SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(For the Quarter ended March 31, 1999)
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 March 31, 1999: 7,295,409
shares of Common Stock
Transitional Small Business Disclosure Format (check one)
Yes X No
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<S> <C> <C> <C> <C> <C> <C>
March December
31, 1999 31, 1998
------------- -------------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful $101,563 $145,921
accounts of $15,000
Prepaid expenses 50,364 67,174
Total Current Assets 14,670 835
------------- -------------------
166,597 213,930
INVESTMENT IN, AND ADVANCES TO, GEN 02, INC.
547,184 664,204
PROPERTY AND EQUIPMENT
112,429 91,400
COMPUTER SOFTWARE, TECHNOLOGY LICENSE AND
RELATED ASSETS, LESS ACCUMULATED AMORITIZATION
2,328,014 2,376,265
OTHER ASSETS
77,303 94,638
------------- -------------------
$3,231,527 $3,440,437
============= ===================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $31,250 $21,875
Accounts payable and accrued expenses 389,976 208,509
Accrued interest payable - related party 182,069 179,758
------------- -------------------
Total current liabilities 603,295 410,142
------------- -------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 81,250 90,625
------------- -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Preferred Stock, $.0001 par value: 24,294,000 shares
authorized: none oustanding
Series A preferred stock, $.0001 par vlaue, 706,000 shares - -
authorized; Issued and outstanding 381,177 shares
Common Stock, $.0001 par value; 75,000,000 shares 38 38
authorized; issued and outstanding 7,295,409 * shares (1999)
and 6,913,965* shares (1998)
Additional paid in capital 730 691
Deficit Accumulated During the Development Stage 9,075,951 8,518,558
(6,529,737) (5,579,617)
------------- -------------------
Total Stockholders Equity
2,546,982 2,939,670
------------- -------------------
$3,231,537 $3,440,437
============= ===================
*2,000,000 shares issued are subject to shareholder approval (See Note 3).
See Accompanying Notes to Consolidated Financial Statements
2
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Period from
March 7, 1994
(Commencement of
Three Months Three Months Development
Ended Ended Stage Activites) to
March 31, 1999 March 31, 1998 March 31, 1999
--------------- -------------- --------------
SERVICE REVENUES $ 80,533 $ 14,821 $ 222,073
--------- --------- ---------
EXPENSES:
Cost of Service 31,299 19,665 210,569
General and Administrative:
Payroll 190,743 202,253 2,151,278
Professional Fees 272,347 78,425 1,225,901
Travel & Entertainment 12,035 16,510 227,688
Advertising & Promotion 5,925 16,735 208,150
Other 103,154 98,838 1,099,449
Depreciation and Amortization 221,658 96,032 1,109,666
Interest Expense (Income), net (818) 7,327 204,881
836,343 535,785 6,437,582
------- ------- ---------
LOSS BEFORE EQUITY IN GEN 02, INC. (755,810) (520,964) (6,215,509)
EQUITY IN LOSS FOR GEN 02, INC. (194,310) - (314,228)
--------- ---------
NET (LOSS) INCURRED DURING
THE DEVELOPMENT STAGE ($950,120) ($520,964) ($6,529,737)
========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,282,802 4,378,927 3,501,018
--------- ---------
BASIC AND DILUTED LOSS PER
COMMON SHARE ($0.13) ($0.12) ($1.87)
------- ------- -------
See Accompanying Notes to Consolidated Financial Statements
3
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Deficit
Accumulated
Common Stock * Additional During the
Series A Preferred Stock Paid-in Development
Shares Par Value Shares Par Value Capital Stage Total
------ --------- ------ --------- ------- ----- -----
Balance - December 31, 1998 6,913,965 $691 381,177 38 $8,518,558 ($5,579,617) $2,939,670
PROCEEDS FROM PRIVATE PLACEMENT 340,000 34 - - 487,966 - 488,000
OF COMMON STOCK, NET EXPENSES
ISSUANCE OF STOCK UPON
SAMMYS TRAVEL WORLD
ACQUISITION 36,600 4 - - 54,896 - 54,900
COMMON STOCK ISSUED TO FORMER OFFICERS 4,844 1 - - 14,531 - 14,532
NET LOSS - - - - - (950,120) (950,120)
BALANCE AT MARCH 31, 1999 7,295,409 $ 730 381,177 $ 38 $9,075,951 ($6,529,737) $2,546,982
========== ====== ======== ===== =========== ============ ==========
*2,000,000 SHARES ISSUED ARE SUBJECT TO SHAREHOLDER APPROVAL (NOTE 3)
