SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-KSB
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
X Annual Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
or
Transitional Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from to
Commission File Number 033-19522-NY
netcruise.com, inc.
-------------------
(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)
Registrantss.s telephone number, including area code: (908) 810-8767 Securities
registered pursuant to Section 12(b) of the Act: NONE Securities registered
pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
Class A Redeemable Warrants
Class B Redeemable Warrants
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
State Issuers revenues for its most recent fiscal year. $297,199.
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing.
$ 17,246,569 as of the close of business on March 27, 1999
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. The number of shares
outstanding of the registrant's Common Stock as of March 26, 1999 was 21,161,384
shares.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document
is incorporated: (1) any annual report to security-holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes.
1. Rule 424(b) Prospectus dated March 20, 1997 is incorporated by reference into
Parts I, II and III
3.1* Registrant's Articles of Incorporation
3.2* Registrant's By-Laws
4.1* Form of Common Stock Certificate
4.2* Redeemable Warrant Agreement with Form of Class A and
Class B Warrant
4.3** Redeemable Class X and Class Y Warrant issued to Brian Shuster
to purchase up to 200,00 shares of the Company's Common Stock.
4.4** Redeemable Class V and Class W Warrant issued to United
Internet Technologies, Inc. to purchase up to 800,00 shares
of the Company's Common Stock.
9.1** Copy of Agreement dated June 30, 1999 between the Company
and United Internet Technologies, Inc., formerly known as
United Leisure Interactive, Inc. relating to the purchase of
a technology license and certain related assets.
9.2*** Copy of Agreement dated November 6, 1998 between the Company
and Corporate Travel Link, Inc., a wholly owned subsidiary
of the Company, TranspoNet, Mark A. Kenny, Paul Murray and
Gen 02, Inc., relating to the sale of the Genisys Reservation
Systems business.
10.21**** Subscription Agreement dated March 1, 2000 between the Company
and Joseph Perri.
10.22**** Debt Conversion Agreement dated March 1, 2000 between the
Company and Joseph Perri.
10.23**** Agreement for purchase of NetCruise.com, Inc. common stock
dated March 1, 2000 between Loeb Holding Corporation, as Agent,
and Joseph Perri.
10.24**** Anti-dilution option agreement dated March 1, 2000 between the
Company and Joseph Perri.
10.25**** Contingency Agreement dated March 1, 2000 between the Company
and Joseph Perri.
All of the above referenced documents marked with an (*) are incorporated herein
by reference to the Exhibit bearing the same number in the Registrant's
Registration Statement on Form SB-2, File No. 333-15011.
<PAGE>
All of the above referenced documents marked with an (**) are incorporated
herein by reference to the Exhibits to the Company's Form 8-K dated March 26,
1998.
All of the above referenced documents marked with an (***) are incorporated by
reference to the Exhibits to the Registrant's Form 10-KSB-A for the fiscal year
ended December 31, 1998.
All of the above referenced documents marked with an (****) are incorporated by
reference to the Exhibits to the Company's Form 8-K dated March 17, 2000.
Part I
Item 1. Business
History
Until June 1998, the principal business activity of the Company has
been the operation of a computerized limousine reservation and payment system
for the business traveler. The proprietary software that the Company developed
enables limousine reservations to be completely computerized i.e., be entirely
automatic and operate without human intervention except for the initial
inputting of travel information.
Prior to the sale of the limousine reservation business and the
acquisition of the technology license and certain related assets from UIT, which
is discussed below, the Company worked with travel agents and corporate travel
departments by providing a computerized system for securing limousine
reservations. The Company had created its own computerized system which was
linked with the SABRE and Apollo computer reservation systems, two of the four
major airline reservation systems. Limousine reservations made through the SABRE
and Apollo computer reservation systems were relayed instantaneously to the
Company's computer and then to a service provider of the clients choice--all
without human intervention--and an immediate limousine reservation is confirmed.
As of June 30, 1998, the Company, through NetCruise Interactive, Inc.
(NetCruise), entered into an Asset Purchase Agreement with United Internet
Technologies f/k/a United Leisure Interactive, Inc., in which the Company
acquired a technology license and certain related assets from United Internet
Technology in exchange for 2,000,000 shares of the Companyss.s Common Stock and
two warrants (Warrants), each entitling the holder to purchase 800,000 shares of
the Common Stock of the Company (the UIT Transaction). One warrant is
exercisable for 800,000 shares at $2.50 per share and may be exercised between
April 1, 2002 and June 30, 2002, but only if NetCruise achieves profits equal to
or exceeding $5,000,000 for the years 1999, 2000 and 2001. The other Warrant is
exercisable for 800,000 shares at $6.00 per share and may be exercised between
April 1, 2002 and June 30, 2002, but only if NetCruise achieves profits equal to
or exceeding $10,000,000 for the years 1999, 2000 and 2001.
The purchase of these assets has been recorded as of the date of
purchase at the total purchase price of $2,500,000, which represents the fair
value of the assets acquired. The purchase price allocated to the individual
assets acquired, based on the estimated fair value at the date of the
acquisition, is as follows: (i) $1,450,000 of computer software; (ii) $1,000,000
for the license to the Parallel Addressing Video Technology; (iii) $10,000 for
the agreement between ITN and UIT and (iv) $40,000 for computer equipment. The
purchase price consisted of 2,000,000 shares of the Company's Common Stock,
which at the time of the purchase was trading at approximately $2.50 per share
on The Nasdaq SmallCap Market. For accounting purposes the Company estimated the
fair value of the shares at $2,500,000 since the shares were restricted. No
goodwill resulted from this transaction, as no business was acquired.
The Company was advised that the issuance of such securities
caused the Company to inadvertently be in violation of a Nasdaq MarketPlace Rule
because the issuance of the 2,000,000 shares and Warrants amounted to more than
20% of the issued and outstanding shares of the Company and were not approved by
Shareholders as required by such Rule. Nasdaq advised the Company that the
Company's Common Stock would be delisted as a result of such violation. The
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Company requested a hearing on the delisting which was held on November 20,
1998. Nasdaq issued its written determination on January 12, 1999 to continue
listing the Company's securities on The Nasdaq SmallCap Market pursuant to the
following conditions: (i) the UIT transaction must be unwound in the event
shareholders do not ratify the acquisition of the technology license and certain
related assets from UIT and approve the issuance of 1,100,00 shares of Common
Stock and two Stock Purchase Warrants to UIT; (ii) the Company must file a
Definitive Proxy Statement with the Securities and Exchange Commission and
Nasdaq on or before February 15, 1999; and (iii) the Company must submit
documentation to Nasdaq on or before 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 a
technology license and certain related assets from UIT. The Company received an
extension from Nasdaq with respect to the deadlines to July 31, 1999.
On November 5, 1998, 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 for a total purchase price of 25,000 shares of the Company's Common
Stock which, for accounting purposes, is being valued at $1.50 per share for an
aggregate of $37,500, a price which the Company believes represents fair value.
An additional 17,500 shares of the Company's Common Stock (Escrow Shares) will
be held in escrow by counsel to the Company. If the Company does not achieve
$3,000,000 of gross sales from the sale of travel services, including renewal
fees from the Sterling Travel Consultants, over the initial twelve month period
beginning on November 1, 1998 and ending on October 31, 1999, the Escrow Shares
shall immediately be returned to the Company. If the Company achieves $3,000,000
of gross sales from Sterling Travel Consultants over the initial twelve month
period as described herein, the Escrow Shares will be released by the Company.
In December of 1999 management of the Company determined that even though the
$3,000,000 of gross travel sales from the Sterling Travel Consultants was not
achieved, it was in the best interest of the Company to release the 17,500
shares in return for Sterling AKG Corp. and Richard Gladstone executing a
General Release for the Company and its directors, officers, employees,
consultants, accountants, attorney, etc.
On November 6, 1998 the Company entered into an Acquisition Agreement
by and between the Company and Corporate Travel Link, Inc., a wholly owned
subsidiary of the Company (the sellers in the transaction) and TranspoNet (a
non-affiliated company), Mark A. Kenny, Paul Murray and Gen 02, Inc. (the
purchaser in the transaction), a newly organized corporation formed by Mark A.
Kenny, a former director and founder of the Company. The Company sold all of the
assets of Corporate Travel Link which are utilized in connection with the
ownership, operation and marketing of the computerized limousine reservation and
payment system which had a net book value of $744,122, for (i) 2,450 shares of
Series A Convertible Preferred Stock of Gen O2, Inc., constituting a 32.66%
interest in Gen O2, Inc., which the Company carries on its balance sheet as of
December 31, 1998 at an asset value of $624,204; (ii) certain contingent
payments over a period of 5 years, totaling $1,080,000 if all payments to the
Company are realized, however, since there are no minimum contingent payments,
it is possible that the Company will receive no significant contingent payments
from GEN 02, Inc.
On February 1, 1999 the Company acquired Sammy's Travel World, Inc.,
("Sammy's") a full-service travel agency specializing in leisure and corporate
travel and serving the New York City and northern New Jersey area with annual
gross bookings of approximately $1,800,000. 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.
As of June 30, 1998 NetCruise entered into an agreement to purchase a
technology license and certain related assets from United Internet Technology,
Inc. The Company determined to expand into the internet travel business for
several reasons. Although the Company had begun to generate revenues, the
Company found that many limousine providers were resisting the payment of
commissions or fees in connection with bookings on the Company's system
resulting in a much slower development of revenues for the Company than was
originally anticipated. Management evaluated the cost of operations for a more
extended period of time and determined that the Company's available funds would
be better spent in other areas of the travel business and therefore determined
to expand into the internet travel business.
