PRELIMINARY COPY
GENISYS RESERVATION SYSTEMS, INC.
2401 MORRIS AVENUE
UNION, NEW JERSEY 07083
Notice of Annual Meeting of Stockholders
To our Stockholders:
The Annual Meeting of Stockholders of Genisys Reservation
Systems, Inc., a New Jersey corporation (the "Corporation" or "Company"), will
be held on Tuesday, March 23, 1999, at 11:00 a.m. local time, at the offices of
the Corporation at 2401 Morris Avenue, 3rd Floor, Union, New Jersey, 07083, to
consider and act upon the following matters. A proxy card for your use in voting
on these matters is also enclosed.
1. Electing seven (7) directors as recommended by the Board of
Directors.
2. Ratification of the acquisition of a technology license and
certain related assets from United Internet Technologies,
Inc.(formerly known as United Leisure
Interactive, Inc.,) and the approval of the issuance of
1,100,000 shares of Common Stock and two Warrants, each in the
amount of 800,000 shares, to United Internet Technologies,
Inc., as recommended by the Board of Directors.
3. Ratification of the sale of the Limousine Reservation System
business to Gen O2, Inc., a newly organized corporation formed
by Mark A. Kenny, a former Director and founder of the
Company, as recommended by the Board of Directors.
4. Approval of an amendment to the Corporation's Certificate of
Incorporation to change the name of the Corporation to
netcruisetravel.com, inc., as recommended by the Board of
Directors.
5. Approval of an amendment to the Corporation's Certificate of
Incorporation to restate the provisions of the Corporation's
authorized Preferred Stock to correct
certain inconsistencies, as recommended by the Board of
Directors.
6. Ratifying the appointment of independent auditors to examine
and report on the financial statements of the Corporation for
fiscal 1998 and fiscal 1999, as recommended by the Board of
Directors.
7. Transacting any other business that may properly come before the
meeting or any adjournment thereof.
<PAGE>
All stockholders of record at the close of business on February 22,
1999, are entitled to notice of and to vote at the meeting.
Dated: February 22, 1999
By Order of the Board of Directors
John H. Wasko
Secretary
- ----------------------------------------------------------
Your Proxy is important no matter how many shares you own. Please mark your
vote, fill in the date, sign and mail it today in the accompanying
self-addressed envelope which requires no postage if mailed in the United
States.
<PAGE>
ANNUAL MEETING OF STOCKHOLDERS
OF
GENISYS RESERVATION SYSTEMS, INC.
MARCH 23, 1999
-----------------
PROXY STATEMENT
-----------------
GENERAL INFORMATION
Proxy Solicitation
This Proxy Statement is furnished to the holders of common
stock, $.0001 par value per share ("Common Stock") and Series A Preferred Stock
("Series A Preferred Stock") of Genisys Reservation Systems, Inc. and
Subsidiaries ("Company") in connection with the solicitation of proxies on
behalf of the Board of Directors of the Company for use at the Annual Meeting of
Stockholders ("Annual Meeting") to be held on March 23, 1999, or at any
continuation or adjournment thereof, pursuant to the accompanying Notice of
Annual Meeting of Stockholders. The purpose of the meeting and the matters to be
acted upon are set forth in the accompanying Notice of Annual Meeting of
Stockholders. The Board of Directors knows of no other business which will come
before the meeting.
Proxies for use at the meeting will be mailed to stockholders
on or about February 22, 1999 and will be solicited chiefly by mail, but
additional solicitation may be made by telephone, telegram or other means of
telecommunications by directors, officers, consultants or regular employees of
the Company. The Company may enlist the assistance of brokerage houses,
fiduciaries, custodians and other like parties in soliciting proxies. All
solicitation expenses, including costs of preparing, assembling and mailing the
proxy material, will be borne by the Company.
Revocability and Voting of Proxy
A form of proxy for use at the meeting and a return envelope for the proxy are
enclosed. Stockholders may revoke the authority granted by their execution of
proxies at any time before the Annual Meeting by filing with the Secretary of
the Company a written revocation or duly executed proxy bearing a later date or
by voting in person at the meeting. Such consents or revocations can be
submitted by facsimile to 1-908-810-8769. Shares represented by executed and
unrevoked proxies will be voted in accordance with the choice or instructions
specified thereon. If no specifications are given, the proxies intend to vote
"FOR" each of the nominees for director as described in Proposal No. 1, "FOR"
the ratification of the acquisition of a technology license and certain related
assets from United Internet Technologies, Inc. formally known as United Leisure
Interactive, Inc. ("UIT") and the approval of the issuance of 1,100,000 shares
of Common Stock and two Warrants, each to purchase 800,000 shares of Common
Stock of the Company, to UIT as described in Proposal No. 2, "FOR" the
ratification of the sale of the Limousine Reservation System business to Gen O2,
Inc., a newly organized company formed by Mark A. Kenny, a former director and
founder of the Company, as described in Proposal No. 3, "FOR" the approval of an
amendment to the Company's Certificate of Incorporation to change the name of
the Company to netcruisetravel.com, inc. as described in Proposal No. 4, "FOR"
the approval of an amendment to the Company's Certificate of Incorporation to
amend and restate the provisions of the Company's authorized Common and
Preferred Stock to correct certain inconsistencies as described in Proposal No.
5 and "FOR" the ratification of the appointment of Auditors as described in
Proposal No. 6. Proxies marked as abstaining will be treated as present for
purposes of determining a quorum for the Annual Meeting, but will not be counted
as voting in respect of any matter as to which abstinence is indicated. If any
other matters properly come before the meeting or any continuation or
adjournment thereof, the proxies intend to vote in accordance with their best
judgment.
Record Date and Voting Rights
Only stockholders of record at the close of business on
February 22, 1999 are entitled to notice of and to vote at the Annual Meeting or
any continuation or adjournment thereof. On that date there were 6,334,694
shares of the Company's Common Stock and 381,177 shares of the Company's Series
A Preferred Stock outstanding. Each share of Common and Series A Preferred Stock
is entitled to one vote per share. Any share of Common or Series A Preferred
Stock held of record on 22, 1999 shall be assumed, by the Board of Directors, to
be owned beneficially by the record holder thereof for the period shown on the
Company's stockholder records. The affirmative vote of a majority of the votes
cast by the stockholders present in person or by proxy at the meeting
and entitled to vote thereon is required for the election of the directors, to
ratify the acquisition of a technology license and certain related assets from
UIT and approve the issuance of 1,100,000 shares of Common Stock and two
Warrants, each to purchase 800,000 shares of the Company's Common Stock, to UIT
and to ratify the sale of the Limousine Reservation System business to Gen O2,
Inc., a newly organized company formed by Mark A. Kenny, a former director and
founder of the Company, to approve an amendment to the Company's Certificate of
Incorporation to change the name of the Company to netcruisetravel.com, inc., to
approve an amendment to the Company's Certificate of Incorporation to restate
the provisions of the Company's authorized Common and Preferred Stock to correct
certain inconsistencies and to ratify the appointment of auditors.
In the event that a stockholder does not designate his or her broker to
vote in their place, brokers may be precluded from exercising their voting
discretion with respect to certain matters to be acted upon and thus, in the
absence of specific instructions from the beneficial owner of the shares, will
not be empowered to vote the shares on such matters and therefore will not be
counted in determining the number of shares necessary for approval. Shares
represented by such broker non-votes will, however, be counted for the purpose
of determining whether there is a quorum. The brokers will only be allowed to
vote for the election of Directors and the ratification of the appointment of
independent auditors. Since broker non-votes are not counted, it could be more
difficult to obtain the required approval to ratify the acquisition of a
technology license and certain related assets from UIT and to approve the
issuance of 1,100,000 shares of Common Stock and two Warrants, each to purchase
800,000 shares of the Company's Common Stock, to UIT and to ratify the sale of
the Limousine Reservation System business to Gen O2, Inc., a newly organized
company formed by Mark A. Kenny, a former director and founder of the Company,
to approve an amendment to the Company's Certificate of Incorporation to change
the name of the Company to netcruisetravel.com, inc., and to approve an
amendment to the Company's Certificate of Incorporation to restate the
provisions of the Company's authorized Common and Preferred Stock to correct
certain inconsistencies.
Directors and officers of the Company and certain other Shareholders
holding approximately 39.7% of the outstanding Common Stock (including UIT) and
all of the Series A Preferred Stock of the Company intend to vote "FOR" the
slate of directors, "FOR" the ratification of the sale of the Limousine
Reservation System business to Gen O2, Inc., a newly organized company formed by
Mark A. Kenny, a former director and founder of the Company, "FOR" the approval
of an amendment to the Company's Certificate of Incorporation to change the name
of the Company to
netcruisetravel.com, inc., "FOR" the approval of an amendment to the Company's
Certificate of Incorporation to restate the provisions of the Company's
authorized Common and Preferred Stock to correct certain inconsistencies and
"FOR" the ratification of the appointment of auditors. Directors and Officers of
the Company and certain other shareholders holding approximately 26% of the
outstanding Common Stock (excluding UIT) and all of the Series A Preferred Stock
of the Company intend to vote "FOR"the ratification of the acquisition of a
technology license and certain related assets from UIT and the approval of the
issuance of 1,100,000 shares of Common Stock and two warrants, each to purchase
800,000 shares of the Company's Common Stock, to UIT.
Forward Looking Statements
When used in this Proxy Statement, the words "may," "will,"
"expect," "anticipate," "continue," "estimate," "project," "intend" and similar
expressions are intended to identify 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 regarding events, conditions
and financial trends that may affect the company's future plans of operations,
business strategy, operating results and financial position. Shareholders are
cautioned that any forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties and that actual results
may differ materially from those included within the forward-looking statements
as a result of various factors.
Advantages and Disadvantages of Approval of Proposals
Proposal No. 2
The Company believes that the ratification of the acquisition of a technology
license and certain related assets from UIT and approval of the issuance of
1,100,000 shares of Common Stock and the two warrants to UIT is in the best
interest of the Company, as the expected growth rate of == the internet travel
business is anticipated to be faster than that for the limousine reservations
systems business. Management is of the opinion that the costs to
develop the new line of business is less than the costs required to maintain the
limousine reservation business until such time as revenues will be able to cover
the costs of operation. Further, it is management's opinion that the internet
travel business will provide, on a long term basis, a greater return to
shareholders.
Disadvantages to Proposal No. 2 include a lack of operating history
with respect to the software relating to the internet travel business. The
"Parallel Addressing Video Technology" is still being developed and the system
is currently not operational, although management expects the system
to be operational by mid 1999. In addition, the Company only has a limited
number of travel consultants acquired from Sterling Travel and does not yet have
any internet travel customers. The budgeted cost of becoming operational is
expected to be approximately $1,342,000. Of such amount, approximately $198,000
is needed to complete the development of the web site. The remainder will be
used to produce a television video infomercial and purchase media time. The
Company does not presently have the funds necessary to finance such development
but plans to sell additional stock to raise the funds needed. No assurance can
be given that the Company will be able to raise such funds.
In the event shareholders do not ratify the acquisition of a technology license
and certain
related assets from UIT and approve the issuance of 1,100,000 shares of the
Company's Common Stock to UIT, the Company intends to continue its entry into
the internet travel business either by negotiating a licensing agreement with
UIT for the use of its technology license and certain related assets or by
utilizing alternative technologies. In the event that Proposal No. 2 is not
approved by the Shareholders and Proposal No. 3 is approved by the Shareholders,
the Company will not own the limousine reservation business but will continue to
expand into the internet travel business.
Proposal No. 3
Management of the Company set revenue objectives for the limousine
reservation business and made the decision to review the operation at the end of
the third quarter to determine the best approach to maximize utilization of the
Company's resources. The limousine reservation business did not meet its revenue
objectives and in early September 1998, the Company decided to seek a buyer or
joint venture partner for its limousine reservation business.
In addition, although the Company had begun to generate revenues, the Company
found that many limousine providers were resisting the payment of commissions or
fees in connection with bookings on the Company's system until such time as the
potential benefits of the Company's system could be better quantified. This
resulted in a much slower development of revenues for the Company than was
originally anticipated. Management estimated the cost of operations for a more
extended period of time and determined that the Company's available funds would
be better spent in other areas of the travel business. Management has determined
that the funds needed to develop the internet travel business would be less than
those required to bring the limousine business to full operation. It therefore
determined to expand into the internet travel business. As a result, if the
shareholders approve the acquisition of the technology license and certain
related assets from UIT and the sale of the limousine reservation business, the
effect to shareholders is a fundamental change in the nature of the business of
the Company from the limousine reservation business to an internet travel
business.
Disadvantages to ratification of Proposal No. 3 include the fact that
as part of the sale, the Company will be retaining a 32.66% interest in GEN 02,
Inc. and will be loaning to GEN 02, Inc. a $135,000 installment loan and a
$40,000 bridge loan. The TranspoNet Companies, Inc. ("TranspoNet") another
32.66% shareholder of GEN 02, Inc., is providing, commencing December 10, 1998,
$20,000 per month to GEN 02, Inc., for an aggregate of $240,000 . TranspoNet is
not affiliated with the Company or any of its shareholders. The primary
capitalization of GEN 02, Inc., is being provided by the loans from the Company
and TranspoNet. In addition, the sole asset of GEN 02, Inc. is the limousine
reservation business. As a result, the Company will absorb all losses to the
extent of the assets transferred. Although there are no minimum contingent
payments, the Company has begun to receive limited contingent payments from GEN
02, Inc. However, it is possible that the Company will not receive significant
contingent payments from GEN 02, Inc. over the 5 year period. Shareholders
should note that they are being asked to ratify the sale of the limousine
business to GEN 02, Inc., a company newly organized by Mark A. Kenny, who is a
former director of the Company. The sale of the limousine reservation business
was negotiated with GEN 02, Inc. while Mr. Kenny was still a director of the
Company, although he did not participate in the directors analysis and decision
to sell the business to GEN 02, Inc.
In the event that shareholders do not approve Proposal No. 3, the
Company will be required to either find another purchaser of the limousine
reservation business or raise additional capital to bring the limousine
reservation business to full operation. No assurance can be given that the
Company will be able to raise such funds.
Proposal No. 4
Since the Company proposes to fundamentally change its business from that of the
limousine reservation business to an internet travel business, the Company
determined that it would be appropriate to change the name of the Company to
more properly reflect this. Management does not believe that there are any
significant disadvantages to changing the name to netcruisetravel.com, inc. The
advantages to approving the amendment to the Company's Certificate of
Incorporation to change the name of the Company to netcruisetravel.com, inc. is
that the Company's name will be more identified with that of its operating
business.
Proposal No. 5
The advantages of amending the Company's Certificate of Incorporation
to restate the provisions of the Company's authorized Common and Preferred Stock
as described in Proposal No. 5 is that the Certificate of Incorporation will
become clearer because certain inconsistencies existing in the previous revision
will be corrected.
If shareholders do not approve the change in the amended Certificate of
Incorporation, it may be difficult for the Company to utilize the authorized
preferred shares for acquisitions, financing, and other proper corporate
purposes.
If shareholders do not approve the name change or the amendment to the
Company's Certificate of Incorporations restating the provisions of the common
and preferred stock, managements present intention is to leave the name of the
Company and the Certificate of Incorporation as they now are.
1
<PAGE>
GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998
(Unaudited)
The following statements are based upon the balance sheets appearing in
the Company's Form 10- QSB for the nine months ended September 30, 1998
to show the effect on the Company's balance sheet of the shareholders'
approval or non-approval of the following:
Proposal No. 2 - Issuance of 1,100,000 shares of Common Stock and Two Stock
Purchase Warrants to United Internet Technologies, Inc. ("UIT") and Ratification
of the Acquisition of a technology license and certain related assets from UIT.
Proposal No. 3 - Ratification of the exchange of the limousine reservation
business for a noncontrolling interest in Gen O2, Inc.
Reference should be made to Proposal Nos. 2 and 3 appearing elsewhere herein.
The following statements should be read in conjunction with Proposal Nos. 2 and
3 and with the Company's financial statements and notes thereto incorporated by
reference to this Proxy Statement.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Assuming Assuming Assuming Assumes
Proposal Nos. Proposal No. Proposal No. Neither
2 and 3 are 2 but not No. 3 but not No. Proposal 2 or 3
are Approved 3 is Approved 2 is Approved are Approved
------------ -------------- --------------- ---------------
(Note A) (Note B) (Note C) (Note D)
ASSETS
Current assets $ 643,765 $ 651,184 $ 643,765 $ 651,184
Equipment, net of accumulated depreciation 71,706 285,918 24,206 238,418
Investment in Gen O2, Inc. 787,39 - 787,392 -
Computer software costs, less accumulated
amortization 1,417,964 1,992,376 - 574,412
Licenses and intellectual property, less
accumulated amortization 975,000 975,000 - -
Other 69,076 69,076 69,076 69,076
------ ---------- ------ ------
$3,964,903 $ 3,973,554 $ 1,524,439 $1,533,090
========== =========== ============= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 497,992 $ 506,643 $ 547,992 $ 556,643
--------------- ------------ --------- -----------
Long-term debt 63,542 63,542 63,542 63,542
------ ------ ------ ---------
Stockholders' Equity:
Preferred stock 148 148 38 38
Common stock 566 566 476 476
Paid-in capital 8,281,073 8,281,073 5,781,273 5,781,273
Deficit accumulated during the
development stage (4,878,418) (4,878,418) (4,868,882) (4,868,882)
------------- ----------- ------------ -----------
3,403,369 3,403,369 912,905 912,905
---------- --------- ------- -----------
$3,964,903 $3,973,554 $1,524,439 $1,533,090
========== ========== ========== ============
Book value per common share (Note F) $.22 $.22 $.02 $.02
===== ====== ===== ====
Tangible book value common per share (Note F) $(.34) $(.31) $(.13) $(.10)
===== ===== ===== ======
See notes to pro forma financial statements
<PAGE>
Note A - The proforma statement assuming Proposals No. 2 and 3
are approved is derived from the proforma balance sheet
appearing at page 2 to the Company's Form 10-QSB, as amended,
for the nine months ended September 30, 1998, as amended, which
gives effect to the exchange of assets relating to the limousine
reservation business for a non-controlling equity investment in
GEN 02, Inc. Such financial statements also reflect the
acquisition of a technology license and certain related assets
and the related issuance of common and preferred stock and
warrants.
Note B - Assuming Proposal No. 2 is approved but Proposal No. 3
is not approved, this statement is derived from the historical
consolidated balance sheet appearing at page 2 to the Company's
Form 10-QSB, as amended, for the nine months ended September 30,
1998. Such statement does not reflect the exchange of assets
relating to the limousine reservation business for a
non-controlling equity investment in Gen O2, Inc. but does
reflect the acquisition of a technology license and certain
related assets and the related issuance of securities.
Note C - Reflects the impact of approving Proposal No. 3 but
not approving Proposal No. 2, i.e. return of common and
preferred shares and warrants to the Company and the return of
a technology license and certain related assets.
The balance sheet derived from the statement described in Note A has been
adjusted to reflect the effect of the shareholders not approving Proposal No. 2
as follows:
Amounts assigned to securities that would be returned to the Company:
Common stock $ 90
Preferred stock 110
Paid-in capital 2,499,800
----------
$2,500,000
==========
Amounts assigned to licenses and
intellectual property $1,417,964
Amounts assigned to computer
software costs 975,000
Equipment 47,500
Depreciation and amortization to
September 30, 1998 59,536
-------------
$2,500,000
In addition, estimated costs to undo the transaction which have been estimated
to exceed $50,000 have been accrued.
<PAGE>
GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO PRO FORMA BALANCE SHEETS
Note D - Reflects the impact of the shareholders not approving both
Proposal Nos. 2 and 3. The statement has been derived from the balance
sheet described in Note B and has been
adjusted as indicated in Note C. It reflects the Company retaining
100% of the limousine
reservation business and UIT returning the common and preferred stock
and warrants to the Company in exchange for a return of the technology
license and related assets to UIT.
Note E - Had these assets not been acquired as of June 30, 1998, net
loss would have been reduced by $59,536 ($.01 per share) for the nine
months (as well as the three months) ended
September 30, 1998.
Note F - Book value per common share has been determined by deducting
amounts attributable to preferred shares. Tangible book value reflects
the reduction of capitalized software, debt
issue costs and the investment in Gen 02, Inc. from stockholders' equity.