See Accompanying Notes to Consolidated Financial Statements
4
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GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
Development Stage Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Period From
March 7, 1994
(Commencement of
Development Stage
Three Months Ended Three Months Ended Activities to
March 31,1999 March 31,1998 March 31,1999
------------------ ------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($950,120) ($520,964) ($6,529,737)
Adjustments to reconcile net loss to net
cash flows from operating activities
Equity in loss of Gen 02, Inc. since its inception 194,310 - 314,228
Depreciation and amoritization 221,658 96,032 1,090,055
Contribution to capital for services rendered - - 49,600
Changes in operating assets and liabilities:
Accounts receivable 16,810 (995) (51,270)
Prepaid expenses (15,505) (13,970) (28,350)
Deposits and other 11,063 - (57,620)
Accounts payable and accrued expenses 176,934 (26,848) 558,691
Net cash flows from operating acctivities (344,850) (466,745) (4,654,403)
------------------ ------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and software (124,750) (93,238) (1,674,732)
Acquisition of Prosoft, Inc. - - (34,601)
Acquisition of Sammys Travel World (54,900) - (54,900)
Advanced to GEN 02, Inc. (77,290) - (117,290)
------------------ ------------------ -------------------
Net cash flows from investing activities (256,940) (93,238) (1,881,523)
------------------ ------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt - - (171,326)
Proceeds from public offering of common stock
and warrants net of deferred offering costs - - 4,507,915
Issuance of common stock for business acquisitions 54,900 - 92,400
Contribution to capital - stockholder/officer - - 205,400
Proceeds from issuance of notes payable - 9,093 955,000
Payments under computer equipment leases - (22,555) (63,076)
Proceeds from sale and lease-back - - 294,644
Proceeds from sale of common stock 502,532 - 812,532
Proceeds from issuance of 10% promissory notes
and related warrants, less related costs - - 517,500
Payments of 10% promissory notes - - (563,500)
Other - - 50,000
------------------ ------------------ -------------------
Net cash flows from financing activities 557,432 (13,462) 6,637,489
------------------ ------------------ -------------------
NET CHANGE IN CASH AND EQUIVALENTS (44,358) (573,445) 101,563
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 145,921 2,207,841 -
------------------ ------------------ ------------------
CASH AND EQUIVALENTS, END OF PERIOD $ 101,563 $ 1,634,396 $ 101,563
------------------ ------------------ -------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ $ 13,506 $ 168,322
------------------------------------- ---------
Issuance of common stock for UIT assets $ $ - $ 2,500,000
---------------------------------------------------------
Conversion of related party debt to common stock $ $ - $ 57,609
---------------------------------------------------------
Conversion of convertible notes payable to common
stock $ $ - $ 30,000
---------------------------------------------------------
Conversion of related party debt into Series A
preferred stock $ $ 810,000 $ 810,000
-------------------------------------------- ---------
Net assets exchanged for investment in GEN 02, Inc. $ $ - $ 744,122
---------------------------------------------------------
See Accompanying Notes to Financial Statements
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GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
DEVELOPMENT STAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 Basis of Presentation
The consolidated balance sheet at the end of the preceding
fiscal year has been derived from the audited consolidated balance sheet
contained in the Company's Form 10-KSB and is presented for comparative
purposes. All other financial statements are unaudited. In the opinion of
management, all adjustments which include only normal recurring adjustments
necessary to present fairly the financial position, results of operations and
cash flows of all periods presented have been made. The results of operations
for interim periods are not necessarily indicative of the operating results for
the full year.
