U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission file number 1-12350
Regenesis Holdings, Inc.
------------------------
(Name of Small Business Issuer in its Charter)
Florida 65-0827283
------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
930 Washington Avenue, Fourth Floor, Miami Beach, Florida 33139
--------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(305) 695-4400
--------------
(Issuer's Telephone Number)
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 [ ] No [X ]
The number of shares outstanding of the issuer's common stock, par value $.01
per share as of June 15, 2000 was 7,871,461
<PAGE>
REGENESIS HOLDINGS, INC.
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
PAGE
----
<S> <C>
Condensed Balance Sheets at March 31, 2000 and December 31, 1999 3
Condensed Statements of Operations for the three months ended March 31, 2000 and 1999 4
Condensed Statements of Changes in Stockholders' Equity for three months ended March 31, 2000 5
Condensed Statements of Cash Flows for the three months ended March 31, 2000 and 1999 6 - 7
Notes to Condensed Financial Statements 8 - 16
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 17-20
PART II OTHER INFORMATION 21-23
---------------------------
SIGNATURES 24
</TABLE>
2
<PAGE>
REGENESIS HOLDINGS, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
CURRENT ASSETS
--------------
Cash $ 65,452 $ 101,835
------------ ------------
Total Current Assets 65,452 101,835
Furniture, equipment & leashold inprovements, net of accumulated
depreciation and amortization of $5,380 and $3,670 respectively 22,364 23,028
Other assets, net 83,376 18,922
Advances toward pending acquisition 295,492 155,492
Excess of cost over fair value of net assets acquired,
net of accumulation amortization of $106 and
$74, respectively 525 556
------------ ------------
Total Assets $ 467,209 $ 299,833
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 65,696 $ 81,495
Accrued payroll 511,926 402,168
Due to officers and stockholders 358,975 175,835
Other current liabilities 154,680 109,693
Loans Payable 130,000 150,000
Convertible demand loan 100,000 100,000
------------ ------------
Total Current Liabilities 1,321,277 1,019,191
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Preferred Stock, $.01 par value, 10,000,000 shares
authorized; none issued and outstanding -- --
Common Stock, $.01 par value, 100,000,000 shares
authorized; 7,871,461 and 6,388,974 shares issued
and outstanding, respectively 78,715 63,890
Additional paid-in capital 13,683,129 13,369,831
Accumulated deficit (14,615,912) (14,153,079)
------------ ------------
Total Stockholders' Deficiency (854,068) (719,358)
------------ ------------
Total Liabilities and Stockholders' Deficiency $ 467,209 $ 299,833
============ ============
</TABLE>
See Accompanying Notes
3
<PAGE>
REGENESIS HOLDINGS, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(Note 1)
<S> <C> <C>
Revenue $ -- $ --
----------- -----------
Operating expenses:
Salaries and wages including related taxes 194,618 115,158
Consulting fees 73,500 62,285
Legal and professional 62,456 4,050
Travel 41,697 16,117
Rent 28,943 8,800
Office expense 18,319 1,751
Depreciation and amortization 5,575 1,095
Marketing and promotion 2,875 97,000
Other general and administrative expenses 26,475 10,308
----------- -----------
Total operating expenses 454,458 316,564
----------- -----------
Operating Loss (454,458) (316,564)
Other Expenses:
Interest expense (8,375) --
----------- -----------
Total other expenses, net (8,375) --
----------- -----------
Net Loss $ (462,833) $ (316,564)
=========== ===========
Basic and Diluted Net Loss per Common Share $ (0.06) $ (0.16)
=========== ===========
Weighted Average Common Shares Outstanding 7,404,038 2,033,395
=========== ===========
</TABLE>
See Accompanying Notes
4
<PAGE>
REGENESIS HOLDINGS, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------- ------------ Paid-In
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balances, December 1999 -- -- 6,388,974 $ 63,890 $ 13,369,831
Issuance of common shares in private placement transactions -- -- 100,000 1,000 249,000
Issuance of common shares to officer pursuant to the
amendment of an employment agreement -- -- 50,000 500 2,000
Issuance of common shares in payment of deferred consulting fees -- -- 1,050,000 10,500 42,000
Issuance of common shares to acquire Internet Domain name -- -- 250,000 2,500 10,000
Issuance of warrants to purchase common stock -- -- -- -- 8,999
Issuance of common shares in payment of expenses -- -- 32,487 325 1,299
Net Loss -- -- -- -- --
--- --- ------------ ------------ ------------
Balances, March 31, 2000 -- $-- 7,871,461 $ 78,715 $ 13,683,129
=== === ============ ============ ============
(RESTUBBED TABLE)
Accumulated
Deficit Total
------- -----
<C> <C>
Balances, December 1999 $(14,153,079) $ (719,358)
Issuance of common shares in private placement transactions -- 250,000
Issuance of common shares to officer pursuant to the
amendment of an employment agreement -- 2,500
Issuance of common shares in payment of deferred consulting fees -- 52,500
Issuance of common shares to acquire Internet Domain name -- 12,500
Issuance of warrants to purchase common stock -- 8,999
Issuance of common shares in payment of expenses -- 1,624
Net Loss (462,833) (462,833)
------------ ------------
Balances, March 31, 2000 $(14,615,912) $ (854,068)
============ ============
</TABLE>
See Accompanying Notes
5
<PAGE>
REGENESIS HOLDINGS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
(Note 1)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(462,833) $(316,564)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 5,575 1,095