Note G - No effect has been given to the Company's commitment to lend
Gen O2, Inc. up to $175,000 which the Company will be obligated to
make pursuant to Proposal No. 3.
<PAGE>
GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ASSUMING SALE OF THE LIMOUSINE RESERVATION BUSINESS (PROPOSAL NO. 3)
(Unaudited)
The following statements are based upon the historical statements of operations
appearing in the Company's Form 10-QSB for the nine months ended September 30,
1998 and in the Company's Form 10-KSB for the year ended December 31, 1997 to
show the effect on the Company's statement of operations as if Proposal No. 3
was approved by the shareholders as of the beginning of the periods indicated
(reference should be made to Proposal No. 3 appearing elsewhere herein). These
statements should be read in conjunction with the Company's financial statements
and notes thereto incorporated by reference to this Proxy Statement
.
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
Historical Reclassifications Pro Historical Reclassification Pro
Forma Forma
(Note A) (Note A)
SERVICE REVENUE $ 52,002 $( 52,002) $ - $ 25,863 $ (25,863) $ -
- --------------- ============ ============ =============== ============ ============= =========
EXPENSES:
Cost of service 111,490 (111,490) - 24,992 (24,992) -
- ------------------ ======== ========= ====== ====== ======== =
General and administrative 1,205,173 (607,285) 597,888 1,318,203 (736,858) 581,345
- ----------------------------- ========= ========= ======= ========= ========= =======
Depreciation and amortization 397,091 (287,589) 109,502 217,386 (195,700) 21,686
- -------------------------------- ======= ========= ======= ======= ========= ======
Interest expense (income), net (18,462) - (18,462) 55,407 - 55,407
- ---------------------------------- ============== ================================= ============= ================= ======
1,695,292 (1,006,364) 688,928 1,615,988 (957,550) 658,438
=========== ============ ============ ========== ============= ========
LOSS BEFORE EQUITY IN GEN O2, INC. (1,643,290) (954,362) (688,928) (1,590,125) (931,687) (658,438)
=========== ========= ========= =========== ========= =========
EQUITY IN LOSS OF GEN O2, INC. - 954,362 (954,362) - 931,687 (931,687)
- ------------------------------ ================== ============= ============= ================ ============ =======
NET LOSS INCURRED DURING THE
DEVELOPMENT STAGE $(1,643,290) $ - $(1,643,290) $(1,590,125) $ - (1,590,125)
------------------- =========== ================ =========== =========== ============ =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,961,089 4,961,089 4,121,000 4,121,000
-------------------------- =========== =========== =========== ===========
BASIC AND DILUTED LOSS PER
COMMON SHARE $(.33) $(.33) $(.39) $(.39)
------------- ===== ===== ===== =====
</TABLE>
Note A - The proforma statements reflect the reclassification of balances
applicable to the operations of the limousine reservation business and ProSoft
to reflect the change from majority ownership to minority ownership, assuming
Proposal No. 3 is approved by the shareholders. This will be accounted for as a
change in reporting entity (from consolidation to equity basis reporting). There
will be no impact on net income, as the Company will absorb all losses to the
extent of the carrying amount of the assets transferred since the only other
capital contributed to Gen O2, Inc. was $50.
The proforma amounts reflect the Company's corporate expenses (officers' and
office compensation, professional fees, rent and similar costs) and, since June
30, 1998, the operations of its Internet travel business. Such general and
administrative expenses were incurred during the periods indicated and relate to
all of the Company's business activities. Common expenses have been allocated to
the limousine reservation and ProSoft business on an incremental basis and all
other ongoing corporate expenses are reflected in proforma amounts. In the
opinion of management, this allocation approximates costs which would have been
incurred on a stand alone basis. However, proforma operating results are not
necessarily indicative of results which would have occurred had the Company's
operations been conducted as a separate and independent company.
Note B - In the event the shareholders do not approve Proposal No. 2 to acquire
a technology license and certain related assets from UIT, pro forma net loss
would have been reduced by $59,536 ($.01 per share) for the nine months (as well
as the three months) ended September 30, 1998. (There would be no effect on the
year ended December 31, 1997 as the transaction took place as of June 30, 1998).
Interested Parties
As more fully described in Proposal No. 2, the Company recently acquired
a technology license and certain related assets from UIT. In connection with
this acquisition the Company is seeking Shareholder approval for ratification of
that acquisition and payment therefor, in the form of the issuance of 1,100,000
shares of Common Stock and two Warrants, each to purchase 800,000 shares of the
Company's Common Stock, to UIT. Messrs. Brian Shuster and Harry Shuster are
currently directors of UIT and were also elected as Directors of the Company
pursuant to an Asset Purchase Agreement, dated as of June 30, 1998, between the
Company and UIT (the "Asset Purchase Agreement"). In connection with this
transaction, Mr. Brian Shuster received two warrants, each entitling him to
purchase 200,000 shares of Common Stock of the Company if certain performance
goals are met. UIT will not vote the 900,000 shares of Common Stock of the
Company currently held by UIT, nor will these votes be counted for the purpose
of obtaining a quorum for Proposal No. 2. The 900,000 shares of Common Stock of
the Company currently held by UIT will be counted for quorum purposes and will
be eligible to vote on all other matters at the 1999 Annual Meeting.
Mr. Mark A. Kenny, a former director and officer of the Company, and currently a
shareholder, is a principal of Gen O2, Inc., the purchaser of the assets sold by
the Company, as more fully described in Proposal No. 3. Mr. Kenny will not vote
the shares of Common Stock held by him in connection with Proposal No. 3.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The By-Laws of the Company provide for a Board of Directors of
not less than three (3) members. The Board of Directors currently consists of
seven (7) members. The Board of Directors has fixed the number of directors at
seven (7) in accordance with the provisions of the Company's By-laws. At the
1998 Annual Meeting, seven (7) directors will be elected to serve until the next
Annual Meeting of Stockholders and until their successors have been elected and
qualified. Any vacancy or vacancies which occur during the year may be filled by
the Board of Directors, and any directors so appointed must stand for election
at the next annual meeting of stockholders.
All nominees have consented to be named and have indicated their intent
to serve if elected. The Company has no reason to believe that any of these
nominees are unavailable for election. However, if any of the nominees become
unavailable for any reason, the persons named as proxies may vote for the
election of such person or persons for such office as the Board of Directors of
the Company may recommend in the place of such nominee or nominees. It is
intended that proxies, unless marked to the contrary, will be voted in favor of
the election of the nominees.
Election of the directors requires the affirmative vote of a majority of
the votes cast at the meeting by holders of the Company's Common and Series A
Preferred Stock.
The Board of Directors recommends that the stockholders vote "FOR" the election
of the following seven nominees (Item No. 1 on the proxy card).
NOMINEES FOR ELECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name Age Position
Lawrence E. Burk 57 President, Chief Executive Officer and Director
John H. Wasko 60 Chief Financial Officer, Secretary, Treasurer
and Director
David W. Sass 63 Director
S. Charles Tabak 66 Director
Warren D. Bagatelle 60 Chairman
Harry Shuster 63 Director
Brian Shuster 40 Director
</TABLE>
The Company's Audit and Compensation Committees consist of Messrs. Warren D.
Bagatelle, S. Charles Tabak and David W. Sass. All officers of the Company
devote their full time to the Company's business.
Lawrence E. Burk joined the Company on June 23, 1997, as President, Chief
Executive Officer, and Director following a 27 year career with Alexander &
Alexander Services. From 1993 to early 1996, Mr. Burk served as Chairman and CEO
of Alexander & Alexander, Inc., the U.S. Retail Subsidiary of A & A Services,
and from early 1996 until the company's acquisition by AON Corporation in late
1996, Mr. Burk served as President and Chief Operating Officer of A & A
International, the company's global retail operation. Mr. Burk served on the
company's Global Retail Board from 1985; on A & A Services Operations Board from
1989; and on A & A Inc.s' Executive Committee and Operations Board from 1989. A
& A was a NYSE listed Financial Services firm with revenues of over $1.3
billion. Mr. Burk has a B.A. degree in Economics from Southern Illinois
University and is a member of the schools' Advisory Board.
John H. Wasko has served the Company as a Director since April, 1986, as
Secretary since September 1995, and as Treasurer and Chief Financial Officer
since April 1996. Mr. Wasko has also served the Company as President and
Chairman of the Board since its inception to August 1995, and as Treasurer from
April 1986 to September 1987 and from May 1988 to August 1995. Mr. Wasko has
also served as Chairman of the Board, President and Director of JEC Lasers,
Inc., presently an inactive company, since it was organized in September 1977.
He was awarded a bachelor of science degree in physics in 1963 and a master of
science degree in physics (summa cum laude) in 1965 from Fairleigh Dickinson
University.
David W. Sass has been a Director since April, 1997 and has been a
practicing attorney in New York City for the past 38 years and is currently a
senior partner in the law firm of McLaughlin & Stern, LLP, securities counsel to
the Company. Mr. Sass is also a director of Pallet Management Systems, Inc., a
company engaged in the manufacture and repair of wooden pallets and other
packaging services and a director of The Harmat Organization, Inc., a New York
based construction company and a member and Vice Chairman of the Board of
Trustees of Ithaca College. Mr. Sass earned a B.A. from Ithaca College, a J.D.
from Temple University School of Law and an L.L.M. (in taxation) from New York
University School of Law.
S. Charles Tabak has been a Director since April, 1997. Since 1991 he has been
the Chief Executive Officer of Arc Medical & Professional, Inc., an employment
agency specializing in placement of scientific, medical and office personnel.
From 1969 to 1990, he was the Executive Vice President and General Counsel for
Channel Home Centers Inc. From 1967 to 1969, he was the Director of Finance of
J.J. Newbury Co. Mr. Tabak is a past member of the Board of Directors of Channel
Home Centers, Inc. and Charge A Plate Group of Greater New York. He is a
graduate of both NYU School of Business and School of Law, and is admitted to
practice law in New York state and before the U.S. Supreme Court.
Warren D. Bagatelle has been a Director and Chairman of the Board of the Company
since August, 1995. He served as Chief Executive Officer of the Company from
December 1996 through June, 1997. Since 1988, he has been a Managing Director at
Loeb Partners Corporation, a New York City investment banking firm. Mr.
Bagatelle is also a director of Energy Research Corporation, a company engaged
in the development and commercialization of electrical storage and power
generation equipment, principally fuel cells and rechargeable storage batteries
and a director of Evercell, Inc., a company engaged in the development and
commercialization of batteries. Mr. Bagatelle has a B.A. in economics from Union
College and an M.B.A. from Rutgers University.
Harry Shuster has been Chairman of the Board of NetCruise Interactive, Inc., a
wholly owned subsidiary of the Company and a Director of the Company since July,
1998. Mr. Shuster has served as Chairman of the Board, President and Chief
Executive Officer of United Leisure Corporation ("ULC"), a public company
engaged in children's recreational activities and interactive technology
development, since April, 1975. Mr. Shuster is also the Chairman of the Board,
President and Chief Executive Officer of Grand Havana Enterprises, Inc., a
public company primarily engaged in the business of ownership and operation of
private membership restaurants and cigar clubs. Mr. Shuster is also the Chairman
of the Board of United Film Distributors, Inc., a privately held independent
motion picture production corporation and the General Partner of HEP II, Inc., a
limited partnership engaged in the motion picture production business. Mr.
Shuster is the father of Mr. Brian Shuster.
Brian Shuster has been President of NetCruise Interactive, Inc. and a Director
of the Company since July, 1998. He has served as Chief Executive Officer,
President and a director of United Film Distributors, Inc. since its inception
in May, 1995. Since he has been with United Film Distributors, Inc. he has
served as the producer of seven films. Prior to joining United Film
Distributors, Inc., he served as President of Beverly Hills Producers Group, a
private production company, where he produced one motion picture, served as
executive producer of another motion picture, and oversaw production of three
other films. From 1990 until 1993 Mr. Shuster served as Vice President of
Worldwide Entertainment Group, where he also produced three motion pictures. He
is also currently a director of ULC and President of UIT. Mr. Shuster is the son
of Mr. Harry Shuster.
Messrs. Harry Shuster and Brian Shuster are currently directors of UIT.
The Company recently acquired a technology license and certain related assets
from UIT, which is a wholly owned subsidiary of ULC, as more fully described in
Proposal No. 2. Messrs. Harry Shuster and Brian Shuster were elected as
directors of the Company following this transaction pursuant to the acquisition
agreement and will so serve for three (3) years, if so elected. In connection
with this transaction, Mr. Brian Shuster received two warrants, each entitling
him to purchase 200,000 shares of the Common Stock of the Company. One warrant
is exercisable for 200,000 shares at $2.50 per share and may be exercised
between April 1, 2002 and June 30, 2002, but only if NetCruise Interactive, Inc.
("NetCruise") achieves profits equal to or exceeding $5,000,000 for the years
1999, 2000 and 2001. The other Warrant is exercisable for 200,000 shares at
$6.00 per share and may be exercised between April 1, 2002 and June 30, 2002,
but only if NetCruise achieves profits equal to or exceeding $10,000,000 for the
years 1999, 2000 and 2001.
Executive Compensation
The following tabulation shows the total compensation paid by the
Company for services in all capacities in fiscal years 1996, 1997 and 1998 to
the officers of the Company.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name and Principal Position Year Salary Bonus Other Annual
Compensation
Lawrence E. Burk 1998 $147,500 $0 $0
President & Chief Executive 1997 $75,000 (1) $0 $0
Officer 1996 $0 $0 $0
Joseph Cutrona (2) 1998 $0 $0 $0
1997 $41,639 $0 $6,667
1996 $73,500 $0 $5,000
Mark A. Kenny(3) 1998 $88,462 $0 $0
1997 $64,231 $0 $28,967
1996 $42,000 $0 $16,250
John H. Wasko 1998 $80,000 $0 $0
Chief Financial Officer, Secretary 1997 $81,247 $0 $20,000
& Treasurer 1996 $10,000 $0 $49,500
</TABLE>
(1) Salary paid to Mr. Burk for the period June 23, 1997 thru December 31, 1997.
Mr. Burk's Annual salary is $150,000.
(2) As of May 12, 1997, Mr. Cutrona was no longer an employee, Officer or
Director of the Company.
(3) Mr. Kenny formerly was the Company's Executive Vice President. He resigned
as an employee and a Director of the Company as of November 6 , 1998.
The Company and Mr. Lawrence E. Burk entered into an Employment Agreement on
June 23, 1997 whereby the Company agreed to pay Mr. Burk a salary of $150,000
per year. The Employment Agreement is of continuous duration and may be
terminated by either party. Mr. Burk is also entitled to an incentive bonus to
be determined in the sole discretion by the Board of Directors of the Company.
The Company and Mr. John H. Wasko entered into an Employment Agreement on
October 16, 1996 whereby the Company agreed to pay Mr. Wasko a salary of $80,000
per year. The Employment Agreement is of continuous duration and may be
terminated by either party. Mr. Wasko is also entitled to an incentive bonus to
be determined in the sole discretion by the Board of Directors of the Company.
The Company and Loeb Partners Corporation entered into a three year consulting
and investment banking agreement dated September 5, 1995 whereby the Company
agreed to pay Loeb Partners Corporation a consulting fee of $3,000 per month,
which contract has been extended for an additional three (3) years. Loeb
Partners Corporation also receives a fee for arranging private financing and
acquisitions. Mr. Warren D. Bagatelle, a Director and Chairman of the Company,
is a Managing Director of Loeb Partners Corporation. The Company and Mr. Mark A.
Kenny entered into an Employment Agreement on May 1, 1997 whereby the Company
agreed to pay Mr. Kenny a salary of $100,000 per year. This contract was
terminated in November, 1998 by the resignation of Mr. Kenny. See Proposal No.
3.
Pursuant to the Asset Purchase Agreement the Company agreed that Messrs. Harry
Shuster and Brian Shuster would serve as directors of the Company for three
years and that Mr. Harry Shuster would
serve as Chairman and Mr. Brian Shuster would serve as President of NetCruise
Interactive, Inc. In addition, the Company agreed to pay Mr. Brian Shuster
$5,000 per month for his services as a consultant to the Company. Mr. Brian
Shuster also received two warrants, each entitling him to purchase 200,000
shares of the Common Stock of the Company. One warrant is exercisable for
200,000 shares at $2.50 per share and may be exercised between April 1, 2002 and
June 30, 2002, but only if NetCruise Interactive, Inc. achieves profits equal to
or exceeding $5,000,000 for the years 1999, 2000 and 2001. The other Warrant is
exercisable for 200,000 shares at $6.00 per share and may be exercised between
April 1, 2002 and June 30, 2002, but only if NetCruise achieves profits equal to
or exceeding $10,000,000 for the years 1999, 2000 and 2001.
On May 12, 1997 the Company adopted the Genisys Reservation Systems,
Inc. 1997 Omnibus Stock Incentive Plan (the "Plan"). The Plan provides for the
granting of stock options to directors, officers and employees of the Company or
any subsidiary of the Company to purchase, or to exercise certain rights with
respect to shares of Common Stock of the Company. The following table sets forth
the options granted by the Company to the officers and directors of the Company:
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name No. of Percent of total Exercise or Expiration Date
Securities options granted base price
Underlying to employees in per share
Options the fiscal year
John H. Wasko 35,000 $2.00 November 2001
25,000 $6.00 January 2003
Lawrence E. Burk 200,000 $6.00 September 2002
S. Charles Tabak 10,000 $6.00 September 2002
David W. Sass 10,000 $6.00 September 2002
</TABLE>
During 1998 the Board of Directors held four meetings and acted one
time by unanimous written consent.
Outside directors receive $1,000 for each board meeting attended in
person and $250 for each committee meeting attended in person, as compensation
for serving in such capacities during the fiscal year ending December 31, 1998.
CERTAIN TRANSACTIONS
In February 1995, Loeb Holding Corporation, as escrow agent
("Loeb"), for Warren D. Bagatelle, HSB Capital, trusts for the benefit of
families of two principals of Loeb Holding Corporation and three unaffiliated
individuals, agreed to loan the Company $500,000 evidenced by a series of
Convertible Promissory Notes ("Convertible Promissory Notes"). In September,
1995, Loeb converted the Convertible Promissory Notes into 841,455 common shares
of the Company and two Term Promissory Notes, one in the principal amount of
$475,000 and the other in the principal amount of $25,000.
On August 11, 1995, Robotic Lasers, Inc. acquired Travel Link by
issuing 1,682,924 shares of restricted new Common Stock of the Company in
exchange for the shares of the common stock of Travel Link owned by Joseph
Cutrona, Mark A. Kenny and Steven E. Pollan, which represented all the issued
and outstanding shares of common stock of Travel Link.
In August 1995 the Company granted Mr. Wasko a five (5) year option to purchase
25,000 shares of Common Stock at a price of $0.60 per share, which option has
been exercised. In November, 1996 the Company granted Mr. Wasko a five (5) year
option to purchase 35,000 shares of Common Stock at a price of $2.00 per share,
and in January 1998 the Company granted Mr. Wasko a five (5) year option to
purchase an aggregate of 25,000 shares of Common Stock at a price of $6.00 per
share.
On September 5, 1995 the Company entered into a three year consulting
and investment banking agreement with Loeb Partners Corporation. Under the terms
of the agreement the Company pays Loeb Partners Corporation $3,000 per month.
Loeb Partners Corporation will also receive a fee for arranging private
financing and acquisitions. This banking agreement has been extended by the
Company for three (3) years on the same terms. Mr. Warren D. Bagatelle, a
Director and Chairman of the Company, is a Managing Director of Loeb Partners
Corporation.
During December 1995, Loeb agreed to loan the Company $250,000
evidenced by a series of Convertible Promissory Notes. In November 1996, Loeb
converted the Convertible Promissory Notes into (i) two Term Promissory Notes,
one in the principal amount of $237,500 and the other in the principal amount of
$12,500 issued in December 1995 and discussed below and (ii) 420,728 shares of
Common Stock of the Company, of which 420,000 shares of Common Stock are owned
by four unaffiliated parties. Loeb Holding Corporation did not receive any
shares of Common Stock in this transaction.
In March 1998 the holder of two Term Convertible Promissory 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.
