations for the next twelve months.
However, there was a four month delay from mid-February to mid-June in receiving
the balance of the private placement proceeds in the amount of $790,000 and a
corresponding delay in launching the Company's marketing campaign, which
resulted in a much lower than anticipated growth in the Company's revenues. As a
result, during the delay the Company was forced to divert approximately $600,000
of the private placement proceeds to cover general and administrative expenses.
The $600,000 was taken out of the $710,000 the Company had received from the
private placement as of February 1999, which the Company had originally planned
on using for marketing purposes. The remaining $110,000 of the private placement
proceeds received as of February 1999 were used for web-site development, as
originally planned.
As a result of these delays, the Company needs to raise an additional
$725,000 to continue the launch of the Company's marketing campaign.
Additionally, the Company is obligated by contract to pay a mandatory
dividend in the amount of $275,000 to United Internet Technologies, Inc. on
September 30, 1999, bringing the total amount of additional funds required
to $1,000,000. The $1,000,000 in additional funds, if and when received,
will be allocated as follows: $90,000 to continue upgrading and enhancing
the web-site, $510,000 to complete development of a television infomercial
and purchase media time; $125,000 for general working capital and $275,000
to pay the mandatory dividend. The Company is obligated to pay this
dividend if funds are legally available for such purpose. State law
prohibits the payment of a dividend if, as a result thereof, the Company
would be unable to pay its debts as they become due in the usual course of
its business or the Company's total assets would be less than its total
liabilities. The Company is seeking to raise the additional funds, but if
such funds are not available the Company will be forced to curtail its
marketing campaign. In addition to the funding requirement stated above,
should the Company decide to purchase significant additional media time for the
television informercial, additional funds will be required. No assurance can be
made that the Company will be able to raise any additional funds.
Additionally, as a result of the sale of the limousine reservation business to
GEN 02, Inc., the Company has limited its post-December 31, 1998 cash outflow
for the limousine reservation business to $140,000 (which is the balance
remaining on the Company's loan commitment to GEN 02, Inc.) As the Company moves
from the development stage to the operating stage of the internet travel
business and continues its aggressive marketing campaign to build its network of
independent travel consultants, revenues are expected to increase. The Company
is completing production of its TV infomercial and intends to begin its
television media campaign in September 1999. Based upon estimates received from
marketing consultants hired by the Company (which marketing consultants are not
affiliated with the persons making the informercial), test marketing of the
informercial is expected to produce 2,000 new independent travel consultants
over a two month period., as well as commissions derived from the increased
volume of travel booked by the independent travel consultants will also
contribute to increased revenues.
Reference should be made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" include elsewhere herein for additional
information.
Note 3 Acquisition
Net Cruise - As of June 30, 1998, the Company's newly formed subsidiary,
NetCruise Interactive, Inc. ("NetCruise") acquired computer software, a
technology license and related assets from United Leisure Interactive, Inc.
("UIT") in exchange for 2,000,000 shares of the Company's stock and two warrants
("Warrants"). Subsequently, the Company was advised that because the issuance of
2,000,000 shares and warrants exceeded 20% of the Issued and outstanding shares,
shareholder approval was required by a NASDAQ rule. NASDAQ has agreed to
continue listing the Company's securities on the NASDAQ Small Cap Market
pursuant to the following conditions: (i) the UIT Transaction must be unwound in
the event shareholders do not ratify the acquisition of the software, technology
license and certain related assets from UIT and approve the issuance of
1,100,000 shares of Common Stock and two Stock Purchase Warrants to UIT; (ii)
the Company must file a Definitive Proxy Statement with the Securities and
Exchange Commission and NASDAQ on or before February 15, 1999; and (iii) the
Company must submit documentation to NASDAQ on or before April 15, 1999
evidencing either the receipt of shareholder approval of the issuance of
additional shares to UIT or the unwinding of the issuance of additional shares
to UIT and purchase of the technology license and certain related assets from
UIT. The Company has requested an extension from NASDAQ with respect to the
deadline to August 31, 1999.