Footnote disclosures normally included in financial statements
prepared in accordance with the generally accepted accounting principles have
been omitted in accordance with the published rules and regulations of the
Securities and Exchange Commission. These consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Form 10-KSB for the most recent fiscal year.
In accordance with AICPA Statement of Position 98-1 the
Company capitalizes the direct cost of materials, services and interest consumed
in the development of computer software. Such costs, as well as the cost of
acquired technology licenses and related assets, are being amortized over five
years, subject to periodic evaluation for impairment.
Note 2 Activities of the Company
The accompanying financial statements of the Company have been
presented on the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has reported net losses since inception and expects to
incur additional operating losses over the next several quarters. The Company
has also experienced liquidity difficulties since inception, and in order to
continue the marketing and sales efforts of the Company's Internet travel
business may need additional financing. The Company has financed its operations
since inception with the proceeds from the issuance of long-term debt, with the
proceeds from its public and private offerings and loans from a related party.
As of November 5, 1998, the Company began generating revenues
from shared commissions earned by the network of Sterling Travel Consultants
recently acquired, although these revenues were not significant through the
fiscal quarter ended March 31, 1999. Management of the Company expects the
Internet travel business to be fully operational in mid-1999 and is planning to
begin television marketing of the Company's products in mid-1999. These efforts
are expected to significantly increase revenues in 1999. The Company plans to
continue an aggressive marketing campaign as well as expand its network of
travel consultants throughout 1999. The Company expects its operations to
achieve break-even by the end of fiscal 1999. The Company has also begun to
receive contingent payments from GEN 02 although these payments were not
significant through the fiscal quarter ended March 31, 1999. The Company
completed a private placement of common stock in January 1999 and received gross
proceeds of $1,500,000 of which $200,000 was received in 1998 and $510,000 in
1999. With these proceeds and anticipated cash to be received from revenues, the
Company believes 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 its web site or to fund cash shortfalls should
anticipated revenues not be achieved. Additionally, as a result of the sale of
the limousine
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reservation business to GEN 02, Inc., the Company has limited its post-December
31, 1998 cash outflow for the limousine reservation business to $140,000 (which
is the balance remaining on the Company's loan commitment to GEN 02, Inc.) As
the Company moves from the development stage to the operating stage of the
internet travel business and continues its aggressive marketing campaign to
build its network of independent travel consultants, revenues are expected to
increase. The Company is completing production of its TV infomercial and intends
to begin its television media campaign in September 1999. Test marketing of the
infomercial is expected to produce 2,000 new independent travel consultants, as
well as commissions derived from the increased volume of travel booked by the
independent travel consultants will also contribute to increased revenues.
Reference should be made to "Management's Discussion and
Analysis of Financial Condition and Results of Operations" include elsewhere
herein for additional information.
Note 3 Acquisition
Net Cruise - As of June 30, 1998, the Company's newly formed
subsidiary, NetCruise Interactive, Inc. ("NetCruise") acquired computer
software, a technology license and related assets from United Leisure
Interactive, Inc. ("UIT") in exchange for 2,000,000 shares of the Company's
stock and two warrants ("Warrants"). Subsequently, the Company was advised that
because the issuance of 2,000,000 shares and warrants exceeded 20% of the Issued
and outstanding shares, shareholder approval was required by a NASDAQ rule.