Expenses paid by issuance of common stock, options and warrants 9,835 125,950
Changes in operating assets and liabilities:
Accounts payable, accrued expenses, and other current liabilities 138,946 92,465
--------- ---------
Net cash used in operating activities (308,477) (97,054)
--------- ---------
Cash Flows from Investing Activities:
Advances toward pending acquisition (140,000) --
Purchase of equipment (1,046) (10,950)
Advances to officers and stockholders -- (9,444)
--------- ---------
Net cash used in investing activities (141,046) (20,394)
--------- ---------
Cash Flows from Financing Activities:
Net proceeds from issuance of common stock 250,000 100,000
Repayment of loans payable (20,000) --
Proceeds of loans from officers and stockholders 214,150 --
Repayment of loans to officers and stockholders (31,010) (2,800)
--------- ---------
Net cash provided by financing activities 413,140 97,200
--------- ---------
Net Decrease in Cash (36,383) (20,248)
Cash, Beginning of period 101,835 20,748
--------- ---------
Cash, End of period $ 65,452 $ 500
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest: $ -- $ --
========= =========
Supplemental Schedule of Non Cash Investing and Financing Activities:
Three Months Ended March 31, 2000:
Issuance of 250,000 shares of common stock to acquire the URL address
Music 411.com, valued at $12,500
Issuance of an aggregate of 1,050,000 shares of common stock in connection
with three consulting agreements, valued at $52,500
</TABLE>
See Accompanying Notes
6
<PAGE>
REGENESIS HOLDINGS, INC.
CONDENSED STATEMENTS OF CASH FLOWS, Continued
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
Issuance of an aggregate of 50,000 shares of common stock in in connection
with the amendment of an employment agreement with.
an officer, valued at $2,500.
Three Months Ended March 31, 1999:
Issuance of 10,000 shares of common stock to acquire the assets
of NetDisc, Inc., valued at $630.
Issuance of 48,000 shares of Series C Preferred Stock valued at $57,180,
subsequently converted into 900,000 shares of common stock.
Excess of estimated fair market value of 950,000 shares of common stock
over the aggregate selling price of $9,500.
Issuance of 300,000 shares of common stock to an officer and director in
connection with his employment agreement, valued at $18,900.
See Accompanying Notes
7
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In 1997, Regenesis Holdings, Inc. ("the Company") sold all of its
existing operations, which consisted of Domino's Pizza franchises
in Poland and Medical Centers located in Southeast Florida, and
became a holding company, with no operating subsidiaries. In 1999,
the Company acquired the assets of NetDisc, Inc. ("NetDisc") for
the purpose of pursuing internet advertising opportunities,
although to date, the Company has generated no revenues from such
activities.
The presentation 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 could differ from these estimates.
The accompanying unaudited condensed financial statements, which
are for interim periods, do not include all disclosures provided in
the annual financial statements. These unaudited condensed
financial statements should read in conjunction with the financial
statements and the footnotes thereto contained in the Annual Report
on Form 10-KSB for the year ended December 31, 1999, of Regenesis
Holdings, Inc. ("the Company"), as filed with the Securities and
Exchange Commission. The December 31, 1999 condensed balance sheet
was derived from audited financial statements, but does not include
all disclosures required by generally accepted accounting
principles.
In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the
financial statements. The results of operations for the three
months ended March 31, 2000, are not necessarily indicative of the
results to be expected for the full year.
The report of the Company's independent certified public
accountants on their audit of the Company's December 31, 1999,
financial statements contained uncertainties relating to the
Company's ability to continue as a going concern. As shown in the
accompanying financial statements the Company incurred a loss of
$462,833 for the three months ended March 31, 2000, and had a
working capital deficiency and a stockholders' deficiency of
$1,255,825 and $854,068, respectively, at March 31, 2000. These
factors among others raise substantial doubt about the Company's
ability to continue as a going concern for a reasonable period of
time. The accompanying financial statements do not include any
adjustments relating to the outcome of this uncertainty.
8
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
MARCH 31, 2000
(Unaudited)
Liquidity and Plan of Operations
As of March 31, 2000, the Company had cash of $65,452 and a working
capital deficiency of $1,255,825.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on
a timely basis. The Company's primary source of liquidity has been
from the cash generated through the private placement of equity and
debt securities and from advances from its officers and directors.
The Company is presently exploring possibilities with respect to
expansion of its Net Disc operations and is attempting to acquire
additional businesses, (see Note 2) in order to eventually achieve
profitable operations. However, there can be no assurance that the
Company will be successful in achieving profitable operations or
acquiring additional capital or that such capital, if available,
will be on terms and conditions acceptable to the Company.
Reclassifications
Certain reclassifications have been made in the 1999 financial
statements to conform to the 2000 presentation.