The Company and UIT have restructured the transactions so that UIT will return
to the Company 1,100,000 shares of the Company's Common Stock (retaining 900,000
shares that are not in violation of the NASDAQ Market Place Rule) and the
Warrants. The Company will issue to UIT 1,100,000 shares of Convertible Series B
Preferred Stock (the "Series B Preferred Stock"), which Series B Preferred Stock
is automatically convertible into 1,100,000 shares of the Company's Common Stock
upon Shareholder approval of the issuance of the 1,100,000 shares of Series B
Preferred Stock and the Warrants. The Series B Preferred Stock is non-voting
stock and carries a mandatory dividend of $275,000 payable on September 30, 1999
and a mandatory quarterly dividend at the rate of $68,750 commencing with the
quarter ended December 31, 1999. No dividend will be payable if the Shareholders
approve the issuance of the 1,100,000 shares Common Stock and Warrants prior to
the time that the dividend is payable. The Company was not able to obtain such
Shareholder approval, and will therefore be required to pay the dividend. The
total purchase in the UIT Transaction is 900,000 shares of the Company's Common
Stock and 1,100,000 shares of the Company's Series B Convertible Preferred
Stock. If shareholders ratify the acquisition, the Series B Convertible
Preferred Stock will automatically be converted into 1,100,000 shares of the
Company's Common Stock and the Company will issue two warrants, each to purchase
800,000 shares of Common Stock, as outlined above.
In the event shareholders do not ratify the acquisition of the assets and
approve the issuance of 1,100,000 shares of Common Stock and two stock purchase
warrants, the UIT Transaction will be unwound. In such event, the Company
estimates that the cost to undo the transaction will not exceed $50,000. This
estimate includes accounting fees, legal fees, recording fees and employee
termination fees. In the event that the UIT Transaction must be unwound, (i) the
Company shall reassign the technology license and return the related assets to
UIT; (ii) UIT will return to the Company all stock certificates and warrants
received pursuant to the UIT Transaction and (iii) Mr. Brian Shuster will return
the warrants issued to him by the Company; and (iv) Mr. Brian Shuster will
resign from any officer or director position held by him. In addition, Mr. Brian
Shuster's consulting fee shall be pro-rated to the date of his resignation and
shall cease as of such date.
In February 1999, the Company acquired Sammy's Travel World. Inc. a travel
agency for 36,600 shares of common stock valued at $1.50 per share ($54,900).
Accounting - For accounting purposes, the fair value of the shares has been
allocated to the assets acquired based upon management's estimate of the
relative fair values. No value has been placed on the warrants issued UIT or on
the contingent shares issuable to Sterling, as the value is contingent upon
future earnings. When the contingency is resolved, the fair value of the
warrants and shares will be treated as an additional cost of the acquisitions.
Pro forma results assuming the acquisitions had occurred as of January 1, 1998
have not been presented, as the acquisitions of Sterling and Sammy's were not
deemed significant and the acquisition of assets from UIT was not of a business.
The acquisition of assets from UIT is subject to ratification by the
shareholders. (Reference should be made to "Pro Forma Financial Statements"
appearing elsewhere herein for description of the effects recission.
Note 4 - Stockholders' Equity
Cancellation of Shares - In August 1996, the Company gave notice to a former
officer and director of the Company that it was canceling the 333,216 shares of
its common stock which had been issued to the former officer in connection with
services to be provided at the inception of Travel Link. Such cancellation
relates to various claims made by the Company against the former officer and
failure to provide services to the Company. The former officer has contested the
attempt by the Company to cancel his shares. Pending return of the shares, they
are considered outstanding for all periods presented herein. (See Note 5 for
information concerning litigation commenced by the former officer.)
Contingent Shares - In connection with the Sterling acquisition described in
Note 3, an additional 17,500 shares were placed in escrow and will be released
in the event the Company achieves $3,000,000 of gross sales during the twelve
months ended October 31, 1999.