<PAGE>
The Company and UIT agreed to restructure the transaction so that UIT
would 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 would issue to UIT 1,100,000 shares of
Convertible Series B Preferred Stock (the Series B Preferred Stock), which
Series B Preferred Stock is automatically convertible into 1,100,000 shares of
the Company's Common Stock upon Shareholder approval of the issuance of the
1,100,000 shares of Common Stock and the Warrants. The Series B Preferred Stock
would be non-voting stock and carry 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 would be
payable if the Shareholders approve the issuance of the 1,100,000 shares of
Common Stock and Warrants prior to the time that the dividend is payable. If
shareholders ratify the acquisition, the Series B Preferred Stock will
automatically be converted into 1,100,000 shares of the Company's Common Stock
and the Company will issue two warrants, each to purchase 800,000 shares of
Common Stock, as outlined above. At the Annual meeting of Shareholders of the
Company held on October 13, 1999, the shareholders approved ratification of the
acquisition of the assets from UIT and the issuance of the 1,100,000 shares of
Common Stock and the Warrants. However, since this approval was not received
prior to September 30, 1999, the $275,000, mandatory dividend is payable to UIT
On August 17, 1999, the Company was informed that the Nasdaq Listings
Qualifications Panel has de-listed the Company's securities from the Nasdaq
Stock Market effective with the close of business on August 17, 1999. The reason
for the de-listing was that the Company failed to meet net-tangible assets of
$2,550,000 on a pro-forma basis as of May 31, 1999, which standard is higher
than the customary maintenance requirement established for continued listing on
The Nasdaq Stock Market. The higher standard was established by The Nasdaq
Listing Qualification Panel in connection with a hearing previously held
concerning the Company's listing on The Nasdaq Stock Market.
The Company has appealed the decision of the Nasdaq Listing
Qualification Panel to the Nasdaq Listing and Hearing Review Counsel. The
Company believes that it can demonstrate that the Company meets the higher
standard by reason of conversion of debt to equity and certain other matters.
The Company has been advised by representatives of the Nasdaq Listing and
Hearing Review Counsel that a hearing may not be held earlier than February 2000
and the hearing has not yet been held as of the date of this report. The Company
plans to take all necessary steps to have the Company's securities re-installed
on The Nasdaq Stock Market.
General
As a result of the UIT transaction, the Company acquired the internet
travel web site called NetCruise and a perpetual, world-wide technology license
for "Parallel Addressing Video Technology" for all travel related applications,
along with all of the custom software, computer systems and intellectual
properties. No royalty payments are required under the licensing agreement for
the "Parallel Addressing Video Technology" and the license is exclusive as it
relates to the technology as applied to the travel industry. UIT has retained
the right to the technology for all other uses outside of the travel industry.
The intellectual property acquired consists of a license for the "Parallel
Addressing Video Technology" and a business plan premised on the idea of
creating and establishing a network of independent travel consultants which is
to be marketed to consumers and travel agents and which includes the NetCruise
name, logo, trade-marks and service-marks. The company did not acquire the
patent to the "Parallel Addressing Video Technology". Also included as part of
the intellectual property was an agreement between UIT and Internet Travel
Network of Palo Alto, CA which UIT transferred to the Company. This agreement
provides for a private label site on the Internet Travel Network booking engine.
The agreement which was to expire April, 1999, automatically renews for
successive one year periods unless either party gives notice, no later than 30
days prior to the end of the period, of its intent not to renew. The Company has
renewed this agreement under the terms and conditions of the original agreement.
There is no cost associated with renewing the agreement. The ITN booking engine
is essentially a world wide web based graphical user interface to the airline
owned Apollo computerized reservation system. This technology allows a layperson
with access to the internet to access the databases and pricing systems used by
travel agents to research and procure air, car rental and hotel reservations. By
private labeling this functionality, the Company is able to offer its travel
consultants access to a leading travel system, while not having to expend the
Company's capital resources which would be required to create its own access.
The custom software acquired by the Company consists of a video player program
<PAGE>
(called a ULI player) that permits the end user to view video files, a cruise
database, a CD-ROM video disc database containing video images of travel-related
information and miscellaneous commercially purchased software. The technological
feasibility of the custom software was established at the time of the
acquisition, as a working model of the custom software had been completed at
that time. The Company formed NetCruise as a wholly owned subsidiary for the
purpose of operating an internet travel business featuring the technology
obtained through this acquisition.
Although the Company only has a limited number of individuals who have
subscribed to be independent travel consultants and therefore a limited number
of internet travel customers, the Company intends to launch, through television
advertising, an aggressive marketing campaign inviting the general public, along
with existing travel agents, to become NetCruise travel consultants. The goal of
the Company's marketing campaign is to encourage individuals to enroll as
independent travel consultants by paying an annual fee to the Company. The
independent travel consultants will then be able to make reservations either
through the password protected section of the NetCruise web site or via
telephone bookings with travel agents who work directly for NetCruise.
Non-members who visit the non-password protected section of the NetCruise
web-site (the Visitor's Section) shall have access to a portion of the site
which contains general information about the Company, describes the independent
travel consultant program and allows the public to request information or enroll
as an independent travel consultant. To date, the Visitor's Section of the
web-site is being used for demonstration to potential travel consultants. The
password protected section, which is only accessible by company personnel and
independent travel consultants using a password, allows independent travel
consultants to see destinations in full motion video and stereo audio and to
make hotel, air and car reservations as well as research vacation packages and
cruise itineraries. The Company's independent travel consultants are currently
not able to book vacation and cruise packages in an automated fashion through
the web-site. In order to make these types of reservations, the independent
travel consultant is instructed to contact the Company's service center,
(operated through Sammy's Travel World, a wholly owned subsidiary of the
Company) via toll-free telephone, fax or e-mail, whereby a live NetCruise travel
agent will then make the vacation or cruise reservation. The Company intends to
continually enhance its technology to automate the booking process for cruise
and vacation reservations through its web-site. There can be no assurance,
though, that the Company will be able to achieve the technological advancements
necessary to automate the booking of cruise and vacation reservations.
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. The internet web-site is
currently operational and independent travel consultants can view videos and
book car, air and hotel reservations directly through the web-site. The Company
hopes to enroll both the general public and existing travel agents. The Company
believes that there is an emerging trend in the travel industry, whereby
individuals who are presently travel agents are leaving their salaried positions
and moving into positions similar to that of an independent travel consultant
with their own home based travel business. The Company believes that existing
travel agents will be drawn to the opportunity to earn commissions, create their
own flexible hours, maintain their client base and utilize their existing
skills. Other advantages of a home based travel business are no commuting to an
office, low overhead, no need to rent expensive airline owned computer
reservation system equipment and personal travel benefits. However, there can be
no assurance that the Companyss.s marketing strategy directed to existing travel
agents will be successful. 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 containing 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, as well as full-service support from the
Company's live travel agents.
"Parallel Addressing Video Technology" allows the independent travel
consultants to see a destination in full motion video and stereo audio never
before available on the internet, without waiting for a lengthy file download.
Utilizing this proprietary technology the NetCruise web site will interact with
the individual's PC, find the requested video clip on its CD ROM, and plays it
locally in a clear, full screen mode. Included in the assets acquired by
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NetCruise is an extensive library of video clips complete with music and
narratives in stereo, which will bring views of cruise ships, hotels, and
destinations from around the world to the user in seconds. When the travel
consultant is ready, airline, hotel, and car rental bookings will all be made
quickly and easily via NetCruise's reservation web site. (As noted earlier, the
Company's independent travel consultants are currently not able to book vacation
and cruise packages in an automated fashion through the web-site. In order to
make these types of reservations, the independent travel consultant is
instructed to contact the Company's service center, (operated through Sammy's
Travel World, a wholly owned subsidiary of the Company) via toll-free telephone,
fax or e-mail, whereby a live NetCruise travel agent will then make the cruise
reservation.
The "Parallel Addressing Video Technology" provides zero-wait time,
full motion video and stereo audio to the independent travel consultants
interacting with the web-site. Unlike various forms of streaming video, live
media and internet video broadcasts, this technology does not rely on bandwidth
as the medium for delivery of video. UIT and its parent, ULC, developed this
technology and filed for a patent in July 1997, which was issued on November 30,
1999 as United States Patent # 5996000. Although the general public will be able
to access much of the site to obtain information and enroll as an independent
travel consultant, the Company intends that only participating travel
consultants who have paid a fee to the Company and received a password will be
able to access the reservation area of the site.
If at any point the individual requires additional expertise, a
personal NetCruise travel agent will be available by phone to guide them through
the process. On February 1, 1999 the Company acquired Sammy's Travel World,
Inc., a full-service travel agency specializing in leisure and corporate travel
and serving the New York City and northern New Jersey area with annual gross
bookings of approximately $1,800,000. Bookings consists of the total dollar
amount of airline tickets sold, cruises sold, and hotel and car reservations
made. Sammy's will provide, when necessary, full service support via telephone
to the Company's independent travel consultants. Sammy's is now a wholly owned
subsidiary of the Company and has five (5) employees.
Since on-line transactions can be faster, less expensive and more
convenient than transactions conducted via traditional means, a growing number
of consumers are transacting business over the World Wide Web. Examples of such
transactions include buying consumer goods, trading securities, purchasing
airline tickets and paying bills. Based upon its research and discussions with
individuals knowledgeable in electronic commerce on the World Wide Web,
management believes that 27% of adult World Wide Web users made on-line
purchases in 1997 and that 50% of adult World Wide Web users will make on-line
purchases in 2000. Management believes that as electronic commerce expands,
advertisers and direct marketers will increasingly seek to use the World Wide
Web to locate customers, advertise their products and services and facilitate
transactions.
The Company also believes that lodging and airline travel will be a
major leader in this market with total on-line travel revenues possibly reaching
over $50 billion by 2001. With travel taking such a large portion of on-line
sales, management of the Company expects that the enhanced travel services
offered by NetCruise will attract a wide range of internet using consumers
enabling NetCruise to become a significant participant in internet travel. In
the event shareholders do not approve this acquisition of a technology license
and certain related assets, the Company intends to continue its entry into the
internet travel business either by negotiating a licensing agreement with UIT
for the use of its technology license and certain related assets or by utilizing
alternative technologies.
Employees
The Company presently has 3 executive officers and 14 non-executive
employees, including 5 employees of the Company's wholly-owned subsidiary. None
of these employees is covered by a collective bargaining agreement. The Company
utilizes several software and marketing consultants on a part-time basis. The
company believes its personnel relations to be satisfactory.