Restatement of March 31, 1999
Results of operations for the three months ended March 31, 1999,
have been restated to include the adjustments as outlined below:
<TABLE>
<CAPTION>
<S> <C>
Net loss as previously reported $( 147,996)
Accrual of unpaid salaries and wages including
related taxes ( 37,968)
Compensation and consulting expense associated
with the sale of 950,000 shares of common stock ( 50,350)
Compensation expense associated with the issuance
of 48,000 shares of Series C Preferred Stock ( 56,700)
Compensation expense associated with the issuance
of 300,000 shares of common stock to the Chairman
of the Board of Directors in connection with his
employment agreement ( 18,900)
Other ( 4,650)
----------
Net loss as restated $( 316,564)
==========
</TABLE>
In connection with the sale of 950,000 shares of common stock to 29
investors, the issuance of 48,000 shares of Series C Preferred
Stock, which was converted into 900,000 shares of common stock and
the grant of 300,000 shares of common stock pursuant to an
employment agreement, the Company valued the aggregate 2,150,000
shares of common stock at $.063 per
9
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
MARCH 31, 2000
(Unaudited)
share which was equivalent to the last publicly traded price of the
Company's common stock prior to the dates of issuance of the
2,150,000 shares. Results of operations for the three months ended
March 31, 1999, includes a charge for compensation and consulting
expense aggregating $125,950 which represents the excess of the
estimated fair market value of the 2,150,000 shares of Common Stock
over the selling price of $9,500. The Company believes that the per
share used to value the transactions reasonably reflects the
estimated fair market value per share of the Company's common stock
on the date of the transactions.
Other Assets
Deferred consulting fees included in other assets are being
amortized over the three year term of the related consulting
agreements commencing on January 1, 2000.
Net Loss Per Share of Common Stock
The basic and diluted net loss per common share in the accompanying
condensed statements of operations are based upon the net loss
divided by the weighted average number of shares outstanding during
the periods presented. Diluted net loss per common share is the
same as basic net loss per common share since the inclusion of all
potentially dilutive common shares that would be issuable upon
exercise of outstanding stock options and warrants would be
anti-dilutive.
NOTE 2. PENDING ACQUISITION
The Company has entered into a preliminary letter of intent (the
"Preliminary LOI") to acquire all of the assets and assume certain
liabilities of the entity formerly known as Red Ant Entertainment
("Red Ant").
In accordance with the terms of the Preliminary LOI both the
Company and the seller each loaned $75,000 to MCCC Acquisition, LLC
("MCCC") the owner of the assets and such funds were simultaneously
advanced to Management West International, Inc. ("Management West")
the entity that is managing the assets until the acquisition by the
Company is completed. In addition, through March 31, 2000, the
Company has advanced $220,492 to Management West to cover a portion
of their operating expenses for the periods through March 31, 2000.
The Company is continuing to advance funds to cover operating
expenses and for the period from April 1, 2000 through June 21,
2000, advanced an aggregate of approximately $226,000.
Pursuant to the terms of the Preliminary LOI, the purchase price
will be comprised of $300,000 of cash, 300,000 shares of restricted
common stock of the Company, a three year warrant to purchase
100,000 shares of common stock of the Company at an exercise price
of $3.00 per share, plus the liabilities assumed. The Company's
$75,000 loan to MCCC will be forgiven. All operating advances made
by the Company through the date of closing of the purchase will be
considered as part of the purchase price for financial reporting
purposes,
10
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
MARCH 31, 2000
(Unaudited)
accordingly, such advances are being capitalized as advances toward
pending acquisition in the accompanying financial statements. The
acquisition will be accounted for under the purchase method of
accounting. In the event the acquisition is not completed, any
amounts capitalized and not refunded will be charged against
operations.
NOTE 3. OTHER ASSETS
A summary of other assets at March 31, 2000, is as follows:
Deposits $ 16,422
Internet Domain 12,500
Deferred consulting fees 58,288
---------
Less - accumulated amortization (3,834)
---------
$ 83,376
=========
NOTE 4. LOANS PAYABLE
On August 12, 1999 and December 30, 1999, the Company borrowed an
aggregate of $100,000 from a third party, a principal of whom is
also a shareholder of the Company. The loan is payable in full on
or before July 1, 2000 and bears interest at 2% above the base rate
of the Bank of England, compounded daily and all interest is
payable at maturity.
On October 31, 1999, the Company borrowed $75,000 from a third
party. The loan was payable in full on its extended due date of
April 14, 2000. The unpaid principal balance on the loan as of
March 31, 2000, was $50,000. The loan bears interest at 12% per
annum and all interest is payable at maturity. In accordance with
the terms of the loan agreement, the Company granted the lender an
aggregate of 19,000 shares of the Company's common stock and
further agreed to issue the lender an additional 2,500 shares of
the Company's common stock for each seven day period beginning on
December 16, 1999 through the date of final payment of all
principal and accrued interest. For the three months ended March
31, 2000, the Company issued and aggregate of 32,487 shares of
common stock to the lender in accordance with the terms of the loan
agreement, which were valued at $1,624. The value of the shares
issued is included in interest expense in the accompanying
financial statements. At May 31, 2000, the unpaid principal balance
on the loan was $30,000.