Note 5 Contingencies
On April 17, 1997, a former officer of the Company filed an action in the United
States District Court, District of New Jersey, against the Company, Travel Link,
the officers of both companies, and various related and unrelated parties
seeking among other things a declaratory judgement that the former officer is
the owner of the 333,216 shares of Common Stock of the Company which had been
issued to him at the inception of Travel Link for services he was to have
provided and for unspecified compensatory and punitive damages. The Company
believes that the plaintiff's claims are without merit and intends to vigorously
defend the action and to assert numerous defenses and counterclaims in its
answer. (See note 4 - Cancellation of Shares.)
On December 23, 1997, an individual filed an action in the Superior Court of New
Jersey against the Company and the former President of the Company, alleging
that the former President of the Company induced such person to lease her place
of employment to assume employment with the Company. The claim seeks monetary
damages based upon an oral promise of employment allegedly made by the same
officer of the Company. The Company believes that the plaintiff's claim is
without merit and intends to vigorously defend the action and to assert numerous
defenses in its answer. A former officer and director has agreed to hold the
Company harmless and indemnify the Company from any and all claims. Management
believes that there will be no material effect on the Company as a result of
this action.
Note 6 Exchange of Assets
In November 1998, the Company decided to exchange the assets of its computerized
limousine reservation and payment system for a 32.7% interest in Gen 02, Inc., a
Company newly formed by a former director and founder of the Company, and
contingent payments for a period of five years (up to a maximum total of
$1,080,000). For financial reporting purposes, this exchange resulted in a
change in reporting from consolidated (for periods prior to November 6, 1998) to
the equity basis (for periods since November 6, 1998). (See "Pro Forma
Statements of Operations appearing elsewhere herein for assumed exchange as of
January 1, 1998.)
Summarized information on Gen 02, Inc. for the three months ended March 31, 1999
is as follows:
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March 31,
1999
Revenues from external domestic customers $ 72,906
---------
Expenses:
Cost of services 22,560
General and administrative 141,804
Depreciation and amortization 102,852
Net loss 267,216
$(194,310)
Current assets $ 71,758
Property and equipment 181,897
Computer software costs 441,216
Other assets 43,129
$738,000
Current liabilities $146,662
Due to Company and Transponet 122,000
Equity 469,338
$738,000
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The principal business activity of the Company is the Internet Travel business
which generates revenues from people who have paid a subscription fee and signed
up as Independent travel consultants. In addition, airlines, hotels, car rental
companies, cruise lines, tour operators and other travel vendors will pay the
Company commissions for all sales generated by the Company's network of
independent travel consultants. Such commissions are then shared with the
independent travel consultants.
In order to concentrate its resources and efforts on its NetCruise Internet
Travel business, in November 1998 the Company agreed to sell the assets of the
computerized limousine and payment system to GEN 02, Inc. a company newly formed
by a management group lead by Mark A. Kenny, former director and founder of the
Company. The Company owns a minority interest in the new company and will
receive royalties on transactions processed by the new company for a period of
five years.
On November 5, 1998, in order to augment the Company's entry into the internet
travel business, the Company entered into an Asset Purchase Agreement with
Sterling AKG Corp., d/b/a Sterling Travel, in which the Company purchased all
the assets relating to Sterling's network of independent travel consultants.
As of February, 1999, the Company acquired Sammy's Travel World, Inc. a full
service travel agency serving the northern New Jersey and New York City areas.
The purchase price for the acquisition was 36,600 shares of the company's common
stock which, for accounting purposes, is being valued at $1.50 per share or an
aggregate of $54,900. The company believes that this agency with its team of
travel agents will provide the company with licensing and servicing capabilities
that will augment and extend the current capabilities of the company,
particularly the Sterling Travel consultants. The Company believes that this
combination of experience and expertise will accelerate its entry into the
Internet travel business.
As indicated above, revenues and related costs of fiscal 1999
differ from those of fiscal 1998, as revenues from its former computerized
limousine reservation and payment system represented all of the Company's
revenues until November 5, 1998 and thereafter, all revenues relate to its
internet travel business. Reference should be made to Pro Forma Statement of
Operations, which assumes the sale of the computerized limousine reservation and
payment system as of January 1, 1998.
