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 September 30, 2000)
Commission File Number 1-12689
NETCRUISE.COM, 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, 2000:
21,775,400 shares of Common Stock
Transitional Small Business Disclosure Format (check one)
Yes X No
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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 September 30, 2000, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the three and nine month periods 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
November 9, 2000
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<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
September 30 December 31
2000 1999
---------------- -------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $197,242 $55,371
Royalties Receivable - GEN02
Less: Allowance for Doubtful Accounts of $24,066 0 7,107
Prepaid Advertising 981,172 360,345
Inventory of Travel Kits 80,662 0
Prepaid expenses and other current assets 51,967 24,266
---------------- -------------------
Total Current Assets 1,311,043 447,089
PROPERTY AND EQUIPMENT 173,852 130,762
COMPUTER SOFTWARE, TECHNOLOGY LICENSE AND
RELATED ASSETS, LESS ACCUMULATED AMORTIZATION 1,497,288 1,748,289
OTHER ASSETS 70,414 133,120
---------------- -------------------
$3,052,597 $2,459,260
================ ===================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current maturities of Long Term Debt $0 $622,500
Accounts payable and accrued expenses 378,482 516,316
Accrued interest payable - related party 0 210,586
Payable to Placement Agent 227,256 0
Loan Payable to Related Party 200,000 0
Accrued Litigation Settlement 290,000 0
---------------- -------------------
Total current liabilities 1,095,738 1,349,402
---------------- -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Common Stock, $.0001 par value; 75,000,000 shares
authorized; issued and outstanding shares 21,775,400 shares (2000)
8,345,819 shares (1999) 2,178 834
Series A Preferred Stock, ($0.01 par value 706,000 shares
authorized issued and outstanding 0 shares (2000) 381,177 shares (1999) 0 38
Additional paid in capital 13,458,466 10,095,320
Deficit Accumulated During the Development Stage (11,213,785) (8,986,334)
Less: Excess of Settlement price over current price
of shares previously subject to litigation (290,000) 0
Total Stockholders Equity 1,956,859 1,109,858
---------------- -------------------
$3,052,597 $2,459,260
================ ===================
See Accompanying Notes to Consolidated Financial Statements
2
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Period from
March 7, 1994
(Commencement of
Nine Months Nine Months Three Months Three Months Development
Ended Ended Ended Ended Stage Activites) to
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000
SERVICE REVENUES $ 262,385 $ 238,468 $ 80,044 $ 58,819 $ 679,351
EXPENSES:
Cost of Service 107,331 84,246 41,265 27,071 405,850
General and Administrative:
Payroll 584,691 631,746 199,621 232,504 3,440,473
Depreciation and Amortization 667,677 460,859 245,957 159,488 2,315,202
Professional Fees 416,389 522,302 155,309 158,599 1,932,095
Travel & Entertainment 4,206 27,002 322 366 274,906
Advertising & Promotion 109,862 152,870 31,421 22,856 390,302
Other 371,980 388,103 126,665 143,582 1,881,200
Settlement with UIT 750,000 0 - 0 750,000
Interest Expense (Income), net (15,820) 14,645 (1,786) 6,207 215,458
2,996,316 2,181,773 798,774 750,673 11,605,486
LOSS BEFORE EQUITY IN GEN 02, INC. (2,733,931) (1,943,305) (718,730) (691,854) (10,926,135)
EQUITY IN LOSS OF GEN02, INC. 0 (523,398) 0 (162,079) (794,130)
EXTRAORDINARY ITEM-GAIN ON
TROUBLED DEBT RESTRUCTURING 506,480 - - - 506,480
NET (LOSS) INCURRED DURING
THE DEVELOPMENT STAGE ($2,227,451) ($2,466,703) ($718,730) ($853,933) ($11,213,785)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 18,269,348 17,524,434 21,323,931 7,822,076
BASIC AND DILUTED LOSS PER
COMMON SHARE
Loss before extraordinary Item (0.15)
Extraordinary Item 0.03
Net Loss (0.12) (0.33) (0.03) (0.11)