Item 2. Properties
The Company and its subsidiaries presently lease approximately 2,380
square feet of office space at 2401 Morris Avenue, Union, New Jersey, 07083, and
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1,000 square feet of office space at 6 Wall Street, Rockaway, New Jersey, 07866.
The five-year Union lease expires in March 2002 and provides for a monthly
rental of $3,731.53. The Rockaway lease expires in August 2000 and provides for
a monthly rental of $850.
The properties have been leased from unaffiliated third parties. The
Company is presently negotiating to lease an additional 1860 square feet of
office space in the building it presently occupies.
Item 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 amd 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
agreed to immediately sell 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 agreed that the plaintiff could file a
$434,736 first lien security interest in their assets, which will be canceled
when the Company's obligation to pay the Sale Price Difference is canceled or
concluded.
On December 23, 1997, an individual filed an action in the Superior
Court of New Jersey against the Company and the former President and director of
the Company, alleging that the former President and director of the Company
induced such person to leave her place of employment to assume employment with
the Company. The claim seeks monetary damages based upon an oral promise of
employment allegedly made by the same officer of the Company. The former
President and director has agreed to hold the Company harmless and indemnify the
Company from any and all claims. On November 22, 1999, the parties to the
lawsuit entered a settlement agreement whereby the Company agreed to pay the
plaintiff the sum of $35,000 for which the Company received a General Release as
well as a stipulation of Dismissal with Prejudice of the lawsuit. The Company
filed for and was granted a summary Judgement with respect to the
indemnification by the former President and director of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company held on
October 13, 1999 there were present in person or by proxy 5,358,238 shares of
Common and 381,177 shares of Series A preferred stock representing in excess of
the majority of the issued and outstanding stock entitled to vote. The following
items of business were conducted in the meeting.
1. Five directors were elected by the holders of an
excess of the majority of outstanding shares as follows:
Name Votes in Favor Votes Opposed
Lawrence E. Burk 5,250,667 109,071
John H. Wasko 5,253,944 110,794
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David W. Sass 5,254,167 110,571
S. Charles Tabak 5,252,167 112,571
Warren D. Bagatelle 5,238,079 126,659
2. The proposal to approve the ratification of the acquisition
of assets from United Leisure Interactive, Inc. ("UIT") and approve the issuance
of 1,100,000 shares of Common Stock and two stock purchase warrants to UIT was
approved by the holders of an excess of the majority of the outstanding shares
voted as follows:
Votes in Favor Votes Opposed Unvoted
3,236,549 59,098 32,918
3. The proposal to ratify the sale of the limousine
reservations systems business to GEN02 was approved by the holders of an excess
of the majority of the outstanding shares voted as follows:
Votes in Favor Votes Opposed Unvoted
2,872,709 87,005 368,851
4. An Amendment to Article FIRST of the Company's
Certificate of Incorporation to change the name of the Company to netcruise.com,
inc. was approved by the holders of an excess of the majority of the outstanding
shares voted as follows:
Votes in Favor Votes Opposed Unvoted
5,325,516 12,776 21,442
5. An amendment to Article FOURTH of the Company's Certificate
of Incorporation to restate the provisions relating to the Company's authorized
Common and Preferred Stock as they relate to dividends and liquidation
preferences to correct certain inconsistencies was approved by the holders of an
excess of the majority of the outstanding shares voted as follows:
Votes in Favor Votes Opposed Unvoted
3,159,177 79,035 90,353
6. The proposal to approve the ratification of the appointment
of Wiss & Company, LLP as auditors of the Company was approved by the holders of
an excess of the majority of the outstanding shares voted as follows:
Votes in Favor Votes Opposed Unvoted
5,329,017 8,329 22,292
Part II
Item 5. Market for the Registrantss.s Common Equity and Related Stockholder
Matters.
Market Information
Prior to 1998, the Companyss.s Common Stock was eligible to trade in
the over-the counter market, however, the Company was unable to locate a quoted
<PAGE>
price for its stock. The Following table indicates the quarterly high and low
bid prices for the last two years for the Companyss.s Common Stock.
Bid Price Bid Price
1999 1998
Quarter Ended High Low High Low
------------- ---- --- ---- ---
March 31 6.75 3.125 3.5 2.125
June 30 3.8125 1.53125 3.937 2.375
September 30 2.3125 .875 3.5 2.25
December 31 1.125 .59375 4.125 2.75
The foregoing prices were provided by National Quotation Bureau.
Prior to August 18, 1999, the Companyss.s Common Stock, Class A
Redeemable Warrants and Class B Redeemable Warrants traded on The NASDAQ Stock
MarketSM under the symbols, NETC, NETCW and NETCZ respectively. Effective August
18, 1999, the foregoing trade on the OTC: BB under the same symbols.
Approximate Number of Equity Security Holders
Approximate Number of
Holders of Record as
Title of Class of March 27, 2000
-------------- -----------------
Common Stock,
$.0001 par value 1,100
Included in the number of stockholders of record are shares held in
nomine5/8 or street name.
Dividends
The Company has never paid any cash dividends. The Company presently
intends to retain any future earnings for use in its operations and, therefore,
does not expect to pay cash dividends in the foreseeable future.
Item 6. Managementss.s Discussion and Analysis of Financial Condition
and Results of Operations.
Comparison of Fiscal 1999 to Fiscal 1998
Revenues
Prior to the sale of the limousine reservation business and the
acquisition of the technology license and certain related assets from UIT, which
is discussed below, the Company worked with travel agents and corporate travel
departments by providing a computerized system for securing limousine
reservations. The Company had created its own computerized system which was
linked with the SABRE and Apollo computer reservation systems, two of the four
major airline reservation systems. Limousine reservations made through the SABRE
and Apollo computer reservation systems were relayed instantaneously to the
Companyss.s computer and then to a service provider of the clients choice -- all
without human intervention -- and an immediate limousine reservation was
confirmed.
<PAGE>
As of June 30, 1998, NetCruise, Inc. ( a wholly owned subsidiary of the
Company formed on July 21, 1998 for the purpose of operating an internet travel
business) entered into an Agreement to purchase a technology license and certain
related assets from United Internet Technology, Inc. The Company determined to
expand into the internet travel business for several reasons. Although the
Company had begun to generate revenues, the Company found that many limousine
providers were resisting the payment of commissions or fees in connection with
bookings on the Companyss.s system resulting in a much slower development of
revenues for the Company than was originally anticipated. Management evaluated
the cost of operations for a more extended period of time and determined that
the Companyss.s available funds would be better spent in other areas of the
travel business and therefore determined to expand into the internet travel
business.
On November 5, 1998, in order to augment the Companyss.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 Sterlingss.s network of 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 its computerized limousine reservation and payment system to GEN O2,
Inc., a company newly formed by a management group lead by Mark A. Kenny, former
director and founder of the Company. The Company owns a minority interests in
the new company and will receive royalties on transactions processed by the new
company for a period of five years.
Initially revenues from the web-site 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 subscription 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
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 also begun to receive limited contingent payments from
GEN O2 pursuant to the November 6, 1998 Acquisition Agreement whereby the
Company sold all of the assets of its computerized limousine reservation and
payment system to GEN O2.
The Companyss.s revenues to date have not been significant.
Accordingly, the Company and its subsidiaries continue to be in the development
stage.
<PAGE>
Expenses
The most significant component of cost of service for the internet
travel business is the portion of the commissions received by the Company that
are shared with the independent travel consultants. Another component is the
cost of the implementation or start-up kits, including CD-ROM, provided to each
new independent travel consultant.
General and administrative expenses include salaries and benefits,
travel costs, professional fees, rent, telephone and other operating costs of
the Company. The only internal expenditures capitalized with respect to the
costs of developing and implementing the Genisys Reservation and Payment Systems
have been $200,181 of salaries paid to Prosoft employees in fiscal 1998.
Results of Operations
As indicated above, revenues and related costs for fiscal 1999 differ
from those of fiscal 1998, as revenues from the Companyss.s former computerized
limousine reservation and payment system represented all of the Companyss.s
revenues until November 5, 1998 and thereafter, all revenues relate to its
internet travel business, with the exception of relatively minor contingent
payments received from Gen02.
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 year ended December 31, 1999 were $275,426 compared to
$115,677 for the year ended December 31, 1998. The corresponding cost of sales
for fiscal 1999 was $119,249 compared to $154,278 for fiscal 1998. The net loss
for the year ended December 31, 1999 was $3,406,717 or $.48 cents a share
compared to a loss of $2,344,489 or $.42 cents a share for the year ended
December 31, 1998. As reflected in the accompanying financial statements, the
Company has incurred losses totaling $8,853,126 since inception and at December
31, 1999, had a working capital deficit of $856,295.
General and administrative expenses were $2,103,586 for the year ended
December 31, 1999 as compared to $1,652,363 for the year ended December 31,
1998. The primary reasons for the difference between the two years ended
December 31, 1999 and December 31, 1998 are increased payroll costs and
increases in legal and accounting expenses related to the Company efforts to
gain approval of it's Proxy filed with the SEC.
Payroll costs increased approximately $84,300 during the fiscal year
ended December 31, 1999, due mainly to the acquisition of Sammy's Travel World.
Other approximate cost increases during Fiscal 1999 consist of professional fees
($185,000), insurance ($38,700), and other administrative costs ($56,400) and
consulting fees ($86,800). Professional and consulting fees for the year ended
December 31, 1999 total $562,152. Such amount included attorneys fees of
$226,587, accounting fees of $176,813 and consulting fees of $36,000 payable to
Loeb Partners.
Total revenues for the year ended December 31, 1998 were $115,677
compared to $25,863 for the year ended December 31, 1997. The corresponding cost
of sales for fiscal 1998 was $154,278 compared to $24,992 for fiscal 1997. The
net loss for the year ended December 31, 1998 was $2,344,489 or $.42 cents a
share compared to a loss of $1,590,125 or $.39 cents a share for the year ended
December 31, 1997. At December 31, 1998, the Company had a working capital
deficit of $196,212.