NOTE 5. CONVERTIBLE LOAN
On September 8, 1999, the Company borrowed $100,000 from a third
party. The loan bears interest at the rate of 12% per annum and all
interest is payable at maturity. The loan is payable in full within
60 days after receiving a notice of demand from the lender. At the
option of the lender the loan is convertible into 75,000 shares of
the Company's common stock at a per share price of $1.33. In
connection with the loan the Company issued to the lender a two
year warrant to purchase 20,000 shares of the Company's common
stock at an exercise price of $2.50 per share and a one year option
to purchase an additional 100,000
11
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
MARCH 31, 2000
(Unaudited)
shares of the Company's common stock at a price to be determined by
negotiation between the parties. The warrant and the option were
valued at an aggregate of $2,333.
NOTE 6 . RELATED PARTY TRANSACTIONS
At March 31, 2000, the Company was indebted to officers and
stockholders for an aggregate of $358,975 which represent non
interest bearing advances with no specific repayment terms. During
the three months ended March 31, 2000, the Company received an
aggregate of $214,150 of advances from such individuals and made
payments to such individuals aggregating $31,010.
For the period from April 1, 2000 through June 21, 2000, the
Company received an aggregate of $254,958 of additional advances
from such individuals.
See note 8 for additional information regarding related party
transactions.
NOTE 7. STOCKHOLDERS' EQUITY
During the three months ended March 31, 2000, the Company sold
50,000 shares of common stock at a per share price of $2.00 and
50,000 shares of common stock at a per share price of $3.00 and
received an aggregate of $250,000 of cash.
In January 2000, the Company purchased the URL address Music
411.com from the father of the Chairman of the Board of Directors
in exchange for 250,000 restricted shares of the Company's common
stock which was valued at $ 12,500.
On January 5, 2000, the Company granted options to three officers
to purchase up to an aggregate of 800,000 shares of common stock at
an exercise price of $.25 per share.
On January 5, 2000 the Company granted 50,000 shares of Common
Stock to its Executive Vice President of Entertainment / Music
Development in connection with a one year extension of his
employment agreement. The shares were recorded at their estimated
fair market value of $2,500.
In January 2000, the Company entered into three consulting
agreements which provide for an aggregate of $20,000 per month in
consulting fees and the issuance of an aggregate of 1,050,000
shares of common stock valued at $.05 per share. Based upon quoted
prices between dealers the $.05 per share was considered to be
equivalent to the estimated fair market value per share of the
Company's common stock on the date of the transaction. The
agreements are for a period of three years. The $52,500 value
associated with the common stock was recorded as deferred
consulting fees and is being amortized over a period of three years
commencing February 1, 2000.
On January 20, 2000, the Company entered into an agreement to sell
200,000 shares of common stock at a price of $1.00 per share in a
private placement transaction. The purchaser
12
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
MARCH 31, 2000
(Unaudited)
of the shares deposited the $200,000 purchase price with counsel
for the Company until completion of the pending acquisition
described in Note 2. No amounts will be recorded in the financial
statements until receipt of the cash proceeds.
See Notes 5 and 8 for information regarding options and warrants
issued in connection with outstanding loan and consulting
agreements.
At March 31, 2000, the Company had reserved 4,636,000 shares of
common stock for issuance pursuant to the terms of its stock option
plan and other outstanding options and warrants.
The Company's Stock Option Plan (the "Plan") provides for the
issuance of options to purchase a maximum of 4,000,000 shares of
common stock.
A summary of the status of all options outstanding under the Plan
as of March 31, 2000, and changes during the three months ended
March 31, 2000, are presented below:
<TABLE>
<CAPTION>
Weighted
Option Market Average
Price Price Remaining
at Date at Date Term
Shares of Grant of Grant in Years
------ -------- -------- --------
<S> <C> <C> <C> <C>
Balance at
Beginning
of Period 50,000 $1.00 $.07 1.8
Options
Granted 800,000 $.25 $.05 3.4
Options
Exercised - - - -
Options
Forfeited - - - -
Balance at
End of
Period 850,000 $.25-$1.00 $.05 3.3
Options
Exercisable
At End of
Period 850,000 $.25-$1.00 $.05 3.3
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
Litigation
In December, 1998 the Company filed a Complaint in the Circuit
Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida entitled Shulman & Associates, Inc., Manny
Shulman, Franklyn Weichselbaum, Mitchell Rubinson and Regenesis
Holdings, Inc. v. Elizabeth Shwiff, Fincross, Ltd., Elpoint
Corporation, Elpoint Co., L.L.C., Russian Securities Co., Gennady
Yakovlev, Oleg Pavlioutchouk and Maxim Shishlyannikov, for
defamation and liable in connection with certain information
released about the Company.
13
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
MARCH 31, 2000
(Unaudited)
In a collateral action, the Company was named in a lawsuit
involving several of the same parties in the United States District
Court for the Northern District of California in the matter
entitled Elpoint Co., L.L.C., et al v. Mitchell Rubinson, et al.
Although the Company was named as a indispensable party, the
allegations were in the nature of a shareholder derivative claim
and no relief was sought against the Company by the plaintiffs.
