SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
- --
OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
------
OF THE SECURITIES EXCHANGE ACT OF 1934
(For the Quarter ended March 31, 2000)
Commission File Number 1-12689
netcruise.com, inc. And Subsidiaries
(Formerly Genisys Reservation Systems, Inc.)
(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, 2000: 20,827,428
shares of Common Stock
Transitional Small Business Disclosure Format (check one)
Yes X No
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netcruise.com, inc. and subsidiaries
Development Stage Companies
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Twelve Months
Ended Ended
March 31 December 31
2000 1999
------------- -------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,407,830 $55,371
Accounts Receivable 0 7,107
Prepaid Advertising 429,899 360,345
Prepaid expenses and other current assets 97,981 24,266
------------- -------------------
Total Current Assets 1,935,710 447,089
PROPERTY AND EQUIPMENT 135,078 130,762
COMPUTER SOFTWARE, TECHNOLOGY LICENSE AND
RELATED ASSETS, LESS ACCUMULATED AMORTIZATION 1,586,773 1,748,289
OTHER ASSETS 58,874 133,120
------------- -------------------
$3,716,435 $2,459,260
============= ===================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current maturities of Long Term Debt $0 $622,500
Accounts payable and accrued expenses 379,546 516,316
Accrued interest payable - related party 0 210,586
Payable to Placement Agent 227,256 0
------------- -------------------
Total current liabilities 606,802 1,349,402
------------- -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Preferred Stock, $.0001 par value: 24,294,000 shares
authorized: none oustanding
Series A preferred stock, $.0001 par vlaue, 706,000 shares - -
authorized; Issued and outstanding 381,177 shares 38 38
Common Stock, $.0001 par value; 75,000,000 shares
authorized; issued and outstanding 8,345,819 shares (1999)
20,827,428 shares (2000) 2083 834
Additional paid in capital 12,139,315 10,095,320
Deficit Accumulated During the Development Stage (9,031,803) (8,986,334)
------------- -------------------
Total Stockholders Equity 3,109,633 1,109,858
------------- -------------------
$3,716,435 $2,459,260
============= ===================
See Accompanying Notes to Consolidated Financial Statements
2
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netcruise.com, inc. and subsidiaries
DEVELOPMENT STAGE COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Period from
March 7, 1994
(Commencement of
Three Months Three Months Development
Ended Ended Stage Activites) to
March 31, 2000 March 31, 1999 March 31, 2000
--------------- -------------- --------------
SERVICE REVENUES $ 108,118 $ 80,533 $ 525,084
---------- --------- ---------
EXPENSES:
Cost of Service 29,739 31,299 328,258
General and Administrative:
Payroll 174,733 190,743 3,030,515
Depreciation and Amortization 204,841 221,658 1,852,366
Professional Fees 96,058 272,347 1,611,764
Travel & Entertainment 3,675 12,035 274,375
Advertising & Promotion 78,944 5,925 359,384
Other 27,156 103,154 1,536,376
Interest Expense (Income), net 877 (818) 232,155
------- ----- -------
616,023 836,343 9,225,193
------- ------- ---------
LOSS BEFORE EQUITY IN GEN 02, INC. (507,905) (755,810) (8,700,109)
EQUITY IN LOSS OF GEN02, INC. 0 (194,310) (794,130)
EXTRAORDINARY ITEM-GAIN ON
TROUBLED DEBT RESTRUCTURING 462,436 0 462,436
-------- -------- -------
NET (LOSS) INCURRED DURING
THE DEVELOPMENT STAGE ($45,469) ($950,120) ($9,031,803)
======== ========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 12,676,329 7,282,802 4,408,911
----------- ---------- ---------
BASIC AND DILUTED LOSS PER
COMMON SHARE
Loss before extraordinary Item ($0.04) ($0.13) ($2.05)
------- ------- -------
Extraordinary Item $0.04 0 0
------ -
Net Loss $0.00 ($0.13) ($2.05)
------ ------- -------
See Accompanying Notes to Consolidated Financial Statements
3
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netcruise.com, inc. and subsidiaries
DEVELOPMENT STAGE COMPANIES
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(Unaudited)
Deficit
Accumulated
Additional During the
Common Stock* Series A Preferred Paid-in Development
Shares Par Value Shares Par Value Capital Stage Total
------ --------- ------ --------- ------- ----- -----
BALANCE - DECEMBER 31, 1999 8,345,819 $834 381,177 38 $10,095,320 ($8,986,334) $1,109,858
PROCEEDS FROM PRIVATE PLACEMENT 12,481,609 1,249 - - 2,043,995 - 2,045,244
OF COMMON STOCK, NET OF EXPENSES
