SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(For the Quarter ended June 30, 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 June 30, 1999: 7,822,076 shares
of Common Stock
Transitional Small Business Disclosure Format (check one)
Yes X No
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GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
Development Stage Companies
CONSOLIDATED BALANCE SHEETS
June December
30, 1999 31, 1998
------------- -------------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $738,367 $145,921
Accounts receivable, less allowance for doubtful
accounts of $49,000 (1999) and $15,000 (1998) 39,943 67,174
Prepaid expenses 17,122 835
------------- -------------------
Total Current Assets 795,432 213,930
INVESTMENT IN, AND ADVANCES TO, GEN 02, INC. 402,180 664,204
PROPERTY AND EQUIPMENT 105,797 91,400
COMPUTER SOFTWARE, TECHNOLOGY LICENSE AND
RELATED ASSETS, LESS ACCUMULATED AMORTIZATION 2,339,874 2,376,265
OTHER ASSETS 183,892 94,638
------------- -------------------
$3,827,175 $3,440,437
============= ===================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $356,673 $21,875
Accounts payable and accrued expenses 532,721 208,509
Accrued interest payable - related party 191,575 179,758
Accrued Dividend payable 206,250 0
------------- -------------------
Total current liabilities 1,287,219 410,142
------------- -------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 71,875 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 38 38
Common Stock, $.0001 par value; 75,000,000 shares authorized; issued and
outstanding 7,822,076 * shares (1999)
and 6,913,965* shares (1998) 782 691
Additional paid in capital 9,865,898 8,518,558
Deficit Accumulated During the Development Stage (7,398,637) (5,579,617)
------------- -------------------
Total Stockholders Equity 2,468,081 2,939,670
------------- -------------------
$3,827,175 $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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GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
DEVELOPMENT STAGE COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Period from
March 7, 1994
(Commencement of
Six Months Six Months Three Months Three Months Development
Ended Ended Ended Ended Stage Activites) to
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999
SERVICE REVENUES $179,649 $ 29,874 $ 99,116 $ 15,053 $ 321,189
EXPENSES:
Cost of Service 57,175 47,214 25,876 27,549 236,445
General and Administrative
Payroll 399,242 384,919 209,350 190,793 2,360,628
Professional Fees 363,703 151,192 87,324 84,540 1,313,225
Travel & Entertainment 26,636 24,581 18,129 10,697 245,817
Advertising & Promotion 30,014 44,686 24,612 8,762 232,762
Other 244,521 178,465 140,497 76,289 1,239,946
Depreciation and
Amortization 301,371 196,077 79,713 100,045 1,189,379
Interest Expense (Income),
net 8,438 (3,001) 9,256 (10,327) 214,137
--------- ---------- -------- ---------- ----------
1,431,100 1,024,133 594,757 488,348 7,032,339
--------- --------- -------- --------- ---------
LOSS BEFORE EQUITY IN
GEN 02, INC. (1,251,451) (994,259) (495,641) (473,295) (6,711,150)
EQUITY IN LOSS OF
GEN 02, INC. (361,319) 0 (167,009) 0 (481,237)
NET (LOSS) INCURRED DURING
THE DEVELOPMENT STAGE ($1,612,770) ($994,259) ($662,650) ($473,295) ($7,192,387)
============ ========== =========== ========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,376,433 4,614,158 7,469,035 4,777,572 3,687,531
---------- ---------- ----------- ---------- ------------
BASIC AND DILUTED LOSS PER
COMMON SHARE ($0.22) ($0.22) ($0.09) ($0.10) ($1.95)
=========== ========== ========== ========== ===========
See Accompanying Notes to Consolidated Financial Statements
3
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GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
DEVELOPMENT STAGE COMPANIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Deficit
Accumulated
Additional During the
Common Stock* 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
OF COMMON STOCK, NET OF EXPENSES 866,667 87 - - 1,277,913 - 1,278,000
ISSUANCE OF STOCK UPON SAMMYS
TRAVEL WORLD ACQUISITION 36,600 4 - - 54,896 - 54,900
COMMON STOCK ISSUED TO FORMER
OFFICERS 4,844 - - - 14,531 - 14,531
PREFERRED STOCK DIVIDEND
ACCRUED - - - - - (206,250) (206,250)
NET LOSS - - - - - (1,612,770) (1,612,770)
-------- --------- -------- -------- ------- ----------- -----------