On May 19, 1999, a majority of the parties named in the
aforementioned lawsuits, including another California state court
action entitled Elpoint, L.L.C., et al v Mitchell Rubinson, et al.
filed in the Superior Court, attended mediation which resulted in a
settlement which required, among other things, the dismissal of all
three lawsuits and the payment of an aggregate of $450,000 to the
plaintiffs. The Company was not a named party in the California
state court action. Additionally, the Company was not obligated to
contribute financially to the settlement.
Although, the Company did not attend the mediation, the Company was
an intended beneficiary of the settlement. Mitchell Rubinson and
Larry Rutstein, former officers of the Company, purportedly
reserved certain indemnification rights against the Company as part
of the settlement and notified the Company of such a reservation
subsequent to their execution of the settlement agreement. The
Company cannot opine upon the validity of such claims as no action
has been filed against the Company in that regard. However, the
Company believes the probability that Mssrs Rubinson and Rutstein
could sustain a claim against the Company based upon the settlement
agreement is remote, accordingly, no provision for any potential
claims associated with these matters has been recorded in the
accompanying financial statements. The Company would vigorously
defend any such claims in the event they are filed.
On December 16, 1999, the Judge presiding over the Superior Court
of California state court action entered an order granting the
plaintiff's motion to enforce the settlement under the California
Code of Civil Procedure. Since the settlement agreement purports to
resolve all of the aforementioned matters, the Company intends to
dismiss the Florida lawsuit and obtain releases from the
defendants.
Operating Leases
The Company leases office space in Miami, Florida and New York City
pursuant to the terms of the lease agreement expiring in May 2001
and a month to month agreement which expired by its original terms
in May 2000.
At March 31, 2000, the Company's minimum payment requirements under
all non-cancelable operating leases were as follows:
Twelve Months Ending March 31,
2001 $ 116,728
2002 73,024
2003 11,256
----------
Total $ 201,008
==========
14
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
MARCH 31, 2000
(Unaudited)
Employment Agreements
As of March 31, 2000, the Company had employment agreements with
its four executive officers all of which, including amendments
thereto, were entered into during the year ended December 31, 1999.
The agreements, expire from April 2001 through February 2004. The
agreements also provide for various fringe benefits and for
compensation associated with raising equity or debt financing for
the Company, as well as participation in the Stock Option Plan.
At March 31, 2000, annual salary requirements under these contracts
were as follows:
Twelve Months Ending March 31,
2001 $ 638,400
2002 309,650
2003 128,700
----------
Total $1,076,750
==========
Other
In November 1999, the Company entered into an agreement with JW
Genesis Capital Markets, Inc. ("JW Genesis"), whereby JW Genesis
will act as a financial advisor to the Company and as its exclusive
placement agent in connection with any proposed offering or private
placement by the Company of any equity or debt securities. Pursuant
to the terms of the agreement, JW Genesis will be paid a
nonrefundable fee of $6,250 upon execution of the agreement and a
monthly fee of $6,250 for each month following the date of
execution of the agreement for a minimum period of three months. In
addition, the Company issued to JW Genesis a five year warrant to
purchase 250,000 shares of the Company's common stock at an
exercise price of $2.50 per share. JW Genesis will be paid an
investment banking fee and will be fully reimbursed for all
out-of-pocket expenses in connection with the completion of any
securities offerings contemplated by the agreement. The warrant was
recorded at its estimated fair market valued of $11,558.
As of March 31, 2000, other current liabilities in the accompanying
balance sheet include $25,000 due to JW Genesis pursuant to the
agreement.
On March 7, 2000, the Company entered into a three year consulting
agreement with a financial public relations firm which provides for
a monthly fee of $3,000, $5,000 and $7,000 in years one through
three, respectively. In addition, the agreement provides for the
issuance of three Common Stock Purchase Warrants to purchase an
aggregate of 216,000 shares of common stock. Each warrant is
exercisable for a period of five years and a warrant to purchase
72,000 shares is immediately exercisable at an exercise price of
$2.50 per share; a warrant to purchase 72,000 shares is exercisable
in one year at an exercise price of $5.00 per share; and a warrant
to purchase 72,000 shares is exercisable in two years at an
exercise price of $7.50 per share. The agreement may be terminated
by either party on the first or second anniversary date of the
15
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
MARCH 31, 2000
(Unaudited)
contract and warrants not exercisable as of the termination date
are forfeited. The warrants were recorded at their estimated fair
market value of $8,999.
At March 31, 2000, the Company was party to four additional
consulting agreements all of which are for terms of three years.
One of the agreements is with the father of the Chairman of the
Board and an entity controlled by such individual (the
"Consultant") to provide general business services to the Company
in exchange for an annual consulting fee of $75,000 payable in
equal monthly installments of $6,250 plus a car allowance of 750
per month. The agreement further provides that the Company will
provide the Consultant with a private office and office support
services and will reimburse the Consultant for all expenses
incurred in connection with his activities on behalf of the
Company.