NASDAQ has agreed to continue listing the Company's securities on the NASDAQ
Small Cap Market pursuant to the following conditions: (i) the UIT Transaction
must be unwound in the event shareholders do not ratify the acquisition of the
software, technology license and certain related assets from UIT and approve the
issuance of 1,100,000 shares of Common Stock and two Stock Purchase Warrants to
UIT; (ii) the Company must file a Definitive Proxy Statement with the Securities
and Exchange Commission and NASDAQ on or before February 15, 1999; and (iii) the
Company must submit documentation to NASDAQ on or before April 15, 1999
evidencing either the receipt of shareholder approval of the issuance of
additional shares to UIT or the unwinding of the issuance of additional shares
to UIT and purchase of the technology license and certain related assets from
UIT. The Company has requested an extension from NASDAQ with respect to the
deadline to July 31, 1999.
The Company and UIT have restructured the transactions so
that UIT will return to the Company 1,100,000 shares of the Company's Common
Stock (retaining 900,000 shares that are not in violation of the NASDAQ Market
Place Rule) and the Warrants. The Company will issue to UIT 1,100,000 shares of
Convertible Series B Preferred Stock (the "Series B Preferred Stock"), which
Series B Preferred Stock is automatically convertible into 1,100,000 shares of
the Company's Common Stock upon Shareholder approval of the issuance of the
1,100,000 shares of Series B Preferred Stock and the Warrants. The Series B
Preferred Stock is non-voting stock and carries a mandatory dividend of $275,000
payable on September 30, 1999 and a mandatory quarterly dividend at the rate of
$68,750 commencing with the quarter ended December 31, 1999. No dividend will be
payable if the Shareholders approve the issuance of the 1,100,000 shares Common
Stock and Warrants prior to the time that the dividend is payable. Therefore,
the total purchase in the UIT Transaction is 900,000 shares of the Company's
Common Stock and 1,100,000 shares of the Company's Series B Convertible
Preferred Stock. If shareholders ratify the acquisition, the Series B
Convertible Preferred Stock will automatically be converted into 1,100,000
shares of the Company's Common Stock and the Company will issue two warrants,
each to purchase 800,000 shares of Common Stock, as outlined above.
In the event shareholders do not ratify the acquisition of the
assets and approve the issuance of 1,100,000 shares of Common Stock and two
stock purchase warrants, the UIT Transaction will be unwound. In such event, the
Company estimates that the cost to undo the transaction will not exceed $50,000.
This estimate includes accounting fees, legal fees, recording fees and employee
termination fees. In the event that the UIT Transaction must be unwound, (i) the
Company shall reassign the technology
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license and return the related assets to UIT; (ii) UIT will return to the
Company all stock certificates and warrants received pursuant to the UIT
Transaction and (iii) Mr. Brian Shuster will return the warrants issued to him
by the Company; and (iv) 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.
In February 1999, the Company acquired Sammy's Travel World. Inc. a travel
agency for 36,600 shares of common stock valued at $1.50 per share ($54,900).
Accounting - For accounting purposes, the fair value of the
shares has been allocated to the assets acquired based upon management's
estimate of the relative fair values. No value has been placed on the warrants
issued UIT or on the contingent shares issuable to Sterling, as the value is
contingent upon future earnings. When the contingency is resolved, the fair
value of the warrants and shares will be treated as an additional cost of the
acquisitions.
Pro forma results assuming the acquisitions had occurred as of
January 1, 1998 have not been presented, as the acquisitions of Sterling and
Sammy's were not deemed significant and the acquisition of assets from UIT was
not of a business.
The acquisition of assets from UIT is subject to ratification
by the shareholders. (Reference should be made to "Pro Forma Financial
Statements" appearing elsewhere herein for description of the effects recission.
Note 4 - Stockholders' Equity
Cancellation of Shares - In August 1996, the Company gave
notice to a former officer and director of the Company that it was canceling the
333,216 shares of its common stock which had been issued to the former officer
in connection with services to be provided at the inception of Travel Link. Such
cancellation relates to various claims made by the Company against the former
officer and failure to provide services to the Company. The former officer has
contested the attempt by the Company to cancel his shares. Pending return of the
shares, they are considered outstanding for all periods presented herein. (See
Note 5 for information concerning litigation commenced by the former officer.)