The holder of the term promissory notes is Loeb Holding Corporation, as
escrow agent for Warren D. Bagatelle, Managing Director of Loeb Partners Corp.,
HSB Capital (of which Mr. Bagatelle is a partner), trusts for the benefit of
families of two principals of Loeb Holding Corporation and three unaffiliated
persons. Loeb Holding Corporation disclaims any beneficial interest in these
shares. Warren D. Bagatelle is Chairman of the Company.
The Term Promissory Note in the amount of $25,000 and the Term
Promissory Note in the amount of $12,500 issued in December 1995 were converted
in March 1998 into 400,000 shares of the Common Stock of the Company at a price
of $0.09375 per share.
In August 1996, the Company gave notice to Mr. Pollan that it was
canceling the 333,216 shares of Common Stock which had been issued to him in
August of 1995. It is the Company's position that the Common Stock should be
canceled because, among other reasons, Mr. Pollan failed to provide the services
to the Company which were to be the consideration for the issuance of the
shares. Mr. Pollan has commenced an action against the Company and others in the
New Jersey Federal Court which contests the Company's effort to cancel the
shares issued to him, and which seeks monetary damages and other relief. The
action is in its preliminary stages, and no assurance can be given as to its
ultimate outcome.
During November and December 1996, the Company and Loeb Holding Corporation
signed four eighteen (18) month Convertible Promissory Notes whereby Loeb
Holding Corporation loaned the Company the sums of $75,000, $30,000, $10,000 and
$95,000 (totaling $210,00). The Promissory Notes which bear interest at 10%,
matured on May 11, 1998, May 25, 1998, June 2, 1998 and June 9, 1998. In March
1998, Loeb, converted the total principal amount of the four Convertible
Promissory Notes ($210,000) into 98,824 shares of the Series A Preferred Stock
of the Company at a price of $2.125 per share.
In connection with the acquisition of the technology license and the
assets from UIT by NetCruise, Mr. Brian Shuster received two warrants, each
entitling him to purchase 200,000 shares of the Common Stock of the Company. One
warrant is exercisable for 200,000 shares at $2.50 per share and may be
exercised between April 1, 2002 and June 30, 2002, but only if NetCruise
achieves profits equal to or exceeding $5,000,000 for the years 1999, 2000 and
2001. The other Warrant is exercisable for 200,000 shares at $6.00 per share and
may be exercised between April 1, 2002 and June 30, 2002, but only if NetCruise
achieves profits equal to or exceeding $10,000,000 for the years 1999, 2000 and
2001.
In November 1998 the Company entered into an Acquisition Agreement with a
company newly formed by a management group led by Mark A. Kenny, a Company
founder and former director. This new company was organized for the purpose of
this acquisition. Mr. Kenny is still a shareholder of the Company. The terms of
this sale are more fully discussed in Proposal No. 3.
For the year ended December 31, 1997 the Company paid to the firm of
McLaughlin & Stern, LLP the sum of $145,762 for legal services. Mr. Sass, a
director of the Company, is a member of said firm.
The Company believes that each of these transactions was entered into
on terms at least as favorable to the Company as could have been obtained from
unaffiliated third parties.
The transactions described above involve actual or potential conflicts
of interest between the Company and its officers or directors. In order to
reduce the potential for conflicts of interest between the Company and its
officers and directors, prior to entering into any transaction in which a
potential material conflict of interest might exist, the Company's policy has
been and will continue to be, that the Company does not enter into transactions
with officers, directors or other affiliates unless the terms of the transaction
are at least as favorable to the Company as those which would have been
obtainable from an unaffiliated source. As of the date hereof, the Company has
no plans to enter into any additional transactions which involve actual or
potential conflicts of interest between the Company and its officers or
directors. Should the Company enter into any such transaction in the future, it
will not do so without first obtaining at least one fairness opinion from,
depending on the nature of the transaction, either its own independent directors
or from an independent investment banking firm.
5
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF THE ACQUISITION OF A TECHNOLOGY LICENSE AND CERTAIN RELATED
ASSETS FROM UNITED INTERNET TECHNOLOGIES, INC. AND APPROVAL OF THE ISSUANCE OF
1,100,000 SHARES OF COMMON STOCK AND TWO STOCK PURCHASE WARRANTS TO UNITED
INTERNET K TECHNOLOGIES, INC. K K
Pursuant to the Asset Purchase Agreement, NetCruise (a wholly owned
subsidiary of the Company formed on July 21, 1998 for the purpose of operating
an internet travel business) acquired a technology license and certain related
assets from UIT in consideration of 2,000,000 shares of the Company's Common
Stock and two warrants ("Warrants"), each entitling the holder to purchase
800,000 shares of the Common Stock of the Company (the "UIT Transaction"). One
warrant is exercisable for 800,000 shares at $2.50 per share and may be
exercised between April 1, 2002 and June 30, 2002, but only if NetCruise
achieves profits equal to or exceeding $5,000,000 for the years 1999, 2000 and
2001. The other Warrant is exercisable for 800,000 shares at $6.00 per share and
may be exercised between April 1, 2002 and June 30, 2002, but only if NetCruise
achieves profits equal to or exceeding $10,000,000 for the years 1999, 2000 and
2001. No value has been placed on the warrants since the warrants are each
contingent upon future earnings. For a more detailed description of the
Company's Common Stock please see Proposal No. 5.
The Company has since been advised that the issuance of such securities
has caused the Company to inadvertently be in violation of a Nasdaq MarketPlace
Rule because the issuance of the 2,000,000 shares and Warrants amounted to more
than 20% of the issued and outstanding shares of the Company and were not
approved by Shareholders as required by such Rule. Nasdaq advised the Company
that the Company's Common Stock would be delisted as a result of such violation.
The Company requested a hearing on the delisting which was held on November 20,
1998. Nasdaq issued its written determination on January 12, 1999 to continue
listing the Company's securities on The Nasdaq SmallCap Market pursuant to the
following conditions: (i) the UIT Transaction must be unwound in the event
shareholders do not ratify the acquisition of the technology license and certain
related assets from UIT and approve the issuance of 1,100,00 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 March 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 a
technology license and certain related assets from UIT. The Company has received
an extension from Nasdaq with respect to the deadline to ________, 1999.
The Company and UIT have restructured the transaction 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 MarketPlace 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 Common Stock and Warrants prior to the time
that the dividend is payable. Therefore, 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 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, the
following shall occur: (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 received pursuant to the UIT Transaction and (iii) Mr. Brian
Shuster will return the warrants issued to him by the Company; and (iv) Messrs.
Brian and Harry Shuster will resign from any officer or director position held
by them. 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. Reference should be
made to Pro Forma Condensed Consolidated Financial Statements as of September
30, 1998 and for the nine months then ended for the effect of undoing the UIT
Transaction.
The Company determined to expand into the internet travel business for
several reasons. Although the Company had begun to generate revenues, the
Company found that many limousine providers were resisting the payment of
commissions or fees in connection with bookings on the Company's system
resulting in a much slower development of revenues for the Company than was
originally anticipated. Management evaluated the cost of operations for a more
extended period of time and determined that the Company's available funds would
be better spent in other areas of the travel business. It therefore determined
to expand into the internet travel business. As a result, if the shareholders
approve the acquisition of the technology license and certain related assets and
the sale of the limousine reservation business, the effect to shareholders is a
fundamental change in the nature of the business of the Company from the
limousine reservation business to an internet travel business.
Disadvantages to Proposal No. 2 include a lack of operating history with
respect to the software relating to the internet travel business . The
"Parallel Addressing Video Technology" is still being developed and the
system is currently not operational, although management expects the system
to be operational by mid 1999. In addition, the Company has only signed up
a limited number of travel consultants acquired from Sterling Travel and
does not yet have any internet travel customers. The budgeted cost of
becoming operational is expected to be approximately $1,342,000 . Of such
amount, approximately $198,000 is needed to complete the web-site. The
remainder will be used to produce a television video infomercial and
purchase media time. The Company does not presently have the funds
necessary to finance such development and plans to sell additional stock to
raise the funds needed. No assurance can be given that the Company will be
able to raise such funds.
As a result of the transaction, the Company acquired the travel web site
called "Netcruise" and the technology license for "Parallel Addressing
Video Technology" for all travel related applications, along
with all of the related software, computer systems and intellectual
properties. This includes computer equipment, multiple video CD's
containing cruise information and source video tapes of footage of
locations and cruise ships. In addition, UIT transferred to the Company its
agreement with Internet Travel Network (ITN), of Palo Alto, CA. This
agreement provides for a
"private label" site on the ITN "booking engine". The agreement expires in
April, 1999 and automatically renews for successive one year periods unless
either party gives notice, no later than 30 days prior to the end of the
period, of its intent not to renew. The ITN "booking engine" is essentially
a world wide web based graphical user interface to the airline owned Apollo
computerized reservation system. This technology allows a layperson with
access to the internet to access the databases and pricing systems used by
travel agents to research and procure air, car rental and hotel
reservation. By "private labeling" this functionality, the Company is able
to offer its travel consultants access to the leading travel system, while
not having to expend the Company's capital resources which would be
required to create its own access. The Company formed NetCruise as a wholly
owned subsidiary for the purpose of operating an internet travel business
featuring the technology obtained through this acquisition.
The Company intends to launch, through television advertising, an
aggressive marketing campaign inviting the general public, along with
existing travel agents, to become NetCruise travel consultants, although
the "Parallel Addressing Video Technology" is still in the development
stage, and the Company has only a limited number of travel consultants
acquired from Sterling Travel and does not yet have any customers to date.
The goal of the Company's marketing campaign is to encourage individuals to
enroll as independent travel consultants by paying a fee to the Company.
The independent travel consultants will then be able to make reservations
either through the password protected members only section of the Netcruise
website or via telephone conversations with travel agents who work directly
for Netcruise. Non-members who visit the Netcruise website shall have
access to a portion of the site which contains general information about
the Company, describes the independent travel consultant program and allows
the public to request information or enroll as an independent travel
consultant. To date, the web site is being used for demonstration purposes
and is only accessible by authorized individuals using a password. The
Company expects that the web site will not be fully integrated to support
the independent travel consultants until mid-1999.
The Company believes it will be successful in encouraging people to pay
the subscription fee and sign up as an independent travel consultant because as
an independent travel consultant individuals will have an opportunity to earn a
commission on all reservations made by them. 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. Such commissions
will be shared
with the independent travel consultants. The Company hopes to enroll both the
general public and existing travel agents. The Company believes that there is an
emerging trend in the travel industry, whereby individuals who are presently
travel agents are leaving their salaried positions and moving into positions
similar to that of an independent travel consultant with their own home based
travel business. The Company believes that existing travel agents will be drawn
to the opportunity to earn commissions, create their own flexible hours,
maintain their client base and utilize their existing skills. Other advantages
of a home based travel business are no commuting to an office, low overhead, no
need to rent expensive airline owned computer reservation system equipment and
personal travel benefits. However, there can be no assurance that the Company's
marketing strategy directed to existing travel agents will be successful. The
Company plans to offer, through a combination of direct response TV, print,
radio, and web-based advertising, a CD ROM library of video destinations; a
marketing kit which includes a guide to marketing an at-home business, a
training manual describing the travel industry, a welcome letter containing a
password for the web site and an outline of Netcruise policies and procedures;
and full-service support from the Company's live travel agents.
"Parallel Addressing Video Technology" will allow the independent
travel consultants to see a destination in full motion video and stereo audio
never before available on the internet, without waiting for a lengthy file
download. Utilizing this proprietary technology the NetCruise web site will
interact with the individual's PC, find the requested video clip on its CD ROM,
and plays it locally in a clear, full screen mode. Included in the assets
acquired by NetCruise is an extensive library of video clips complete with music
and narratives in stereo, which will bring views of cruise ships, hotels, and
destinations from around the world to the user in seconds. When the travel
consultant is ready, airline, hotel, car rental and cruise bookings will all be
made quickly and easily via NetCruise's reservation web site.
"Parallel Addressing Video Technology" will provide, when it is fully
operational, the independent travel consultants interacting with the Company's
internet web sites with zero-wait time, full motion video and stereo audio.
Unlike various forms of streaming video, live media and internet video
broadcasts, this technology does not rely on bandwidth as the medium for
delivery of video. UIT and its parent, ULC, developed this technology and filed
for patents in July 1997. The "Parallel Addressing Video Technology" is
currently still in development and management expects it to be fully operational
by mid-1999. Although the general public will be able to access much of the site
to obtain information and enroll as an independent travel consultant, the
Company intends that only participating travel consultants who have paid a fee
to the Company and received a password will be able to access the reservation
area of the site.
If at any point the individual requires additional expertise, a
personal NetCruise travel agent will be available by phone to guide them through
the process. The Company has acquired a small travel agency to provide, when
necessary, full service support via telephone to the travel consultants. The
purchase price for the acquisition was 36,600 shares of the Company's common
stock valued at $1.50 per share or an aggregate of $54,900.
Mr. Harry Shuster has been appointed Chairman and Brian Shuster the
President of NetCruise Interactive, Inc. Pursuant to the Asset Purchase
Agreement, Mr. Brian Shuster will receive $5,000 per month for his services
as a consultant to the Company. In addition, Messrs. Harry Shuster and
Brian Shuster have been serving as directors of the Company since the
transaction closed and both have been nominated for election as directors
of the Company.
Effective as of November 7, 1998, the Company sold the assets of its
computerized limousine reservation system to Gen O2, Inc. a company newly formed
by a management group led by Mark A. Kenny, a founder, shareholder and former
Director of the Company. This transaction allows the Company to concentrate its
resources and efforts on the continued build-up of its NetCruise internet travel
business. The Company owns a 32.66% minority interest in Gen O2, Inc. and will
receive certain contingent payments on transactions processed by Gen O2, Inc.
for a period of five years. A 32.66% minority interest in the new company is
also owned by TranspoNet, a leading developer and owner of software technology
for the ground transportation industry. The Company and TranspoNet will provide
limited working capital to Gen O2, Inc. See Proposal No.
3.
Management of the Company had been exploring a number of ways to more fully
and quickly develop its internet travel business, while still maintaining
an interest in the limousine reservation business, through its ownership
interest in Gen O2, Inc., but with a significant reduction in the resources
the Company had to commit to the reservation operation. Management of the
Company believes that the NetCruise internet travel business, which is not
compatible with the limousine reservation business, provides the Company's
shareholders with a potential for a greater return.
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 ("Sterling"), in which the Company
purchased all the assets relating to Sterling's network of independent travel
consultants ("Sterling Travel Consultants") for a total purchase price of 42,500
shares of the Company's Common Stock which, for accounting purposes, is being
valued at $1.50 per share for an aggregate of $63,750. The valuation of the
Company's stock at 1.50 per share was a negotiated price based upon the value of
the stock at the time of the negotiation. It differs from the valuation given to
the Company's Common Stock in the UIT transaction because the valuation was
negotiated at a time when the Common Stock was trading at a lower price.
Included in the assets purchased by the Company were a list of the independent
(not employees of Sterling) travel consultants (both active and inactive) that
had done or are doing business with Sterling and related agreements with such
independent travel consultants setting forth the commissions to be earned and
operational matters, contacts, files, correspondence, earning records, a data
base of former and current customers of Sterling estimated at approximately
20,000 entries, property and equipment, including computers and miscellaneous
office supplies. Of the total aggregate purchase price of 42,500 shares paid to
Sterling at closing, 17,500 shares ("Escrow Shares") will be held in escrow by
counsel to the Company. If the Company does not achieve $3,000,000 of gross
sales from Sterling Travel Consultants over the initial twelve month period
beginning on November 1, 1998 and ending on October 31, 1999, the Escrow Shares
shall immediately be returned to the Company. If the Company achieves $3,000,000
of gross sales from Sterling Travel Consultants over the initial twelve month
period as described herein, the Escrow Shares will be released by the Company.
Since on-line transactions can be faster, less expensive and more
convenient than transactions conducted via traditional means, a growing number
of consumers are transacting business over the World Wide Web. Examples of such
transactions include buying consumer goods, trading securities,
purchasing airline tickets and paying bills. Based upon its research and
discussions with individuals knowledgeable in electronic commerce on the World
Wide Web, management believes that 27% of adult World Wide Web users made
on-line purchases in 1997 and that 50% of adult World Wide Web users will make
on-line purchases in 2000. Management believes that as electronic commerce
expands, advertisers and direct marketers will increasingly seek to use the
World Wide Web to locate customers, advertise their products and services and
facilitate transactions.
The Company also believes that lodging and airline travel will be a major
leader in this market with total on-line travel revenues possibly reaching
over $50 billion by 2001. With travel taking such a large portion of
on-line sales, management of the Company expects that the enhanced travel
services offered by NetCruise will attract a wide range of internet using
consumers enabling NetCruise to become a significant participant in
internet travel. In the event shareholders do not approve this Proposal No.
2 the Company intends to continue its entry into the internet travel
business either by negotiating a licensing agreement with UIT for the use
of its technology license and certain related assets or by utilizing
alternative technologies. In the event that Proposal No. 2 is not approved
by the Shareholders and Proposal No. 3 is approved, the Company will not
own the limousine reservation business but will continue to expand into the
internet travel business.
Management of the Company is confident that there were no conflicts of
interest in negotiating the acquisition of the internet travel business and that
all negotiations with UIT were at "arms length".
Based upon the presently outstanding number of shares of Common Stock
of the Company (6,334,694), UIT would hold 3,600,000 shares (9,934,694 shares
outstanding) or approximately 36.2% of the stock of the Company, assuming
issuance of the full 2,000,000 shares of Common Stock (consisting of 900,000
shares of Common Stock currently held by UIT and an additional 1,100,000 shares
of Common Stock to be issued to UIT upon conversion of the Series B Preferred
stock in the event the Shareholders approve Proposal No. 2) and exercise of the
Warrants. One warrant is exercisable for 800,000 shares at $2.50 per share and
may be exercised between April 1, 2002 and June 30, 2002, but only if NetCruise
achieves profits equal to or exceeding $5,000,000 for the years 1999, 2000 and
2001. The other Warrant is exercisable for 800,000 shares at $6.00 per share and
may be exercised between April 1, 2002 and June 30, 2002, but only if NetCruise
achieves profits equal to or exceeding $10,000,000 for the years 1999, 2000 and
2001.
The acquisition of the technology license and certain related assets as
described in this Proposal No. 2 will have no immediate tax effect on the
Company.
Ratification of the acquisition of the technology license and certain
related assets from UIT and the approval of the issuance of 1,100,000 shares of
Common Stock of the Company and two Warrants to UIT requires the affirmative
vote of a majority of the votes cast at the meeting by holders of the Company's
Common and Series A Preferred Stock entitled to vote thereon. Pursuant to an
Amendment Agreement made in connection with the Asset Purchase Agreement,
directors, officers and certain principal shareholders of the Company, who in
the aggregate hold approximately 26.1% of the Company's outstanding Common Stock
and all of the Company's Preferred Stock, have agreed to vote "FOR" Proposal No.
2. UIT will not vote on Proposal No. 2.
The Board of Directors recommends that the stockholders vote "FOR" the
ratification of the acquisition of a technology license and certain related
assets from UIT and for the approval of the issuance of Common Stock and
Warrants to UIT and. (Item No. 2 on the proxy card).
PROPOSAL NO. 3
RATIFICATION OF THE SALE OF THE LIMOUSINE RESERVATION SYSTEM BUSINESS TO
GEN O2, INC., A NEWLY ORGANIZED CORPORATION FORMED BY MARK A. KENNY, A
FORMER DIRECTOR AND FOUNDER OF THE COMPANY.
On November 6, 1998 the company entered into an Acquisition Agreement
(the "Sales Agreement") by and between the Company and Corporate Travel Link,
Inc. ("Travel Link"), a wholly owned subsidiary of the Company (the sellers in
the transaction) and TranspoNet (a non-affiliated company), Mark A. Kenny, Paul
Murray and Gen 02, Inc. (the purchaser in the transaction), a newly organized
corporation formed by Mark A. Kenny, a former director and founder of the
Company. This sale will allow the Company to concentrate its resources and
efforts on the continued build-up of its internet travel business.
Prior to the current sale, the principal business of the Company had
been the development of a computerized reservation and payment system known as
"Genisys Reservation System". This System accepts and processes reservations and
payments for ground transportation services made by its customers through
computerized reservations systems owned and operated by others, using the trade
name "Genisys Reservation System".
