FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-23901
GSV, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3979226
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
191 Post Road West, Westport, CT 06880
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 221-2690
Indicate by check mark whether 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 registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes /x/ No / /
The number of shares of the Registrant's common stock, par value $.001 per
share, outstanding on July 31, 2001 was 1,796,690 shares.
GSV, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2001
(unaudited) and December 31, 2000 2
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2001 and 2000 (unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 2001 and 2000 (unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
PART I. FINANCIAL INFORMATION
Item 1. - Financial Statements
GSV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
(Unaudited)
----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,604,000 $ 2,333,000
Prepaid expenses and other
current assets 35,000 76,000
------------ ------------
Total current assets 1,639,000 2,409,000
Investments 115,000 1,400,000
Property and equipment, net 479,000 509,000
Other assets 31,000 52,000
------------ ------------
Total assets $ 2,264,000 $ 4,370,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 360,000 $ 493,000
Tenant security deposit 51,000 ---
Current portion of capital lease
obligation 71,000 71,000
------------ ------------
Total current liabilities 482,000 564,000
Deferred rent --- 42,000
----------- ------------
Total liabilities 482,000 606,000
------------ ------------
Stockholders' equity:
12% Series A Preferred stock, $0.001
par value; 636,365 shares authorized;
363,637 and zero shares issued and
outstanding, respectively 380,000 --
Common stock, $0.001 par value;
75,000,000 shares authorized;
2,137,845 issued; 1,796,690 and
1,848,540 outstanding, respectively 2,000 2,000
Additional paid-in capital 38,008,000 38,008,000
Treasury stock (558,000) (512,000)
Accumulated deficit (36,050,000) (33,734,000)
------------ ------------
Total stockholders' equity 1,782,000 3,764,000
------------ ------------
Total liabilities and stockholders' equity $ 2,264,000 $ 4,370,000
============ ============
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these balance sheets.
2
GSV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
================================================================================
Three Months Ended June 30, Six Months Ended June 30,
- --------------------------------------------------------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Sublease income $ 28,000 $ --- $ 28,000 $ ---
General and
administrative $ 786,000 $ 653,000 $ 1,123,000 $ 1,227,000
------------ ------------ ------------ ------------
Total operating
expenses 786,000 653,000 1,123,000 1,227,000
Loss from continuing
operations before (758,000) (653,000) (1,095,000) (1,227,000)
other income and expense
Interest income, net 27,000 72,000 60,000 153,000
Writedown of
investments (585,000) --- (1,285,000) ---
------------ ------------ ------------ ------------
Loss from continuing
operations (1,316,000) (581,000) (2,320,000) (1,074,000)
Discontinued operations:
Loss from operations --- (484,000) --- (1,799,000)
Estimated loss on
disposal --- (11,656,000) --- (11,441,000)
------------ ------------ ------------ ------------
Total discontinued
operations --- (12,140,000) --- (13,240,000)
------------ ------------ ------------ ------------
Net loss $ (1,316,000) $(12,721,000) $ (2,320,000) $(14,314,000)
============ ============ ============ ===========
Basic and diluted net
loss per common share:
loss per common share
from continuing $ (0.73) $ (0.27) $ (1.27) $ (0.51)
operations
effect of adjustable
common stock warrants -- -- -- (1.50)
------------ ------------ ------------ ------------
loss per common share
from continuing
operations including
effect of adjustable
common stock warrants (0.73) (0.27) (1.27) (2.01)
loss per common share
from discontinued
operations -- (0.23) -- (0.86)
loss per common share
from estimated loss
on disposal of
discontinued operations -- (5.45) -- (5.45)
----------- ------------ ------------ -----------
Net loss per common share
including effect of
adjustable common stock
warrants $ (0.73) $ (5.95) $ (1.27) $ (8.32)
============ ============ ============ ===========
Weighted average common
shares outstanding, basic
and diluted 1,797,000 2,138,000 1,823,000 2,100,000
================================================================================
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these consolidated statements.
3
GSV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
-----------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (2,320,000) $(14,314,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 30,000 182,000
Amortization of goodwill --- 1,488,000
Non-cash compensation expense --- 32,000
Writedcwn of securities held for sale 1,285,000 --
Estimated loss on disposal of discontinued
operations --- 11,441,000
Increase (decrease) in cash from changes in:
Accounts receivable, net --- (283,000)
Inventories --- 127,000
Prepaid expenses and other 41,000 320,000
Other assets 21,000 (15,000)
Accounts payable (130,000) (1,946,000)
Accrued liabilities --- (774,000)
Deferred rent (42,000) (5,000)
Tenant security deposits 51,000 ---
------------ ------------
Net cash used in operating activities (1,064,000) (3,747,000)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment --- (29,000)
------------ ------------
Net cash provided (used) in investing
activities --- (29,000)
Cash flows from financing activities:
Sale of preferred stock, net of costs 380,000 ---
Purchase of treasury stock (45,000) ---
Proceeds from exercise of stock options --- 87,000
------------ ------------
Net cash provided by financing
activities 335,000 87,000
------------ ------------
Net decrease in cash (732,000) (3,689,000)
Cash and cash equivalents, beginning of period 2,333,000 8,471,000
------------ ------------
Cash and cash equivalents, end of period $ 1,604,000 $ 4,782,000
============ ============
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these consolidated statements.