See Accompanying Notes to Consolidated Financial Statements
3
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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 OF COMMON STOCK,
NET OF EXPENSES 12,508,029 1,251 - - 2,072,824 - 2,074,075
CONVERSION OF SERIES A
PREFERRED STOCK 381,177 38 (381,177) (38)
WARRANTS ISSUED IN CONNECTION
WITH UIT SETTLEMENT - - - - 750,000 0 750,000
COMMON STOCK ISSUED FOR
SERVICES RENDERED 540,375 55 540,322 540,377
NET LOSS - - - - - (2,227,451) (2,227,451)
BALANCE AT
SEPTEMBER 30, 2000 21,775,400 $2,178 - $ - $13,458,466 ($11,213,785) $2,246,859
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
netcruise.com, 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. 30,2000 Sept. 30, 1999 Sept. 30,2000
------------------- ------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,227,451) ($2,466,703) ($11,213,785)
Adjustments to reconcile net loss to net
cash flows from operating activities
Equity in loss of Gen 02, Inc. since its inception 523,398 798,654
Depreciation and amortization 667,677 460,859 2,295,591
Issuance of Common Stock for Services - - 129,473
Contribution to capital for services rendered - - 49,600
Changes in operating assets and liabilities:
Royalties Receivable 7,107 55,453 (906)
Prepaid expenses (648,528) (15,626) (877,259)
Inventory (80,662) (80,662)
Deposits and other 62,706 (23,122) (11,816)
Accounts payable and accrued expenses (121,164) 345,498 583,836
------------------- ------------------ -------------------
Net cash flows from operating acctivities (2,340,315) (1,120,243) (8,327,274)
------------------- ------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and software (459,766) (351,459) (2,317,116)
Acquisition of Prosoft, Inc. - - (34,601)
Acquisition of Sammys Travel World 0 6,224
Advanced to GEN 02, Inc. (131,781) (40,000)
------------------ ------------------- -------------
Net cash flows from investing activities (459,766) (483,240) (2,385,493)
------------------- ------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of Notes Payable - Related Parties 200,000 310,000 538,674
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 - -
Proceeds from sale and lease-back - - 294,644
Proceeds from sale of common stock 3,364,452 1,292,531 3,674,452
Payments of 10% promissory notes - - (46,000)
Other - - 124,424
------------------- ------------------ -------------------
Net cash flows from financing activities 2,941,952 1,602,531 10,910,009
------------------- ------------------ -------------------
NET CHANGE IN CASH AND EQUIVALENTS 141,871 (952) 197,242
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 55,371 145,921 - -
------------------- ------------------ -------------------
CASH AND EQUIVALENTS, END OF PERIOD $ 197,242 $ 144,969 $ 197,242
------------------- ------------------ -------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 5,006 - $ 206,840
Issuance of common stock for UIT assets $ - $ - $2,500,000
Conversion of related party debt to common stock $ 622,500 - $ 37,900
Conversion of convertible notes payable to common
stock $ 38 $ - $ 30,038
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 $ - $ - $ 54,900
Preferred Stock Dividend $ - $ 273,000 $ -
Settlement of litigation $ 290,000 $ - -
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 September 30, 2000. The Internet travel business is now
operational and management of the Company began television test marketing of the
Company's products in August, 2000. The results of test marketing of the
Company's products via a television infomercial, were encouraging and produced
in excess of 100 new independent travel consultants. The infomercial is
currently being enhanced and the Company expects to roll-out the television
infomercial campaign in January 2001. These efforts are expected to
significantly increase revenues in 2001. The Company plans to pursue an
aggressive marketing campaign as well as expand its network of travel
consultants throughout 2001.
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.