At March 31, 2000, the Company's minimum annual payment
requirements under these agreements were as follows:
Twelve Months Ending March 31,
2001 $ 306,250
2002 371,000
2003 395,000
2004 52,750
-----------
Total $ 1,125,000
===========
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for certain forward-looking statements. The
forward-looking statements contained in this Report are subject to
certain risks and uncertainties. Actual results could differ
materially from current expectations. Among the factors that could
affect the Company's actual results and could cause results to
differ from those contained in the forward-looking statements
contained herein is the Company's ability to implement its business
strategy successfully, which will depend on business, financial,
and other factors beyond the Company's control, including, among
others, prevailing changes in consumer preferences. There can be no
assurance that the Company will continue to be successful in
implementing its business strategy. Other factors could also cause
actual results to vary materially from the future results covered
in such forward-looking statements. Words used in this Report such
as "expects," "believes," "estimates" and "anticipates" and
variations of such words and similar expressions are intended to
identify such forward-looking statements.
The following should be read in conjunction with the Financial
Statements of the Company and the notes thereto included elsewhere
in this report on Form 10-QSB, as well as the information contained
in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999, as filed with the Securities and Exchange
Commission on June 23, 2000.
General
The report of the Company's independent certified public
accountants on their audit of the Company's December 31, 1999,
financial statements contained uncertainties relating to the
Company's ability to continue as a going concern. As shown in the
accompanying financial statements the Company incurred a loss of
$462,833 for the three months ended March 31, 2000, and had a
working capital deficiency and a stockholders' deficiency of
$1,255,825 and $854,068, respectively, at March 31, 2000. These
factors among others raise substantial doubt about the Company's
ability to continue as a going concern for a reasonable period of
time. The accompanying financial statements do not include any
adjustments relating to the outcome of this uncertainty.
As of March 31, 2000, the Company had cash of $65,452 and a working
capital deficiency of $1,255,825.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on
a timely basis. The Company's primary source of liquidity has been
from the cash generated through the private placement of equity and
debt securities and from advances from its officers and directors.
The Company is presently exploring possibilities with respect to
expansion of its Net Disc operations and is attempting to acquire
additional businesses in order to eventually achieve profitable
operations. However, there can be no assurance that the Company
will be successful in achieving profitable operations or acquiring
additional capital or that such capital, if available, will be on
terms and conditions acceptable to the Company.
17
<PAGE>
In the three months ended March 31, 1999, the Company acquired the
assets of NetDisc, Inc. ("NetDisc") for the purpose of pursuing
Internet advertising opportunities, although to date, the Company
has generated no revenues from such activities. In addition, during
1999, the Company entered into a preliminary letter of intent (the
"Preliminary LOI") to acquire all of the assets and assume certain
liabilities of the entity formerly known as Red Ant Entertainment
("Red Ant").
On December 15, 1998, the Company's common stock was delisted from
the OTC Bulletin Board for failure to comply with Rule 15c-211 and
has not traded publicly since that date.
Results of Operations
For the three months ended March 31, 2000 and 1999 the Company
generated no revenues, and incurred net losses of $462,833 and
$316,564, respectively.
Operating expenses for the three months ended March 31, 2000 and
1999 aggregated $454,458 and $316,564, respectively and were
comprised as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Salaries and wages including related taxes $ 194,618 $ 115,158
Legal and professional 62,456 4,050
Marketing and promotion 2,875 97,000
Travel 41,697 16,117
Consulting fees 73,500 62,285
Rent 28,943 8,800
Office expense 18,319 1,751
Depreciation and amortization 5,575 1,095
Other general and administrative 26,475 10,308
--------- ---------
$ 454,458 $ 316,564
========= =========
</TABLE>
Salaries and wages including related taxes increased $79,460 in the
three months ended March 31, 2000, as a result of employment of
five executive officers, as well as employment of administrative
and support staff some of which were not employed by the Company
during the three months ended March 31, 1999.
Legal and professional fees increased $58,406 in 2000 when compared
to 1999 as a result of an increase legal fees of $21,643 and an
increase in accounting fees of $36,763. The increase in legal fees
is primarily due to a higher level of corporate activity in 2000 as
compared to 1999, including legal expenses associated with the
pending acquisition. The increase in accounting fees is primarily
due to the expenses associated with the engagement of outside
professionals to assist the Company in preparing its financial
statements.
The $97,200 of marketing and promotion costs in 1999, relates to
the initial marketing launch of the Company's NetDisc products,
including the cost of producing the CD Rom discs.
Travel expense increased by $25,580 in 2000 as a result of the
travel costs associated with the raising of capital, as well as the
pursuit of potential acquisitions, including the pending
acquisition and the continuing marketing and promotion of the
NetDisc CD Rom product.
18
<PAGE>
Consulting fees of $73,500 in 2000 consist of $58,000 related to
the pending acquisition and $15,500 of investment banking and
public relations expenses relating to pursuit of additional capital
for the Company. Consulting fees of $62,285 in 1999 consist of
$48,760 of compensation expense associated with the issuance of
common stock to various individuals in exchange for services
performed, as well as $13,525 of consulting fees paid in connection
with general corporate matters.
Rent expense in 2000 aggregated $28,943 and related to the opening
of corporate offices in Miami, Florida and New York City. The
$8,800 in 1999 related to sub lease costs for temporary office
space.
Office expenses increased by $16,568 as a result of the opening of
corporate offices in Miami, Florida and New York City and the
overall increase in administrative activity in 2000 as compared to
1999.