4
GSV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Description of the Business and Basis of Presentation
At a meeting of the Board of Directors of the Company held on June
21, 2001, the Board approved changing its operations to active business
activities including acquiring, developing and engaging in real estate
ownership and management of properties in Japan. The Board also indicated
that it would consider making other business acquisitions. Since June 21,
2001, the Company has been actively pursuing this plan. To date, the
Company has retained independent agents in Japan to assist the Company in
acquiring real estate properties. In addition, the Company sublet to
Nekema.com the Company's former offices in Jersey City, New Jersey through
December 31, 2008. Over the term of the 90-month sublease, the Company will
realize net revenue for the sublease, after commissions, of approximately
$1,365,000.
Prior to June 2001, the Company had sought to identify and develop
attractive early stage Internet companies in exchange for equity positions
in such companies. In connection with this activity, GSV made investments
in Fasturn, Inc., Weema Technologies, Inc., Telephone.com, Inc.,
MeetChina.com. Inc. and e-Commerce Solutions, Inc. Following the sale
of its Internet retailing operations in August 2000, the Company relied
on a temporary one-year exclusion from investment company status under
Investment Company Act of 1940, as amended (the "'40 Act"). The
Company has since made substantial write downs to more accurately
reflect current market valuations of its investments, and as described
above, has changed its operations. The Company believes that, based on
its current assets and activities, it is not an investment company as
defined by the '40 Act.
Prior to February 2000, the Company was an online consumer and
direct response retailer. In early February 2000, the Company
announced a change in its core strategy to Internet incubator and
investment company and subsequently closed two operating divisions,
Cybershop.com and electronics.net. On August 14, 2000, the Company
sold its remaining retailing subsidiary, Tools for Living, to the
former owners of Tools for Living.
The information presented as of June 30, 2001, and for the six-month
periods ending June 30, 2001 and 2000, is unaudited, but, in the opinion of
management of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for the fair presentation of
the Company's financial position as of June 30, 2001, the results of its
operations for the three and six -month periods ended June 30, 2001 and 2000
and its cash flows for the six-month periods ended June 30, 2001 and 2000. The
consolidated financial statements included herein have been prepared in
accordance with generally accepted accounting principles and the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These consolidated financial statements should be read
in conjunction with the Company's audited consolidated financial statements
and accompanying notes for the year ended December 31, 2000, included in the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission. Certain prior period amounts have been reclassified to conform to
the current period presentation.
2. Discontinued Operations
The Company's present operations involve acquiring, developing and
engaging in real estate ownership and management as well as seeking other
businesses to acquire and operate. In February 2000 the Company began
the process of discontinuing its two online retailing divisions,
Cybershop.com and electronics.net. The operations of the Cybershop.com
division were discontinued in February 2000 and in the same month the
Company entered into a letter of intent to sell electronics.net to two
former executives of the Company. The letter of intent was subsequently
terminated, and in May 2000 electronics.net was also discontinued. In
August 2000, the Company sold its remaining retailing subsidiary, Tools
for Living (purchased by the Company in June 1999) to two executives of
Tools for Living, who were also the former owners of Tools for Living,
for consideration including (i) approximately 896,000 shares of common
stock of GSV, Inc., (ii) the purchasers' assumption of the liabilities of
Tools for Living, and (iii) the release of all obligations owing by the
Company to the former owners including the obligations under their respective
Employment agreements. This sale substantially completes the Company's
divestiture of its retailing assets and the transition to its recently
adopted Internet incubator and investment strategy.
5
As a result, the consolidated financial statements and accompanying notes
reflect Cybershop.com, electronics.net and Tools for Living as discontinued
operations. The measurement date for the closing of Cybershop.com was December
31, 1999. Actual results for the six months ended June 30, 2000 for
Cybershop.com included operating losses of $307,000, a $1,000,000 gain on
the sale of the cybershop.com domain name, and reductions in the carrying
amounts of current assets and fixed assets of $120,000 and $415,000,
respectively. During the six months ended June 30, 2000 the provision was
reduced by $444,000 reflecting lower than anticipated losses for Cybershop.com,
and is reflected within Loss on disposal of discontinued operations in the
accompanying unaudited consolidated statements of operations.