Management of the Company set revenue objectives for the limousine
reservation business and made the decision to review the operation at the end of
the third quarter to determine the best approach to maximize utilization of the
Company's resources. The limousine reservation business did not meet its revenue
objectives and in early September 1998, the Company decided to seek a buyer or
joint venture partner for its limousine reservation business.
In addition, although the Company has begun to generate revenues, the
Company found that many limousine providers were resisting the payment of
commissions or fees in connection with bookings on the Company's system until
such time as the potential benefits of the Company's system could be better
qualified. This resulted in a much slower development of revenues for the
Company than was originally anticipated. Management estimated the cost of
operations for a more extended period of time and determined that the Company's
available funds would be better spent in other areas of the travel business. It
therefore determined to expand into the internet travel business. As a result of
the shareholders approval, the acquisition of the technology license and certain
related assets and the sale of the limousine reservation business the effect to
shareholders is a fundamental change in the nature of the business of the
Company from the limousine reservation business to an Internet travel business.
Disadvantages to ratification of Proposal No. 3 include the fact that
as part of the sale, the Company will be retaining a 32.66% interest
in GEN 02, Inc. and will be loaning to GEN 02, Inc. a $135,000
installment loan and a $40,000 bridge loan. The TranspoNet Companies,
Inc. ("TranspoNet") another 32.66% shareholder of GEN 02, Inc., is
providing, commencing December 10, 1998, $20,000 per month to GEN 02,
Inc., for an aggregate of $240,000 . TranspoNet is not affiliated with
the Company or any of its shareholders. The primary capitalization of
GEN 02, Inc., is being provided by the loans from the Company and
TranspoNet. In addition, the sole asset of GEN 02, Inc. Is the
limousine reservation business. As a result, the Company will absorb
all losses to the extent of the assets transferred. Although there are
no minimum contingent payments, the Company has begun to receive
limited contingent payments from GEN 02, Inc. However, it is possible
that the Company will not receive significant contingent payments from
GEN 02, Inc. over the 5 year period. Shareholders should note that
they are being asked to ratify the sale of the limousine business to
GEN 02, Inc., a company organized by Mark A. Kenny, who is a former
director of the Company. The sale of the limousine reservation
business was negotiated with GEN 02, Inc. while Mr. Kenny was still a
director of the Company, although he did not participate in the
directors analysis and decision to sell the business to GEN 02, Inc.
In the event that Shareholders do not approve Proposal No. 3, the
Company will be required to raise additional capital to bring the
limousine reservation business to full operation. No assurance can be
given that the Company will be able to raise such funds. In the event
shareholders do not ratify the acquisition of a technology license and
certain related assets from UIT and approve the issuance of 1,100,000
shares of the Company's Common Stock to UIT, as described in Proposal
No. 2, the Company intends to continue to expand into the internet
travel business either by negotiating a licensing agreement with UIT
for the use of its technology license and certain related assets or by
utilizing alternative technologies. In the event that Proposal No. 2
is not approved by the Shareholders and this Proposal No. 3 is
approved, the Company will not own the limousine reservation business
or the internet travel business but will continue to expand into the
internet travel business.
Management is of the opinion that the costs in developing the new line
of business is less than the costs required to maintain the limousine
reservation business until such time as revenues will be able to cover the costs
of operation. Further, it is management's opinion that the internet travel
business can be brought to market sooner and will provide, on a long term basis,
a greater return to shareholders.
Under the terms of the Sale Agreement, the sellers will sell and
transfer certain contractual rights and obligations of the Company, all of the
assets of Travel Link which are utilized in connection with the ownership,
operation and marketing of the Genisys Reservation System and its entire
ownership interest in ProSoft to the purchaser in the transaction, constituting
approximately 20% of the total assets of the Company. (At September 30, 1998 the
Company had total assets of $3,964,903, of which $787,392 were sold to Gen O2,
Inc. ) ProSoft is an 80% owned subsidiary of the Company which was acquired by
the Company in June, 1997. ProSoft is a software development company which
developed the software for the Company's computerized limousine reservation and
payment system. Paul Murray, a former employee of the Company and President and
Shareholder of ProSoft, is also a shareholder of Gen O2, Inc.
The purchase price consists of (i) 2,450 shares of Series A Convertible
Preferred Stock of Gen O2, Inc., constituting a 32.66% interest in Gen O2, Inc.,
which the Company carries on its balance sheets at an asset value of $787,392;
(ii) certain contingent payments over a period of 5 years, totaling $1,080,00 if
all payments to the Company are realized, however, since there are no minimum
contingent payments, it is possible that the Company will receive no significant
contingent payments from GEN 02, Inc.
and (iii) other significant terms as described below:
a. For each completed limousine transaction through the current system
from corporate users, a payment of $0.20 per transaction with a
$100,000 maximum payment per year.
b. For each completed limousine transaction through the Almost Real
Time System (the "ART System") under development by the sellers that
will be directed toward leisure customers, a payment of $0.20 per
transaction with a $100,000 maximum payment in the first year and a
$0.30 payment per transaction with a $120,000 maximum payment per year
thereafter.
c. If the system and the ART System are merged at any time in the
future, the sellers shall receive a payment of $0.25 per completed
transaction with a $200,000 maximum payment in the first year and a
$220,000 maximum payment per year thereafter.
d. If the payments are not reached in a particular year, the payments
defined in letters a-c above will have a carry-over to the following
year.
e. In no event shall any payments defined in letters a-c above be due
to the sellers for transactions completed after December 10, 2003.
f. For the transfer of the assets by the sellers and the assumption of
certain liabilities of the sellers by the purchaser as described above
along with the agreement by the sellers to provide the purchaser with
a series of loans, the purchaser will grant an equity interest to the
sellers in Gen O2, Inc. equal to 32.66% of the equity of Gen O2, Inc.
subject to a Shareholder Agreement. The loans provided by the sellers
will include a ninety day secured bridge loan in the amount of $40,000
secured by 22,857 shares of Common Stock of the Company owned by Mr.
Kenny, a secured loan of $135,000 payable commencing in the second
year and secured by 77,143 shares of Common Stock of the Company owned
by Mr. Kenny. Mr. Kenny has also pledged 23,428 shares of the
Company's Common Stock owned by him to secure the return of a security
deposit to the Company and 68,000 shares of the Company's Common Stock
to secure minimum payments which are required to be made by the
Company under certain contracts which were transferred to the
purchaser in connection with the sale.
g. A 32.66% shareholder of Gen O2, Inc., TranspoNet has committed to
provide funding for the purchaser of up to $240,000 in the form of a
series of loans. TranspoNet has a right to convert the unpaid
principal of the loans at any time into a maximum number of shares of
common stock of the purchaser not to exceed an additional 6% equity
interest in the purchaser.
The Series A Preferred Stock issued to the Company and TranspoNet in
accordance with the transaction are part of a class of preferred stock
of Gen O2, Inc. designated as "Series A Preferred Convertible Stock"
and the number of shares of preferred stock constituting such class is
4,900. The shares of Series A Preferred Stock issued to the Company
together with the shares of Series A Preferred Stock issued to
TranspoNet constitute all of the authorized shares of the Series A
Preferred Stock of Gen O2, Inc. So long as any share of Series A
Preferred Stock remains outstanding, Gen O2, Inc. shall not authorize
the issuance or issue any additional shares of Series A Preferred
Stock or any shares of any series or class of stock ranking senior to,
or on a parity with, the Series A Preferred Stock as to rights upon
liquidation, dissolution or winding up of Gen O2, Inc. without the
prior written consent of at least a majority of the holders of the
Series A Preferred Stock.
The par value of the Series A Preferred Stock is $0.01 per share and
no dividends shall be declared or paid on the Series A Preferred
Stock. In the event of a voluntary or involuntary liquidation,
dissolution or winding up of Gen O2, Inc., the holders of the Series A
Preferred Stock shall be entitled to receive out of the assets of Gen
O2, Inc. available for distribution to stockholders, before any
distribution of assets is made to the holders of any other series or
class of stock of Gen O2, Inc., a liquidating preferential
distribution in an amount equal to $400.00 per share of Series A
Preferred Stock. The holders of the Series A Preferred Stock shall be
entitled to vote on all matters submitted to a vote of the
shareholders of Gen O2, Inc. and shall be entitled to one vote for
each share of Series A Preferred Stock. The holders of the Series A
Preferred Stock shall not have cumulative voting rights. At any time
and from time to time, upon notice to Gen O2, Inc., the holders of the
Series A Preferred Stock shall be entitled to convert each share of
Series A Preferred Stock into one fully paid and non-assessable share
of common stock of Gen O2, Inc. subject to adjustments for any stock
splits, stock dividends, reverse stock splits or recapitalization.
Upon conversion of the Series A Preferred Stock into common stock of
Gen O2, , Inc. the Company and TranspoNet will each own 2,450 shares or 32.66%
of the issued and outstanding common stock of Gen O2, Inc. It is anticipated
that the Purchaser will issue an additional 2,500 shares of common stock in the
near future, thereby diluting the ownership interest of the Company and
TranspoNet in Gen O2, Inc. to 24.5%. The Company's influence in Gen O2, Inc. is
limited to the right to elect one member of a five (5) member Board of
Directors.
In the event shareholders do not approve the sale of the limousine
reservation business as described in this Proposal No. 3 the Company
intends to either find another purchaser of the limousine reservation
business or raise additional capital to bring the limousine
reservation business to full operation while continuing its entry into
the internet travel business. No assurance can be given that the
Company will be able to raise such funds.
Shareholders are being asked to ratify the sale of the Limousine
Reservation System business since it represented the primary focus of the
Company. Since the Limousine Reservation business did not meet its revenue
objectives and would require additional capital infusion, management decided it
would be in the best interest of the shareholders if the Company were to
concentrate its efforts on the NetCruise internet travel business. Reference
should be made to the Pro Forma Balance Sheet as of September 30, 1998 and notes
thereto contained in the Company's Form 10- QSB, as amended, (which gives effect
to this transaction as of this date) and to the last paragraph of Note 6
thereto.
Management of the Company believes that the sale of the limousine
reservation business to Gen O2, Inc. as described in this Proposal No.
3 will have no material tax effect on the Company.
Ratification of the sale of the Limousine Reservation System business
requires the affirmative vote of a majority of the votes cast at the meeting by
the holders of the Company's Common and Series A Preferred Stock entitled to
vote thereon.
The Board of Directors recommends that the Shareholders vote " FOR"
the ratification of the sale of the Limousine Reservation System
business. (Item no. 3 on the Proxy Card)
PROPOSAL NO. 4
TO AMEND ARTICLE FIRST OF THE COMPANY'S CERTIFICATE OF INCORPORATION
The Board of Directors of the Company has unanimously adopted, subject
to stockholder approval, a resolution to amend Article FIRST of the Company's
Certificate of Incorporation to change the name of the Company from Genisys
Reservation Systems, Inc. to netcruisetravel.com, inc.
Reasons for the Proposal
With the acquisition of certain assets and the technology license from
UIT, the Company expanded its travel business such that the current name is no
longer descriptive of the Company's business. Management is of the opinion that
the proposed new name is more descriptive. Through NetCruise the Company plans
to become a provider of Internet travel services and the Board of Directors has
determined that it is in the Company's best interest to change its name to be
more identified with that of the Company's business, and has adopted a
resolution amending Article FIRST of the Certificate of Incorporation to reflect
this change. Management does not believe that there are any significant
disadvantages to changing the name to netcruisetravel.com, inc.
The resolution approved by the Board of Directors amending Article
FIRST is as follows:
"FIRST: The name of the Corporation is netcruisetravel.com, inc."
Approval of the amendment to Article FIRST of the Company's Certificate
of Incorporation requires the affirmative vote of a majority of the votes cast
at the meeting by holders of the Company's Common and Series A Preferred Stock
entitled to vote thereon.
The Board of Directors recommends that the stockholders vote "FOR"
approval of this Proposal No. 4.
PROPOSAL NO. 5
TO AMEND ARTICLE FOURTH OF THE COMPANY'S CERTIFICATE OF INCORPORATION
The Board of Directors of the Company has unanimously adopted, subject
to stockholder approval, a resolution to amend Article FOURTH of the Company's
Certificate of Incorporation to amend and restate the provisions of the
Company's authorized Common and Preferred Stock to correct certain
inconsistencies.
Reasons for the Proposal
The Board of Directors of the Company has unanimously adopted, subject
to stockholder approval, a resolution amending and restating the first paragraph
and paragraphs (a) and (b) of Article FOURTH of the Company's Certificate of
Incorporation to amend and restate the provisions of the Company's authorized
Preferred Stock to correct certain inconsistencies in such provisions as they
now exist. The prior version of the Certificate of Incorporation does not
describe the rights of the holders of Common Stock. The restated version sets
forth clearly the voting, dividend, dissolution and liquidation of the Common
Stock consistent with the laws of the State of New Jersey. The description of
the Preferred Stock has also been amended to correct certain inconsistencies
found in the current version. These included conflicting descriptions of the
dividends. Currently description of the dividend rights is contradictory, as
dividends are described as being both cumulative and non-cumulative. The new
provision eliminates both descriptions and simply provides that the Board of
Directors has the right to determine if dividends will be cumulative or
non-cumulative. Also, in the prior revision the Board of Directors has the right
to determine liquidation preferences in an amount equal to the par value. This
provision is eliminated in the amended version, with the Board of Directors
having the right to determine the liquidation preference. These corrections are
needed for the Series B Preferred Stock to be issued to UIT as described in
Proposal No. 2. The amended version also differs from the current Article of
Incorporation in that it gives the Board of Directors the power to determine and
fix voting power, declare dividend rights without limitation and to determine
the rank of any series of Preferred Stock issued. A disadvantage to amending the
Certificate of Incorporation to restate the provisions of the Preferred and
Common Stock of the Company is that it may be difficult for the Company to
utilize the authorized preferred shares for acquisitions, financing and other
proper corporate purposes.
The resolution approved by the Board of Directors amending and
restating Article FOURTH is as follows:
"FOURTH: The total number of shares of stock which the Corporation
shall be authorized to issue shall be 100,000,000 shares consisting of
75,000,000 shares of Common Stock with a par value per share of $.000l
("Common Stock"), and 25,000,000 shares of Preferred Stock with a par
value per share of $.0001 ("Preferred Stock"). The following is a
statement of the designations and the powers, privileges, rights,
qualifications, limitations or restrictions in respect of each class
of capital stock of the Corporation:
(a) The voting, dividend, liquidation and other rights and privileges
of the holders of the Common Stock are subject to and qualified by any and all
rights and privileges of the holders of Preferred Stock of any series as may be
designated by the Board of Directors upon any issuance of the Preferred Stock of
any series. The holders of Common Stock are entitled to one vote for each share
of Common Stock held at all meetings of stockholders (and written actions in
lieu of meetings). There shall be no cumulative voting of shares of the Common
Stock. Dividends shall be declared and paid on the Common Stock from funds
legally available therefor when, as and if declared by the Board of Directors of
the Corporation. Upon the dissolution or liquidation of the Corporation, all
assets of the Company available for distribution to the holders of Common Stock
shall be distributed ratably among the holders of the Preferred Stock, if any,
and the holders of the Common Stock, subject to any preferential rights of any
then outstanding Preferred Stock.
(b) Preferred Stock may be issued at any time from time to time in one
or more series, each of such series to have such powers, designations,
preferences, rights, qualifications, limitations or restrictions as provided in
this Certificate of Incorporation or by law or in the resolution or resolutions
providing for the issuance of such series adopted by the Board of Directors of
the Corporation as hereinafter provided. Authority is hereby granted to the
Board of Directors from time to time to issue the Preferred Stock in one or more
series, and in connection with the creation of any such series, by resolution or
resolutions providing for the issuance of' the shares thereof, to determine and
fix such voting powers, full or limited, or no voting powers, and such
designations, preferences, powers and relative participating, optional or other
special rights and qualifications, limitations or restrictions thereof,
including, without limitation, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be stated and expressed in such
resolution or resolutions, all to the full extent now or hereafter permitted by
law. Without limiting the generality of the foregoing, the resolutions providing
for issuance of any series of Preferred Stock may provide that such series shall
be superior or rank equally or be junior to the Preferred Stock of any other
series to the extent permitted by law. The resolutions providing for issuance of
any series of Preferred Stock may provide that such resolutions may be amended
by subsequent resolutions adopted in the same manner as the preceding
resolutions. All shares of Preferred Stock of the same series shall be identical
with each other in all respects."
The Company is currently authorized to issue 75,000,000 shares of
Common Stock, having a par value of $.0001 per share of which
6,334,694 are outstanding. Each share of Common Stock entitles the
holder thereof to one vote on each matter submitted to the
stockholders of the Company for a vote thereon. The holders of Common
Stock: (i) have equal ratable rights to dividends from funds legally
available therefor when, as and if declared by the Board of Directors;
(ii) are entitled to share ratably in all of the assets of the Company
available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company;
(iii) do not have preemptive, subscription or conversion rights, or
redemption or sinking fund provisions applicable thereto; and (iv) as
noted above, are entitled to one non-cumulative vote per share on all
matters submitted to stockholders for a vote at any meeting of
stockholders. The Company has not paid any dividends on its Common
Stock to date. The Company anticipates that, for the foreseeable
future, it will retain earnings, if any, to finance the continuing
operations of its business. The payment of dividends will depend upon,
among other things, capital requirements and operating and financial
conditions of the Company.
Approval of the amendment to Article FOURTH of the Company's
Certificate of Incorporation requires the affirmative vote of a majority of the
votes cast at the meeting by holders of the Company's Common and Series A
Preferred Stock entitled to vote thereon.
The Board of Directors recommends that the stockholders vote "FOR"
approval of this Proposal No. 5.
PROPOSAL NO. 6
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Wiss & Company, LLP as independent
auditors to examine and report on the consolidated financial statements of the
Company for the year ending December 31, 1998 and 1999, subject to stockholder
ratification.
During the year ending December 31, 1997 and 1998, Wiss & Company, LLP
provided the Company with audit services, including examinations of and
reporting on the Company's consolidated financial statements, as well as those
of its subsidiaries. Audit services also included a review of filings with the
Securities and Exchange Commission and the Company's annual report on Form
10-KSB.
Ratification of the appointment of Wiss & Company, LLP as independent
auditors requires the affirmative vote of a majority of the votes cast at the
meeting by holders of the Company's Common and Series A Preferred Stock entitled
to vote thereon.
A representative of Wiss & Company, LLP will be present at the Annual
Meeting, will have an opportunity to make a statement if he or she so desires
and is expected to be available to respond to appropriate questions.
The Board of Directors recommends that the stockholders vote "FOR"
ratification of this appointment (Item No. 6 on the proxy card).
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following tabulation shows the security ownership as of February
22, 1999 of (i) each person known to the Company to be the beneficial owner of
more than 5% of the Company's outstanding Common Stock, (ii) each Director and
Officer of the Company and (iii) all Directors and Officers as a group.
NUMBER OF PERCENT
NAME & ADDRESS SHARES OWNED OF CLASS
Loeb Holding Corporation
As Escrow Agent (1)
61 Broadway
New York, NY 10006 1,188,973 18%
Loeb Holding Corporation (2)
61 Broadway
New York, NY 10006 98,824 1.56%
United Internet Technologies, Inc. (3)
18081 Magnolia Avenue
Fountain Valley, CA 92708 900,000 14.2%
Warren D. Bagatelle (1)(2)
Loeb Partners Corporation
61 Broadway
New York, NY 10006 1,287,797 20.3%
Mark A. Kenny
Gen O2, Inc.
15 Clyde Road, Suite 201
Somerset, NJ 08873 324,175 5.1%
John H. Wasko (4)
Genisys Reservation Systems
2401 Morris Avenue
Union, NJ 07083 137,046 2.1%
Lawrence E. Burk (5)
Genisys Reservation Systems
2401 Morris Avenue
Union, NJ 07083 205,000 3.2%
S. Charles Tabak (6)
ARC Medical Professional Personnel
36 Route 10W, Suite D
East Hanover, NJ 07936 17,000 *
David W. Sass (6)
McLaughlin & Stern, LLP
260 Madison Ave. 18th Fl.
New York, NY 10016 15,000 *
Harry Shuster
United Internet Technologies, Inc.