Contingent Shares - In connection with the Sterling
acquisition described in Note 3, an additional
17,500 shares were placed in escrow and will be released in the event the
Company achieves $3,000,000 of gross sales during the twelve months ended
October 31, 1999.
Note 5 Contingencies
On April 17, 1997, a former officer of the Company filed an
action in the United States District Court, District of New Jersey, against the
Company, Travel Link, the officers of both companies, and various related and
unrelated parties seeking among other things a declaratory judgement that the
former officer is the owner of the 333,216 shares of Common Stock of the Company
which had been issued to him at the inception of Travel Link for services he was
to have provided and for unspecified compensatory and
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punitive damages. The Company believes that the plaintiff's claims are without
merit and intends to vigorously defend the action and to assert numerous
defenses and counterclaims in its answer. (See note 4 - Cancellation of Shares.)
On December 23, 1997, an individual filed an action in the
Superior Court of New Jersey against the Company and the former President of the
Company, alleging that the former President of the Company induced such person
to lease her place of employment to assume employment with the Company. The
claim seeks monetary damages based upon an oral promise of employment allegedly
made by the same officer of the Company. The Company believes that the
plaintiff's claim is without merit and intends to vigorously defend the action
and to assert numerous defenses in its answer. A former officer and director has
agreed to hold the Company harmless and indemnify the Company from any and all
claims. Management believes that there will be no material effect on the Company
as a result of this action.
Note 6 Exchange of Assets
In November 1998, the Company decided to exchange the assets
of its computerized limousine reservation and payment system for a 32.7%
interest in Gen 02, Inc., a Company newly formed by a former director and
founder of the Company, and contingent payments for a period of five years (up
to a maximum total of $1,080,000). For financial reporting purposes, this
exchange resulted in a change in reporting from consolidated (for periods prior
to November 6, 1998) to the equity basis (for periods since November 6, 1998).
(See "Pro Forma Statements of Operations appearing elsewhere herein for assumed
exchange as of January 1, 1998.)
Summarized information on Gen 02, Inc. for the three months ended March 31, 1999 is as follows:
March 31,
1999
Revenues from external domestic customers $ 72,906
Expenses:
Cost of services 22,560
General and administrative 141,804
Depreciation and amortization 102,852
Net loss 267,216
$(194,310)
Current assets $ 71,758
Property and equipment 181,897
Computer software costs 441,216
Other assets 43,129
$ 738,000
Current liabilities $ 146,662
Due to Company and Transponet 122,000
Equity 469,338
$ 738,000
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The principal business activity of the Company is the Internet
Travel business which generates revenues from people who have paid a
subscription fee and signed up as Independent travel consultants. In addition,
airlines, hotels, car rental companies, cruise lines, tour operators and other
travel vendors will pay the Company commissions for all sales generated by the
Company's network of independent travel consultants. Such commissions are then
shared with the independent travel consultants.
In order to concentrate its resources and efforts on its
NetCruise Internet Travel business, in November 1998 the Company agreed to sell
the assets of the computerized limousine and payment system to GEN 02, Inc. a
company newly formed by a management group lead by Mark A. Kenny, former
director and founder of the Company. The Company owns a minority interest in the
new company and will receive royalties on transactions processed by the new
company for a period of five years.
On November 5, 1998, in order to augment the Company's entry
into the internet travel business, the Company entered into an Asset Purchase
Agreement with Sterling AKG Corp., d/b/a Sterling Travel, in which the Company
purchased all the assets relating to Sterling's network of independent travel
consultants.
As of February, 1999, the Company acquired Sammy's Travel
World, Inc. a full service travel agency serving the northern New Jersey and New
York City areas. The purchase price for the acquisition was 36,600 shares of the
company's common stock which, for accounting purposes, is being valued at $1.50
per share or an aggregate of $54,900. The company believes that this agency with
its team of travel agents will provide the company with licensing and servicing
capabilities that will augment and extend the current capabilities of the
company, particularly the Sterling Travel consultants. The Company believes that
this combination of experience and expertise will accelerate its entry into the
Internet travel business.