Total losses of $1,799,000 from discontinued operations for the six months
ended June 30, 2000 consist of $84,000 of losses related to electronics.net and
$1,715,000 of losses (including $1,487,000 of amortization of goodwill) related
to Tools for Living. For the second quarter of 2000 Tools for Living had net
income from discontinued operations of $260,000 before amortization of goodwill.
Losses associated with the closing of electronics.net and the sale of
Tools for Living of $2,000 and $11,883,000, respectively, are reflected within
Loss on disposal of discontinued operations in the accompanying unaudited
consolidated statements of operations for the six months ended June 30, 2000.
The loss on disposal associated with the sale of Tools for Living includes a
write off of approximately $11,650,000 related to unamortized goodwill, as well
as $234,000 of losses expected to be incurred from the measurement date through
the date of disposal. The measurement dates for the closing of electronics.net
and the sale of Tools for Living are March 31, 2000 and June 30, 2000,
respectively. The consolidated net provision for discontinued operations as of
June 30, 2000 is $13,240,000. Net revenues applicable to electronics.net for the
six months ended June 30, 2000, during only four of which electronics.net was in
operation, was $340,000. Net revenues applicable to Tools for Living
during the first and second quarter of 2000 were $4,214,000 and $2,389,000
respectively.
The carrying value of the remaining assets and liabilities of electronics.net as
of June 30, 2001 was zero.
6
3. Investments
The Company has made investments in five internet companies, which
have been accounted for using the cost method. During the quarters ended
March 31, 2001 and June 30, 2001, the Company recorded a charge to operations
of $1,285,000 for impairment of these investments.
4. Stockholders' Equity
On March 1, 2001, the Company entered into a Convertible Preferred
Stock Purchase Agreement (the "Purchase Agreement") with Brooks Station
Holdings, Inc. ("Brooks Station") for the issuance and sale of its preferred
stock for aggregate consideration of $400,000. Pursuant to the Purchase
Agreement, the Company sold and issued to Brooks Station a total of 363,637
shares of its Series A Convertible Preferred Stock, $0.001 par value per share
(the "Series A Convertible Preferred"), at a purchase price of $1.10 per share
(the "Purchase Price"). Brooks Station has the option to purchase up to an
aggregate of 272,728 additional Preferred Series A shares, at a purchase
price of $1.10 per share, for aggregate consideration of up to $300,000.
The Series A Convertible Preferred is convertible into shares of the
Company's Common Stock, at a conversion price of $1.10 per share, subject
to certain anti-dilution adjustments. The Preferred Stock carries a
cumulative 12% dividend payable in June and December of each year, and may
participate in common share dividends, if any, on an as-if converted basis.
Liquidation preference is $1.10 per share plus accumulated unpaid dividends.
The shares may be redeemed at the option of the holder, but only upon the
occurrence of certain triggering events, which include bankruptcy, material
judgments and defaults, and suspension of trading of the Company's stock
for more than 20 days (which days need not be consecutive).
Pursuant to the terms of a private placement of equity securities
of the Company, completed on December 8, 1999, the Company issued 613,486
shares of common stock in February 2000 upon the exercise of common stock
warrants ("adjustable common stock warrants"), at an effective exercise
price of $.001 per share.
5. Stock Option Issuances
Effective May 4, 2001, former management's options to purchase
35,000 shares of common stock at an exercise price of $37.50 were
cancelled.
Effective May 4, 2001, options to purchase 20,000 shares of
common stock at an exercise price of $0.32 were issued to an officer
of the Company. The exercise price was equal to the closing price of
the Company's stock on May 3, 2001. No compensation cost was incurred.
Effective June 21, 2001, options to purchase an aggregate of
40,000 shares of common stock at an exercise price of $.30 were
issued to two directors of the Company. The exercise price was
equal to the closing price of the Company's stock on June 20, 2001.
No compensation cost was incurred.
Effective June 21, 2001, options to purchase an aggregate of
50,000 shares of common stock, belonging to each of three directors,
were repriced to $0.30 per share from $1.484375, 1.219, and $1.625 per
share, respectively. The options were originally issued at exercise
prices equal to the mean between the high and low sales reported on
Nasdaq on the closing date prior to the dates of issuance. The current
exercise price is equal to the closing price of the Company's stock
on June 20, 2001.
All options were issued pursuant to the Company's 1998 Stock Option Plan.