NET LOSS - - - - - (45,469) (45,469)
-- -- -- -- -- -------- ---------
BALANCE AT MARCH 31, 1999 20,827,428 $ 2,083 381,177 $ 38 $12,139,315 ($9,031,803) $3,109,633
=========== ======== ======== ===== ============ ============ ==========
See Accompanying Notes to Consolidated Financial Statements
4
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netcruise.com, 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 31,2000 March 31,1999 March 31,2000
------------------ ------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($45,469) ($950,120) ($9,031,803)
Adjustments to reconcile net loss to net
cash flows from operating activities
Equity in loss of Gen 02, Inc. since its inception 194,310 798,654
Depreciation and amoritization 204,841 221,658 1,832,755
Issuance of Common Stock for Services - - 49,600
Contribution to capital for services rendered - - 129,473
Changes in operating assets and liabilities:
Accounts receivable 7,107 16,810 (906)
Prepaid expenses (135,432) (15,505) (364,163)
Deposits and other 74,246 11,063 (276)
Accounts payable and accrued expenses (347,356) 176,934 357,644
------------------ ------------------ -------------------
Net cash flows from operating acctivities (242,063) (344,850) (6,229,022)
------------------ ------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and software (47,641) (124,750) (1,904,991)
Acquisition of Prosoft, Inc. - - (34,601)
Acquisition of Sammys Travel World 0 6,224
Advanced to GEN 02, Inc. (7,837) (77,290) (47,837)
------------------ ------------------ ---------
Net cash flows from investing activities (55,478) (202,040) (1,981,205)
------------------ ------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of Notes Payable - Related Parties - - 338,674
Proceeds from public offering of common stock
and warrants net of deferred offering costs - - 5,785,915
Contribution to capital - stockholder/officer - - 205,400
Payments from issuance of notes payable (622,500) 332,500
Payments under computer equipment leases - - (63,076)
Proceeds from sale and lease-back - - 294,644
Proceeds from sale of common stock 2,272,500 502,532 2,582,500
Payments of 10% promissory notes - - (46,000)
Other - - 187,500
------------------ ------------------ -------------------
Net cash flows from financing activities 1,650,000 502,532 9,618,057
------------------ ------------------ -------------------
NET CHANGE IN CASH AND EQUIVALENTS 1,352,459 (44,358) 1,407,830
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 55,371 145,921 -
------------------ ------------------ ----------
CASH AND EQUIVALENTS, END OF PERIOD $ 1,407,830 $ 101,563 $ 1,407,830
------------------ ------------------ -------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 877 - $ 202,711
---------------------------------------------------------
Issuance of common stock for UIT assets $ - $ - $ 2,500,000
---------------------------------------------------------
Conversion of related party debt to common stock 622,500 - $ 660,000
---------------------------------------------------------
Conversion of convertible notes payable to common
stock $ - $ - $ 30,000
---------------------------------------------------------
Conversion of related party debt into Series A
preferred stock $ - $ - $ 810,000
---------------------------------------------------------
Net assets exchanged for investment in GEN 02, Inc. $ - $ - $ 744,122
---------------------------------------------------------
Issuance of common stock for Sammy's Travel
Assets. $ - $ 54,900 $ 54,900
------------------------------------- --------
See Accompanying Notes to Financial Statements
5
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NETCRUISE.COM, 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 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 three
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, 2000. Management of the Company expects the
Internet travel business to be fully operational in mid-2000 and is planning to
begin television marketing of the Company's products in mid-2000. These efforts
are expected to significantly increase revenues in 2000. The Company plans to
continue an aggressive marketing campaign as well as expand its network of
travel consultants throughout 2000. The Company expects its operations to
achieve break-even by the end of fiscal 2000. The Company has also begun to
receive contingent payments from GEN 02 although these payments were not
significant through the fiscal quarter ended March 31, 2000.