As indicated above, revenues and related costs of fiscal 1999
differ from those of fiscal 1998, as revenues from its former computerized
limousine reservation and payment system represented all of the Company's
revenues until November 5, 1998 and thereafter, all revenues relate to its
internet travel business. Reference should be made to Pro Forma Statement of
Operations, which assumes the sale of the computerized limousine reservation and
payment system as of January 1, 1998.
The Company has been in the development stage and has only
generated limited revenues. The Company has been unprofitable since inception
and expects to incur additional operating losses over the next several fiscal
quarters. Total revenues for the three months ended March 31, 1999 were $80,533
compared to $14,821 for the 1998 period.
The corresponding cost of sales for the three months ended
March 31, 1999 was $31,299 compared to $19,665 for the1998 period. The net loss
for the three months ended March 31, 1999 was $950,120 or $0.13 cents a share
compared to a loss of $520,964 or $.12 cents a share for the 1998 period. As
reflected in the accompanying financial statements, the Company has incurred
losses totaling $6,529,737 since inception and at March 31, 1999, had a working
capital deficit of $436,698.
General and administrative expenses were $584,204 for the
three months ended March 31, 1999 as compared to 412,761 for the 1998 period.
The primary reason for the difference between the two periods is an increase in
legal expenses related to litigations.
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Cost increase during the 1999 period consist of consulting
fees ($52,200), professional fees ($194,500) and other administrative costs
($2,900). Costs decreases during the 1999 period consist of payroll costs
($11,500), travel costs ($5,400), insurance costs ($1,000), and marketing costs
($30,500).
Liquidity and Capital Resources
The Company's funds have principally been provided from Loeb
Holding Corp. as escrow agent, Loeb Holding Corp., LTI Ventures Leasing
Corporation, a private offering and a public offering.
In September 1995, January 1996 and December 1996, the Company
entered into sale and leaseback arrangements whereby the Company sold the bulk
of its computer hardware and commercially purchase software to a lessor for
amounts totaling $295,000 and agreed to lease back such equipment for initial
terms ranging from 24 to 30 months. Pursuant to the November 1998 exchange of
assets for a 32.7% interest in Gen 02, Inc. the obligations under the sale and
leaseback arrangements were assumed by Gen 02, Inc.
In March 1998, Loeb Holding Corp., as escrow agent for Warren
D. Bagatelle, Managing Director of Loeb Partners, Corp. HSB Capital, trusts for
the benefit of families of two principals of Loeb Holding Corporation and three
unaffiliated individuals of two Term Promissory Convertible Notes in the
principal amounts of $475,000 and $237,500 converted $400,000 of the principal
amount of the former note and $200,000 of the principal amount of the latter
note into 188,235 shares and 94,118 shares respectively of the Series A
Preferred Stock of the Company at a price of $2.125 per share.
In March 1998, Loeb Holding Corp., as escrow agent for Warren
D. Bagatelle, Managing Director of Loeb Partners, Corp. HSB Capital, trusts for
the benefit of families of two principals of Loeb Holding Corporation and three
unaffiliated individuals of four eighteen month Convertible Promissory Notes
aggregating $210,000, converted the total principal amount of the four notes
($210,000) into 98,824 shares of the Series A Preferred Stock of the Company at
a price of $2.125 per.
In March 1998, Loeb Holding Corp., as escrow agent for Warren
D. Bagatelle, Managing Director of Loeb Partners, Corp. HSB Capital, trusts for
the benefit of families of two principals of Loeb Holding Corporation and three
unaffiliated individuals of two Term Promissory Convertible Notes aggregating
$37,500, converted the total principal amount of the notes ($37,500) into
400,000 shares of the Common Stock of the Company at a price of $0.09375 per
share.