6. Net Loss Per Common Share
Basic and diluted net loss per common share is calculated by dividing net
loss per common share after effect of adjustable common stock warrants, as
explained below, by the weighted average number of shares of common stock
outstanding during the period as follows:
For the Six Months Ended June 30,
----------------------------------------------------------------
2001 2000
------------------------------- ------------------------------
Per Per
--- ---
Loss Shares Share Loss Shares Share
-------- -------- ------ ------ ------- ------
Loss from
continuing
operations $(2,320,000) 1,797,000 $(1.29) $(1,074,000) 2,138,000 $ (0.10)
Effect of
adjustable
common stock
warrants --- --- --- (3,163,000) 8,363,000 (0.30)
---------- --------- -------- ----------- --------- -------
Loss from
continuing
operations
including effect
of adjustable
common stock
warrants (2,320,000) 1,797,000 (1.29) (4,237,000) 10,501,000 (0.40)
Loss from
discontinued
operations --- --- --- (1,799,000) --- (0.96)
Estimated loss
on disposal
of discontinued
operations --- --- --- (11,441,000) --- ---
---------- --------- -------- ------------ --------- ------
Net loss including
effect of adjustable
common stock
warrants $(2,320,000) 1,797,000 $(1.29) $(17,477,000) 10,501,000 $(1.36)
============ ========= ======= ============ ========= =======
In calculating the effect on the basic and diluted net loss per common
share calculation, of the common stock issued as a result of the adjustable
common stock warrants exercised by the parties to the December 8, 1999 private
placement, the market value of the Company's common stock on the day before the
stock was issued, $5.16, was multiplied by the number of common shares issued
upon exercise of these warrants, resulting in a valuation for loss per common
share purposes of $3,163,000.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Safe Harbor for Forward-Looking Statements
From time to time, the Company may publish statements which are not
historical fact, but are forward-looking statements relating to such matters as
anticipated financial performance, business prospects, technological
developments, new products, investments in other companies, research and
development activities and similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical and anticipated
results or other expectations expressed in the Company's forward-looking
statements. Such forward-looking statements may be identified by the use of
certain forward-looking terminology, such as "may," "will," "expect,"
"anticipate," "intend," "estimate," "believe," "goal," or "continue," or
comparable terminology that involves risks or uncertainties. Actual future
results and trends may differ materially from historical results or those
anticipated depending on a variety of factors, including, but not limited to,
those set forth under "Overview" and "Liquidity and Capital Resources" included
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations. Particular attention should be paid to the cautionary statements
involving the Company's limited operating history, the unpredictability of its
future revenues, the unpredictable and evolving nature of its key markets, the
Company's dependence on its strategic alliances and key suppliers and
distributors, and the risks associated with capacity constraints, systems
development, the management of growth, the inherent risks and uncertainties of
litigation, the risks of new business areas, as well as such risks (or others)
that exist to any portfolio company in which the Company invests. Except as
required by law, the Company undertakes no obligation to update any
forward-looking statement, whether as a result of new information, future events
or otherwise. Readers, however, should carefully review the facts set forth in
other reports or documents that the Company has filed or files from time to time
with the SEC.
Overview
At a meeting of the Board of Directors of the Company held on June 21,
2001, the Board approved changing its operations to active business activities
including acquiring, developing and engaging in real estate ownership and
management of properties in Japan. The Board also indicated that it would
consider making other business acquisitions. Since June 21, 2001, the Company
has been actively pursuing this plan. To date, the Company has retained
independent agents in Japan to assist the Company in acquiring real estate
properties. In addition, the Company sublet to Nekema.com the Company's
former offices in Jersey City, New Jersey through December 31, 2008. Over
the term of the 90-month sublease, the Company will realize net revenue for
the sublease, after commissions, of approximately $1,365,000.
Prior to June 2001, the Company had sought to identify and develop
attractive early stage Internet companies in exchange for equity positions
in such companies. In connection with this activity, GSV made investments in
Fasturn, Inc., Weema Technologies, Inc., Telephone.com, Inc., MeetChina.com.
Inc. and e-Commerce Solutions, Inc. Following the sale of its Internet
retailing operations in August 2000, the Company relied on a temporary
one-year exclusion from investment company status under Investment Company
Act of 1940, as amended (the "'40 Act"). The Company has since made
substantial write downs to more accurately reflect current market valuations
of its investments, and as described above, has changed its operations. The
Company believes that, based on its current assets and activities, it is not
an investment company as defined by the '40 Act.
Prior to February 2000, the Company was an online consumer and direct
response retailer. In early February 2000, the Company announced a change in
its core strategy to Internet incubator and investment company and
subsequently closed two operating divisions, Cybershop.com and
electronics.net. On August 14, 2000, the Company sold its remaining
retailing subsidiary, Tools for Living, to the former owners of Tools for
Living.