General and administrative expenses were $1,652,363 for the year ended
December 31, 1998 as compared to $1,318,203 for the year ended December 31,
1997. The primary reasons for the difference between the two years ended
December 31, 1998 and December 31, 1997 were increased payroll costs and
increases in legal and accounting expenses related to the litigations.
Payroll costs increased approximately $166,000 during the fiscal year
ended December 31, 1998, due to the hiring of Mr. Larry Burk as the President of
the Company, as well as the hiring of a marketing specialist and an accounting
clerk. The Company also increased its payroll costs by hiring two developers.
<PAGE>
Other approximate cost increases during fiscal 1998 consist of professional fees
($44,000), insurance ($8,000), and other administrative costs ($134,150) while
consulting fees decreased $46,500. Professional and consulting fees for the year
ended December 31, 1998 total $311,000. Such amount included attorneys' fees of
$151,000, accounting fees of $18,000, outside bookkeeping fees of $17,500 and
consulting fees of $36,000 payable to Loeb Partners.
The Company conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and
developed an implementation plan to resolve the issue. All software currently
being developed by the Company or through third party contractors is being
written to be Year 2000 compliant. The Company, with the assistance of outside
software contractors, changed its accounting system from non-compliant MAS-90
software to a compliant software system. Final implementation of fully tested
and operational Year 2000 compliant systems was completed in the fourth quarter
of 1999. The Companyss.s banks and lenders have communicated that they were Year
2000 compliant by the end of 1999. The Company experienced no year 2000
problems, however since it is possible that some Year 2000 problems might not
surface until the end of each fiscal quarter of the new century, the Company is
keeping a close watch for any potential problems.
Liquidity and Capital Resources
The Companyss.s funds have principally been provided from Loeb Holding
Corp. as escrow agent, Loeb Holding Corp., LTI Ventures Leasing Corporation,
four private offerings and a public offering.
In September 1995, December 1995 and January 1996 the Company entered
into sale and lease-back arrangements whereby the Company sold the bulk of its
computer hardware and commercially purchased software to a lessor for amounts
totaling $295,000 and agreed to lease back such equipment for initial terms
ranging from 24 to 30 months. Pursuant to the November 1998 exchange of assets
for a 32.7% interest in GEN O2, Inc., the obligations under the sale and
lease-back arrangements were assumed by GEN O2, 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 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 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 lease-back arrangements
entered into by the Company contributed to the original capitalization of the
Company.
The Company completed a private placement of common stock in January
1999 whereby it sold 1,000,000 shares of common stock for an aggregate of
$1,500,000 of which $200,000 was received in 1998, $510,000 between January 1999
and February 1999 and $790,000 in June 1999.
During April 1999, the Company and a principal of Loeb Partners, Corp.
signed two Promissory Notes each in the amount of $105,000, whereby the Company
borrowed a total of $210,000. The Promissory Notes, which bear interest at 10%
per annum, are payable on demand.
<PAGE>
During April 1999, the Company and Warren D. Bagatelle, Managing
Director of Loeb Partners, Corp. signed two Promissory Notes, each in the amount
of $45,000, whereby the Company borrowed a total of $90,000. The Promissory
Notes, which bear interest at 10% per annum, are payable on demand.
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 restricted 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 in the amount of $50,000 dated January 7, 2000, $75,000 dated January 21,
2000 and $50,000 dated February 2, 2000. 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 restricted common stock of the Company at a
conversion price of $0.20 per share.
On March 6, 2000 the Company completed a private placement of its
$.0001 par value 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 59.38% of the 21,161,384 total shares currently issued and
outstanding, 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 another shareholder and it's affiliates, 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 December 31, 1999, the Company had cash of $145,921 and a working
capital deficit of $856,295. The Company's internet travel business is now fully
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
<PAGE>
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 2,000 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.
Inflation is not expected to have any material effect on the Company.
Item 7. Financial Statements and Supplementary Data.
See Pages F-1 through F-18.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable
PART III
Item 9. Directors and Executive Officers of the Registrant
The following table sets forth certain information with respect to each
of the Companyss.s directors and executive officers.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name Age Position
Lawrence E. Burk 58 President, Chief Executive Officer and Director
John H. Wasko 61 Chief Financial Officer, Secretary, Treasurer
And Director
Kathleen M. Preziose 42 Vice President of Operations
David W. Sass 64 Director
S. Charles Tabak 67 Director
</TABLE>
The Company's Audit and Compensation Committees consist of Messrs. S. Charles
Tabak and David W. Sass. All officers of the Company devote their full time to
the Companyss.s business.
Lawrence E. Burk joined the Company on June 23, 1997, as President,
Chief Executive Officer, and Director following a 27 year career with Alexander
& Alexander Services. From 1993 to early 1996, Mr. Burk served as Chairman and
CEO of Alexander & Alexander, Inc., the U.S. Retail Subsidiary of A & A
Services, and from early 1996 until the companyss.s acquisition by AON
Corporation in late 1996, Mr. Burk served as President and Chief Operating
Officer of A & A International, the companyss.s global retail operation. Mr.
Burk served on the companyss.s Global Retail Board from 1985; on A & A Services
Operations Board from 1989; and on A & A Inc.'s Executive Committee and
Operations Board from 1989. A & A was a NYSE listed Financial Services firm with
revenues of over $1.3 billion. Mr. Burk has a B.A. degree in Economics from
Southern Illinois University and is a member of the schools Advisory Board.
John H. Wasko has served the Company as a Director since April, 1986,
as Secretary since September 1995, and as Treasurer and Chief Financial Officer
<PAGE>
since April 1996. Mr. Wasko has also served the Company as President and
Chairman of the Board since its inception to August 1995, and as Treasurer from
April 1986 to September 1987 and from May 1988 to August 1995. Mr. Wasko has
also served as Chairman of the Board, President and Director of JEC Lasers,
Inc., presently an inactive company, since it was organized in September 1977.
He was awarded a bachelor of science degree in physics in 1963 and a master of
science degree in physics (summa cum laude) in 1965 from Fairleigh Dickinson
University.
Kathleen M. Preziose - Vice President of Operations, joined the Company
in 1999. Ms. Preziose is a senior travel executive with over 20 years of travel
industry experience. For the past 11 years, Ms. Preziose has been an independent
travel industry consultant involved in the areas of travel operations, call
center management, project management, and systems integration. Recent clients
include Lands' End, Cendant Corporation, Disney Travel, RCI Travel and Cunard
Cruise Lines. From 1977 to 1988, Ms. Preziose worked with Unites Airline's
Apollo Travel Systems in a variety of sales and management positions. Ms.
Preziose studied communications at Temple University.
David W. Sass has been a Director since April, 1997 and has been a practicing
attorney in New York City for the past 40 years and is currently a senior
partner in the law firm of McLaughlin & Stern, LLP, securities counsel to the
Company. Mr. Sass is also a director of Pallet Management Systems, Inc., a
company engaged in the manufacture and repair of wooden pallets and other
packaging services, a director of BarPoint, Inc., a company that will operate a
patent pending search engine and software technology that allows consumers to
use the standard UPC barcode to search for products specific information on the
internet; an officer of Westbury Metals Group, Inc.., a company engaged in the
refining of precious metals; an officer of Pioneer Commercial Funding Corp., a
company (formerly) engaged as a mortgage warehouse lender and a member and Vice
Chairman of the Board of Trustees of Ithaca College. Mr. Sass earned a B.A. from
Ithaca College, a J.D. from Temple University School of Law and an L.L.M. (in
taxation) from New York University School of Law.
S. Charles Tabak has been a Director since April, 1997. Since 1991 he has been
the Chief Executive Officer of Arc Medical & Professional, Inc., an employment
agency specializing in placement of scientific, medical and office personnel.
From 1969 to 1990, he was the Executive Vice President and General Counsel for
Channel Home Centers Inc. From 1967 to 1969, he was the Director of Finance of
J.J. Newbury Co. Mr. Tabak is a past member of the Board of Directors of Channel
Home Centers, Inc. and Charge A Plate Group of Greater New York. He is a
graduate of both NYU School of Business and School of Law, and is admitted to
practice law in New York State and before the U.S. Supreme Court.
Item 10. Executive Compensation
The following tabulation shows the total compensation paid by the
Company for services in all capacities during the years ended December 31, 1999,
1998 and 1997 to the officers of the Company and total compensation for all
Officers as a group for such period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Annual Compensation Long Term Compensation
Awards Payout
Restricted
Other All
Annual Stock Options LTIP Other
Name and Year Salary Bonus Compensation Awards /SAR's Payout Compensation
- -------- ---- ------ ----- ------------ ------ ------ ------ ------------
Principal
Position (Mgmt. Fee)
Lawrence E. Burk 1999 $106,308$0 $0 $0 $0 $0 $0 $0
President, & Chief 1998 $147,500$0 $0 $0 $0 $0 $0 $0
Executive Officer 1997 $75,000(1) $0 $0 $0 $0 $0 $0
<PAGE>
Joseph Cutrona(2) 1999 $0 $0 $0 $0 $0 $0 $0
1998 $0 $0 $0 $0 $0 $0 $0
1997 $41,631 $0 $6,667 $0 $0 $0 $0
Mark A. Kenny (3) 1999 $0 $0 $0 $0 $0 $0 $0
1998 $88,462 $0 $0 $0 $0 $0 $0
1997 $64,231 $0 $28,967 $0 $0 $0 $0
John H. Wasko 1999 $74,616 $0 $0 $0 $0 $0 $0 $0
Chief Financial Officer, 1998 $80,000 $0 $0 $0 $0 $0 $0 $0
Secretary & Treasurer 1997 $81,247 $0 $20,000 $0 $0 $0 $0 $0
Kathleen M. Preziose 1999 $47,116(6) $0 $0 $0 $0 $0 $0 $0
Vice President of 1998 $0 $0 $0 $0 $0 $0 $0 $0
Operations 1997 $0 $0 $0 $0 $0 $0 $0 $0
Warren D. Bagatelle(7) 1999 $0 $0 $37,000(5) $0 $0 $0 $0 $0
1998 $0 $0 $39,000(5) $0 $0 $0 $0 $0
1997 $0 $0 $59,500(4) $0 $0 $0 $0 $0
</TABLE>
(1) Salary paid to Mr. Burk for the period June 23, 1997 thru December 31, 1997.