6
<PAGE>
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 in July, 1998. In the restructuring, various disputes that had arisen
between the Company and UIT regarding the implementation and performance of the
July 1998 Agreement were fully resolved and released. UIT provided a revised and
updated PAV software and technology license to the Company, sold 1,500,000
shares of the Company's common stock in a private transaction for a cash
purchase price of $600,000 to Mr. Joseph Perri, the Company's principal
shareholder, and agreed to the Company's cancellation of the Class X and Class Y
Warrants to purchase an aggregate of 1,600,000 shares. In addition, a principal
shareholder of UIT agreed to the Company's Cancellation of the Class V and Class
W Warrants to purchase an aggregate of 400,000 shares. In this connection, the
Company issued two new privately placed warrants to purchase up to 500,000
shares; a Series U Warrant permitting UIT to purchase up to 400,000 shares of
common stock for a period of five years at an initial purchase price of $1.00
per share and a Series V Warrant permitting a principal shareholder of UIT to
purchase up to 100,000 shares of common stock over a five year period for an
initial purchase price of $1.00 per share. For accounting purposes, the fair
value of the warrants issued has been charged to expense in the second quarter.
On August 9, 2000 the Company, borrowed $200,000 from Mr. Perri
evidenced by a Promissory Note in the amount of $200,000 dated August 9, 2000.
The Note bears interest at 10% per annum, is payable one year from the date of
execution and is convertible into shares of restricted common stock of the
Company at a conversion price of $0.20 per share.
On October 25, 2000 the Company completed a private placement of
5,000,000 shares of its $.0001 par value common stock pursuant to a series of
related agreements (the "Active Media Agreements") with Active Media Services,
Inc. (doing business under the trade name of "Active International") in
consideration for issuance to the Company of $5,000,000 of Trade Credit by
Active International. The Active Media Agreements provided for the broker of the
transaction to be issued 250,000 of the Shares and assigned $250,000 of the
Trade Credit as compensation for services.
Under the terms of the Active Media Agreements, the Company will
utilize the trade credit, together with required cash payments, to purchase
advertising media and related goods and services through Active International,
including television, radio, print and Internet advertising media. Active
International has agreed to serve as the Company's media buying service for the
development and implementation of the Company's media plans for its advertising.
Moreover, the Company will have access to Active International's inventory of
travel related services, at a discount which the Company intends to offer to its
Independent Travel Consultant and travel agent members, and consumers who
purchase travel through them.
At the present time the Company does not believe that it has
sufficient resources to provide for its planned operations for the next twelve
months. The Company is presently pursuing a number of options to raise
additional funds that may be needed to market or complete enhancement to 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 begins its aggressive marketing campaign to
build its network of independent travel consultants, revenues are expected to
increase. The Company completed production of its TV infomercial and began
television test marketing of its products in August 2000. The results of the
infomercial test television broadcasting were encouraging. As a result of the
tests the infomercial is currently being enhanced and the Company expects to
begin aggressive television broadcasting of the infomercial in January 2001. 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.
7
<PAGE>
Note 3 Legal Proceedings
A former officer of the Company filed a complaint on April 17, 1997 in
the United States District Court of New Jersey against the Company, its
wholly-owned subsidiary, Corporate Travel Link, Inc. ("Travel Link"), various
officers and directors of both companies and other related and unrelated
parties. Among other things, the complaint asked for the entry of a judgement
declaring that the former officer was the owner of 333,216 shares of the
Company's common stock, which had been issued to him at the inception of Travel
Link for services he was to have provided. The lawsuit also sought an award of
unspecified compensatory and punitive damages. On February 17, 2000, the parties
to the lawsuit entered a settlement agreement and mutually released each other
from all claims which they might have had. The Company agreed to recognize the
plaintiff as the owner of 293,216 shares of its common stock, and the plaintiff
immediately sold 100,000 of those shares. With respect to the plaintiff's
remaining 193,216 shares the Company agreed that if the plaintiff sells any of
those remaining shares in the public securities markets in a reasonable manner
relative to the market conditions at the time of sale and does not obtain a net
sale price (after commission charges) of at least $2.25 per share, the Company
will pay the plaintiff the difference between the net sales price actually
received by him and the sum of $2.25 per share (the "Sale Price Difference")
within 45 days after submission to the Company of appropriate documentation. The
plaintiff also agreed that if the Company provides notice to him of a bona fide
opportunity to sell all of his remaining shares of the common stock for not less
than the net sale price of $2.25 per share and he does not promptly accept the
offer, then the Company's obligation to pay the plaintiff the Sale Price
Difference will be canceled.