On March 6, 2000 the Company completed a private placement of
its common stock in a series of related transactions with Mr. Joseph Perri
whereby Mr. Perri purchased 12,362,500 shares of the Company's common stock for
$2,272,500. 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
6
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additional funds that may be needed to market or complete development of its
website and infomercial or to fund cash shortfalls should anticipated revenues
not be achieved.
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 June 2000.
The infomercial is expected to produce a significant influx of 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. At
the Annual Meeting of Shareholders held on October 13, 1999, the shareholders
ratified the acquisition of the assets and the approved the issuance of 1,100,00
shares of common stock and two stock purchase warrants.
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).
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Initially revenues from the Internet Travel business will be
derived from subscription fees of the independent travel consultants along with
commissions received from bookings shared with the independent travel
consultants. As the Company develops, management believes that the majority of
the Companyss.s revenue will be derived from commissions earned from the sale of
travel through the independent travel consultants. The Companyss.s business
model is built around the sharing of commissions with the independent travel
consultants generated from travel industry vendors such as airlines, hotels, car
rental companies, resort properties, tour operators and cruise. The Company
believes that commission sharing with the independent travel consultant, which
ranges from 50% to 60% of the commissions received by NetCruise in connection
with travel sales made by the independent travel consultant, is a key enticement
for individuals to subscribe to become members. The initial subscription fee is
$149.00 and annual renewal fee for the independent travel consultants is
currently $95.00. While the Company believes it will benefit from its portion of
the commission revenues generated, it also believes that significant revenues
will be derived from other key areas such as annual subscription fees paid by
its independent travel consultants, advertising through its web-site and
incentive arrangements with travel vendors and travel related product
7
<PAGE>
vendors (in addition to its share of the standard travel commissions). However,
a significant change in the prevailing commission structure in the travel
industry could have a detrimental effect on the Companyss.s ability to attract
and retain independent travel consultants and benefit from the other revenue
sources listed above, which are substantially created through this core
distribution system.
The Company believes it will be successful in encouraging
people to pay the subscription fee and sign up as independent travel consultants
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, through a
combination of direct response TV, print, radio, and web-based advertising,
plans to offer individuals an opportunity to join NetCruise as independent
travel consultants. Each new independent travel consultant will receive a
start-up kit consisting of 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 Companyss.s live travel agents.
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, 2000 were $108,118 compared to $80,533 for the 1999 period.
The corresponding cost of sales for the three months ended
March 31, 2000 was $29,739 compared to $31,299 for the1999 period. The net loss
before extraordinary item for the three months ended March 31, 2000 was $507,905
or $0.04 a share compared to a loss of $755,810 or $.10 a share for the 1999
period. The extraordinary gain resulted from troubled debt restructuring related
to the Joseph Perri investment. As reflected in the accompanying financial
statements, the Company has incurred losses totaling $9,031,803 since inception
and at March 31, 2000, had working capital of $1,548,327.
General and administrative expenses were $380,566 for the
three months ended March 31, 2000 as compared to $584,204 for the 1999 period.
The primary reason for the difference between the two periods is a decrease in
professional fees.
Advertising and promotion costs increased $73,019 during the
2000 period. Cost decreases during the 2000 period consist of payroll costs
($16,010), professional fees ($176,289), travel and entertainment ($8,260), and
other expenses ($75,998).
Liquidity and Capital Resources
During November 1999 and December 1999, the Company and Joseph
Perri, a private investor, subsequently to become the controlling shareholder of
the Company, signed two Secured Convertible Promissory Notes each in the amount
of $100,000, whereby the Company borrowed a total of $200,000. The Notes, which
bear interest at 8% per annum, are payable on November 4, 2000 and December 6,
2000 respectively and are convertible into common stock of the Company at a
conversion price of $0.10 per share.
In December 1999, the Company completed a private placement
whereby it sold 500,000 shares of restricted common stock for a aggregate price
of $100,000 to an unaffiliated investor.