Mr. Burkss.s annual salary is $150,000.
(2) As of May 12, 1997, Mr. Cutrona is no longer an employee, officer or
Director of the Company.
(3) Mr. Kenny formerly was the Companyss.s Executive Vice President. He resigned
as an employee and a Director of the Company as of November 6, 1998.
(4) Includes $51,000 of consulting fees paid to Loeb Partners Corporation of
which Warren D. Bagatelle is Managing Director.
(5) Includes $36,000 of consulting fees paid to Loeb Partners Corporation of
which Warren D. Bagatelle is Managing Director.
(6) Salary paid to Ms. Preziose for the period May 1, 1999 thru December 31,
1999. Ms. Preziose's annual salary is $80,000.
(7) Mr. Bagatelle formerly was Director and Chairman of the Company. He signed
as a Director and Chairman of the Company effective December 31, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following tabulation shows the security ownership as of March 17,
2000 of (i) each person known to the Company to be the beneficial owner of more
than 5% of the Companyss.s outstanding Common Stock, (ii) each Director and
officer of the Company and (iii) all Directors and Officers as a group.
NUMBER OF PERCENT
NAME & ADDRESS SHARES OWNED OF CLASS
- -------------- ------------ --------
Joseph Perri
10 Whitwell Place
Staten Island, NY 10304 12,662,008 58.29%
<PAGE>
United Internet Technologies, Inc. (1)(5)
18081 Magnolia Avenue
Fountain Valley, CA 92708 2,000,000 9.21%
John H. Wasko (2)
Netcruise.com, inc.
2401 Morris Avenue
Union, NJ 07083 198,106 *
Lawrence E. Burk (5)
Netcruise.com, inc.
2401 Morris Avenue
Union, NJ 07083 334,231 1.54%
Kathleen M. Preziose
Netcruise.com, inc.
2401 Morris Avenue
Union, NJ 07083 30,386 *
S. Charles Tabak (4)
ARC Medical Professional Personnel
36 Route 10W, Suite D
East Hanover, NJ 07936 22,000 *
David W. Sass (4) McLaughlin & Stern, LLP 260 Madison Ave. 18th Fl.
New York, NY 10016 20,000 *
All Officers and Directors
as a group (5 persons) 604,723(6) 2.78%
- ---------------------
* less than 1%
(1) Does not include two Warrants, each entitling the holder to
purchase 800,000 shares of Common Stock. One warrant is exercisable for 800,000
shares at $2.50 per share and may be exercised between April 1, 2002 and June
30, 2002, but only if NetCruise achieves profits equal to or exceeding
$5,000,000 for the years 1999, 2000 and 2001. The other Warrant is exercisable
for 800,000 shares at $6.00 per share and may be exercised between April 1, 2002
and June 30, 2002, but only if NetCruise achieves profits equal to or exceeding
$10,000,000 for the years 1999, 2000 and 2001.
(2) Includes 19,362 shares of Common Stock owned of record by Joan E.
Wasko, John Waskoss.s wife, of which Mr. Wasko disclaims beneficial ownership,
but of which he may be deemed beneficial owner, a five (5) year option to
purchase 60,000 shares of the Companyss.s Common Stock at a price of $1.50 per
share granted to Mr. Wasko by the Company on November 15, 1999, 8,214 shares of
Common Stock issuable upon conversion of Mr. Wasko's prorata share of a
Convertible Note in the principal amount of $12,500 and warrants to purchase up
to 93,864 and 16,666 shares of common stock at an exercised price of $0.50 per
share issued on November 5, 1999 and March 10, 2000 respectively..
(3) Includes a five (5) year option to purchase an aggregate of 200,000
shares of Common Stock at a price of $1.50 per share granted on November 15,
1999 and warrants to purchase up to 104,308 and 24,923 shares of common stock at
an exercised price of $0.50 per share issued on November 5, 1999 and March 10,
2000 respectively.
(4) Includes a five (5) year option to purchase 15,000 shares of Common
Stock at a price of $1.50 per share granted on November 15, 1999.
<PAGE>
(5) Does not include two warrants issued in connection with the
acquisition of assets from UIT, each entitling Mr. Brian Shuster, President of
UIT to purchase 200,000 shares of the Companyss.s Common Stock. One warrant is
exercisable for 200,000 shares at $2.50 per share and may be exercised between
April 1, 2002 and June 30, 2002, but only if NetCruise achieves profits equal to
or exceeding $5,000,000 for the years 1999, 2000 and 2001. The other warrant is
exercisable for 200,000 shares at $6.00 per share an may be exercised between
April 1, 2002 and June 30, 2002, but only if NetCruise achieves profits equal to
or exceeding $10,000,000 for the years 1999, 2000 and 2001.
(6)Includes a five (5) year option to purchase 20,000 shares of common
stock at a price of $1.50 per share granted on November 15, 1999 and a five (5)
year warrant to purchase up to 10,386 shares of common stock at an exercise
price of $0.50 per share issued on November 5, 1999.
(7) Includes all of the options granted to certain officers and
directors pursuant to the foot notes numbered (1) through (6) above.
Item 12. Certain Relationships and Related Transactions
In February 1995, Loeb Holding Corporation, as escrow agent
(Loeb), for Warren D. Bagatelle, HSB Capital, trusts for the benefit of families
of two principals of Loeb Holding Corporation and three unaffiliated
individuals, agreed to loan the Company $500,000 evidenced by a series of
Convertible Promissory Notes (Convertible Promissory Notes). In September, 1995,
Loeb converted the Convertible Promissory Notes into 841,455 common shares of
the Company and two Term Promissory Notes, one in the principal amount of
$475,000 and the other in the principal amount of $25,000.
On August 11, 1995, Robotic Lasers, Inc. acquired Travel Link by
issuing 1,682,924 shares of restricted new Common Stock of the Company in
exchange for the shares of the common stock of Travel Link owned by Joseph
Cutrona, Mark A. Kenny and Steven E. Pollan, which represented all the issued
and outstanding shares of common stock of Travel Link.
On September 5, 1995 the Company entered into a three year consulting
and investment banking agreement with Loeb Partners Corporation. Under the terms
of the agreement the Company pays Loeb Partners Corporation $3,000 per month.
Loeb Partners Corporation will also receive a fee for arranging private
financing and acquisitions. This banking agreement has been extended by the
Company for three (3) years on the same terms. Mr. Warren D. Bagatelle, a former
Director and Chairman of the Company, is a Managing Director of Loeb Partners
Corporation.
During December 1995, Loeb agreed to loan the Company $250,000
evidenced by a series of Convertible Promissory Notes. In November 1996, Loeb
converted the Convertible Promissory Notes into (i) two Term Promissory Notes,
one in the principal amount of $237,500 and the other in the principal amount of
$12,500 issued in December 1995 and discussed below and (ii) 420,728 shares of
Common Stock of the Company, of which 420,000 shares of Common Stock are owned
by four unaffiliated parties. Loeb Holding Corporation did not receive any
shares of Common Stock in this transaction.
In March 1998 the holder of two Term Convertible Promissory Notes in the
principal amounts of $475,000 and $237,500, converted $400,000 of the principal
amount of the former note and $200,000 of the principal amount of the latter
note into 188,235 shares and 94,118 shares respectively of the Series A
Preferred Stock of the Company at a price of $2.125 per share.
The holder of the term promissory notes is Loeb Holding Corporation, as
escrow agent for Warren D. Bagatelle, Managing Director of Loeb Partners Corp.,
HSB Capital (of which Mr. Bagatelle is a partner), trusts for the benefit of
families of two principals of Loeb Holding Corporation and three unaffiliated
persons. Loeb Holding Corporation disclaims any beneficial interest in these
shares.
The Term Promissory Note in the amount of $25,000 and the Term
Promissory Note in the amount of $12,500 issued in December 1995 were converted
in March 1998 into 400,000 shares of the Common Stock of the Company at a price
of $0.09375 per share.
<PAGE>
During November and December 1996, the Company and Loeb Holding
Corporation signed four eighteen (18) month Convertible Promissory Notes whereby
Loeb Holding Corporation loaned the Company the sums of $75,000, $30,000,
$10,000 and $95,000 (totaling $210,00). The Promissory Notes which bear interest
at 10%, matured on May 11, 1998, May 25, 1998, June 2, 1998 and June 9, 1998. In
March 1998, Loeb, converted the total principal amount of the four Convertible
Promissory Notes ($210,000) into 98,824 shares of the Series A Preferred Stock
of the Company at a price of $2.125 per share.
In November 1998 the Company entered into an Acquisition Agreement with
a company newly formed by a management group led by Mark A. Kenny, a Company
founder and former director. This new company was organized for the purpose of
this acquisition. Mr. Kenny is still a shareholder of the Company.
On November 5, 1999, Lawrence E. Burk, John H. Wasko and Kathleen M.
Preziose were issued Warrants to purchase shares of restricted Common Stock of
the Company as full consideration of their having released the Company from it's
obligation to pay them for accrued but unpaid compensation due them according to
the following schedule.
o Each officer will be issued a warrant to purchase 2 shares of restricted
common stock for each one dollar of unpaid compensation.
o Each Warrant is exercisable at $0.50 per share and may be exercised following
the end of the salary resduction period. o Warrant exercise period of 5 years.
Pursuant to the above schedule, on November 5, 1999, Messrs. Burk, Wasko and
Preziose were issued Warrants to purchase up to 104,308 shares, 93,841 shares
and 10,386 shares respectively. On March 16, 2000, Messrs. Burk and Wasko were
issued additional Warrants to purchase 24,923 shares and 16,666 shares
respectively.
On March 6, 2000 the Company completed a private placement of its
$.0001 par value common stock in a series of related transactions with Mr.
Joseph Perri, who was 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. As a result of these transaction, Mr. Perri is
now the controlling shareholder of the Company.