BALANCE AT JUNE 30, 1999 7,822,076 $ 782 381,177 $ 38 $9,865,898 ($7,398,637) $2,468,081
*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
CONSOLIDTED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Period From
March 7, 1994
(Commencement of
Development Stage
Six Months Ended Six Months Ended Activities to
June 30,1999 June 30, 1998 June 30,1999
----------------- ----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,612,770) $(994,259) $(7,192,387)
Adjustments to reconcile net loss to net
cash flows from operating activities
Equity in loss of GEN02, Inc. 361,319 - 481,237
Depreciation and amoritization 301,371 196,077 1,169,768
Contribution to capital of services rendered - - 49,600
Changes in operating assets and liabilities
Accounts receivable 27,231 (9,937) (40,849)
Prepaid expenses (16,287) (14,002) (29,131)
Deposits and other (58,497) 3,945 (127,181)
Accounts payable and accrued expenses 325,979 (13,981) 707,736
--------- ------- ---------
Net cash flows from operating activities (671,654) (832,157) (4,981,207)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and software (239,136) (189,922) (1,789,118)
Acquisition of Prosoft, Inc. - - (34,601)
Acquisition of Sammy's Travel World (54,900) - (54,900)
Advances to GEN 02, Inc. (99,295) - (139,295)
Net cash flows from investing activities (393,331) (189,922) (2,017,914)
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 310,000 9,652 1,265,000
Payments under computer equipment leases - (42,541) (63,076)
Proceeds from sale and lease-back - - 294,644
Proceeds from sale of common stock 1,292,531 - 1,602,531
Proceeds from issuance of 10% promissory notes
and related warrants, less related costs - - 517,500
Payments on 10% promissory notes - - (563,500)
Other - - 50,000
----------- ----------- ------------
Net cash flows from financing activities 1,657,431 (32,889) 7,737,488
----------- ----------- ------------
NET CHANGE IN CASH AND EQUIVALENTS 592,446 (1,054,968) 738,367
CASH AND EQUIVALENTS, BEGINNING OF YEAR 145,921 2,207,841 -
----------- ----------- ------------
CASH AND EQUIVALENTS, END OF PERIOD $738,367 $1,152,873 $738,367
----------- ----------- ------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ - $ 22,203 $168,322
Issuance of common stock fir UIT assets $ - $ - $2,500,000
Conversion of related party debt to common stock $ - $ - $57,609
Conversion of long-term debt to Series A Preferred
Stock $- $37,500 $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
Preferred Stock Dividend $206,250 $ - $206,250
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 June 30, 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 September 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 the second quarter 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 June 30, 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 were received by the Company in June 1999. With these
proceeds and anticipated cash to be received from revenues, the Company believed
that 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
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the Company's revenues. As a result during the delay the Company was forced to
divert approximately $600,000 of the private 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 amounts of additional media time for
the television infomercial, 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 $135,000 (of
which $95,000 was loaned to GEN02 as of June 30, 1999 pursuant to 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 infomercial), test marketing of the infomercial 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 both of which will 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
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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 Common 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 of Common Stock
and the Warrants prior to June 30, 1999. The Company was not able to obtain such
Shareholders approval and will therefore required to pay the dividend. The total
purchase price 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 to 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.
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
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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 leave 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).