Depreciation and amortization aggregated $5,575 in 2000, due to the
acquisition of a total of approximately $27,000 of furniture and
equipment for the year ended December 31, 1999, a substantial
portion of which was acquired after March 31, 1999, as well as the
amortization of the excess of costs over the fair value of net
assets acquired associated with NetDisc and the amortization of
deferred consulting fees incurred in late 1999 and the three months
ended March 31, 2000.
Other general administrative expenses increased by $16,167 in 2000
due to an overall increase in general corporate activity, as well
as the opening of corporate offices in Miami, Florida and New York
City.
Interest expense in 2000 aggregated $8,375 resulting from $275,000
of borrowings during the second half of 1999. There were no
borrowings during the three months ended March 31, 1999.
Liquidity and Capital Resources
For the three months ended March 31, 2000 and 1999, net cash used
in operating activities was $308,477 and $97,054, respectively. The
increase of $211,423 was primarily attributable to additional
expenses relating to the employment of executive officers and
support staff, as well as the opening of corporate offices in
Miami, Florida and New York City.
Net cash used in investing activities for the three months ended
March 31, 2000 was $141,046, which was attributable to $140,000 of
advances in connection with a pending acquisition along with an
aggregate $1,046 relating to payments for furniture and equipment.
In 1999, net cash used in investing activities of $20,394, was
attributable to $10,950 relating to payments for furniture and
equipment and $9,444 attributable to advances to officers and
stockholders.
For the period from April 1, 2000 through June 21, 2000, the
Company advanced an additional $226,000 in connection with its
pending acquisition.
Net cash provided by financing activities for the three months
ended March 31, 2000 was $413,140 which was comprised of an
aggregate of $250,000 relating to the sale of common stock in
private placements and $214,150 of loans from officers and
stockholders. During the three months ended March 31, 2000, the
Company made principal payments of $20,000 on outstanding loans
19
<PAGE>
payable and repaid $31,010 of advances to officers and
stockholders. Net cash provided by financing activities for 1999
was $97,200, which was primarily attributable to proceeds received
from the sale of common stock of $100,000, net of $2,800 in
repayment of advances to officers and stockholders.
For the period from April 1, 2000 through June 21, 2000, the
Company received an aggregate of $ 254,958 of additional advances
from officers and stockholders.
As of March 31, 2000, the Company had cash of $65,452 and a working
capital deficiency of $1,255,825.
The Company's ability to meet its future obligations in relation to
the orderly payment of its recurring obligations on a current basis
is totally dependent on its ability to generate revenues from its
NetDisc operations, as well as complete its pending acquisition of
the assets of the entity formerly known as Red Ant Entertainment
and attain a profitable level of operations. Since the Company has
no current source of liquidity, the Company is unable to predict
how long it may be able to survive without a significant infusion
of capital from outside sources and it is further unable to predict
whether such capital infusion, if available, will be on terms and
conditions favorable to the Company.
20
<PAGE>
PART II OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
In December, 1998 the Company filed a Complaint in the Circuit
Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida entitled Shulman & Associates, Inc., Manny J.
Shulman, Franklyn B. Weichselbaum, Mitchell Rubinson and Regenesis
Holdings, Inc. v. Elizabeth Shwiff, Fincross, Ltd., Elpoint
Corporation, Elpoint Co., L.L.C., Russian Securities Co., Gennady
Yakovlev, Oleg Pavlioutchouk and Maxim Shishlyannikov, Case No. CL
98-11409 AD, for defamation and liable in connection with certain
information released about the Company.
In a collateral action, the Company was named in a lawsuit
involving several of the same parties in the United States District
Court for the Northern District of California in the matter
entitled Elpoint Co., L.L.C., et al. v. Mitchell Rubinson, et al.,
Case No. 99-1107 CRB. Although the Company was named as a
indispensable party, the allegations were in the nature of a
shareholder derivative claim and no relief was sought against the
Company by the plaintiffs.
On May 19, 1999, a majority of the parties named in the
aforementioned lawsuits, including another California state court
action entitled Elpoint, L.L.C., et al. v. Mitchell Rubinson, et
al., Case No. 301428, filed in the Superior Court, attended
mediation which resulted in a settlement which required, among
other things, the dismissal of all three lawsuits. The Company was
not a named party in the California state court action.
Additionally, the Company is not obligated to contribute
financially to the settlement. Although, the Company did not attend
the mediation, the Company was an intended beneficiary of the
settlement. Mitchell Rubinson and Larry Rutstein, former officers
of the Company, purportedly reserved certain indemnification rights
against the Company as part of the settlement and notified the
Company of such a reservation subsequent to their execution of the
settlement agreement. The Company cannot opine upon the validity of
such claims as no action has been filed against the Company in that
regard. However, the Company would vigorously defend any such
claims in the event they are filed.
On December 16, 1999, the Judge presiding over the Superior Court
of California state court action entered an order granting the
plaintiff's motion to enforce the settlement under California Code
of Civil Procedure ss. 664.6. Since the settlement agreement
purports to resolve all of the aforementioned matters, the Company
intends to dismiss the Florida lawsuit and obtain releases from the
defendants.