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 59.38% of the 21,161,384 total shares currently issued and
outstanding, 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 another shareholder and it's affiliates, 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.
For the year ended December 31, 1999 the Company paid to the firm of
McLaughlin & Stern, LLP the sum of $98,446 for legal services. Mr. Sass, a
director of the Company, is a member of said firm.
<PAGE>
The Company believes that each of these transactions was entered into
on terms at least as favorable to the Company as could have been obtained from
unaffiliated third parties.
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-k
(a) (1) Financial Statements
Included in Part II of this report:
Balance Sheets - December 31, 1999 and 1998.
Statements of Operations During the Development Stage - For the
Period from Inception through December 31, 1999 and the Years
Ended December 31, 1999 and December 31, 1998.
Statements of Cash Flows - For the Period from Inception through
December 31, 1999 and for the Years Ended December 31, 1999 and
December 31, 1998.
Statement of Changes in Stockholdersss. Equity - For the Years
Ended December 31, 1999 and December 31, 1998.
Notes to Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
(2) Exhibits
3.1* Registrantss.s Articles of Incorporation
3.2* Registrantss.s By-Laws
4.1* Form of Common Stock Certificate
4.2* Redeemable Warrant Agreement with Form of Class A and Class B Warrant
4.3** Redeemable Class X and Class Y Warrant issued to Brian Shuster to purchase
up to 200,00 shares of the Company's Common Stock.
4.4** Redeemable Class V and Class W Warrant issued to United Internet
Technologies, Inc. to purchase up to 800,00 shares of the Companyss.s Common
Stock.
9.1** Copy of Agreement dated June 30, 1999 between the Company and United
Internet Technologies, Inc., formerly known as United Leisure Interactive, Inc.
relating to the purchase of a technology license and certain related assets.
9.2*** Copy of Agreement dated November 6, 1998 between the Company and
Corporate Travel Link, Inc., a wholly owned subsidiary of the Company,
TranspoNet, Mark A. Kenny, Paul Murray and Gen 02, Inc., relating to the sale of
the Genisys Reservation Systems business.
10.21**** Subscription Agreement dated March 1, 2000 between the Company and
Joseph Perri.
10.22**** Debt Conversion Agreement dated March 1, 2000 between the Company and
Joseph Perri.
10.23**** Agreement for purchase of NetCruise.com, Inc. common stock dated March
1, 2000 between Loeb Holding Corporation, as Agent, and Joseph Perri.
10.24**** Anti-dilution option agreement dated March 1, 2000 between the Company
and Joseph Perri.
10.25**** Contingency Agreement dated March 1, 2000 between the Company and
Joseph Perri.
All of the above referenced documents marked with an (*) are incorporated herein
by reference to the Exhibit bearing the same number in the Registrantss.s
Registration Statement on Form SB-2, File No. 333-15011.
<PAGE>
All of the above referenced documents marked with an (**) are incorporated
herein by reference to the Exhibit the Companyss.s Form 8-K dated March 26,
1998.
All of the above referenced documents marked with an (***) are incorporated by
reference to the Exhibits to the Registrant's Form 10-KSB-A for the fiscal year
ended December 31, 1998.
All of the above referenced documents marked with an (****) are incorporated by
reference to the Exhibits to the Company's Form 8-K dated March 17, 2000.
(b) (1) Reports on Form 8-K
Form 8-K filed one March 17, 2000
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 and the Period From March 7, 1994
(commencement of development stage activities) to
December 31, 1999 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1999 and 1998 and for the
Period from inception to December 31, 1999 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998, and the Period From March 7,
1994 (commencement of development stage activities) to
December 31, 1999 F-6
Notes to Consolidated Financial Statements F-7 to F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
netcruise.com, inc.
(Formerly Genisys Reservation Systems, Inc.)
(A Development Stage Company)
We have audited the accompanying consolidated balance sheets of netcruise.com, inc. and subsidiaries (formerly
Genisys Reservation Systems, Inc.) as of December 31, 1999 and 1998 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years ended December 31, 1999 and 1998, and for
the period from March 7, 1994 (commencement of development stage activities) to December 31, 1999. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of netcruise.com, inc. and subsidiaries at December 31, 1999 and 1998 and the results of
their operations and their cash flows for the years ended December 31, 1999 and 1998, and for the period from March
7, 1994 (commencement of development stage activities) to December 31, 1999, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the financial statements, the Company is a development stage company and has
suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do
not include any adjustments that might result from the outcome of this uncertainty.
WISS & COMPANY, LLP
Livingston, New Jersey
March 3, 2000
F-2
<PAGE>
netcruise.com, inc. and subsidiaries
(Formerly Genisys Reservation Systems, Inc.)
Development Stage Companies
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1999 1998
CURRENT ASSETS:
Cash and equivalents $ 55,371 $ 145,921
Accounts receivable, less allowance for doubtful
accounts of $15,000 (1998) 7,107 67,174
Prepaid advertising 360,345 167,090
Prepaid expenses and other current assets 24,266 835
Total Current Assets 447,089 381,020
INVESTMENT IN, AND ADVANCES TO, GEN 02, INC. - 664,204
PROPERTY AND EQUIPMENT 130,762 91,400
COMPUTER SOFTWARE , TECHNOLOGY LICENSE AND
RELATED ASSETS, LESS ACCUMULATED AMORTIZATION 1,748,289 2,209,175
OTHER ASSETS 133,120 94,638
$2,459,260 $3,440,437
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - related parties $ 622,500 $ 21,875
Accounts payable and accrued expenses 516,316 208,509
Accrued interest payable - related parties 210,586 179,758
Total Current Liabilities 1,349,402 410,142
LONG-TERM DEBT, LESS CURRENT MATURITIES - 90,625
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value: 24,294,000 shares
authorized, none outstanding - -
Series A preferred stock, $.0001 par value, 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) and 6,913,965 shares (1998) 834 691
Additional paid-in capital 10,095,320 8,518,558
Deficit accumulated during development stage (8,986,334) (5,579,617)
Total Stockholders' Equity 1,109,858 2,939,670
$2,459,260 $3,440,437
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
netcruise.com, inc. and subsidiaries
(Formerly Genisys Reservation Systems, Inc.)
Development Stage Companies
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
March 7, 1994
(Commencement of
Development
Stage Activities) to
Year Ended December 31, December 31,
1999 1998 1999
SERVICE REVENUES $ 275,426 $ 115,677 $ 438,739
EXPENSES:
Cost of services 119,249 154,278 298,519
General and administrative:
Payroll 895,247 810,939 2,855,782
Depreciation and amortization 759,517 554,114 1,514,317
Professinal fees 562,152 311,432 1,515,706
Travel and entertainment 55,047 65,638 270,700
Advertising and promotion 78,215 65,726 280,440
Other 512,925 398,628 1,509,220
Interest expense (income), net 25,579 (20,507) 231,278
3,007,931 2,340,248 8,475,962
LOSS BEFORE EQUITY IN GEN 02, INC. (2,732,505) (2,224,571) (8,037,223)
EQUITY IN LOSS OF GEN 02, INC. (674,212) (119,918) (815,903)
NET LOSS $(3,406,717) $(2,344,489) $(8,853,126)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,644,597 5,561,000 4,054,037
BASIC AND DILUTED LOSS
PER COMMON SHARE $ (.48) $ (.42) $ (2.18)
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
netcruise.com, inc. and subsidiaries
(Formerly Genisys Reservation Systems, Inc.)
Development Stage Companies
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Deficit
Accumulated
Amount Series A Preferred Additional During the
Per Stock Common Stock Paid-in Development
Share Shares Par Value Shares Par Value Capital Stage
INCEPTION TO DECEMBER 31, 1997:
Issuance of common stock in August 1995 for
for services received in 1996 and 1995 $ .01 - $ - 1,682,924 $ 168 $ 19,432 $ -
Net liabilities (principally accounts payable)
assumed in reverse acquisition in
August 1995 (.05) - - 280,487 28 (14,115) -
Conversion of related party debt into
common stock in 1996 .02 - - 841,455 84 13,322 -
Issuance of common stock in 1996 for:
Cash 2.00 - - 55,000 6 109,994 -
Conversion of stockholder note .02 - - 420,766 42 6,661 -
Issuance of warrants in 1996 - - - - - 10,350 -
Contribution to capital by stockholder/officer - - - - - 235,400 -
Proceeds from public offering in 1997 of
common stock
and warrants, less related costs 5.00 - - 1,035,000 103 4,507,812 -
Conversion of convertible
notes into common stock in 1997 2.00 - - 15,000 2 29,998 -
Issuance of common stock
upon exercise of option in 1997 .60 - - 25,000 3 14,997 -
Losses incurred during the development stage - - - - - - (3,235,128)
BALANCES, DECEMBER 31, 1997 - - 4,355,632 435 4,933,851 (3,235,128)
Issuance of stock upon Sterling acquisition 1.50 - - 25,000 3 37,947 -
Issuance of common stock upon
acquisition of UIT assets 1.53 - - 2,000,000 200 2,499,800
Conversion of convertible notes into:
Common stock .09 - - 400,000 40 37,460 -
Series A preferred stock 2.125 381,177 38 809,963
Issuance of common stock for cash 1.50 133,333 13 199,987 -
Net loss - - - - - (2,344,489)
BALANCES, DECEMBER 31, 1998 381,177 38 6,913,965 691 8,519,008 (5,579,617)
Private placements 1.50 - - 866,667 87 1,277,913 -
Issuance of stock relating to
Sammy's acquistion 1.50 - - 36,600 4 54,896
Issuance of additional stock
relating to GEN02 3.00 - - 4,844 - 14,532 -
Issuance of stock for cash 0.20 - - 500,000 50 99,950 -
Issuance of stock for services 1.05 - - 23,743 2 25,008 -
Warrants issued to employees - - - - 104,463
Net loss - - - - - (3,406,717)
BALANCES, DECEMBER 31, 1999 381,177 $ 38 $8,345,819 $ 834 $10,095,770 $(8,986,334)
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
netcruise.com, inc. and subsidiaries
(Formerly Genisys Reservation Systems, Inc.)