18081 Magnolia Avenue
Fountain Valley, CA 92708 0 *
Brian Shuster (7)
United Internet Technologies, Inc.
18081 Magnolia Avenue
Fountain Valley, CA 92708 0 *
Yeshiva Beth Hillel of Krasner, Inc. 400,000 6.3%
1371 42nd Street
Brooklyn, New York 11219
All Officers and Directors
as a group (7 persons) 2,561,843(8) 40.4%
============= =========
- ---------------------
* less than 1%
(1) Includes 853,679 shares of Common Stock purchased by Loeb Holding
Corporation, as escrow agent for Warren D. Bagatelle, Managing Director of Loeb
Partners Corp., HSB Capital (of which Mr. Bagatelle is a partner), trusts for
the benefit of families of two principals of Loeb Holding Corporation and three
unaffiliated persons, 282,353 shares of Common Stock issuable upon conversion of
282,353 shares of Series A Preferred Stock of the Company and 52,941 shares of
Common Stock issuable upon conversion of two Convertible Notes aggregating
$112,500. Loeb Holding Corporation disclaims any beneficial interest in these
shares.
(2) Includes 98,824 shares of Common Stock issuable upon conversion of
98,824 shares of Series A Preferred Stock of the Company.
(3) UIT will also receive 1,100,000 shares of Series B Preferred Stock,
convertible into 1,100,000 shares of Common Stock if Shareholders approve the
issuance of 1,100,000 shares of Common Stock and two Warrants, each entitling
the holder to purchase 800,000 shares of Common Stock. One warrant is
exercisable for 800,000 shares at $2.50 per share and may be exercised between
April 1, 2002 and June 30, 2002, but only if NetCruise achieves profits equal to
or exceeding $5,000,000 for the years 1999, 2000 and 2001. The other Warrant is
exercisable for 800,000 shares at $6.00 per share and may be exercised between
April 1, 2002 and June 30, 2002, but only if NetCruise achieves profits equal to
or exceeding $10,000,000 for the years 1999, 2000 and 2001.
(4) Includes 14,362 shares of Common Stock owned of record by Joan E.
Wasko, John Wasko's wife, of which Mr. Wasko disclaims beneficial ownership, but
of which he may be deemed beneficial owner, a five (5) year option to purchase
35,000 shares of the Company's Common Stock at a price of $2.00 per share
granted to Mr. Wasko by the Company on November 1, 1996, a five (5) year option
to purchase an aggregate of 25,000 shares of Common Stock at a price of $6.00
per share granted on January 1, 1998 and 5,333 shares of Common Stock issuable
upon conversion of Mr. Wasko's prorata share of a Convertible Note in the
principal amount of $12,500.
(5) Includes a five (5) year option to purchase an aggregate of 200,000
shares of Common Stock at a price of $6.00 per share granted on September 23,
1997.
(6) Includes a five (5) year option to purchase 10,000 shares of Common
Stock at a price of $6.00 per share granted on September 23, 1997.
(7) Does not include two warrants issued in connection with the
acquisition of assets from UIT, each entitling Mr. Shuster to purchase
200,000 shares of the Company's Common Stock. One warrant is
exercisable for 200,000 shares at $2.50 per share and may be exercised
between April 1, 2002 and June 30, 2002, but only if NetCruise
achieves profits equal to or exceeding $5,000,000 for the years 1999,
2000 and 2001. The other warrant is exercisable for 200,000 shares at
$6.00 per share an may be exercised between April 1, 2002 and June 30,
2002, but only if NetCruise achieves profits equal to or exceeding
$10,000,000 for the years 1999, 2000 and 2001.
(8) Includes all of the options granted to certain officers and
directors pursuant to the foot notes numbered (1) through (6) above.
6
<PAGE>
OTHER BUSINESS TO BE TRANSACTED
As of the date of this Proxy Statement, the Board of Directors knows of
no other business to be presented for action at the Annual Meeting of
Stockholders. As for any business that may properly come before the Annual
Meeting or any continuation or adjournment thereof, the Proxies confer
discretionary authority to the person named therein. These persons will vote or
act in accordance with their best judgment with respect thereto.
ANNUAL REPORT TO STOCKHOLDERS
The Annual Report on Form 10-KSB as amended for the year ended December
31, 1997 and the quarterly report for the quarter ended September 30, 1998 as
amended are being mailed to Stockholders with this Proxy Statement and are
incorporated herein by reference.
STOCKHOLDER PROPOSAL - 1999 ANNUAL MEETING
Any stockholder proposals to be considered by the Company for inclusion
in the proxy material for the 1999 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices by April 30, 1999.
The prompt return of your proxy is appreciated and will be helpful in
obtaining the necessary vote. Therefore, whether or not you expect to attend the
meeting, please sign the proxy and return it in the enclosed envelope.
BY ORDER OF
THE BOARD OF DIRECTORS
New York, New York JOHN H. WASKO, Secretary
February 22, 1999
<PAGE>
GENISYS RESERVATION SYSTEMS, INC.
P R O X Y
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Lawrence E. Burk and Warren D.
Bagatelle as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated below, all the shares of
the common and preferred stock of Genisys Reservations Systems, Inc. held of
record by the undersigned on February 22, 1999, at the Annual Meeting of
Stockholders to be held on March 23, 1999, or any adjournment thereof.
1. ELECTION OF DIRECTORS
Lawrence E. Burk, John H. Wasko, David W. Sass, S. Charles Tabak, Warren D.
Bagatelle, Harry Shuster and Brian Shuster.
To withhold authority to vote for any nominee, a line must be drawn
through the nominee's name.
2. RATIFICATION OF THE ACQUISITION OF A TECHNOLOGY LICENSE AND CERTAIN RELATED
ASSETS FROM UNITED INTERNET TECHNOLOGIES, INC. ANDAPPROVAL OF THE ISSUANCE OF
1,100,00 SHARES OF COMMON STOCK AND TWO WARRANTS EACH IN THE AMOUNT OF 800,000
SHARES TO UNITED INTERNET TECHNOLOGIES, INC.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. RATIFICATION OF THE SALE OF THE LIMOUSINE RESERVATION BUSINESS SYSTEM
TO GEN O2, INC., A NEWLY ORGANIZED COMPANY FOUNDED BY MARK A. KENNY, A
FORMER DIRECTOR AND FOUNDER OF THE COMPANY.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE CORPORATION TO NETCRUSETRAVEL.COM, INC.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO RESTATE THE PROVISIONS RELATING TO THE CORPORATION'S AUTHORIZED
PREFERRED STOCK AS THEY RELATE TO DIVIDENDS AND LIQUIDATION
PREFERENCES.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1, 2, 3, 4, 5 AND 6.
Please sign name exactly as appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated: , 1999
Signature
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY USING THE ENCLOSED
ENVELOPE
If you have had a change of address, please print or type your new address(s) on
the line below.
- ---------------------------
- ---------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSBA-2
(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 September 30, 1998)
Commission File Number 1-12689
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 September 30, 1998: 5,655,594
shares of Common Stock
Transitional Small Business Disclosure Format (check one)
Yes X No
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
DEVELOPMENT STAGE COMPANIES
CONSOLIDATED BALANCE SHEETS
September September December
30, 1998 30, 1998 31, 1997
--------------- --------------- ---------------
(Proforma) (unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $606,121 $606,121 $2,207,841
Accounts receivable 32,615 32,615 8,784
Prepaid expenses 5,029 12,448 5,127
--------------- --------------- ---------------
Total Current Assets 643,765 651,184 2,221,752
--------------- --------------- ---------------
EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION 71,706 285,918 261,643
--------------- --------------- ---------------
INVESTMENT IN GEN 02, INC. 787,392 - -
OTHER ASSETS:
Computer software costs, less accumulated
amortization 1,417,964 1,992,376 581,193
Debt issue costs, less accumulated amortization 12,521 12,521 26,609
Deposits and Other 56,555 56,555 61,669
Licenses and Intellectual Property, less
accumulated amortization 975,000 975,000 -
--------------- --------------- ---------------
2,462,040 3,036,452 669,471
--------------- --------------- ---------------
$3,964,903 $3,973,554 $3,152,866
=============== =============== ===============
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $103,114 $103,114 $114,957
Accounts payable and accrued expenses 214,872 223,523 189,712
Accrued interest payable - related party 177,006 177,006 163,296
Accrued consulting fees - related party 3,000 3,000 3,000
--------------- --------------- ---------------
Total current liabilities 497,992 506,643 470,965
LONG-TERM DEBT:
Long-term debt, less current maturities 63,542 63,542 982,742
--------------- --------------- ---------------
Total Liabilities 561,534 570,185 1,453,707
--------------- --------------- ---------------
COMMITMENTS:
STOCKHOLDERS EQUITY (DEFICIENCY):
Preferred Stock, $.0001 par value: 25,000,000 shares
authorized: Series A preferred stock, 706,000
shares authorized:1,481,777 shares issued and
outstanding 148 148 -
Common Stock, $.0001 par value; 75,000,000 shares
authorized; 5,655,594 shares and 4,355,594 shares
issued and outstanding 566 566 436
Additional paid in capital 8,281,073 8,281,073 4,933,851
Deficit Accumulated During the Development Stage (4,878,418) (4,878,418) (3,235,128)
--------------- --------------- ---------------
Total Stockholders Equity 3,403,369 3,403,369 1,699,159
--------------- --------------- ---------------
$3,964,903 $3,973,554 $3,152,866
=============== =============== ===============
See Accompanying Notes to Financial Statements
2
<PAGE>
GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
DEVELOPMENT STAGE COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
DURING THE DEVELOPMENT STAGE
(Unaudited)
From Inception
Nine Months Nine Months Three Months Three Months March 7, 1994
Ended Ended Ended Ended Through
Sept. 30,1998 Sept. 30,1997 Sept. 30,1998 Sept. 30,1997 Sept. 30,1998
SERVICE REVENUE $ 52,002 $ 2,225 $ 22,128 $ 2,225 $77,865
EXPENSES:
Cost of Service 111,490 6,800 64,276 6,800 136,482
General and Administrative 1,927,670 421,330 454,432 3,881,071
Depreciation and Amortization 128,230 201,014 64,174 730,985
Interest Expense (Income), net 52,6482) (15,461) (2,102) 207,745
1,695,292 1,115,348 671,159 523,304 4,956,283
NET (LOSS) INCURRED DURING
THE DEVELOPMENT STAGE ($1,113,123) ($649,031) ($521,079) ($4,878,418)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,042,041 5,655,594 4,355,594 3,091,315
BASIC AND DILUTED LOSS PER
COMMON SHARE ($0.33) ($0.28) ($0.11) ($0.12) ($1.58)
See Accompanying Notes to Financial Statements
3
<PAGE>
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, 1997 4,355,594 $436 - - $4,933,851 ($3,235,128) $1,699,159
CONVERSION OF LONG-TERM
DEBT INTO SERIES A PREFERRED
STOCK AT $2.125 PER SHARE - - 381,177 38 809,962 - 810,000
CONVERSION OF NOTES PAYABLE
INTO COMMON STOCK AT
$0.09375 PER SHARE 400,000 40 - - 37,460 - 37,500
ISSUANCE OF COMMON STOCK
AT $1.25 PER SHARE AND PREFERRED
STOCK FOR ACQUISITION OF UNITED
LEISURE INTERACTIVE 900,000 90 1,100,000 110 2,499,800 - 2,500,000
NET LOSS - - - - - (1,643,290) ($1,643,290)
BALANCE AT
SEPTEMBER 30, 1998 5,655,594 $ 566 1,481,177 $ 148 $8,281,073 ($4,878,418) $3,403,369
See Accompanying Notes to Financial Statements
4
<PAGE>
GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
Development Stage Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Period From
March 7, 1994
(Commencement of
Development Stage
Nine Months Ended Nine Months Ended Activities to
------------------ ------------------ -------------------
Sept. 30,1998 Sept. 30,1997 Sept. 30,1998
------------------ ------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (1,643,290) (1,113,123) (4,878,418)
Adjustments to reconcile net loss to net
cash flows from operating activities
Depreciation and amoritization 397,091 128,230 730,985
Contribution to capital of services rendered - - 49,600
Changes in operating assets and liabilities
Accounts receivable (23,831) 0 (32,615)
Prepaid expenses (7,321) (1,729) (12,448)
Deposits and other 4,934 - (58,703)
Accounts payable and accrued expenses 47,521 (256,069) 403,529
------------------ ------------------ -------------------
Net cash flows from operating acctivities (1,224,896) (1,242,691) (3,798,070)
------------------ ------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and software (293,281) (333,232) (1,611,207)
Acquisition of Prosoft, Inc. 0 (34,602) (34,602)
------------------ ------------------- ------------
Net cash flows from investing activities (293,281) (367,834) (1,645,809)
------------------ ------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 9,652 70,000 14,652
Payments on long-term debt (847,500) (65,000) (925,840)
Proceeds from public offering of common stock
and warrants net of deferred offering costs - 4,661,124 4,705,915
Conversion of convertible notes payable
to common stock 37,500 - 67,500
Conversion of long-term debt to Series A
Preferred Stock 810,000 - 810,000
Issuance of common stock upon exercise of option - 15,000 15,000
Loans and advances from related parties - (14,518) -
Proceeds from issuance of notes payable - - 955,000
Payments under computer equipment leases (93,195) (71,260) (156,271)
Proceeds from sale and lease-back - - 294,644
Proceeds from issuance of common stock - - 110,000
Contribution to capital - stockholder/officer - 128,700 205,400
Proceeds from issuance of 10% promissory notes
and related warrants, less related costs - (563,500) 517,500
Payments on 10% promissory notes and related
warrants - - (563,500)
------------------ ------------------ -------------------
Net cash flows from financing activities (83,543) 4,160,546 6,050,000
------------------ ------------------ -------------------
NET CHANGE IN CASH AND EQUIVALENTS (1,601,720) 2,550,021 606,121
CASH AND EQUIVALENTS, BEGINNING OF YEAR 2,207,841 91,548 -
------------------ ------------------ -------------------
CASH AND EQUIVALENTS, END OF PERIOD $ 606,121 $ 2,641,569 $ 606,121
------------------ ------------------ -------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 29,000 $ 65,699 $ 169,498
------------------ ------------------ -------------------
Net liabilities assumed in reverse acquisition $ - $ - $ 14,087
------------------ ------------------ -------------------
Conversion of related party debt to common stock $ - $ - $ 20,109
------------------ ------------------ -------------------
Conversion of long-term debt to Series A Preferred
Stock $ 847,500 $ - $ 847,500
------------------ ------------------ -------------------
Conversion of notes payable to common stock $ 37,500 $ 30,000 $ 67,500
------------------ ------------------ -------------------
Issuance of common stock and preferred stock
to acquire travel related assets $ 2,500,000 $ - $2,500,000
------------------ ------------------ -------------------
See Accompanying Notes to Financial Statements
5
</TABLE>
<PAGE>
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.
Note 2 Activities of the Company
Through September 30, 1998 the principal activity of the Company
has been the development of a computerized limousine reservation and payment
system for the business traveler. The Company's proprietary software enables a
system of limousine reservations to be completely computerized and operate
without human intervention, except for the initial inputting of travel
information. Although planned operation of this system has commenced, revenues
to date have not been significant; accordingly, the Company and its subsidiaries
continue to be in development stage.
Pursuant to an Asset Purchase Agreement dated as of June 30, 1998,
NetCruise Interactive, Inc. ("Netcruise") (a wholly owned subsidiary of the
Company formed on July 21, 1998 for the purpose of operating an internet travel
agency) acquired a technology license and certain related assets from UIT in
consideration of 2,000,000 shares of the Company's Common Stock and two warrants
("Warrants"), each entitling the holder to purchase 800,000 shares of the Common
Stock of the Company (the "UIT Transaction"). One warrant is exercisable for
800,000 shares at $2.50 per share and may be exercised between April 1, 2002 and
June 30, 2002, but only if NetCruise achieves profits equal to or exceeding
$5,000,000 for the years 1999, 2000 and 2001. The other Warrant is exercisable
for 800,000 shares at $6.00 per share and may be exercised between April 1, 2002
and June 30, 2002, but only if NetCruise achieves profits equal to or exceeding
$10,000,000 for the years 1999, 2000 and 2001. No value has been placed on the
warrants since the warrants are each contingent upon future earnings.
As a result of the transaction, the Company acquired the travel web
site called "Netcruise" and the technology license for "Parallel Addressing
Video Technology" for all travel related applications, along with all of the
related software, computer systems and intellectual properties . This includes
computer equipment, multiple video CD's containing cruise information and source
video tapes of footage of locations and cruise ships. In addition, UIT
transferred to the Company its agreement with Internet Travel Network (ITN), of
Palo Alto, CA. This agreement provides for a "private label" site on the ITN
"booking engine". The agreement expires in April, 1999 and automatically renews
for successive one year periods unless either party gives notice, no later than
30 days prior to the end of the period, of its intent not to renew. The ITN
"booking engine" is essentially a world wide web based graphical user interface
to the airline owned Apollo computerized reservation system . This technology
allows a layperson with access to the internet to access the databases and
pricing systems used by travel agents to research and procure air, car rental
and hotel reservations. By "private labeling" this functionality, the Company is
able to offer its travel consultants access to a leading travel system, while
not having to expend the Company's capital resources which would be required to
create its own access. The Company formed NetCruise as a wholly owned subsidiary
for the purpose of operating an internet travel business featuring the
technology obtained through this acquisition.
The Company intends to launch, through television advertising, an
aggressive marketing campaign inviting the general public, along with existing
travel agents, to become NetCruise travel consultants, although
the "Parallel Addressing Video Technology" is still in the development stage,
and the Company has only a limited number of travel consultants acquired from
Sterling Travel and no internet travel customers to date. The goal of the
Company's marketing campaign is to encourage individuals to enroll as
independent travel
consultants by paying a fee to the Company . The independent travel consultants
will then be able to make reservations either through the password protected
members only section of the Netcruise website or via
telephone conversations with travel agents who work directly for Netcruise.
Non-members who visit the Netcruise website shall have access to a portion of
the site which contains general information about the Company, describes the
independent travel consultant program and allows the public to request
information or enroll as an independent travel consultant. To date, the web site
is being used for demonstration purposes and is only accessible by authorized
individuals using a password. The Company expects that the web site will
not be fully integrated to support the independent travel consultants until
mid 1999. See Note 4.
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 its computerized limousine reservation and payment system to Gen
O2, Inc., a company newly formed by a management group lead by Mark A. Kenny,
former director and founder of the Company. The Company will own a minority
interest in the new company and will receive royalties on transactions processed
by the new company for a period of five years. See Note 6.
The Company is conducting a comprehensive review of its
computer systems to identify the systems that could be affected by the "Year
2000" issue and has developed an implementation plan to resolve the issue. The
Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000 which could cause a system failure or
other computer errors, leading to a disruption in operations. No easy
technological "quick fix" has yet been developed for this problem. This Year
2000 problem creates risk for the Company from unforeseen problems in its own
computer systems and from third parties with whom the Company deals on financial
transactions. Such failures of the Company's and/or third parties computer
systems could have a material impact on the Company's ability to conduct its
business, and especially to process and account for the transfer of funds
electronically.
With the goal of making the Company Year 2000 compliant, the Company
has developed a five phase implementation plan as follows:
Initial phase
Inventory phase
Vendor contact phase
Reintegration phase
Testing phase
The Company has budgeted approximately $15,000 to implement this plan
and has assigned overall responsibility for the project to its Systems Manager.
All software currently being developed by the Company or through third party
contractors is being written to be Year 2000 compliant. The Company, with the
assistance of outside software contractors, is in the process of changing its
accounting system from non-compliant MAS-90 software to a compliant software
system. Final implementation of fully tested and operational Year 2000 compliant
systems is projected to be completed by the end of the second quarter of 1999.
The Company's
banks and lenders have communicated that they will be Year 2000 compliant by the
end of 1999. No other third party's Year 2000 compliance is expected to have a
material impact on the operations of the Company.
Note 3 Stockholders Equity
Preferred Stock - The Company's Certificate of Incorporation authorizes the
issuance of up to 25,000,000 shares of Preferred Stock. On March 10, 1998, the
Board of Directors designated 706,000 shares of Series A Preferred Stock which
are convertible, in whole or in part, into fully paid and nonassessable Common
Shares on a one-for-one basis at the option of the respective holders thereof.