The Company has been in the development stage and has only
generated limited revenues. The Company has been unprofitable since inception
and expects to incur additional operating losses over the next several fiscal
quarters. Total revenues for the three months ended March 31, 1999 were $80,533
compared to $14,821 for the 1998 period.
The corresponding cost of sales for the three months ended March 31, 1999 was
$31,299 compared to $19,665 for the1998 period. The net loss for the three
months ended March 31, 1999 was $950,120 or $0.13 cents a share compared to a
loss of $520,964 or $.12 cents a share for the 1998 period. As reflected in the
accompanying financial statements, the Company has incurred losses totaling
$6,529,737 since inception and at March 31, 1999, had a working capital deficit
of $436,698.
General and administrative expenses were $584,204 for the
three months ended March 31, 1999 as compared to 412,761 for the 1998 period.
The primary reason for the difference between the two periods is an increase in
legal expenses related to litigations.
Cost increase during the 1999 period consist of consulting
fees ($52,200), professional fees ($194,500) and other administrative costs
($2,900). Costs decreases during the 1999 period consist of payroll costs
($11,500), travel costs ($5,400), insurance costs ($1,000), and marketing costs
($30,500).
Liquidity and Capital Resources
The Company's funds have principally been provided from Loeb
Holding Corp. as escrow agent, Loeb Holding Corp., LTI Ventures Leasing
Corporation, two private offerings and a public offering.
In September 1995, January 1996 and December 1996, the Company
entered into sale and leaseback arrangements whereby the Company sold the bulk
of its computer hardware and commercially purchase software to a lessor for
amounts totaling $295,000 and agreed to lease back such equipment for initial
terms ranging from 24 to 30 months. Pursuant to the November 1998 exchange of
assets for a 32.7% interest in Gen 02, Inc. the obligations under the sale and
leaseback arrangements were assumed by Gen 02, Inc.
In March 1998, Loeb Holding Corp., as escrow agent for Warren
D. Bagatelle, Managing Director of Loeb Partners, Corp. HSB Capital, trusts for
the benefit of families of two principals of Loeb Holding Corporation and three
unaffiliated individuals of two Term Promissory Convertible Notes in the
principal amounts of $475,000 and $237,500 converted $400,000 of the principal
amount of the former note and $200,000 of the principal amount of the latter
note into 188,235 shares and 94,118 shares respectively of the Series A
Preferred Stock of the Company at a price of $2.125 per share.
In March 1998, Loeb Holding Corp., as escrow agent for Warren
D. Bagatelle, Managing Director of Loeb Partners, Corp. HSB Capital, trusts for
the benefit of families of two principals of Loeb Holding Corporation and three
unaffiliated individuals of four eighteen month Convertible Promissory Notes
aggregating $210,000, converted the total principal amount of the four notes
($210,000) into 98,824 shares of the Series A Preferred Stock of the Company at
a price of $2.125 per.
In March 1998, Loeb Holding Corp., as escrow agent for Warren
D. Bagatelle, Managing Director of Loeb Partners, Corp. HSB Capital, trusts for
the benefit of families of two principals of Loeb Holding Corporation and three
unaffiliated individuals of two Term Promissory Convertible Notes aggregating
$37,500, converted the total principal amount of the notes ($37,500) into
400,000 shares of the Common Stock of the Company at a price of $0.09375 per
share.
The financing of Loeb Holding Corp., and the sale and
leaseback arrangement entered into by the Company contributed to the original
capitalization of the Company.
The budgeted cost of launching the Company's marketing
campaign, which includes the development of a data base and networking
capability, is expected to be approximately $1,342,000. Of such amount,
approximately $198,000 was allocated to complete development of the web-site,
which is currently operational. The Company intends to use $75,000 of the
$198,000 to continue to enhance and upgrade the web- site. Such improvements
will include providing additional features to the site, such as personal web
pages for the independent travel consultants, chat capability, on-line
accounting information for the independent travel consultants as well as client
profiling. The Company expects to continue upgrading the web-site as
appropriate. The remainder of the $1,342,000 will be used to produce a
television video infomercial and purchase media time.