The financing of Loeb Holding Corp., and the sale and
leaseback arrangement entered into by the Company contributed to the original
capitalization of the Company.
The budgeted cost of 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
commercial and purchase media time. The Company believes that it will be able to
finance such development substantially from proceeds of a recent private
placement, but there can be no assurance that such funds will be sufficient.
On March 31, 1999, the Company had cash of $101,563 and a
working capital deficit of $436,698. As if November 5, 1998, the Company has
begun to generate revenues from shared commissions earned by the network of
Sterling Travel Consultants recently acquired, although these revenues have not
been significant. Management of the Company expects the Internet travel business
to fully operational in mid 1999 and is planning to begin television marketing
of the Company's products in mid 1999. These efforts are expected to
significantly increase revenues. The Company plans to continue the aggressive
marketing campaign as well as expand its network of travel consultants
throughout 1999. Although the Company has also begun to receive contingent
payments from Gen 02, these revenues have not been significant. The Company
expects its operations to achieve break-even by the end of fiscal 1999.
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The Company completed a private placement of common stock in January 1999
whereby it sold 1,000,000 shares of Common Stock for an aggregate of $1,500,000
of which $200,000 was received in 1998 and $510,000 in 1999. The Company
estimates, including anticipated cash to be received from revenues, 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.
<PAGE>
GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
(Development Stage Companies)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999
(Unaudited)
The following statements are based upon the historical balance sheet of the
Company appearing elsewhere herein to show the effect on the Company's balance
sheet if the shareholders approve or do not approve (1) the issuance of
1,100,000 shares of Series B Convertible Preferred Stock which automatically
converts into 1,100,000 shares of Common Stock and the related ratification of
the Acquisition of software, a technology license and related assets from United
Internet Technologies, Inc. ("UIT Transaction") and (2) the ratification of the
exchange of the Company's limousine reservation business for a noncontrolling
interest in Gen 02, Inc. ("Gen 02 Transaction"). Reference should be made to
Note 3 to the Company's financial statements appearing in the Company's Form
10-KSB for the year ended December 31, 1998 for additional information. These
statements should be read in conjunction with the Company's financial statements
and notes thereto appearing elsewhere herein.
Assuming
Assuming Shareholders
Shareholders Approve Assuming
Approve UIT Gen 02 Shareholders
Assuming Transaction Transaction Do Not
Shareholders But Not the But Not the Approve
Approve Both Gen 02 UIT Either
ASSETS Transactions Transaction Transaction Transaction
(Note A) (Note B) (Note C) (Note D)
Current assets $ 166,597 $ 238,355 $ 166,597 $ 238,355
Investment in, and advances to, Gen 02, Inc. 547,184 - 547,184 -
Property and equipment 112,429 294,326 112,429 294,326
Computer software and related assets 2,328,014 2,769,230 203,014 644,230
Other assets 77,303 116,278 77,303 116,278
------------- ------------ ------------- ------------
$3,231,527 $3,418,189 $1,106,527 $1,293,189
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 603,295 $ 749,957 $ 653,295 $ 799,957
Long-term debt 81,250 121,250 81,250 121,250
Stockholders' equity 2,546,982 2,546,982 371,982 371,982
----------- ------------ ------------ ------------
$3,231,527 $3,418,189 $1,106,527 $1,293,189
========== ========== ========== ==========
Note A - Represents the historical balance sheet at March 31, 1999, as both
transactions were recorded as completed transactions.
Note B - Reflects the consolidation of Gen 02, Inc.'s balance sheet appearing in
Note 6 herein and the elimination of intercompany balances.
Note C - Reflects the elimination of the $2,125,000 book value of the assets
acquired from UIT at March 31, 1999, the related $2,500,000 value ascribed to
the common stock issued and accumulated depreciation and amortization of
$375,000. In addition, the estimated costs of $50,000 to unwind the UIT
transaction have been accrued.