As security for the Company's obligation to pay the Sale Price
Difference, the Company and Travel Link granted the plaintiff a $434,736 first
lien security interest in their assets, which will be canceled when the
Company's obligation to pay this Sale Price Difference is canceled or concluded.
Note 4 Increase in shares available for stock option grants.
On July 11, 2000 the Board of Directors of the Company amended the
Corporation's Stock Incentive Plan to provide an additional 6,000,000 shares of
the Corporation's $.0001 per value common stock for issuance under the plan so
that the total number of shares which may be issued under the plan is increased
from 500,000 to 6,500,000 shares. This increase was ratified by written consent
of holder of a majority of the shares of Common Stock of the Company on July 11,
2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company has been in the development stage and has generated only
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 nine and three months periods ended September 30, 2000
were $80,044 and $262,385 compared to $58,819 and $238,468 for the corresponding
1999 periods.
The corresponding cost of service for the nine and three months periods
ended September 30, 2000 were $107,331 and $41,265 compared to $84,246 and
$27,071 for the corresponding 1999 periods. The net loss before Extraordinary
Items for the nine and three months periods ended September 30, 2000
($2,227,451) or $0.12 cents a share and ($718,730) or $0.03 cents a share
compared to a loss of ($2,466,703) or $0.22 cents a share or ($853,933 or $0.09
cents a share for the corresponding 1999 periods. As reflected in the
accompanying financial statements, the Company has incurred losses totaling
($11,213,785) since inception and at September 30, 2000 had a working capital of
$505,305.
8
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General and administrative expenses were $2,904,805 and $759,295 for
the nine and three month periods ending September 30, 2000 as compared to
$2,082,882 and $717,395 for the corresponding 1999 periods. The primary reason
for the difference between the two periods is the settlement with UIT (see
below).
Cost increases for the three months ended September 30, 2000 consist of
marketing costs, ($8,565), Cost decreases for the period consist of payroll and
payroll related costs ($32,883), professional fees ($3,290) and other
administrative costs ($16,961).
Cost increases for the nine months ended September 30, 2000 consists of
marketing costs ($56,992). Cost decreases for the period consist of payroll and
payroll related costs ($47,055) professional fees ($105,913) and other
administrative costs ($38,919).
Continuing Development of Business
Initially revenues from the Company's 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 Company's revenue will be derived from commissions earned from the sale of
travel through the independent travel consultants. The Company'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 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 Company'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 Company's live travel agents.
Liquidity and Capital Resources
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 in July 1998. In the restructuring, various disputes that had arisen
between the Company and UIT regarding the implementation and performance of the
July 1998 Agreement were fully resolved and released. UIT provided a revised and
updated PAV software and technology license to the Company, sold 1,500,000
shares of the Company's common stock in a private transaction for a cash
purchase price of $600,000 to Mr. Joseph Perri, the Company's principal
shareholder, and agreed to the Company's cancellation of the Class X and Class Y
Warrants to purchase an aggregate of 1,600,000 shares. In addition, a principal
shareholder of UIT agreed to the Company's Cancellation of the Class V and Class
W Warrants to purchase an aggregate of 400,000 shares. In this connection, the
Company issued two new privately placed warrants to purchase up to 500,000
shares; a Series U Warrant permitting UIT to purchase up to 400,000 shares of
common stock for a period of five years at an initial purchase price of $1.00
per share and a Series V Warrant permitting a principal shareholder of UIT to
purchase up to 100,000 shares of common stock over a five year period for an
initial purchase price of $1.00 per share. For accounting purposes, the fair
value of the warrants issued has been charged to expense in the second quarter.
On August 9, 2000, the Company borrowed $200,000 from Mr. Perri
evidenced by a Promissory Note in the amount of $200,000 dated August 9, 2000.
The Note bearing interest at 10% per annum, is payable one year from the date of
execution and is convertible into shares of restricted stock of the Company at a
conversion price of $0.20 per share.