The Company completed a private placement of common stock in January 1999
whereby it sold 1,000,000 shares of Common Stock for an aggregate of $1,500,000
of which $200,000 was received in 1998, $510,000 between January 1999 and
February 1999 and $790,000 in June, 1999.With these proceeds and anticipated
cash to be received from revenues, the Company believed it would have sufficient
resources to provide for its planned operations for the next twelve months.
However, there was a four month delay in receiving the balance of the private
placement proceeds in the amount of $790,000 and a corresponding delay in
launching the Company's marketing campaign, which resulted in a much lower than
anticipated growth in the Company's revenues. As a result, during the delay the
Company was forced to divert approximately $600,000 of the private placement
proceeds to cover general and administrative expenses. The $600,000 was taken
out of the $710,000 the Company had received from the private placement as of
February 1999, which the Company had originally planned on using for marketing
purposes. The remaining $110,000 of the private placement proceeds received as
of February 1999 were used for web-site development, as originally planned.
As a result of these delays, the Company needs to raise an additional
$725,000 to continue the launch of the Company's marketing campaign.
Additionally, the Company is obligated by contract to pay a mandatory
dividend in the amount of $275,000 to United Internet Technologies, Inc. on
September 30, 1999, bringing the total amount of additional funds required
to $1,000,000. The $1,000,000 in additional funds, if and when received,
will be allocated as follows: $90,000 to continue upgrading and enhancing
the web-site, $510,000 to complete development of a television infomercial
and purchase media time; $125,000 for general working capital and $275,000
to pay the mandatory dividend. The Company is obligated to pay this
dividend if funds are legally available for such purpose. State law
prohibits the payment of a dividend if, as a result thereof, the Company
would be unable to pay its debts as they become due in the usual course of
its business or the Company's total assets would be less than its total
liabilities. The Company is seeking to raise the additional funds, but if
such funds are not available the Company will be forced to curtail its
marketing campaign. In addition to the funding requirement stated above,
should the Company decide to purchase significant additional media time for
the television informercial, additional funds will be required. No
assurance can be made that the Company will be able to raise any additional
funds.
On March 31, 1999, the Company had cash of $101,563 and a
working capital deficit of $436,698. As if November 5, 1998, the Company has
begun to generate revenues from shared commissions earned by the network of
Sterling Travel Consultants recently acquired, although these revenues have not
been significant. Management of the Company expects the Internet travel business
to fully operational in mid 1999 and is planning to begin television marketing
of the Company's products in mid 1999. These efforts are expected to
significantly increase revenues. The Company plans to continue the aggressive
marketing campaign as well as expand its network of travel consultants
throughout 1999. Although the Company has also begun to receive contingent
payments from Gen 02, these revenues have not been significant. The Company
expects its operations to achieve break-even by the end of the second quarter
of fiscal 2000.
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GENISYS RESERVATION SYSTEMS, INC.
Date__August 4, 1999 /s/ Lawrence E. Burk
Lawrence E. Burk
President and Chief Executive Officer
Date__August 4, 1999 /s/ John H. Wasko
John H. Wasko
Secretary, Treasurer and
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for the three months ended March 31, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 102
<SECURITIES> 0
<RECEIVABLES> 65
<ALLOWANCES> 15
<INVENTORY> 0
<CURRENT-ASSETS> 166
<PP&E> 132
<DEPRECIATION> 20
<TOTAL-ASSETS> 3,232
<CURRENT-LIABILITIES> 603
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,547
<TOTAL-LIABILITY-AND-EQUITY> 3,232
<SALES> 80
<TOTAL-REVENUES> 80
<CGS> 31
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1)
<INCOME-PRETAX> (950)
<INCOME-TAX> 0
<INCOME-CONTINUING> (950)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (950)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.13)
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