8
Results of Operations
Three Months Ended June 30, 2001 compared to Three Months Ended June 30, 2000.
General and administrative: General and administrative expenses consisted
primarily of payroll and payroll related expenses for administrative,
information technology, accounting, and management personnel, recruiting, legal
fees, and general corporate expenses. General and administrative expenses
increased by 16%, or $133,000 to $786,000 in the second quarter of 2001 from
$653,000 in the second quarter of 2000. The increase in the current period is
primarily due to expenses related to the management transition, including
$250,000 in severance payments and $167,000 in commissions related to the
brokerage of the Company's sublease. These increases were offset in part
by reductions in other operating ocsts.
Interest income, net: Interest income decreased $45,000 to $27,000 in the second
quarter of 2001 from $72,000 in the second quarter of 2000. The decrease is
primarily the result of a decrease in average cash and cash equivalents.
Net Losses: Loss from continuing operations increased by $735,000 from $581,000
in the second quarter of 2000, or ($0.27) per basic and diluted common share,
(as adjusted for a 1 for 5 reverse stock split initiated in August of 2000) to
$1,316,000 in the second quarter of 2001, or ($0.73) per basic and diluted
common share. Net loss in the second quarter of 2001 was $1,316,000, or
($0.73) per basic and diluted common share, as compared to $12,721,000 or
($5.95) in the second quarter of 2000. The second quarter of 2000
included a $11,656,000 net loss on disposal of discontinued operations,
primarily attributable to a decrease in net loss on disposal of discontinued
operations.
Six Months Ended June 30, 2001 compared to Six Months Ended June 30, 2000.
General and administrative: General and administrative expenses consisted
primarily of payroll and payroll related expenses for administrative,
information technology, accounting, and management personnel, recruiting, legal
fees, and general corporate expenses. General and administrative expenses
decreased by 8%, or $104,000 to $1,123,000 in first six months of 2001 from
$1,227,000 in the same period of 2000. The decrease in the current period is
the result of the scaling back of operations and change in management focus
for the company.
Interest income, net: Interest income decreased $93,000 to $60,000 in the first
six months of 2001 from $153,000 in the same period of 2000. The decrease is
primarily the result of a decrease in average cash and cash equivalents.
Net Losses: Loss from continuing operations increased by $1,246,000 from
$1,074,000 in the first six months of 2000, or ($0.51) per basic and diluted
common share, to $2,320,000 in the same period of 2001, or ($1.27) per basic
and diluted common share. The increased loss was primarily due to the writedown
of the Company's investments in its incubator stocks, which resulted in a six
month charge to operations of $1,285,000. Net loss in the first six months
of 2001 was $2,320,000, or ($1.27) per basic and diluted common share, as
compared to $14,314,000 or ($6.82) in the same period of 2000. (As adjusted
for a 1 for 5 reverse stock split initiated in August of 2000.) The net loss
in the first six months of 2000 included a $11,441,000 net loss on disposal of
discontinued operations, primarily attributable to the sale of the Tools for
Living Division.
9
Liquidity and Capital Resources
Net cash used in operations decreased $2,683,000, from $3,747,000 in the
first six months of 2000 to $1,064,000 in the first six months of 2001. The
decrease is primarily attributed to the Company's cessation of the Internet
retailing activities and actively reducing operating expenses going forward.
Net cash used in investing activities during the first six months of 2001
was zero, as compared to $29,000 in the same period of the prior year. No
property and equipment were purchased in the current year.
Net cash provided by financing activities during the first six months of
2001 was $335,000 as compared to $87,000 in the same period of the prior year.
Sources of cash during the prior period included proceeds from the exercise
of employee stock options. The current period saw the sale of preferred stock
for $380,000 in proceeds, of which $45,000 was used to purchase GSV stock for
treasury.
The Company believes that its existing capital resources will enable it to
maintain its operations at existing levels for at least the next twenty four
months. The Company is, however, currently considering the funding requirements
associated with its business plan, including the need for additional debt
and/or equity financing. The sufficiency of the Company's capital resources
is substantially dependent upon the number of investments the Company funds.
Accordingly it is difficult to project the Company's capital needs. However,
the Company will evaluate potential investments in terms of its then existing
capital resources and the availability of additional debt or equity financing
and will ultimately decide on an investment according to the sufficiency of
those resources to fund the potential investment as well as continuing
operating requirements. There can be no assurance that any additional
financing or other sources of capital will be available to the Company
upon acceptable terms, if at all. The inability to obtain additional
financing, when needed, would have a material adverse effect on the
Company's business, financial condition and operating results, and could
significantly slow the pace of development of its investment operations.