On October 25, 2000 the Company completed a private placement of
5,000,000 of its $.0001 par value common stock (the "Shares") pursuant to a
series of related agreements (the "Active Media Agreements") with Active Media
Services, Inc. (doing business under the trade name of "Active International")
in consideration for issuance to the Company of $5,000,000 of Trade Credit by
Active International. The Active Media Agreements provided for the broker of the
transaction to be issued 250,000 of the Shares and assigned $250,000 of the
Trade Credit as compensation for services.
Under the terms of the Active Media Agreements, the Company will
utilize the trade credit, together with required cash payments, to purchase
advertising media and related goods and services through Active International,
including television, radio, print and Internet advertising media. Active
International has agreed to serve as the Company's media buying service for the
development and implementation of the Company's media plans for its advertising.
Moreover, the Company will have access to Active International's inventory of
travel related services, at a discount which the Company intends to offer to its
Independent Travel Consultant and travel agent members, and consumers who
purchase travel through them.
Active International has the right to request SEC registration ("Demand
Registration") of 1,000,000 of the Shares commencing October 18, 2001 and Demand
Registration of an additional 1,000,000 Shares commencing October 18, 2002,
subject to its agreement to not dispose of or otherwise transfer more than
250,000 Shares during each 90-day period following the effective date of each
such registration. In addition, Active International has the right to have its
shares included in an SEC registration ("piggy-back registration") by the
Company of other equity securities or securities convertible into equity
securities (except for a registration relating solely to securities of
participants in a Company stock plan or on Form S-4 or a registration of
convertible debt securities which also includes only the equity securities into
which they are convertible). Piggy-back registration of Active Media Shares may
be deferred temporarily at the request of an underwriter under certain specified
conditions. The Company is obliged to absorb all of the usual issues cost of any
SEC registration of Active Media's Shares.
In connection with the Company's agreements with Active International,
Mr. Joseph Perri, Chairman of the Company and principal shareholder, entered
into an agreement with the Company on October 25, 2000 pursuant to which he
agreed to the cancellation of the Anti-Dilution Option Agreement between the
Company and Mr. Perri dated March 1, 2000, which gave him the right to maintain
his percentage interest in the Company's Common Stock for a purchase price of
$.20 per share.
The Company and Mr. Perri also agreed that he would exercise his rights
under the Anti-Dilution Option Agreement by acquiring 396,904 shares of Common
Stock for a cash consideration of $79,381 by reason of the Company's issuance of
500,000 shares to Benjamin S. Gage (included in the Company's Form S-8
registration statement), 25,000 shares of stock to Alliant Technologies, Inc.,
11,750 shares to Patricia Simmons and pending issuances of 3,500 shares to
Vision Corporate Consulting and 55,000 shares to Alliant, and also convert
$200,000 principal amount of outstanding Company debt owed to him into 1,000,000
shares of Common Stock.
As a result of the transaction discussed above, the Company will have a
total of 28,472,304 shares issued and outstanding, of which Mr. Perri will own
15,758,912 shares, or approximately 55.4%, and Active International will own
4,750,000 shares, or approximately 16.7%, of the Company's Common Stock
On September 30, 2000, the Company had cash of $636,642 and working
capital of $257,287. The Company's Internet travel business is now operational
and management began test television marketing of the Company's products in
August 2000. The results of the infomercial test television broadcasting were
encouraging and produced in excess of 100 new independent travel consultants. As
a result of the tests the infomercial is currently being enhanced and the
Company expects to begin aggressive television broadcasting of the infomercial
in January 2001. 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 2001. At the present time the
Company does not believe that it has sufficient resources to provide for its
planned operations for the next twelve months. The Company is presently pursuing
a number of options to raise the 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 initiates an aggressive marketing campaign to build its network of
independent travel consultants, revenues are expected to increase. 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.
PART II OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by item 601 of Regulation S-B. None.
(b) Reports on Form 8-K. The Company filed three reports on Form 8-K
during the quarter ended September 30, 2000; a Form 8-K/A for
April24, 2000, a Form 8-K for July 11, 2000 and a Form 8-K for
October 18, 2000.
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_____________________ ____________________________________
Lawrence E. Burk
President and Chief Executive Officer
Date_____________________ ____________________________________
John H. Wasko
Secretary, Treasurer and
Chief Financial Officer