Holders of Series A Preferred Stock are entitled to receive dividends on a pari
passu basis with the holders of the Company's Common Stock. The Company, at its
sole option, has the right to redeem all or, from time to time, any number of
the then outstanding shares of Series A Preferred Stock at a redemption price of
$2.125 per share plus a 10% per year increase in the redemption rate.
In March 1998, the holder 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, the holder 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 share.
Note 4 Asset Acquisition
Pursuant to an Asset Purchase Agreement dated as of June 30, 1998,
Netcruise acquired a technology license and certain related assets from UIT for
the purpose of operating an internet travel agency. As a result of the
transaction, the Company acquired the travel web site called "Netcruise" and the
technology license for "Parallel Addressing Video Technology" for all travel
related applications , along with all of the related software, computer systems
and intellectual properties . This includes computer equipment, multiple video
CD's containing cruise information and source video tapes of footage of
locations and cruise ships. In addition, UIT transferred to the Company its
agreement with Internet Travel Network (ITN), of Palo Alto, CA. This agreement
provides for a "private label" site on the ITN "booking engine". The agreement
expires in April, 1999 and automatically renews for successive one year periods
unless either party gives notice, no later than 30 days prior to the end of the
period, of its intent not to renew. The ITN "booking engine" is essentially a
world wide web based graphical user interface to the airline owned Apollo
computerized reservation system. This technology allows a layperson with access
to the internet to access the databases and pricing systems used by travel
agents to research and procure air, car rental and hotel reservations. By
"private labeling" this functionality, the Company is able to offer its travel
consultants access to a leading travel system, while not having to expend the
Company's capital resources which would be required to create its own access.
The Company formed NetCruise as a wholly owned subsidiary for the purpose of
operating an internet travel business featuring the technology obtained through
this acquisition.
The Company intends to launch, through television advertising, an
aggressive marketing campaign inviting the general public, along with existing
travel agents, to become NetCruise travel consultants, although
the "Parallel Addressing Video Technology" is still in the development stage,
and the Company has only a limited number of travel consultants acquired from
Sterling Travel and no internet customers to date. The goal of the Company's
marketing campaign is to encourage individuals to enroll as independent travel
consultants
by paying a fee to the Company . The independent travel
consultants will then be able to make reservations either through the password
protected members only section of the Netcruise website or via telephone
conversations with travel agents who work directly for Netcruise. Non-members
who visit the Netcruise website shall have access to a portion of the site which
contains general information about the Company, describes the independent travel
consultant program and allows the public to request information or enroll as an
independent
travel consultant. To date, the web site is being used for
demonstration purposes and is only accessible by authorized individuals using a
password. The Company expects that the web site will not be fully integrated to
support the independent travel consultants until mid 1999.
The purchase of these assets has been recorded as of the date
of purchase at the total purchase price of $2,500,000 which includes $1,450,000
of computer software, $1,000,000 of licenses and intellectual properties and
$50,000 of computer equipment.
Harry Shuster has been appointed Chairman and Brian Shuster the President of
NetCruise. Pursuant to the acquisition agreement, Mr. Brian Shuster will receive
$5,000 per month for his services as a consultant to the Company. In addition,
Messrs. Harry Shuster and Brian Shuster have been serving as directors of the
Company since the transaction closed and both have been nominated for election
as directors of the Company. Brian Shuster has been issued two warrants to
purchase restricted common shares of the Company, exercisable between April 2,
2002 and June 30, 2002, if NetCruise achieves certain profit levels, as defined
in the warrants. One warrant is exercisable for 200,000 shares at $2.50 per
share and the other warrant is exercisable for 200,000 shares at $6.00 per
share. The Company's wholly owned subsidiary, NetCruise Interactive, has assumed
UIT's lease of approximately 1,617 square feet (including tenant's pro rata
share of common area) at 1990 Westwood Blvd., Penthouse, Los Angeles, CA 90025.
The term of this lease is for 5 years commencing on March 1, 1996 and ending on
February 28, 2001. During the first through 2nd year of the term of the lease,
the rent is $2,587 per month and during the 3rd through 5th year of the term of
the lease the rent is $2,846 per month.
Note 5 Contingencies
On February 20, 1997, two individuals John White and John E.
Michaels d/b/a Corporate Planning Services, filed an action against the Company
and Travel Link in the Superior Court of New Jersey seeking among other things,
damages in the amount of 8% of any financing secured by Travel Link resulting
from plaintiff's efforts and as well as 5% of the Company's Common Stock
allegedly due for services rendered in connection with the Company's acquisition
of Travel Link in 1995. The claim for monetary damages is based upon an alleged
written agreement between Travel Link and plaintiffs, while the claims for the
shares of Common Stock is based upon alleged oral representations and promises
made by Joseph Cutrona a former officer and director of Travel Link and the
Company. On March 4, 1998 Travel Link filed an application with the Court to
assert a claim for indemnification against Joseph Cutrona and Steven Pollan, a
former director and officer of Travel Link and the Company, and Mark A. Kenny, a
former director and employee of the Company and Travel Link, based upon a 1995
agreement whereby such individuals agreed to hold Loeb Holding Corporation and
Travel Link harmless and to indemnify them from any and all claims or
liabilities for brokerage commissions or finder's fees incurred by reason of any
action taken by it or them, including the claims of the plaintiff's in this
action. On September 28, this matter was settled and the Company agreed to pay
the plaintiff's the sum of $20,000.
In August 1996, the Company gave notice to Stephen Pollan a
former officer and director, that is was canceling the 333,216 shares of Common
Stock issued to him at the inception of Corporate Travel Link, Inc. for services
he was to have provided. The Company believes that Mr. Pollan never provided
such services. Pending return of the shares, they are considered outstanding for
all periods presented herein. On April 17, 1997, Mr. Pollan filed an action in
the United States District Court, District of New Jersey, against the Company,
Travel Link, Joseph Cutrona, Mark A. Kenny, John H. Wasko, Warren D. Bagatelle,
Loeb Partners Corp., John Piscopo, R.D. White & Co., Inc., David Sass,
McLaughlin & Stern, LLP and Wiss & Company, LLP., seeking among other things a
declaratory judgement that Mr. Pollan 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 intends to vigorously defend the
action and to assert numerous defenses and counterclaims in its answer, however,
the action is in its preliminary stages and no assurance can be given as to its
ultimate outcome.
On December 23, 1997, an individual, Victoria Vogel, filed an
action in the superior Court of New Jersey against the Company and Joseph
Cutrona, a former officer and director of the Company, alleging that Mr. Cutrona
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 Mr. Cutrona. The Company intends to vigorously
defend the action and to asset numerous defenses in its answer, however, the
action is in its preliminary stages and no assurance can be given as to its
ultimate outcome. Mr. Cutrona has agreed to hold the Company harmless and to
indemnify the Company from any and all claims of the plaintiff in this action.
Note 6 Subsequent Events
At the beginning of the third quarter 1998, Management of the
Company set revenue objectives for the limousine reservation business and made
the decision to review the operation at the end of the third quarter to
determine the best approach to maximize utilization of the Company's resources.
The Limousine reservation business did not meet its revenue objectives and in
early September 1998, the Company decided to seek a buyer or joint venture
partner for its limousine reservation business.
On November 6, 1998 the company entered into an Acquisition Agreement
(the "Sales Agreement") by and between the Company and Corporate Travel Link,
Inc. ("Travel Link"), a wholly owned subsidiary of the Company (the sellers in
the transaction) and TranspoNet (a non-affiliated company), Mark A. Kenny, Paul
Murray and Gen 02, Inc. ("Purchaser"), a newly organized corporation formed by
Mark A. Kenny, a former director and founder of the Company. This sale will
allow the Company to concentrate its resources and efforts on the continued
build-up of its internet travel business.
Under the terms of the Sale Agreement, the sellers will sell and
transfer certain contractual rights and obligations of the Company, all of the
assets of Travel Link which are utilized in connection with the ownership,
operation and marketing of Genisys Reservation System and its entire ownership
interest in ProSoft to the purchaser in the transaction, constituting
approximately 20% of the total assets of the Company. (At September 30, 1998 the
Company had total assets of $3,964,903, of which $787,392 were sold to Gen O2,
Inc. ) ProSoft is an 80% owned subsidiary of the Company which was acquired by
the Company in June, 1997. ProSoft is a software development company which
developed the software for the Company's computerized limousine reservation and
payment system. Paul Murray, a former employee of the Company and President and
Shareholder of ProSoft, is also a shareholder of Gen O2, Inc.
The purchase price consists of (i) 2,450 shares of Series A Convertible
Preferred Stock of Gen O2, Inc., constituting a 32.66% interest in Gen O2, Inc.,
which the Company carries on its balance sheet at an asset
value of $787,392; (ii) certain contingent payments payable until December 10,
2003, totaling $1,080,00 if all payments to the Company
are realized, however, since there are no minimum contingent payments, it is
possible that the Company will receive no significant contingent payments from
GEN 02, Inc. and (iii)
other significant terms as described below:
a. For each completed limousine transaction through the current system from
corporate users, a payment of $0.20 per transaction with a $100,000 maximum
payment per year.
b. For each completed limousine transaction through the Almost Real Time System
(the "ART System") under development by the sellers that will be directed toward
leisure customers, a payment of $0.20 per transaction with a $100,000 maximum
payment in the first year and a $0.30 payment per transaction with a $120,000
maximum payment per year thereafter.
c. If the system and the ART System are merged at any time in the future, the
sellers shall receive a payment of $0.25 per completed transaction with a
$200,000 maximum payment in the first year and a $220,000 maximum payment per
year thereafter.
d. If the payments are not reached in a particular year, the payments defined in
letters a-c above will have a carry-over to the following year.
e. In no event shall any payments defined in letters a-c above be due to the
sellers for transactions completed after December 10, 2003.
f. For the transfer of the assets by the sellers and the assumption of certain
liabilities of the sellers by the purchaser as described above along with the
agreement by the sellers to provide the purchaser with a series of loans, the
purchaser will grant an equity interest to the sellers in Gen O2, Inc. equal to
32.66% of the equity of Gen O2, Inc. subject to a Shareholder Agreement. The
loans provided by the sellers will include a ninety day secured bridge loan in
the amount of $40,000 secured by 22,857 shares of Common Stock of the Company
owned by Mr. Kenny, a secured loan of $135,000 payable commencing in the second
year and secured by 77,143 shares of Common Stock of the Company owned by Mr.
Kenny. Mr. Kenny has also pledged 23,428 shares of the Company's Common Stock
owned by him to secure the return of a security deposit to the Company and
68,000 shares of the Company's Common Stock to secure minimum payments which are
required to be made by the Company under certain contracts which were
transferred to the purchaser in connection with the sale.
g. A 32.66% shareholder of Gen O2, Inc., TranspoNet has committed to provide
funding for the purchaser of up to $240,000 in the form of a series of loans.
TranspoNet has a right to convert the unpaid principal of the loans at any time
into a maximum number of shares of common stock of the purchaser not to exceed
an additional 6% equity interest in the purchaser.
The Series A Preferred Stock issued to the Company and TranspoNet in
accordance with the transaction are part of a class of preferred stock of Gen
O2, Inc. designated as "Series A Preferred Convertible Stock" and the number of
shares of preferred stock constituting such class is 4,900. The shares of Series
A Preferred Stock issued to the Company together with the shares of Series A
Preferred Stock issued to TranspoNet constitute all of the authorized shares of
the Series A Preferred Stock of Gen O2, Inc. So long as any share of Series A
Preferred Stock remains outstanding, Gen O2, Inc. shall not authorize the
issuance or issue any additional shares of Series A Preferred Stock or any
shares of any series or class of stock ranking senior to, or on a parity with,
the Series A Preferred Stock as to rights upon liquidation, dissolution or
winding up of Gen O2, Inc. without the prior written consent of at least a
majority of the holders of the Series A Preferred Stock.
The par value of the Series A Preferred Stock is $0.01 per share and no
dividends shall be declared or paid on the Series A Preferred Stock. In the
event of a voluntary or involuntary liquidation, dissolution or winding up of
Gen O2, Inc., the holders of the Series A Preferred Stock shall be entitled to
receive out of the assets of Gen O2, Inc. available for distribution to
stockholders, before any distribution of assets is made to the holders of any
other series or class of stock of Gen O2, Inc., a liquidating preferential
distribution in an amount equal to $400.00 per share of Series A Preferred
Stock. The holders of the Series A Preferred Stock shall be entitled to vote on
all matters submitted to a vote of the shareholders of Gen O2, Inc. and shall be
entitled to one vote for each share of Series A Preferred Stock. The holders of
the Series A Preferred Stock shall not have cumulative voting rights. At any
time and from time to time, upon notice to Gen O2, Inc., the holders of the
Series A Preferred Stock shall be entitled to convert each share of Series A
Preferred Stock into one fully paid and non-assessable share of common stock of
Gen O2, Inc. subject to adjustments for any stock splits, stock dividends,
reverse stock splits or recapitalization.
Upon conversion of the Series A Preferred Stock into common stock of
Gen O2, Inc. the Company and TranspoNet will each own 2,450 shares or 32.66% of
the issued and outstanding common stock of Gen O2, Inc. It is anticipated that
the Purchaser will issue an additional 2,500 shares of common stock in the near
future, thereby diluting the ownership interest of the Company and TranspoNet in
Gen O2, Inc. to 24.5%. The Company's influence in Gen O2, Inc. is limited to the
right to elect one member of a five (5) member Board of Directors.
The primary capitalization of Gen 02, Inc. is being provided by the
loans from the Company and TranspoNet. In addition, the sole asset of Gen 02,
Inc. is the limousine reservation business. As a result, the Company will absorb
all losses to the extent of the assets transferred. Since there are no minimum
contingent payments, it is possible that the Company will not receive any
contingent payments whatsoever from Gen O2, Inc.
The accompanying proforma balance sheet at September 30, 1998 assumes that the
exchange of the Company's assets in exchange for common stock of Gen O2, Inc.
and contingent payments had occurred on that date. The effects on the historical
consolidated statement of operations would be to reclassify all service revenue
and cost of service, as well as a significant portion of general and
administrative expenses and depreciation and amortization to a separate line
item, as the Company will report Gen O2, Inc. on the equity basis. There would
be no impact on net income, as the Company will absorb all losses to the extent
of assets transferred since the only other capitalization of Gen O2, Inc. was
$50.00.
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 ("Sterling") , in which the
Company purchased all the assets relating to Sterling's network of independent
travel consultants ("Sterling Travel Consultants") for a total purchase price of
42,500 shares of the Company's Common Stock which, for accounting purposes, is
being valued at $1.50 per share for an aggregate of $63,750. The valuation of
the Company's stock at $1.50 per share was a negotiated price based upon the
value of the stock at the time of the negotiation. It differs from the valuation
given to the Company's Common Stock in the UIT transaction because the valuation
was negotiated at a time when the Common Stock was trading at a different price.
Included in the assets purchased by the Company were a list of the independent
(not employees of Sterling) travel consultants (both active and inactive) that
had done or are doing business with Sterling and related agreements with such
independent travel consultants setting forth the commissions to be earned and
operational matters, contacts, files, correspondence, earning records, a data
base of former and current customers of Sterling estimated at approximately
20,000 entries, property and equipment, including computers and miscellaneous
office supplies. Of the total aggregate purchase price of 42,500 shares paid to
Sterling at closing, 17,500 shares ("Escrow Shares") will be held in escrow by
counsel to the Company. If the Company does not achieve $3,000,000 of gross
sales from Sterling Travel Consultants over the initial twelve month period
beginning on November 1, 1998 and ending on October 31, 1999, the Escrow Shares
shall immediately be returned to the Company. If the Company achieves $3,000,000
of gross sales from Sterling Travel Consultants over the initial twelve month
period as described herein, the Escrow Shares will be released by the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Through September 30, 1998, the principal activity of the
Company has been the development of a computerized limousine reservation and
payment system for the business traveler. Although planned operation of this
system commenced in August 1997, revenues to date have not been significant;
accordingly, the Company and its subsidiaries continue to be in the development
stage. The Company has been unprofitable since inception and expects to incur
additional operational losses. As reflected in the accompanying financial
statements, the Company has incurred losses totaling $4,878,418 since inception
and at September 30, 1998, had working capital of $144,541.
Revenues for the three and nine month periods ended September
30, 1998, for the limousine reservation business were $22,128 and $52,002, as
compared to $0 and $2,225 for the 1997 periods. The corresponding cost of
service for the three and nine month periods ending September 30, 1998 were
$62,792 and $111,490 as compared to $0 and $6,800 for the 1997 periods. To date
the Company has not yet commenced generating revenues from its internet travel
business.
General and administrative expenses were $1,205,173 for the
nine months ended September 30, 1998, as compared to $927,670 during the nine
months ended September 30, 1997. Cost increases during the 1998 period consist
of payroll and payroll related costs ($175,000), professional fees ($57,200),
travel costs ($5,600), insurance costs ($8,200), marketing costs ($28,300) and
other administrative costs ($72,100).
Consulting costs decreased $68,900
during the 1998 period. The increase of approximately $175,000 in payroll cost
for the nine months ended September 30, 1998 was due in large part to the fact
that the three highest paid employees of the Company, Thomas Gregory and Paul
Murray, President and Vice President respectively of Prosoft and Lawrence E.
Burk the Company's President were on the payroll for the full nine months of the
1998 period, but were only on the payroll for less than four months of the 1997
period. The $28,300 increase in marketing activities is primarily due to sales
and marketing costs incurred by the limousine reservation business in an attempt
to meet its revenue objectives.
General and administrative expenses were $421,330 for the
three months ended September 30,1998, as compared to $454,432 during the three
months ended September 30, 1997. Cost increases during the 1998 period consist
of marketing costs ($3,600) and other administrative costs ($25,700). Cost
decreases during the 1998 period consist of payroll and payroll related costs
($16,200), consulting fees ($10,000), professional fees ($27,000), travel costs
($8,700) and insurance costs ($500).
On November 6, 1998 the company entered into an Acquisition Agreement (the
"Sales Agreement") by and between the Company and Corporate Travel Link, Inc.
("Travel Link"), a wholly owned subsidiary of the Company (the sellers in the
transaction) and TranspoNet (a non-affiliated company), Mark A. Kenny, Paul
Murray and Gen 02, Inc. (the purchaser in the transaction), a newly organized
corporation formed by Mark A. Kenny, a former director and founder of the
Company. This sale will allow the Company to concentrate its resources and
efforts on the continued build-up of its internet travel business. Under the
terms of the Sale Agreement, the sellers will sell and transfer certain
contractual rights and obligations of the Company, all of the assets of Travel
Link which are utilized in connection with the ownership, operation and
marketing of Genisys Reservation System and its entire ownership interest in
ProSoft to the purchaser in the transaction, constituting approximately 20% of
the total assets of the Company. (At September 30, 1998 the Company had total
assets of $3,964,903, of which $787,392 were sold to Gen O2, Inc. ) ProSoft is
an 80% owned subsidiary of the Company which was acquired by the Company in
June, 1997. ProSoft is a software development company which developed the
software for the Company's computerized limousine reservation and payment
system. Paul Murray, a former employee of the Company and President and
Shareholder of ProSoft, is also a shareholder of Gen O2, Inc.