During January 2000 and February 2000, the Company borrowed
an additional $175,000 from Joseph Perri evidenced
by three Convertible Promissory Notes. The Notes bear interest at 8% per
annum, are payable one year from the date of execution of each note and are
convertible into shares of common stock of the Company at a conversion price of
$0.20 per share.
8
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On March 6, 2000 the Company completed a private placement of
its common stock in a series of related transactions with Mr. Joseph Perri, who
is a private investor with interests in real estate, communications technology
and Internet companies. Mr. Perri purchased 9,487,500 shares of the Company's
common stock for a cash purchase price of $1,897,500 and converted $375,000 of
outstanding Company debt held by him into 2,875,000 shares of common stock. In a
separate transaction, Mr. Perri purchased an additional 299,508 shares of the
Company's common stock held by a third-party investor for a cash purchase price
of $74,877.
Simultaneously with the private placement transaction, the Company paid $172,500
to third parties in full satisfaction of an additional $412,500 of its
outstanding debt obligations.
As a result of these transactions, Mr. Perri acquired a total
of 12,662,008 issued and outstanding shares of the Company's common stock, or
approximately 60.79% of the 20,827,428 total shares issued and outstanding, as
of March 31, 2000, and the Company reduced its outstanding debt obligations
$787,500.
The Company also entered into two option agreements with Mr.
Perri. One of the option agreements grants him the right to purchase an
additional 4,625,000 shares of common stock for a cash purchase price of
$600,000 in the event the Company does not enter into certain agreements,
presently under discussion with UIT, relating to contract interpretation issues
and their holdings of debt and equity interests in the Company, on or before
April 15, 2000. The other option agreement grants Mr. Perri the right to
maintain his percentage interest in the issued and outstanding common stock of
the Company by purchasing additional shares for a purchase price of $.20 per
share in the event the Company sells or issues to third parties additional
shares of its common stock or other securities convertible into its common
stock.
On April 24, 2000, the Company and UIT restructured the
agreement where the Company acquired computer software, a technology license and
related assets from UIT. Under the terms of the restructured agreement UIT sold
1,500,000 shares of common stock of the Company to Mr. Perri for a purchase
price of $600,000. Additionally, Mr. Perri agreed to a cancellation of the
aforementioned option agreement to purchase an additional 4,625,000 shares of
common stock of the Company for a cash purchase price of $600,000. As a result
of the restructured agreement Mr. Perri now owns a total of 14,162,008 shares of
the Company's common stock or 66.77% of the total shares currently issued and
outstanding.
On March 31, 2000, the Company had cash of $1,407,830 and working
capital of $1,548,327. The Company's internet travel business is now operational
and management is planning to begin television marketing of the Companyss.s
products in mid-2000. These efforts are expected to significantly increase
revenues. The Company plans to initiate an aggressive marketing campaign as well
as expand its network of travel consultants throughout 2000. Although the
Company has also begun to receive contingent payments from GEN O2, these
revenues have not been significant to date. The Company expects its operations
to achieve break-even by the end of fiscal 2000. The Company completed a private
placement of common stock in March 2000 whereby it sold 12,362,500 shares of
Common Stock for an aggregate of $2,272,500. The Company estimates, including
anticipated cash to be received from revenues and the proceeds of the recent
private placement, that it will have sufficient resources to provide for its
planned operations for the next twelve months. As the Company moves from the
development stage to the operating stage of the internet travel business and
initiates an 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 mid-2000. Test marketing of the infomercial is expected to produce
approximately 200 new independent travel consultants over a two month period.
The subscription fees from the 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.
9
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PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
Form 8-K Filed on March 17, 2000
Exhibit A: Independent Accountant's Report
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.
Netcruise.com, inc.
Date: June 29, 2000 /s/ Lawrence E. Burk
Lawrence E. Burk
President and Chief Executive Officer
Date: June 29, 2000 /s/ John H. Wasko
John H. Wasko
Secretary, Treasurer and
Chief Financial Officer
<PAGE>
EXHITBIT A
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of netcruise.com, inc.
We have reviewed the accompanying consolidated balance sheet of netcruise.com,
inc. and subsidiaries as of March 31, 2000, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the three-month period then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
WISS & COMPANY, LLP
Livingston, New Jersey
March 27, 2000