Development Stage Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
March 7, 1994
(Commencement of
Development
Stage Activities) to
Year Ended December 31, December 31,
1999 1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,406,717)$ (2,344,489) $ (8,896,334)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Equity in loss of GEN 02, Inc. since its inception,
less cash items 678,736 119,918 798,654
Depreciation and amortization 759,517 534,503 1,627,914
Issuance of common stock for services 129,473 - 129,473
Contribution to capital for services rendered - - 49,600
Changes in operating assets and liabilities:
Accounts receivable 60,067 (59,296) (8,013)
Prepaid expenses and other current assets (215,886) (7,478) (228,731)
Deposits and other (5,839) (6,360) (74,522)
Accounts payable and accrued expenses 323,243 41,775 705,000
Net cash flows from operating activities (1,677,406) (1,721,427) (5,896,959)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and software (307,368) (445,007) (1,857,350)
Acquisition of Prosoft, Inc. - - (34,601)
Acquisition of Sammy's Travel 6,224 - 6,224
Advances to GEN 02, Inc. - (40,000) (40,000)
Net cash flows from investing activities (301,144) (485,007) (1,925,727)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) of notes payable - related parties 510,000 (92,986) 338,674
Proceeds from public offering of common
stock and warrants net of deferred offering costs 1,278,000 - 5,785,915
Contribution to capital - stockholder/officer - - 205,400
Proceeds from notes payable - - 955,000
Proceeds from sale and lease back - - 294,644
Proceeds from sale of common stock - 200,000 310,000
Payments on 10% promissory note, net - - (46,000)
Payments under computer lease equipment - - (63,076)
Other, net 100,000 37,500 187,500
Net cash flows from financing activities 1,888,000 144,514 7,968,057
NET CHANGE IN CASH AND EQUIVALENTS (90,550) (2,061,920) 55,371
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 145,921 2,207,841 -
CASH AND EQUIVALENTS, END OF PERIOD $ 55,371 $ 145,921 $ 55,371
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 33,512 $ 27,824 $ 201,834
Issuance of common stock for UIT assets $ - $ 2,500,000 $ 2,500,000
Conversion of related party debt into common stock $ - $ 37,500 $ 37,500
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 $ 744,122
Issuance of common stock for Sammy's Travel assets $ 54,900 $ - $ 54,900
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Development Stage Activities - Although planned principal operations
have commenced, revenues to date have not been significant; accordingly, the
Company and its subsidiaries continue to be in the development stage.
Estimates and Uncertainties - The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results, as determined at a later date,
could differ from those estimates.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its majority-owned subsidiaries. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
Financial Instruments - Financial instruments include cash and
equivalents, other assets, accounts payable, accrued expenses and long-term
debt. The amounts reported for financial instruments are generally considered to
be reasonable approximations of their fair values, based on market information
available to management; the difference is not considered significant.
Cash and Equivalents - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Concentration of Credit Risk - The Company maintains its cash balances
in several financial institutions. The accounts at each institution are insured
by the Federal Deposit Insurance Corporation up to $100,000.
Impairment - In accordance with generally accepted accounting
principles, the Company reviews its long-term assets for possible impairment
each year based upon management's estimate of future long-term undiscounted cash
flows from the related assets. When impairment on this basis is indicated, such
assets are written down to estimated fair value.
Direct Response Advertising - The Company capitalizes the production
costs of each infomercial. Where customer response records are deemed adequate,
such costs will be amortized over the period of future benefit based upon
estimated gross revenues; otherwise, they will be expensed at the date of the
first public showing.
Investment in and Advances to Gen 02, Inc. - The Company reported
contingent payments received from Gen 02, Inc. on the cost recovery method.
Although any earnings were to be reported on the equity method, all losses
incurred by Gen 02, Inc. to the extent of the Company's carrying amount of the
assets transferred plus advances were reported in full by the Company, since the
only other capital contributed to Gen 02, Inc. was $50. The nonmonetary assets
transferred by the Company to Gen 02, Inc. were recorded by Gen 02, Inc. at the
Company's historical cost basis; depreciation and amortization was recorded on a
straight-line basis over the remaining lives of the assets transferred.
F-7
<PAGE>
In the fourth quarter of 1999, management considered this investment
fully impaired and it was written off.
Property and Equipment - Property and equipment are stated at cost and
depreciation is provided using the straight-line method over an estimated useful
life of 5 years.
Computer Software Costs and Technology Licenses- The Company
capitalizes the direct costs of materials, services and interest consumed in
software development. Such costs are being amortized on a straight-line basis
over three years, subject to periodic evaluation for impairment. The cost of
acquired technology licenses and related assets are being amortized over five
years. It is reasonably possible that the remaining economic life of these
assets and/or the carrying amounts could be reduced significantly in the near
term, due to future developments.
Revenue Recognition - The Company recognizes travel commissions when
the customer has paid the entire amount and the commission becomes collectible
from the travel source.
Debt Issue Costs - Costs related to the issuance of debt are
capitalized and amortized over the term of the related debt as an adjustment to
interest expense.
Income Taxes - Deferred tax assets and liabilities are computed for
temporary differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future,
based on enacted tax laws and rates applicable to the periods in which the
temporary differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Stock Based Compensation - The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. Accordingly, compensation cost for options granted by
the Company is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock.
Had compensation cost been based upon the fair value of the options on
the date of grant, the Company's proforma net loss and net loss per share would
have been approximately ($3,830,000) or ($.50) per share in 1999 and
approximately $(2,681,000) or ($0.48) per share in 1998. The fair value of the
options were estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions, risk-free
interest rates of 5.0%, dividend yield of 0.0%, volatility factor equal to 163%
(1999) and 70% (1998) and an expected life equaling the options exercise
periods.
Net Loss Per Common Share -Basic loss per share represents net loss
after preferred dividend requirement (Note 3) divided by the weighted average
number of outstanding common shares. The shares issuable upon the exercise of
outstanding warrants and options or upon conversion of outstanding debt have
been excluded since the effect would be antidilutive, due to net losses for all
periods presented; accordingly, diluted loss per share is the same as basic loss
per share for all periods reported. Common shares and warrants issuable upon
contingencies described in Note 7 are being excluded from basic and diluted
earnings (loss) per share until the beginning of the year if and when the
contingencies are met.
F-8
<PAGE>
NOTE 2 - OPERATING AND LIQUIDITY DIFFICULTIES AND MANAGEMENT'S PLANS TO OVERCOME:
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
market 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 related parties.
From inception to November 6, 1998, the operations of the Company were
devoted to market research and developing a system for computerizing the
limousine reservation and payment system. Upon completion, the Company commenced
generating limited revenues.
(See Note 3 for status of this business.)
As of November 5, 1998, the Company began generating revenues from
shared commissions earned by the network of Sterling Travel Consultants (see
Note 3), although revenues to date have not been significant. 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. The Company plans to continue an aggressive marketing campaign as well
as expand its network of travel consultants throughout 2000.
In March 2000, the Company completed a private placement of common
stock and received gross proceeds of $2,272,500 (Note 9). With these proceeds
and the 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 its web site or to
fund cash shortfalls should anticipated revenues not be achieved. It should be
noted that considerable uncertainty exists with regard to future revenues and
cash flows. The Company is still in the developmental stage with limited
revenues to date in a new market with rapidly changing technology. Future
revenues and cash flows are subject to a wide range of possible outcomes.
Reference should be made to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein for
additional information.
F-9
<PAGE>
NOTE 3 - ACQUISITIONS, EXCHANGE OF ASSETS FOR INTEREST IN NON MAJORITY OWNED ENTITY AND BUSINESS SEGMENTS:
Net Cruise - As of June 30, 1998, the Company's newly formed
subsidiary, Net Cruise Interactive, Inc. ("Net Cruise") 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").
The Company and UIT subsequently restructured the transactions so that
1,100,000 shares of the Company's Common Stock owned by UIT and the Warrants
were replaced with 1,100,000 shares of Convertible Series B Preferred Stock (the
"Series B Preferred Stock") which was 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 was non-voting stock and carried 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 was payable after the shareholders approved the issuance of the
1,100,000 shares Common Stock and Warrants prior to the time that the dividend
was payable. The shareholders ratified the acquisition in October 1999;
accordingly, the Series B Preferred Stock was automatically converted into
1,100,000 shares of the Company's Common Stock and the Company was issued two
warrants, each to purchase 800,000 shares of Common Stock. (Reference should be
made to Item 1, Business - General for additional information on these
transactions.)
Although the $275,000 was due as of December 31, 1999, it has not been
declared; accordingly, it remains in arrears and has not been recorded as a
liability.
Other - On November 5, 1998, the Company acquired the assets and the
business of Sterling AKG Corp. d/b/a Sterling Travel ("Sterling") for 25,000
shares of common stock and contingent shares (See Note 7).
In February 1999, the Company acquired Sammy's Travel World, Inc. ("Sammy's"), 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.
The acquisitions have been accounted for as a purchase and,
accordingly, Sterling and Sammy's have been included in the consolidated
financial statements as of the date of acquisition. 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.
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 O2, Inc., a Company newly formed by a former director and
founder of the Company, and contingent payments for a period of five years. For
financial reporting purposes, this exchange resulted in a change in reporting
from consolidation (for periods prior to November 6, 1998) to the equity basis.
F-10
<PAGE>
Business Segment - The Company is presently engaged in one business
segment, computerized applications for travel. This business presently includes
the operations of Sterling and Sammy's, as well as the development stage
activities from UIT. Gen 02, Inc. which is 32.7% owned is engaged in the
marketing of a computerized limousine reservation and payment system.