The purchase price consists of (i) 2,450 shares of Series A Convertible
Preferred Stock of Gen O2, Inc.,
constituting a 32.66% interest in Gen O2, Inc., which the Company carries on its
balance sheet at an asset value of
$787,392; (ii) certain contingent payments, totaling $1,080,000 if all payments
payable until December 10, 2003 to the Company are realized, however, since
there are no minimum contingent payments, it is possible that the Company will
receive no significant contingent payments from GEN 02, Inc. and (iii)
other significant terms as described below:
a. For each completed limousine transaction through the current system from
corporate users, a payment of $0.20 per transaction with a $100,000 maximum
payment per year.
b. For each completed limousine transaction through the Almost Real Time System
(the "ART System") under development by the sellers that will be directed toward
leisure customers, a payment of $0.20 per transaction with a $100,000 maximum
payment in the first year and a $0.30 payment per transaction with a $120,000
maximum payment per year thereafter.
c. If the system and the ART System are merged at any time in the future, the
sellers shall receive a payment of $0.25 per completed transaction with a
$200,000 maximum payment in the first year and a $220,000 maximum payment per
year thereafter.
d. If the payments are not reached in a particular year, the payments defined in
letters a-c above will have a carry-over to the following year.
e. In no event shall any payments defined in letters a-c above be due to the
sellers for transactions completed after December 10, 2003.
f. For the transfer of the assets by the sellers and the assumption of certain
liabilities of the sellers by the purchaser as described above along with the
agreement by the sellers to provide the purchaser with a series of loans, the
purchaser will grant an equity interest to the sellers in Gen O2, Inc. equal to
32.66% of the equity of Gen O2, Inc. subject to a Shareholder Agreement. The
loans provided by the sellers will include a ninety day secured bridge loan in
the amount of $40,000 secured by 22,857 shares of Common Stock of the Company
owned by Mr. Kenny, a secured loan of $135,000 payable commencing in the second
year and secured by 77,143 shares of Common Stock of the Company owned by Mr.
Kenny. Mr. Kenny has also pledged 23,428 shares of the Company's Common Stock
owned by him to secure the return of a security deposit to the Company and
68,000 shares of the Company's Common Stock to secure minimum payments which are
required to be made by the Company under certain contracts which were
transferred to the purchaser in connection with the sale.
g. A 32.66% shareholder of Gen O2, Inc., TranspoNet has committed to provide
funding for the purchaser of up to $240,000 in the form of a series of loans.
TranspoNet has a right to convert the unpaid principal of the loans at any time
into a maximum number of shares of common stock of the purchaser not to exceed
an additional 6% equity interest in the purchaser.
The Series A Preferred Stock issued to the Company and TranspoNet in
accordance with the transaction are part of a class of preferred stock of Gen
O2, Inc. designated as "Series A Preferred Convertible Stock" and the number of
shares of preferred stock constituting such class is 4,900. The shares of Series
A Preferred Stock issued to the Company together with the shares of Series A
Preferred Stock issued to TranspoNet constitute all of the authorized shares of
the Series A Preferred Stock of Gen O2, Inc. So long as any share of Series A
Preferred Stock remains outstanding, Gen O2, Inc. shall not authorize the
issuance or issue any additional shares of Series A Preferred Stock or any
shares of any series or class of stock ranking senior to, or on a parity with,
the Series A Preferred Stock as to rights upon liquidation, dissolution or
winding up of Gen O2, Inc. without the prior written consent of at least a
majority of the holders of the Series A Preferred Stock.
The par value of the Series A Preferred Stock is $0.01 per share and no
dividends shall be declared or paid on the Series A Preferred Stock. In the
event of a voluntary or involuntary liquidation, dissolution or winding up of
Gen O2, Inc., the holders of the Series A Preferred Stock shall be entitled to
receive out of the assets of Gen O2, Inc. available for distribution to
stockholders, before any distribution of assets is made to the holders of any
other series or class of stock of Gen O2, Inc., a liquidating preferential
distribution in an amount equal to $400.00 per share of Series A Preferred
Stock. The holders of the Series A Preferred Stock shall be entitled to vote on
all matters submitted to a vote of the shareholders of Gen O2, Inc. and shall be
entitled to one vote for each share of Series A Preferred Stock. The holders of
the Series A Preferred Stock shall not have cumulative voting rights. At any
time and from time to time, upon notice to Gen O2, Inc., the holders of the
Series A Preferred Stock shall be entitled to convert each share of Series A
Preferred Stock into one fully paid and non-assessable share of common stock of
Gen O2, Inc. subject to adjustments for any stock splits, stock dividends,
reverse stock splits or recapitalization.
Upon conversion of the Series A Preferred Stock into common stock of
Gen O2 , Inc. the Company and TranspoNet will each own 2,450 shares or 32.66% of
the issued and outstanding common stock of Gen O2, Inc. It is anticipated that
the Purchaser will issue an additional 2,500 shares of common stock in the near
future, thereby diluting the ownership interest of the Company and TranspoNet in
Gen O2, Inc. to 24.5%. The Company's influence in Gen O2, Inc. is limited to the
right to elect one member of a five (5) member Board of Directors.
The Company intends to launch, through television advertising, an
aggressive marketing campaign inviting the general public, along with existing
travel agents, to become NetCruise travel consultants, although the "Parallel
Addressing Video Technology" is still in the development stage, and the Company
has only a limited number of travel consultants acquired from Sterling Travel
and does not yet have any internet travel customers to date. The goal of the
Company's marketing campaign is to encourage individuals to enroll as
independent travel consultants by paying a fee to the Company . The independent
travel consultants will then be able to make reservations either through the
password protected members only section of the Netcruise web site or via
telephone conversations with travel agents who work directly for Netcruise.
Non-members who visit the Netcruise web site shall have access to a portion of
the site which contains general information about the Company, describes the
independent travel consultant program and allows the public to request
information or enroll as an independent travel consultant. To date, the web site
is being used for demonstration purposes and is only accessable by authorized
individuals using a password. The Company expects that the web site will not be
fully integrated to support the independent travel consultants until
mid 1999 See Note 4.
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, a private offering and a public offering.
In March 1998, the 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, the 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 share.
In March 1998, the 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.
In September 1995, January 1996 and December 1996, the Company
entered into sale and lease-back 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.
The financing of Loeb Holding Corp. and the sale and lease-back arrangements
entered into by the Company contributed to the original capitalization of the
Company.
Pursuant to an Asset Purchase Agreement, NetCruise ( a wholly owned
subsidiary of the Company formed on July 21, 1998 for the purpose of operating
an internet travel agency) acquired a technology license and certain related
assets from UIT in consideration of 2,000,000 shares of the Company's Common
Stock and two warrants ("Warrants"), each entitling the holder to purchase
800,000 shares of the Common Stock of the Company (the "UIT Transaction"). One
warrant is exercisable for 800,000 shares at $2.50 per share and may be
exercised between April 1, 2002 and June 30, 2002, but only if NetCruise
achieves profits equal to or exceeding $5,000,000 for the years 1999, 2000 and
2001. The other Warrant is exercisable for 800,000 shares at $6.00 per share and
may be exercised between April 1, 2002 and June 30, 2002, but only if NetCruise
achieves profits equal to or exceeding $10,000,000 for the years 1999, 2000 and
2001. No value has been placed on the warrants since the warrants are each
contingent upon future earnings.
The Company has since been advised that the issuance of such securities
has caused the Company to inadvertently be in violation of a Nasdaq MarketPlace
Rule because the issuance of the 2,000,000 shares and Warrants amounted to more
than 20% of the issued and outstanding shares of the Company and were not
approved by Shareholders as required by such Rule. Nasdaq advised the Company
that the Company's Common Stock would be delisted as a result of such violation.
The Company requested a hearing on the delisting which was held on November 20,
1998. Nasdaq issued its written determination on January 12, 1999 to continue
listing the Company's securities on The Nasdaq SmallCap Market pursuant to the
following conditions: (i) the UIT Transaction must be unwound in the event
shareholders do not ratify the acquisition of the technology license and certain
related assets from UIT and approve the issuance of 1,100,00 shares of Common
Stock and tow 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 March 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 a
technology license and certain related assets from UIT.
The Company and UIT have restructured the transaction 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 MarketPlace 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 Common Stock and Warrants prior to the time
that the dividend is payable. Therefore, 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 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, the 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 undone, the
following shall occur: (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 received pursuant to the UIT Transaction and (iii) Mr. Brian
Shuster will return the warrants issued to him by the Company; and (iv) Messrs.
Brian and Harry Shuster will resign from any officer or director position held
by them. 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. Reference should be
made to Pro Forma Condensed Consolidated Financial Statements as of September
30, 1998 and for the nine months then ended for the effect of undoing the UIT
Transaction.
As a result of the transaction, the Company acquired the travel web
site called "Netcruise" and the technology license for "Parallel Addressing
Video Technology" for all travel related applications, along with all of the
related software, computer systems and intellectual properties. This includes
computer equipment, multiple video CD's containing cruise information and source
video tapes of footage of locations and cruise ships. In addition, UIT
transferred to the Company its agreement with Internet Travel Network (ITN), of
Palo Alto, CA. This agreement provides for a "private label" site on the ITN
"booking engine". The agreement expires in April, 1999 and automatically renews
for successive one year periods unless either party gives notice, no later than
30 days prior to the end of the period, of its intent not to renew. The ITN
"booking engine" is essentially a world wide web based graphical user interface
to the airline owned Apollo computerized reservation system. This technology
allows a layperson with access to the internet to access the databases and
pricing systems used by travel agents to research and procure air, car rental
and hotel reservations. By "private labeling" this functionality, the Company is
able to offer its travel consultants access to a leading travel system, while
not having to expend the Company's capital resources which would be required to
create its own access. The Company formed NetCruise as a wholly owned subsidiary
for the purpose of operating an internet travel
business featuring the technology obtained through this acquisition.
The Company intends to launch, through television advertising, an
aggressive marketing campaign inviting the general public, along with existing
travel agents, to become NetCruise travel consultants, although the "Parallel
Addressing Video Technology" is still in the development stage, and the Company
has no travel consultants or customers to date. The goal of the Company's
marketing campaign is to encourage individuals to enroll as independent travel
consultants by paying a fee to the Company . The independent travel consultants
will then be able to make reservations either through the password protected
members only section of the Netcruise website or via telephone conversations
with travel agents who work directly for Netcruise. Nonmembers who visit the
Netcruise website shall have access to a portion of the site which contains
general information about the Company, describes the independent travel
consultant program and allows the public to request information or enroll as an
independent travel consultant. To date, the web site is being used for
demonstration purposes and is only accessible by authorized individuals using a
password. The Company expects that the web site will not be fully integrated to
support the independent travel consultants until mid 1999 . See Note 4.
In addition, the Company currently has only a limited number
of travel consultants acquired from Sterling Travel and no internet travel
customers. The budgeted cost of becoming operational is expected to be
approximately $1,342,000. Of such amount, approximately $198,000 is needed to
complete the web-site. The remainder will be used to produce a television video
infomercial and purchase media time. The Company does not presently have the
funds necessary to finance such development and plans to sell additional stock
to raise the funds needed.
On September 30, 1998, the Company had cash of $606,121 and working
capital of $144,541. As of November 1, 1998, the Company has begun to generate
revenues from shared commissions earned by the network of Sterling Travel
Consultants recently acquired, although these revenues are not expected to be
significant for the balance of the fourth fiscal quarter ending December 31,
1998. 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. The Company
plans to continue the 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 1999. The Company plans to
raise the needed working capital by the sale of additional stock publicly or
privately within the next two months and therefore including anticipated cash to
be received from revenues, the Company estimates that it will have sufficient
resources to provide for its planned operations for the next twelve months. At
the present time the Company does not have any alternative plans to raise
additional funds needed to market or complete development of the web site.
6
<PAGE>
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Report on Form 8-K dated October 29, 1998
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 February , 1999 ____________________________________
Lawrence E. Burk
President and Chief Executive Officer
Date February , 1999 ____________________________________
John H. Wasko
Secretary, Treasurer and
Chief Financial Officer
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
Date of Report (Date of earliest event reported) July 23, 1999
GENISYS RESERVATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New Jersey
(State or Other Jurisdiction of Incorporation)
1-12689 22-2719541
(Commission File Number) (I.R.S. Employer Identification No.)
2401 Morris Avenue, Union, New Jersey 07083
(Address of principal executive offices) (Zip Code)
- --------------------------------------------------------
(908) 810-8767
(Registrant's telephone number, including area code)
- ---------------------------------------------------------------
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
Pursuant to the Asset Purchase Agreement dated as of June
30, 1998, NetCruise (a wholly owned subsidiary of the Company formed on July 21,
1998 for the purpose of operating an internet travel agency) acquired a
technology license and certain related assets from UIT in consideration of
2,000,000 shares of the Company's Common Stock valued at $1.25 per share , for
an aggregate of $2,500,000 and two warrants ("Warrants"), each entitling the
holder to purchase 800,000 shares of the Common Stock of the Company (the "UIT
Transaction"). One warrant is exercisable for 800,000 shares at $2.50 per share
and may be exercised between April 1, 2002 and June 30, 2002, but only if
NetCruise achieves profits equal to or exceeding $5,000,000 for the years 1999,
2000 and 2001. The other Warrant is exercisable for 800,000 shares at $6.00 per
share and may be exercised between April 1, 2002 and June 30, 2002, but only if
NetCruise achieves profits equal to or exceeding $10,000,000 for the years 1999,
2000 and 2001. No value has been placed on the warrants since each is contingent
upon future earning.
The Asset Purchase Agreement speaks as of June 30, 1998
and the Company has also booked the transaction for financial
purposes as of that date.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits
1. Asset Purchase Agreement dated as of June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Genisys Reservation Systems, Inc.
(Registrant)
By:___________________________
John Wasko, Treasurer
DATED:
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of June 30th, 1998 (together with
the Exhibits attached hereto, the "Agreement"), by and among United Leisure
Interactive, Inc., a Delaware corporation ("Seller"), NetCruise Interactive,
Inc., a New Jersey Corporation and a wholly-owned subsidiary of Genisys
("Purchaser"), GENISYS RESERVATION SYSTEMS, INC., a New Jersey corporation
("Genisys"), and United Leisure Corporation, A Delaware corporation ("ULC").
W I T N E S S E T H:
WHEREAS, ULC is the sole shareholder of Seller and the owner of certain
interactive technology which is the subject of a patent application (No.
08/899.712) filed by ULC with the United States Patent Office in July, 1997 (the
"Technology"); and which amongst other things allows the consumer to "Be Your
Own Travel Agent," and
WHEREAS, ULC has granted to Seller an exclusive, world-wide and
perpetual license to use the Technology for all travel related applications (but
for no other applications whatsoever), which grant has been confirmed by a
writing between ULC and Seller dated June 19, 1998, a copy of which is attached
as Exhibit A hereto (the "License"); and
WHEREAS, Seller wishes to sell to Purchaser, and Purchaser wishes to
purchase from Seller, all of Seller's right, title and interest in and to (i)
the business of Netcruise and technology which allows the consumer to "Be Your
Own Travel Agent" (ii) the License, and (iii) the assets owned by Seller and
described in Exhibit B hereto (collectively, the "Assets") upon the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, the parties hereby agree as follows:
1. Upon the terms and subject to the conditions of this
Agreement, Seller shall sell to Purchaser, and Purchaser shall purchase from
Seller, the Assets, free and clear of all liens and encumbrances, for an
aggregate price of 2,000,000 shares of Genisys Restricted Common Stock (the
"Shares") as described hereinafter. Upon tender to Purchaser of a bill of sale
for the Assets, Purchaser shall deliver to Seller certificates for the shares
which shall bear the appropriate legends describing the restrictions which shall
apply (see Exhibit E).
<PAGE>
2. As an inducement to the Purchaser to enter into this
Agreement, Seller hereby represents and warrants to the Purchaser as follows:
(a) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all necessary corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. Seller has its shareholder approval to consummate this
Agreement. This Agreement constitutes the valid and legally binding obligation
of Seller and ULC, enforceable in accordance with its terms and conditions. This
transaction does not involve the sale of a significant percentage of the
business or assets of ULC and does not require the approval of the ULC
shareholders.
(b) Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgement, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Seller or ULC are subject or any provision of Seller or ULC's
charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
Seller or ULC are a party or by which they are bound or to which any of their
assets are subject (or result in the imposition of any Security Interest upon
any of their assets) other than in connection with the provisions of the
Securities Exchange Act, the Securities Act and states securities laws. Neither
Seller nor ULC need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the parties to consummate the transactions contemplated by this
Agreement.
(c) Attached as Exhibit B hereto is a true, correct and complete copy of the
list of Assets and the cost incurred by Seller of acquiring each of such Assets.
Seller is the sole owner of the Assets and such Assets are free and clear of any
Security interests. Such assets consist of all material assets necessary to
conduct the business being purchased pursuant to this Agreement.
(d) The Seller will provide to Purchaser substantially all invoices, accounting
records and such other evidence supporting the information contained in Exhibit
B.
(e) Exhibit B attached hereto sets forth a true and complete list and a brief
description of all intellectual property owned by or licensed to Seller which
are being transferred to Purchaser. All owned intellectual property is owned by
the Seller free and clear of any encumbrance, and the Seller has a valid license
to use all licensed intellectual property in the manner in which it is currently
being used. No claims have been made, asserted or threatened against the Seller
relating to its ownership or use of any intellectual property. The Seller has
the right to transfer any licenses included in this transaction.
<PAGE>
(f) There are no claims, actions, suits, proceedings or investigations pending
before any federal, state, municipal or other court, governmental body or
arbitration tribunal, or threatened against or affecting Seller's business or
assets or the transactions contemplated by this Agreement, or any of the other
documents or agreements among the parties referred to in this Agreement. There
is no order, decree or judgement of any kind in existence enjoining or
restraining Seller or its officers or employees or requiring any of them to take
any action of any kind in respect of Seller's business.
(g) Purchaser shall be indemnified and held harmless by Seller for any losses or
liabilities incurred by Purchaser arising out of or resulting from the
inaccuracy of any representation or warranty contained in this Section 2.
(h) Seller and ULC have prepared and filed and will file on a timely basis with
the appropriate federal, state, local and foreign governmental agencies all tax
returns required to be filed; such returns as filed were true and correct in all
material respects and Seller has paid or made provision for the payment of all
taxes shown on such returns to be payable or which have or may become due
pursuant to any assessment heretofore received by it.
3. As an inducement to the Seller to enter into this
Agreement, Purchaser and Genisys hereby represent and warrant to the Seller as
follows:
(a) Purchaser and Genisys are corporations duly organized, validly existing and
in good standing under the laws of the State of New Jersey and have all
necessary corporate power and authority to execute and deliver this Agreement
and to perform their obligations hereunder. This Agreement constitutes the valid
and legally binding obligation of Purchaser and Genisys, enforceable in
accordance with its terms and conditions.
(b) The Shares shall be issued as fully paid and non-assessable Common Stock,
having a par value of $.0001 per share out of authorized and unissued stock of
Genisys, subject to the provisions of Exhibit E.
(c) Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgement, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Purchaser or Genisys are subject or any provision of Purchaser's
or Genisys' charter or bylaws or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which Purchaser or Genisys is a party or by which they are bound or to which
any of their assets are subject (or result in the imposition of any Security
Interest upon any of their assets) other than in connection with the provisions
of the Securities Exchange Act, the Securities Act and states securities laws.
Neither Purchaser nor Genisys needs to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the parties to consummate the transactions
contemplated by this Agreement.
<PAGE>
(d) Purchaser and Genisys have prepared and filed and will file on a timely
basis with the appropriate federal, state, local and foreign governmental
agencies all tax returns required to be filed; such returns as filed were true
and correct in all material respects and Purchaser and Genisys have paid or made
provision for the payment of all taxes shown on such returns to be payable or
which have or may become due pursuant to any assessment heretofore received by
them.
4. ULC agrees to cooperate and assist Purchaser to maintain and operate the
Technology in consideration of the two common stock purchase warrants attached
hereto as Exhibit C to be issued to Seller for the purchase of restricted shares
of Genisys common stock. Both warrants are exercisable between April 1, 2002 and
June 30, 2002. The services of Robert Eady shall be made available full time for
a period of three months commencing on July 15th, 1998, and thereafter as and
when required by Purchaser and Genisys. (a) The "X" warrant is for 800,000
shares exercisable at $2.50 per share if the total pretax profits, as defined in
the warrant, for the years 1999, 2000 and 2001 from the business and assets
being purchased equal or exceed $5,000.000.
(b) The "Y" warrant is for 800,000 shares exercisable at $6.00 per share if the
total pretax profits, as defined in the warrant, for the years 1999, 2000 and
2001 from the business and assets being purchased equal or exceed $10,000,000.