Discontinued Operations
As discussed above, in February of 2000 the Company began the process of
discontinuing its two online retailing divisions, Cybershop.com and
electronics.net. The operations of the Cybershop.com division were discontinued
in February 2000 and in the same month the Company entered into a letter of
intent to sell electronics.net to two former executives of the Company. The
letter of intent was subsequently terminated, and in May 2000 electronics.net
was also discontinued. In August 2000, the Company sold its remaining
retailing subsidiary, Tools for Living (purchased by the Company in June 1999)
to two executives of Tools for Living, who were also the former owners of Tools
for Living, for consideration including (i) approximately 896,000 shares of
common stock of GSV, Inc., (ii) the purchasers' assumption of the liabilities of
Tools for Living, and (iii) the release of all obligations owing by the Company
to the former owners including the obligations under their respective employment
agreements. This sale substantially completes the Company's divestiture of its
retailing assets.
10
As a result, the consolidated financial statements and accompanying notes
reflect Cybershop.com, electronics.net and Tools for Living as discontinued
operations. The measurement date for the closing of Cybershop.com was December
31, 1999. An estimated loss on disposal relating to Cybershop.com of $435,000
was reflected in the Company's consolidated statement of operations for the year
ended December 31, 1999. Actual results for the six months ended June 30, 2000
for Cybershop.com included operating losses of $307,000, a $1,000,000 gain on
the sale of the cybershop.com domain name, and reductions in the carrying
amounts of current assets and fixed assets of $120,000 and $415,000,
respectively. During the six months ended June 30, 2000 the provision was
reduced by $444,000 reflecting lower than anticipated losses for Cybershop.com,
and is reflected within loss on disposal of discontinued operations in the
accompanying unaudited consolidated statements of operations.
Total losses of $1,799,000 from discontinued operations for the six months
ended June 30, 2000 consist of $84,000 of losses related to electronics.net and
$1,715,000 of losses (including $1,487,000 of amortization of goodwill) related
to Tools for Living. For the second quarter of 2000 Tools for Living had net
income from discontinued operations of $260,000 before amortization of goodwill.
Total losses of $2,485,000 from discontinued operations for the six months ended
June 30, 1999 consist of $2,326,000 of losses related to Cybershop.com, $498,000
of losses related to electronics.net and $339,000 of income related to Tools for
Living. Losses associated with the closing of electronics.net and the sale of
Tools for Living of $2,000 and $11,883,000, respectively, are reflected within
loss on disposal of discontinued operations in the accompanying unaudited
consolidated statements of operations for the six months ended June 30, 2000.
The loss on disposal associated with the sale of Tools for Living includes a
write off of approximately $11,650,000 related to unamortized goodwill, as well
as $234,000 of losses expected to be incurred from the measurement date through
the date of disposal. The measurement dates for the closing of electronics.net
and the sale of Tools for Living are March 31, 2000 and June 30, 2000,
respectively. The consolidated net provision for discontinued operations as of
June 30, 2000 is $13,240,000. Net revenues applicable to electronics.net for the
six months ended June 30, 2000, during only four of which electronics.net was in
operation, was $340,000. Net revenues applicable to Tools for Living during
the first and second quarter of 2000 were $4,214,000 and $2,389,000
respectively.
Market Information
The Company's common stock began trading on The Nasdaq Stock Market
(National Market) on March 23, 1998, under the symbol "CYSP." On
November 1, 2000, the Company began trading on The Nasdaq SmallCap
Market, under the symbol "GSVI."
In December 2000, the Company was notified by The Nasdaq SmallCap
Market that the Company had not maintained the minimum $1.00 per
share bid price required for continued listing on The Nasdaq SmallCap
Market. Effective December 13, 2000, the Company's trading symbol
was changed from "GSVI" to "GSVIC," reflecting its failure to maintain
the minimum $1.00 per share bid price required. The Company was further
notified by The Nasdaq SmallCap Market that if the Company's bid price
did not reach a minimum of $1.00 for ten consecutive trading days prior
to March 8, 2001, its common stock would be delisted from The Nasdaq
SmallCap Market. The Company's common stock was delisted on
March 14, 2001 and is currently trading on the OTC Bulletin Board
under the symbol "GSVI.OB".
A one-for-five reverse split of the Company's common stock was
effected on August 30, 2000. Unless otherwise indicated, all share and
per share amounts have been restated to reflect the split as of the
earliest period presented.
11
Litigation
In March and April 2000, twelve purported class actions entitled Ames v.