Summarized unaudited information on Gen 02, Inc. is as follows:
Year Ended November 6, 1998
December 31, to
1999 December 31, 1998
------------------- -----------------
Expenses:
Cost of services 96,195 1,794
General and administrative 326,245 65,826
Depreciation and amortization 411,408 66,591
Write-off of computer software 202,231 -
------------ -------------
1,036,079 134,211
----------- ------------
Net loss $ (749,245) $ (199,918)
Capital expenditures $ 13,565 $ 221,697
============ ============
December 31,
-------------------------
1999 1998
--------------- ----------
Current assets $ 45,808 $ 34,229
Property and equipment 117,428 198,098
Computer software costs - 520,986
Other assets 43,129 7,420
------------ ----------
$ 206,365 $ 760,733
============ ==========
Current liabilities $ 214,925 $ 74,529
Due to Company and Transponet 63,021 62,000
Equity (71,581) 624,204
----------- -----------
$ 206,365 $ 760,733
============ ==========
F-11
<PAGE>
During the fourth quarter of 1999, the Company's planned sale of its
interest in GEN 02 did not occur and management decided to write-off its
investment which relates primarily to Gen 02's computer software. Accordingly,
this asset was written-off as of December 31, 1999.
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1999 and 1998 are summarized as
follows:
December 31,
------------------------
1999 1998
------------ --------
Computer equipment $140,474 $ 98,925
Furniture and fixtures 30,380 6,509
Furniture and fixtures 2,105 -
----------- ---------
172,959 105,434
Less: Accumulated depreciation 42,197 14,034
---------- ----------
$130,762 $ 91,400
======== =========
NOTE 5 - NOTES PAYABLE - RELATED PARTIES:
Term promissory notes payable to related parties provided for accrued
interest at the rate of 9% per annum and were convertible into Series A
Preferred Stock. In March 1998, $600,000 of the notes were converted into
282,353 shares of Series A Preferred Stock of the Company and, in March 1998,
notes in the amount of $37,500 were converted into an aggregate of 400,000
common shares of the Company.
NOTE 6 - INCOME TAXES:
Deferred income taxes reflect the net effects of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The principal temporary difference
arises from net operating loss carryforwards and results in a deferred tax asset
of approximately $3,500,000 at December 31, 1999.
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. The Company has
determined, based on its recurring net losses, and it being a development stage
company, that a full valuation allowance is appropriate at December 31, 1999.
F-12
<PAGE>
A reconciliation of the provision (benefit) for income taxes computed
at the federal statutory rate of 34% and the effective tax rate of income (loss)
before income taxes is as follows:
Year Ended December 31,
---------------------------
1999 1998
--------------- ----------
Computed tax benefit on net loss at
State income tax benefit, net of federal income
Tax effect of net operating losses not currently usable 1,310,000 940,000
----------- ------------
Provision (benefit) for income taxes $ - $ -
================ ===========
At December 31, 1999, the Company had net operating loss carryforwards
of approximately $9,000,000 expiring through 2014.
Current tax law limits the use of net operating loss carryforwards after
there has been a substantial change in ownership (as defined) during a three
year period. Because of the changes in common stock ownership described in Note
9, the use of the Company's net operating loss carryforwards are subject to an
annual limitation of approximately $500,000. To the extent amounts available
under the annual limitation are not used, they are carried forward for the
remainder of 15 years from the year the losses were originally incurred.
NOTE 7 - STOCKHOLDERS' EQUITY:
Preferred Stock - The Company's Certificate of Incorporation authorizes
the issuance of up to 25,000,000 shares of Preferred Stock. On March 10, 1998,
the Board of Directors designated 706,000 shares of Series A Preferred Stock
which are convertible, in whole or in part, into fully paid and nonassessable
Common Shares on a one-for-one basis at the option of the respective holders
thereof. The Series A Preferred Stock holders are not entitled to the payment of
dividends. The Company, at its sole option, has the right to redeem all or, from
time to time, any number of the then outstanding shares of Series A Preferred
Stock at a redemption price of $2.125 per share plus a 10% per year increase in
the redemption rate.
The Board of Directors is authorized to issue additional shares of
Preferred Stock from time to time in one or more series and to establish and
designate any such series and to fix the number of shares and the relative
conversion rights, voting rights, terms of redemption and liquidation.
Public Offering - On March 26, 1997, the Company consummated a public
offering of its securities consisting of 1,035,000 shares of common stock,
1,725,000 Class A Redeemable Warrants and 1,035,000 Class B Redeemable Warrants.
Each redeemable warrant is exercisable for a period of 48 months, commencing
September 20, 1997 and entitles the holder to acquire one share of common stock
at $5.75 (Class A) or $6.75 (Class B) per share. Commencing March 20, 1998, the
Company has had the right at any time to redeem all, but not less than all, of
the Class A or Class B warrants at a price equal to $.20 per Class A warrant and
$.10 per Class B warrant, provided that the closing bid price of the common
stock equals or exceeds $6.25 (Class A) or $7.25 (Class B) per share.
F-13
<PAGE>
Warrants - Pursuant to a private offering in May and June 1996, Class A
Redeemable Warrants entitling the holders to purchase 287,500 shares of the
Company's common stock at $5.75 per share through August 2001 were issued.
Warrants were issued in connection with the UIT transaction described in
Note 3. One warrant is exercisable for 800,000 shares at $2.50 per share between
April 1, 2002 and June 30, 2002, but only if the Company achieves net income (as
defined) of at least $5,000,000 for 1999, 2000 and 2001. The other Warrant is
exercisable for 800,000 shares at $6 per share between April 1, 2002 and June
30, 2002, but only if Net Cruise achieves net income (as defined) of at least
$10,000,000 for 1999, 2000 and 2001. Subsequent to the acquisition of UIT's
assets, two of UIT's executives became consultants and directors of the Company.
One of the directors received two warrants to purchase 200,000 shares each under
the same terms as those issued for UIT's assets.
No value has been placed on these Warrants, as the value is contingent
upon future earnings. When the contingency is resolved, the fair value of the
warrants issued for UIT's assets will be treated as an additional cost of the
acquisition and, those to the director, as compensation expense.
Non-incentive Options - On November 15, 1999, the Company granted
350,000 options entitling twelve officers and employees to purchase up to
350,000 shares of common stock at prices ranging from $1.50 to 2.50. At December
1, 1999, 224,165 of these options were exercisable; the balance will become
exercisable in the year 2000.
In connection with the leases described in Note 5, the Company granted
to the lessor warrants to purchase 22,098 shares of common stock at an exercise
price of $2 per share.
Incentive Options - Grants under the Company's 1997 Stock Incentive
Plan, (the "Plan") are summarized as follows:
Year Ended December 31,
1999 1998
------------------------------------------------
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
Balance, beginning of year 354,500 $5.55 354,000 $6.14
Options granted 59,000 1.83 122,000 4.44
Options exercised - - - -
Options cancelled (335,833) (5.83) 121,500 -
------------- ------ --------- -------
Balance, end of year 77,667 $1.55 354,500 $5.55
Exercisable 30,665 $1.50 135,422 $5.77
========== ===== ======= =====
F-14
<PAGE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
Leases - The Company leases its administrative facilities under a
five-year lease expiring in March 2002. The lease provides for annual rent of
approximately $45,000. The Company also has an office lease expiring in November
2002 which provides for annual rent of approximately $23,500.
Rent expense totalled approximately $80,000 and $72,000 for the years
ended December 31, 1999 and 1998, respectively.
Consulting Agreement - In connection with the acquisition of Sammy's
(Note 3), the Company agreed to pay an executive $50,000 per year for two years
and granted options to purchase 10,000 shares of common stock at fair market
value.
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 judgment
that the former officer is the owner of 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. In February 2000, the lawsuit was settled acknowledging that
Mr. Pollan owns 293,216 shares of the Company's common stock and permitted the
immediate sale of 100,000 of such shares at $1-3/8 per share. The remaining
shares may be sold (subject to market conditions) and, if the sales price is
less than $2.25, the company must make up the difference; however, after six
months the Company may provide an opportunity to buy all remaining shares at
$2.25 which will eliminate the Company" obligation. All of the assets of the
Company are pledged as collateral in the amount of $434,736.
NOTE 9 - SUBSEQUENT EVENT, CHANGE OF CONTROL:
In March 2000, the Company sold 12,362,500 unissued shares of its
common stock to Joseph Perri for $1,897,500 plus debt due him totalling $375,000
which arose in the year 2000. In connection with this sale, the following
related transactions occurred:
Indebtedness of the Company was extinguished by use of the proceeds
above as follows:
Amount
Debt Paid
Loeb Holding Corporation $112,500 $112,500
Warren Bagatelle 90,000 18,000
Trust F/B/O Thomas L. Kemper 210,000 42,000
In addition, accrued interest of $210,586 was waived.
If this sale of common stock and satisfaction of indebtedness had
incurred on December 31, 1999, the Company's condensed balance
sheet would have been as follows:
Current assets $2,547,089
Other assets 2,012,171
-----------
F-15
<PAGE>
Current liabilities $ 726,316
Stockholders' equity 3,832,944
-----------
$4,559,260
The difference of $450,586 between the indebtedness satisfied plus
interest waived by the creditors and the amount paid is considered a
gain on a troubled debt restructuring to be reported as an
extraordinary item in the first quarter of the year 2000.
A contingency agreement was executed entitling Mr. Perri to purchase
an additional 4,625,000 shares for $600,000 in the event that,
within 45 days, UIT and Brian Shuester do not sell 1,500,000
shares of the Company's common stock owned by them for $375,000,
do not sell or forgive debt owed by the Company to UIT for
$225,000, do not cancel warrants to purchase 2,000,000 shares of
the Company's common stock and the Company does not issue UIT a
five year warrant to purchase 500,000 shares at $1 per share.
In the event the above transaction closes after 45 days, the
shares and warrants acquired will be contributed to capital by Mr.
Perri under this agreement.
Mr. Perri was granted the option to maintain his ownership percentage by
purchasing additional shares at $.20 per share.
Mr. Perri also purchased 299,508 shares of the Company's common stock for
$74,877 from Loeb Holding Corporation.
F-16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
March 30 , 2000 By:_________________________________
Lawrence E. Burk
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
_______________________ President, Chief Executive Officer,March 30, 2000
Lawrence E. Burk and Director
_______________________ Secretary, Treasurer, Chief Financial March 30, 2000
John H. Wasko Officer and Director
________________________ Director March 30, 2000
David W. Sass
________________________ Director March 30, 2000
S. Charles Tabak
</TABLE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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