ITEM 2. CHANGES IN SECURITIES
On January 5, 2000, the Company granted options to three officers
to purchase an aggregate of 800,000 shares of common stock at an
exercise price of $0.25 per share. Inasmuch as the purchasers were
officers of the Company and had access to relevant information
concerning the Company, including financial information, the
issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of such Act and the rules and regulations
thereunder.
21
<PAGE>
On January 5, 2000, the Company issued 50,000 shares of common
stock to Gustavo Rodriquez (Vice President of Entertainment/Music
Development) in connection with a one year extension of his
employment agreement. Inasmuch as the purchaser was an officer and
had access to relevant information concerning the Company,
including financial information, the issuance of such securities
was exempt from the registration requirements of the Securities Act
pursuant to the exemption set forth in Section 4(2) of such Act and
the rules and regulations thereunder.
On January 20, 2000, the Company agreed to sell 200,000 shares of
common stock for a purchase price of $200,000 to Edward McCabe. The
purchaser deposited the $200,000 purchase price with counsel for
the Company until completion of the acquisition of the assets of
the entity formerly known as Red Ant Entertainment. Inasmuch as the
purchaser was an accredited investor and had access to relevant
information concerning the Company, including financial
information, the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of such Act and the rules and
regulations thereunder.
On January 25, 2000, the Company issued 250,000 shares of common
stock to Mel Adler, the father of the Chairman of the Board of
Directors, in connection with the purchase of the URL address Music
411.com. Inasmuch as the purchaser had access to relevant
information concerning the Company, including financial
information, the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of such Act and the rules and
regulations thereunder.
On January 28, 2000, the Company issued 500,000 shares of common
stock to Les Garland in connection with the terms of his three year
consulting agreement. Inasmuch as the purchaser was an accredited
investor and had access to relevant information concerning the
Company, including financial information, the issuance of such
securities was exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 4(2)
of such Act and the rules and regulations thereunder.
On January 28, 2000, the Company issued 500,000 shares of common
stock to Brandon Phillips in connection with the terms of his three
year consulting agreement. Inasmuch as the purchaser was an
accredited investor and had access to relevant information
concerning the Company, including financial information, the
issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of such Act and the rules and regulations
thereunder.
On January 28, 2000, the Company issued 50,000 shares of common
stock to Edwin Ruh in connection with the terms of his three year
consulting agreement. Inasmuch as the purchaser was an accredited
investor and had access to relevant information concerning the
Company, including financial information, the issuance of such
securities was exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 4(2)
of such Act and the rules and regulations thereunder.
On January 31, 2000, the Company consummated the sale of 50,000
shares of its common stock for a purchase price of $100,000, or
$2.00 per share, to an institutional investor. Inasmuch as the
purchaser was an accredited investor and had access to relevant
information concerning the Company, including financial
information, the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of such Act and the rules and
regulations thereunder.
22
<PAGE>
On March 2, 2000, the Company consummated the sale of 50,000 shares
of its common stock for a purchase price of $150,000, or $3.00 per
share, to an institutional investor. Inasmuch as the purchaser was
an accredited investor and had access to relevant information
concerning the Company, including financial information, the
issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of such Act and the rules and regulations
thereunder.
On March 7, 2000, the Company issued three Common Stock Purchase
Warrants to The Equity Group, Inc., in connection with their three
year consulting agreement. The warrants entitled the purchaser to
purchase an aggregate of 216,000 shares of the Company's common
stock, 72,000 shares at an exercise price of $2.50 per share;
72,000 shares at an exercise price of $5.00 per share and 72,000
shares at an exercise price of $7.50 per share. Warrants for 72,000
shares are exercisable immediately; warrants for 72,000 shares are
exercisable in one year and warrants for 72,000 shares are
exercisable in two years. Inasmuch as the purchaser was an
accredited investor and had access to relevant information
concerning the Company, including financial information, the
issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of such Act and the rules and regulations
thereunder.
No underwriters were involved in any of the transactions described
above, and no commissions were paid in connection therewith.
ITEM 3. DEFAULTS UPON SENIOR SECURITITES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a.) Index to Exhibits
Exhibits Description of Documents
10.19 Consulting Agreement dated March 7, 2000, between
Regenesis Holdings, Inc. and The Equity Group, Inc.,
including related warrants to purchase common stock.
27 Financial Data Schedule
(b.) Reports on Form 8-K.
(i) On March 2, 2000, the Company engaged the firm of
Moore Stephens Lovelace, P.A., 1201 S. Orlando
Avenue, Suite 400, Winter Park, Florida 32789 (the
"New Accountants") as its new certifying accountants.
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Regenesis Holdings, Inc. has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
REGENESIS HOLDINGS, INC.
DATE: June 30, 2000 By: /s/ Lawrence Gallo
------------- --------------------------
Lawrence Gallo
Chief Executive Officer and President
(Principal Executive Officer)
DATE: June 30, 2000 By: /s/ Joel Brownstein
------------- --------------------------
Joel Brownstein
Chief Financial Officer
(Principal Financial Officer)
24
<PAGE>
EXHIBIT INDEX
Exhibits Description of Documents
-------- ------------------------
10.19 Consulting Agreement dated March 7, 2000, between
Regenesis Holdings, Inc. and The Equity Group, Inc.,
including related warrants to purchase common stock.
27 Financial Data Schedule