5. For a period of three years from the date hereof, Harry Shuster shall be
Chairman of the Purchaser and Brian Shuster shall be President. Each of them
shall be elected to the Board of Directors of Genisys promptly after the closing
of the transaction referred to herein. The Board of Directors shall nominate and
recommend to the Genisys shareholders the election of Harry Shuster and Brian
Shuster as Directors of Genisys for each of the three years following the date
hereof. Brian Shuster shall receive $5,000 per month for his services and will
be expected to devote approximately 30 - 40% of his time to the affairs of
Genisys. In addition, Brian Shuster shall receive two stock purchase warrants
attached hereto as Exhibit D each for 200,000 restricted shares of Genisys
common stock exercisable between April 1, 2002 and June 30th, 2002. The "V"
warrant is exercisable at $2.50 per share if the total pretax profits, as
defined in the warrant attached hereto as Exhibit D equal or exceed $5,000,000
for the years 1999, 2000 and 2001. The "W" Warrant is for 200,000 shares and is
exercisable at $6.00 per share if such total pretax profits equal or exceed
$10,000,000.
6. Seller has no liability or obligation to pay any fees or commissions to any
broker, finder or agent with respect to the transaction contemplated by this
Agreement.
7. Subject to obtaining the required consent of the Landlord, Seller shall
assign to Purchaser, and Purchaser shall assume all of Seller's obligations
under, that certain Commercial Lease dated March 1, 1996 between Seller and 1990
Westwood Blvd., Inc., a copy of which is attached as Exhibit F hereto.
<PAGE>
8. This Agreement shall be governed by and interpreted in accordance with, the
laws of the State of New Jersey. Any litigation which may be brought by either
party will be filed in a Court of Law in the State of New Jersey.
9. ULC hereby agrees with Purchaser that now and forever it will not enter any
facet of the travel industry in competition with Genisys or the business being
purchased.
10. This Agreement shall be binding upon the parties hereto and their respective
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date written above.
UNITED LEISURE CORPORATION UNITED LEISURE INTERACTIVE, INC.
SELLER
Harry Shuster Harry Shuster
Chairman and Chief Executive Chairman and Chief Executive
Officer Officer
NETCRUISE INTERACTIVE,INC. GENISYS RESERVATION SYSTEMS,INC.
PURCHASER
- --------------------------- -------------------------------
Larry Burk Larry Burk
President and Chief Executive President and Chief Executive
Officer Officer
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
Date of Report (Date of earliest event reported) October 28, 1998
GENISYS RESERVATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New Jersey
(State or Other Jurisdiction of Incorporation)
1-12689 22-2719541
(Commission File Number) (I.R.S. Employer Identification No.)
2401 Morris Avenue, Union, New Jersey 07083
(Address of principal executive offices) (Zip Code)
- --------------------------------------------------------
(908) 810-8767
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. Other Events
Pursuant to the Asset Purchase Agreement dated as of June 30, 1998,
NetCruise (a wholly owned subsidiary of the Company formed on July 21, 1998 for
the purpose of operating an internet travel agency) acquired a technology
license and certain related assets from UIT in consideration of 2,000,000 shares
of the Company's Common Stock valued at $1.25 per share, for an aggregate of
$2,500,000 and two warrants ("Warrants"), each entitling the holder to purchase
800,000 shares of the Common Stock of the Company (the "UIT Transaction"). One
warrant is exercisable for 800,000 shares at $2.50 per share and may be
exercised between April 1, 2002 and June 30, 2002, but only if NetCruise
achieves profits equal to or exceeding $5,000,000 for the years 1999, 2000 and
2001. The other Warrant is exercisable for 800,000 shares at $6.00 per share and
may be exercised between April 1, 2002 and June 30, 2002, but only if NetCruise
achieves profits equal to or exceeding $10,000,000 for the years 1999, 2000 and
2001. No value has been placed on the warrants since each is contingent upon
future earning.
The Company has since been advised that the issuance of such securities
has caused the Company to inadvertently be in violation of a Nasdaq MarketPlace
Rule because the issuance of the 2,000,000 shares and Warrants amounted to more
than 20% of the issued and outstanding shares of the Company and were not
approved by Shareholders as required by such Rule. Nasdaq advised the Company
that the Company's Common Stock would be delisted as a result of such violation.
The Company requested a hearing on the delisting which was held on November 20,
1998.
Nasdaq issued its written determination on January 12, 1999 to
continue listing the Company's securities on The Nasdaq SmallCap Market pursuant
to the following conditions: (i) the UIT Transaction must be unwound in the
event shareholders do not ratify the acquisition of the technology license and
certain related assets from UIT and approve the issuance of
1,100,000 shares of Common Stock and the 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 March 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 a technology license and certain
related assets from UIT.
The Company and UIT have restructured the transaction 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 MarketPlace 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 Common Stock
and Warrants prior to the time that the dividend is payable. Therefore, 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 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, the transaction will be unwound. In such event the
Company estimates that the cost to undo the transaction will not exceed $50,000
to be used for accounting fees, legal fees, recording fees and employee
termination fees.
Harry Shuster has been appointed Chairman and Brian Shuster the
President of NetCruise. Pursuant to the acquisition agreement, Mr. Brian Shuster
will receive $5,000 per month for his services as a consultant to the Company.
In addition, Messrs. Harry Shuster and Brian Shuster have been serving as
directors of the Company since the transaction closed and both have been
nominated for election as directors of the Company.
ITEM 7. Financial Statements and Exhibits.
(c) Exhibits
1. Copy of Agreement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Genisys Reservation Systems, Inc.
(Registrant)
By:___________________________
John Wasko, Treasurer
DATED:
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 June 30, 1998)
Commission File Number 1-12689
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, 1998: 6,755,594 shares
of Common Stock
Transitional Small Business Disclosure Format (check one)
Yes X No
<PAGE>
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<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
June December
30, 1998 31, 1997
--------------- ---------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,152,873 $2,207,841
Accounts receivable 18,721 8,784
Prepaid expenses 19,129 5,127
--------------- ---------------
Total Current Assets 1,190,723 2,221,752
--------------- ---------------
EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION 310,601 261,643
--------------- ---------------
OTHER ASSETS:
Computer software costs, less accumulated
amortization 2,035,592 581,193
Debit issue costs, less accumulated amortization 17,217 26,609
Deposits and Other 57,604 61,669
Licenses and Intellectual Property 1,000,000 -
--------------- ---------------
--------------- ---------------
3,110,413 669,471
--------------- ---------------
=============== ===============
$4,611,737 $3,152,866
=============== ===============
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current maturities of long-term debt $118,379 $114,957
Accounts payable and accrued expenses 158,552 189,712
Accrued interest payable - related party 174,475 163,296
Accrued consulting fees - related party 9,000 3,000
--------------- ---------------
Total current liabilities 460,406 470,965
LONG-TERM DEBT:
Long-term debt, less current maturities 98,931 982,742
--------------- ---------------
Total Liabilities 559,337 1,453,707
--------------- ---------------
COMMITMENTS:
STOCKHOLDERS EQUITY (DEFICIENCY):
Preferred Stock, $.0001 par value: 25,000,000 shares
authorized: Series A preferred stock, 706,000
shares authorized: 381,177 shares issued and
outstanding 38 -
Common Stock, $.0001 par value; 75,000,000 shares
authorized; 6,755,594 shares issued and
outstanding 676 436
Additional paid in capital 8,281,073 4,933,851
Deficit Accumulated During the Development Stage (4,229,387) (3,235,128)
--------------- ---------------
Total Stockholders Equity 4,052,400 1,699,159
--------------- ---------------
$4,611,737 $3,152,866
=============== ===============
See Accompanying Notes to Financial Statements
2
<PAGE>
From Inception
Six Months Six Months Three Months Three Months March 7, 1994
Ended Ended Ended Ended Through
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998
SERVICE REVENUE $ 29,874 $ - $ 15,053 $ - $55,737
EXPENSES:
Cost of Service 47,214 - 27,549 - 72,206
General and Administrative 783,843 473,238 371,081 258,221 3,459,741
Depreciation and Amortization 196,077 64,056 100,045 32,184 529,971
Interest Expense (Income), net (3,001) 54,750 (10,327) 7,932 223,206
1,024,133 592,044 488,348 298,337 4,285,124
NET (LOSS) INCURRED DURING
THE DEVELOPMENT STAGE ($994,259) ($592,044) ($473,295) ($298,337) ($4,229,387)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,614,158 3,882,666 4,777,572 4,330,660 2,942,322
BASIC AND DILUTED LOSS PER
COMMON SHARE ($0.22) ($0.15) ($0.10) ($0.07) ($1.44)
See Accompanying Notes to Financial Statements
3
<PAGE>
Deficit
Accumulated
Additional During the
Series A Preferred Stock Paid-in Development
Shares Par Value Shares Par Value Capital Stage Total
BALANCE - DECEMBER 31, 1997 4,355,594 $436 - - $4,933,851 ($3,235,128) $1,699,159
CONVERSION OF LONG-TERM
DEBT INTO SERIES A PREFERRED
STOCK AT $2.125 PER SHARE - - 381,177 38 809,962 - 810,000
CONVERSION OF NOTES PAYABLE
INTO COMMON STOCK AT
$0.09375 PER SHARE 400,000 40 - - 37,460 - 37,500
ISSUANCE OF COMMON STOCK
AT $1.25 PER SHARE FOR ACQUISITION
OF UNITED LEISURE INTERACTIVE 2,000,000 200 - - 2,499,800 - 2,500,000
NET LOSS - - - - - ($994,259) ($994,259)
BALANCE AT JUNE 30, 1998 6,755,594 $ 676 381,177 $ 38 $8,281,073 ($4,229,387) $4,052,400
See Accompanying Notes to Financial Statements
4
<PAGE>
GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
Development Stage Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Period From
March 7, 1994
(Commencement of
Development Stage
Six Months Ended Six Months Ended Activities to
------------------ -------------------
June 30,1998 June 30, 1998 June 30,1998
------------------ ------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (994,259) $ (592,044) $ (4,229,387)
Adjustments to reconcile net loss to net
cash flows from operating activities
Depreciation and amoritization 196,077 64,056 529,971
Contribution to capital of services rendered - - 49,600
Changes in operating assets and liabilities
Accounts receivable (9,937) - (18,721)
Prepaid expenses (14,002) (26,575) (19,369)
Deposits and other 3,945 - (58,378)
Accounts payable and accrued expenses (13,981) (225,077) 326,001
------------------ ------------------- ------------------
Net cash flows from operating acctivities (832,157) (779,640) (3,420,283)
------------------ ------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and software (189,922) (181,649) (1,294,896)
Acquisition of Prosoft, Inc. - (34,602) (34,602)
------------------
Net cash flows from investing activities (189,922) (216,251) (1,329,498)
------------------ ------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 9,652 70,000 14,652
Payments on long-term debt (847,500) (65,000) (925,840)
Proceeds from public offering of common stock
and warrants net of deferred offering costs - 4,661,124 4,507,915
Conversion of convertible notes payable
to common stock 37,500 - 67,500
Conversion of long-term debt to Series A
Preferred Stock 810,000 - 810,000
Issuance of common stock upon exercise of option - 15,000 15,000
Loans and advances from related parties - (9,500) -
Proceeds from issuance of notes payable - - 955,000
Payments under computer equipment leases (42,541) (38,972) (105,617)
Proceeds from sale and lease-back - - 294,644
Proceeds from issuance of common stock - - 110,000
Contribution to capital - stockholder/officer - 19,700 205,400
Proceeds from issuance of 10% promissory notes
and related warrants, less related costs - - 517,500
Payments on 10% promissory notes and related
warrants - (563,500) (563,500)
------------------- ------------------
Net cash flows from financing activities (32,889) 4,088,852 5,902,654
------------------ ------------------- ------------------
NET CHANGE IN CASH AND EQUIVALENTS (1,054,968) 3,092,961 1,152,873
CASH AND EQUIVALENTS, BEGINNING OF YEAR 2,207,841 91,548 -
------------------ ------------------- ------------------
CASH AND EQUIVALENTS, END OF PERIOD $ 1,152,873 $ 3,184,512 $ 1,152,873
------------------ ------------------- ------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 22,203 $ 60,463 $ 162,701
------------------ ------------------- ------------------
Net liabilities assumed in reverse acquisition $ - $ - $ 14,087
------------------ ------------------- ------------------
Conversion of related party debt to common stock $ - $ - $ 20,109
------------------ ------------------- ------------------
Conversion of long-term debt to Series A Preferred
Stock $ 847,500 $ $847,500
------------------ ------------------- ------------------
Conversion of notes payable to common stock $ 37,500 $ 30,000 $ 67,500
------------------ ------------------- ------------------
Issuance of common stock to acquire travel
related assets $ 2,500,000 $ - $ 2,500,000
------------------ ------------------- ------------------
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
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.
Note 2 Activities of the Company
Although planned principal operations have commenced, revenues
to date have not been significant; accordingly, the Company and its subsidiaries
continue to be in the development stage. The Company has developed a
computerized limousine reservation and payment system for the business traveler.
The Company anticipates that the proprietary software will enable a system of
limousine reservations to be completely computerized and operate without human
intervention, except for the initial inputting of travel information.
Note 3 Stockholders Equity
Preferred Stock - The Company's Certificate of Incorporation authorizes the
issuance of up to 25,000,000 shares of Preferred Stock. On March 10, 1998, the
Board of Directors designated 706,000 shares of Series A Preferred Stock which
are convertible, in whole or in part, into fully paid and nonassessable Common
Shares on a one-for-one basis at the option of the respective holders thereof.
Holders of Series A Preferred Stock are entitled to receive dividends on a pari
passu basis with the holders of the Company's Common Stock. The Company, at its
sole option, has the right to redeem all or, from time to time, any number of
the then outstanding shares of Series A Preferred Stock at a redemption price of
$2.125 per share plus a 10% per year increase in the redemption rate.
In March 1998, the holder 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, the holder 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 share.
6
<PAGE>
Note 4 Asset Acquisition
As of June 30, 1998, the Company through NetCruise
Interactive, Inc. (NetCruise), a wholly owned subsidiary, acquired the exclusive
and worldwide rights and license for "Parallel Addressing Video Technology" for
all travel related applications from a wholly owned subsidiary of United Leisure
Corporation. In addition, the Company acquired all of the software, computer
systems and intellectual properties related to the travel business, including
the Travel Web Site called "NetCruise.com" . The Company intends to operate an
internet travel agency featuring the technology and assets acquired.
The United Leisure Corporation subsidiary was issued 2,000,000
shares of the Company's restricted common stock plus two common stock purchase
warrants for restricted common shares of the Company as consideration for the
transaction. Both warrants are exercisable between April 1, 2002 and June 30,
2002, if NetCruise achieves certain profit levels, as defined in the purchase
agreement. One warrant is exercisable for 800,000 shares at $2.50 per share and
the other warrant is exercisable for 800,000 shares at $6.00 per share.
The purchase of these assets has been recorded as of the date
of purchase at the total purchase price of $2,500,000 which includes $1,450,000
of computer software, $1,000,000 of licenses and intellectual properties and
$50,000 of computer equipment.
Harry Shuster will become Chairman and Brian Shuster will
become President of NetCruise and both will be appointed directors of the
Company. Brian Shuster will be issued two warrants to purchase restricted common
shares of the Company, exercisable between April 2, 2002 and June 30, 2002, if
NetCruise achieves certain profit levels, as defined in the warrants. One
warrant is exercisable for 200,000 shares at $2.50 per share and the other
warrant is exercisable for 200,000 shares at $6.00 per share.
Note 5 Contingencies
On February 20, 1997, two individuals filed an action against
the Company and Corporate Travel Link ("Travel Link") in the Superior Court of
New Jersey seeking, among other things, damages in the amount of 8% of any
financing secured by Travel Link resulting from plaintiffs efforts and as well
as 5% of the Company's Common Stock allegedly due for services rendered in
connection with the Company's acquisition of Travel Link in 1995. The claim for
monetary damages is based upon an alleged written agreement between Travel Link
and plaintiffs, while the claim for the shares of the Company's Common Stock is
based upon alleged oral representations and promises made by a former officer of
Travel Link. The Company believes that the plaintiff's claim are without merit
and intends to vigorously defend the action and to assert numerous defenses in
its answer. On March 4, 1998, Travel Link filed an application with the Court to
assert a claim for indemnification against Joseph Cutrona and Steven Pollan, two
former directors and officers of Travel Link and the Company and, Mark A. Kenny,
currently a director and employee of the Company and Travel Link, based upon a
1995 agreement whereby such individuals agreed to hold Loeb Holding Corporation
and Travel Link harmless and to indemnify them from any and all claims or
liabilities for brokerage commissions or finder's fees incurred by reason of any
action taken by it or them, including the claims of the plaintiff's in this
action.
In August 1996, the Company gave notice to one of its former
officers that it was canceling the 333,216 shares of Common Stock issued to him
at the inception of Corporate Travel Link, Inc. for services he was to have
provided. The Company believes that the former officer never provided such
services. Pending return of the shares, they are considered outstanding for all
periods presented herein. On April 17, 1997, the 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 judgment
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
7
<PAGE>
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.
On December 23, 1997, an individual filed an action in the
Superior Court of New Jersey against the Company and a former officer of the
Company alleging that the former officer 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 former 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company is in the development stage, and just commenced
generating revenues in August 1997. The Company has been unprofitable since
inception and expects to incur additional operational losses. As reflected in
the accompanying financial statements, the Company has incurred losses totaling
$4,229,387 since inception and at June 30, 1998, had working capital of
$730,317.
Revenues for the three and six month periods ended June 30, 1998 were $15,053
and $29,874, as compared to no revenues for the 1997 periods. The corresponding
cost of service for the three and six month periods ending June 30, 1998 were
$27,549 and $47,214.
General and administrative expenses were $783,842 for the six
months ended June 30, 1998, as compared to $473,238 during the six months ended
June 30, 1997. Cost increases during the 1998 period consist of payroll and
payroll related costs ($191,300), professional fees ($84,200), travel costs
($14,300), insurance costs ($8,700), marketing costs ($35,700) and other
administrative costs ($35,300). Consulting costs decreased $58,900 during the
1998 period.
General and administrative expenses were $371,081 for the
three months ended June 30,1998, as compared to $258,221 during the three months
ended June 30, 1997. Cost increases during the 1998 period consist of payroll
and payroll related costs ($70,200), professional fees ($55,800), travel costs
($4,800), insurance costs ($6,900) and marketing costs ($8,800). Cost decreases
during the 1998 period consist of consulting fees ($22,000), and other
administrative ($11,700).
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, a private offering and a public offering.
In March 1998, the holder 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, the holder 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 share.
8
<PAGE>
In March 1998, the holder 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.
As of June 30, 1998, the Company through NetCruise
Interactive, Inc. (NetCruise), its wholly owned subsidiary, acquired the
exclusive and worldwide rights and license for "Parallel Addressing Video
Technology" for all travel related applications from United Internet
Technologies, Inc. formerly known as United Leisure Interactive, Inc., ("UIT") a
wholly owned subsidiary of United Leisure Corporation. In addition, the Company
acquired all of the software, computer systems and intellectual properties
related to the travel business, including the Travel Web Site called
"NetCruise.com" . The Company intends to operate an internet travel agency
featuring the technology and assets acquired. The purchase price for the assets
acquired consisted of 2,000,000 shares of the Company's restricted common stock
valued at $1.25 per share and two common stock purchase warrants fro restricted
common shares of the Company as consideration for the transaction. Both warrants
are exercisable between April 1, 2002 and June 30, 2002, if NetCruise meets
certain profit levels, as defined in the purchase agreement. One warrant is
exercisable for 800,000 shares at $3 per share and the other warrant is
exercisable for 800,000 shares at $6 per share. See Note 4 to the financial
statements.
On June 30, 1998, the Company had cash of $1,152,873 and
working capital of $730,317 Management of the Company estimates that is has
resources including anticipated cash to be received from revenues, to provide
for its planned operations for the next twelve months.
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Asset Purchase Agreement dated June 30, 1998 (b) 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: January 22, 1999 ____________________________________
Lawrence E. Burk
President and Chief Executive Officer
Date: January 22, 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, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,153
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,191
<PP&E> 486
<DEPRECIATION> 175
<TOTAL-ASSETS> 4,612
<CURRENT-LIABILITIES> 460
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,052
<TOTAL-LIABILITY-AND-EQUITY> 4,612
<SALES> 30
<TOTAL-REVENUES> 47
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3)
<INCOME-PRETAX> (994)
<INCOME-TAX> 0
<INCOME-CONTINUING> (994)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (994)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> 0
</TABLE>