Note D - Reflects both the consolidation and elimination entries described in
Notes B and C.
<PAGE>
GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARIES
(Development Stage Companies)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(Unaudited)
The following statements are based upon the historical consolidated statement of
operations of the Company appearing elsewhere herein to show the effect on the
Company's statement of operations if the shareholders approve or do not approve
(1) the issuance of 1,100,000 shares of Series B Convertible Preferred Stock
which automatically converts into 1,100,000 shares of Common Stock and the
related ratification of the acquisition of software, a technology license and
related assets from United Internet Technologies, Inc. ("UIT Transaction") and
(2) the ratification of the exchange of the Company's limousine reservation
business for a noncontrolling interest in Gen 02, Inc. ("Gen 02 Transaction").
Reference should be made to Note 3 to the Company's financial statements
appearing in the Company's Form 10-KSB for the year ended December 31, 1998 for
additional information. These statements should be read in conjunction with the
Company's financial statements and notes thereto appearing elsewhere herein.
Assuming
Assuming Shareholders
Shareholders Approve Assuming
Approve UIT Gen 02 Shareholders
Assuming Transaction Transaction Do Not
Shareholders But Not the But Not the Approve
Approve Both Gen 02 UIT Either
Transactions Transaction Transaction Transaction
(Note A) (Note B) (Note C) (Note D)
SERVICE REVENUES $ 80,533 $ 153,439 $ 80,533 $ 153,439
------------ ----------- ------------ -----------
EXPENSES:
Cost of services 31,299 53,859 31,299 53,859
General and administrative 584,204 726,008 584,204 726,008
Depreciation and amortization 221,658 324,510 96,658 199,510
Interest expense (income), net (818) (818) (818) (818)
--------------- --------------- --------------- ---------------
836,343 1,103,559 711,343 978,559
------------ ----------- ------------ ------------
LOSS BEFORE EQUITY IN GEN 02, INC. (755,810) (950,120) (630,810) (825,120)
EQUITY IN LOSS OF GEN 02, INC. (194,310) - (194,310) -
------------ ---------------- ------------ -------------
NET LOSS INCURRED DURING THE
DEVELOPMENT STAGE $ (950,120) $ (950,120) $ (825,120) $ (825,120)
========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,282,802 7,282,802 5,282,802 5,282,802
=========== =========== =========== ===========
BASIC AND DILUTED LOSS PER
COMMON SHARE $(.13) $(.13) $(.16) $(.16)
===== ===== ===== =====
Note A - Represents the historical statement of operations for the three months
ended March 31, 1999, as both transactions were recorded as completed
transactions.
Note B - Reflects the consolidation of Gen 02, Inc.'s statement of operations
appearing in Note 6 herein with the Company's statement of operations.
Note C - Reflects the elimination of the $125,000 of amortization on the assets
acquired from UIT during the three months ended March 31, 1999 and the number of
shares of common stock issued to UIT.
Note D - Reflects both the consolidation and elimination entries described in
Note B and C.
</TABLE>
<PAGE>
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GENISYS RESERVATION SYSTEMS, INC.
Date: May 14, 1999________ ____________________________________
Lawrence E. Burk
President and Chief Executive Officer
Date: May 14, 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 three months ended March 31, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 102
<SECURITIES> 0
<RECEIVABLES> 65
<ALLOWANCES> 15
<INVENTORY> 0
<CURRENT-ASSETS> 166
<PP&E> 132
<DEPRECIATION> 20
<TOTAL-ASSETS> 3,232
<CURRENT-LIABILITIES> 603
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,547
<TOTAL-LIABILITY-AND-EQUITY> 3,232
<SALES> 80
<TOTAL-REVENUES> 80
<CGS> 31
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1)
<INCOME-PRETAX> (950)
<INCOME-TAX> 0
<INCOME-CONTINUING> (950)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (950)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