Summarized information on Gen 02, Inc. for the three and six months ended June
30, 1999 is as follows:
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Six Months Ended Three Months Ended
June 30, June 30,
1999 1999
Revenues from external domestic customers $ 141,217 $ 68,311
-------- --------
Expenses:
Cost of services 41,829 19,269
General and administrative 249,855 108,051
Depreciation and amortization 210,852 108,000
--------- --------
502,536 235,320
--------- ---------
Net Loss $361,319 $167,009
======== ========
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June 30,
1999
Current assets $ 63,344
Property and equipment 176,525
Computer software costs 441,216
Other assets 49,806
---------
$730,891
========
Current liabilities $170,040
Due to Company and Transponet 144,020
Equity 409,831
--------
$730,891
========
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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 reservation and payment system to GEN
02, Inc. a company newly formed by a management group lead by Mark A. Kenny, a
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.
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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 and six month periods ended June 30, 1999
were $99,116 and $179,649 compared to $15,053 and $29,874 for the 1998 periods.
The corresponding cost of service for the three and six month
periods ended June 30, 1999 were $25,876 and $57,175 compared to $27,549 and
$47,214 for the1998 periods. The net loss for the three and six months period
ended June 30, 1999 was $662,650 or $0.09 cents a share and $1,612,770 or $0.22
cents a share compared to a loss of $473,295 or $.10 cents a share and $994,259
or $0.22 cents a share for the 1998 periods. As reflected in the accompanying
financial statements, the Company has incurred losses totaling $7,192,387 since
inception and at June 30, 1999, had a working capital deficit of $491,787.
General and administrative expenses were $479,911 and
$1,064,116 for the three and six month periods ending June 30, 1999 as compared
to $371,081 and $783,843 for the 1998 periods. The primary reason for the
difference between the two periods is an increase in legal and accounting
expenses.
Costs increases for the three months ended June 30, 1999
consist of payroll and payroll related costs ($18,557), consulting fees
($44,417), travel costs ($7,432), insurance costs ($21,395), marketing costs
($15,850) and other administrative costs ($42,813) while professional fees
decreased $41,633 for the period.
Cost increases for the six months ended June 30, 1999 consist
of payroll and payroll related costs ($14,323), consulting fees ($96,683),
professional fees ($115,829), travel costs ($2,055), insurance costs ($20,383)
and other administrative costs ($45,673) while marketing costs decreased
$14,672.
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 purchased 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.
<PAGE>
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.
During April 1999, the Company and a principal of Loeb
Partners, Corp. signed two Promissory Notes each in the amount of $105,000,
whereby the Company borrowed a total of $210,000. The Promissory Notes, which
bear interest at 10% per annum, are payable on demand.
During April 1999, the Company and Warren D. Bagatelle, Managing Director of
Loeb Partners, Corp. signed two Promissory Notes, each in the amount of $45,000,
whereby the Company borrowed a total of $90,000. The Promissory Notes, which
bear interest at 10% per annum, are payable on demand.
The budget 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 reminder 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 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 $725,00 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 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 amounts of additional media time for
the television infomercial, additional funds will be required. No assurance can
be made that the Company will be able to raise any additional funds.
<PAGE>
On June 30, 1999, the Company had cash of $738,367 and a
working capital deficit of $497,537. As of 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 be fully operational in mid 1999 and is planning to begin television
marketing of the Company's products in September 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
Form 8-KA filed on July 6, 1999
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 16, 1999 ____________________________________
Lawrence E. Burk
President and Chief Executive Officer
Date_August 16, 1999 ____________________________________
John H. Wasko
Secretary, Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for the six months ended June 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 738
<SECURITIES> 0
<RECEIVABLES> 89
<ALLOWANCES> 49
<INVENTORY> 0
<CURRENT-ASSETS> 795
<PP&E> 133
<DEPRECIATION> 27
<TOTAL-ASSETS> 3,827
<CURRENT-LIABILITIES> 1,287
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0
0
<COMMON> 0
<OTHER-SE> 2,468
<TOTAL-LIABILITY-AND-EQUITY> 3,827
<SALES> 179
<TOTAL-REVENUES> 179
<CGS> 57
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,735
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (1,613)
<INCOME-TAX> 0
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</TABLE>