Cybershop, Ezeir v. Cybershop, Fuechtman v. Cybershop, Kaufman v. Cybershop,
Goldenberg v. Cybershop, Marino v. Cybershop, Waldarman v. Cybershop, Page
v. Cybershop, Young v. Cybershop, Johnson v. Cybershop, Hitzing v. Cybershop,
and Gerber v. Cybershop were filed in the United States District Court for
the District of New Jersey against the Company and certain of its current
and former officers and directors. On April 25, 2001, lead counsel for the
plaintiffs was designed and an amended complaint was filed. The amended
complaint alleges that defendants violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 by making or causing the Company to make
materially false and misleading statements about the Company. On
May 18, 2001, a motion to dismiss was filed on behalf of the Company and
all other defendants. Plaintiff has opposed the motion and the motion
awaits a decision by the District Court.
12
Item 6. Exhibits and Reports on Form 8-K
Item
No. Item Title
- --- ----------
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession: None
3. Articles of Incorporation:
3.1 Certificate of Incorporation, as amended (Incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement on Form S-1.
File No. 333-42707).
3.2 Certificate of Amendment of the Certificate of Incorporation of
Cybershop International, Inc. (Incorporated by reference to Exhibit
3.2 of the Registrant's Report on Form 10Q for the fiscal quarter
ended June 30, 1999. File No. 000-23901)
3.5 Certificate of Merger of GSV, Inc into Cybershop.com, Inc.
(Incorporated by reference to Exhibit 3.5 of the Registrant's Form
10K for the year ended December 31, 1999. File No. 000-23901)
3.6 Certificate of designations, preferences and rights of services A
convertible Preferred Stock of GSV, Inc. (Incorporated by reference
to Exhibit 3.1 of the Company's report on Form 8K, filed March 6,
2001).
By-Laws:
3.4 By-Laws as currently in effect (Incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 (File No.
333-42707).
4. Instruments defining the rights of security holders, including debentures:
4.1 Specimen of Certificate for Common Stock (Incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on Form S-1.
File No. 333-42707)
4.2 Form of Warrant dated September 30, 1999 issued to Strong River
Investments, Inc. and Montrose Investments L.P. (Incorporated by
reference to Exhibit 4 D to the Company's Registration Statement on
Post Effective Amendment on Form S-3. File No. 333-75507).
4.3 Form of Warrant dated September 30, 1999 issued to Strong River
Investments, Inc. and Montrose Investments L.P. (Incorporated by
reference to Exhibit 4 E to the Company's Registration Statement on
Post Effective Amendment on Form S-3. File No. 333-75507).
4.4 Form of Warrant dated December 8, 1999 issued to Strong River
Investments, Inc. and Montrose Investments L.P. (Incorporated by
reference to Exhibit 4 D to the Company's Registration Statement on
Post Effective Amendment on Form S-3. File No. 333-92861).
4.5 Form of Warrant dated December 8, 1999 issued to Strong River
Investments, Inc. and Montrose Investments L.P. (Incorporated by
reference to Exhibit 4 E to the Company's Registration Statement on
Post Effective Amendment on Form S-3. File No. 333-92861).
4.6 Convertible Stock purchase agreement, dated March 1, 2001, by and
between GSV, Inc. and Brooks Station Holding, Inc. (Incorporated by
reference to Exhibit 4.1 of the Company's report on Form 8K filed
March 6, 2001.)
9. Voting Trust Agreements: None
10. Material Contracts:
10.1 Stock Purchase Agreement dated March 24, 1999, by and between Edward
Mufson and Cybershop International, Inc. (Incorporated by reference
to Exhibit 10.1 of the Registrant's Report on Form 10Q for the
fiscal quarter ended March 31, 1999. File No. 000-23901)
10.2 Employment Agreement dated March 24, 1999, by and between Edward
Mufson and Cybershop International, Inc. (Incorporated by reference
to Exhibit 10.2 of the Registrant's Report on Form 10Q for the
fiscal quarter ended March 31, 1999. File No. 000-23901)
10.3 Employment Agreement dated February 7, 1999, by and between Jeffrey
Leist and Cybershop International, Inc.(Incorporated by reference to
Exhibit 10.3 of the Registrant's Report on Form 10Q for the fiscal
quarter ended March 31, 1999. File No. 000-23901)
10.4 Form of Officer and Director Indemnification Agreement (Filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-1,
effective March 20, 1998. File No. 333-42707)
10.5 1998 Stock Option Plan of the Company (Filed as Exhibit 10.5 to the
Company's Registration Statement on Form S-1, effective March 20,
1998. File No. 333-42707)
10.6 1998 Directors' Stock Option Plan (Filed as Exhibit 10.6 to the
Company's Registration Statement on Form S-1, effective March 20,
1998. File No. 333-42707)
10.7 Agreement and Plan of Merger by and among Cybershop International,
Inc., MG Acquisition Corp., The Magellan Group, Inc., Ian S.
Phillips and Howard J. Kuntz III dated as of June 1, 1999
(Incorporated by reference to Exhibit 2.1 of the Registrant's
Current Report on Form 8-K. File No. 0-23901)
10.8 Employment Agreement dated June 1, 1999, by and between Ian S.
Phillips and MG Acquisition Corp which is a wholly owned subsidiary
of Cybershop International, Inc. (Incorporated by reference to
Exhibit 10.2 of the Registrant's Report on Form 10Q for the fiscal
quarter ended June 30, 1999. File No. 000-23901)
10.9 Warrant Agreement dated as of March, 1998 between the Company and
C.E. Unterberg, Towbin and Fahnstock & Co., Inc., including Warrant
Certificate of the Company (Filed as Exhibit 10.9 to the Company's
Registration Statement on Form S-1, effective March 20, 1998. File
No. 333-42707)
10.10 Employment Agreement dated June 1, 1999, by and between Howard J.
Kuntz III and MG Acquisition Corp which is a wholly owned subsidiary
of Cybershop International, Inc. (Incorporated by reference to
Exhibit 10.3 of the Registrant's Report on Form 10Q for the fiscal
quarter ended June 30, 1999. File No. 000-23901)
10.11 Securities Purchase Agreement dated September 30, 1999 among
Cybershop.com, Inc., Strong River Investments, Inc. and Montrose
Investments, L.P. (Incorporated by reference to Exhibit 10.4 of the
Registrant's Report on Form 10Q for the fiscal quarter ended
September 30, 1999. File No. 000-23901)
10.12 Registration Rights Agreement dated September 30, 1999 among
Cybershop.com, Inc., Strong River Investments, Inc. and Montrose
Investments, L.P. (Incorporated by reference to Exhibit 10.4 of the
Registrant's Report on Form 10Q for the fiscal quarter ended
September 30, 1999. File No. 000-23901)
10.13 Securities Purchase Agreement dated December 8, 1999 among
Cybershop.com, Inc., Strong River Investments, Inc. and Montrose
Investments, L.P. (Incorporated by reference to Exhibit 10.13 of the
Registrant's Form 10K for the year ended December 31, 1999. File No.
000-23901.)
10.14 Registration Rights Agreement dated December 8, 1999 among
Cybershop.com, Inc., Strong River Investments, Inc. and Montrose
Investments, L.P. (Incorporated by reference to Exhibit 10.14 of the
Registrant's report on Form 10K for the year ended December 31,
1999. File No. 000-23901.)
10.15 General release dated February 14, 2000, by and between Jeffrey
Leist and Cybershop.com, Inc. (Incorporated by reference to Exhibit
10.15 of the Registrant's report on Form 10K for the year ended
December 31, 1999. File No. 000-23901.)
10.16 Modification to Employment Agreement dated February 7, 1999, by and
between Jeffrey Leist and Cybershop.com, Inc., dated March 29, 2000
(Incorporated by reference to Exhibit 10.16 of the Registrant's
report on Form 10K for the year ended December 31, 1999. File No.
000-23901.)
10.17 Severance Agreement and General release dated January 20, 2000, by
and between Edward Mufson and Cybershop.com, Inc. (Incorporated by
reference to Exhibit 10.17 of the Registrant's report on Form 10K
for the year ended December 31, 1999. File No, 000-23901.)
10.18 Employment Agreement dated February 7, 2000, by and between Kevin S.
Miller and Cybershop.com, Inc.(Incorporated by reference to Exhibit
10.18 of the Registrants report on Form 10K for the year ended
December 31, 1999. File No 000-23901.)
10.19 Agreement dated January 12th, 2000, by and between Tops Appliance
City, Inc. and Cybershop Holding Corp, which is a wholly owned
subsidiary of Cybershop.com, Inc. (Incorporated by Reference to
Exhibit 10.19 of the Registrant's report on Form 10K for the year
ended December 31, 1999. File No 000-23901.)
10.20 Severance Agreement, dated May 4, 2001, by and between GSV, Inc.
and Jeffrey S. Tauber (Incorporated by reference to Exhibit 10.2 of
the Company's report on Form 8K, filed May 11, 2001)
10.21 Employment Agreement, dated May 4, 2001, by and between GSV, Inc.
and Gilad Gat (Incorporated by reference to Exhibit 10.1 of the
Company's report on Form 8K filed May 11, 2001).
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August --, 2001 By: /s/ Gilad Gat
Gilad Gat
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Harvey Dolliner
Harvey Dolliner
Chief Financial Officer and Director
(Principal Financial Officer)