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 September 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 October 26, 2001 was 1,796,690 shares, excluding 341,155
shares of the Registrant's common stock held in Treasury.
GSV, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2001
(unaudited) and December 31, 2000 2
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2001
and 2000 (unaudited) 3
Consolidated Statements of Cash Flows for the
Nine Months ended September 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
<table>
<s> <c> <c>
September 30, December 31,
2001 2000
(Unaudited)
------------ ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,445,000 $ 2,333,000
Prepaid expenses and other current assets 18,000 76,000
------------ ------------
Total current assets 1,463,000 2,409,000
Investments 115,000 1,400,000
Property and equipment, net 464,000 509,000
Other assets 31,000 52,000
------------ ------------
Total assets $ 2,073,000 $ 4,370,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 234,000 $ 493,000
Tenant security deposit 51,000 ---
Current portion of capital lease obligation 71,000 71,000
------------ ------------
Total current liabilities 356,000 564,000
Deferred rent --- 42,000
------------ ------------
Total liabilities 356,000 606,000
------------ ------------
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 (36,115,000) (33,734,000)
------------ ------------
Total stockholders' equity 1,717,000 3,764,000
------------ ------------
Total liabilities and stockholders' equity $ 2,073,000 $ 4,370,000
============ ============
</table>
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)
<table>
<s> <c> <c> <c> <c>
=========================================================================================
Three Months Ended September 30, Nine Months Ended September 30,
-----------------------------------------------------------------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Sublease income $ 49,000 $ --- $ 77,000 $ ---
General and
Administrative 128,000 559,000 1,251,000 1,786,000
------------ ------------ ------------ ------------
Total operating
expenses 128,000 559,000 1,251,000 1,786,000
------------ ------------ ------------ ------------
Loss from continuing
operations before (79,000) (559,000) (1,174,000) (1,227,000)
other income and expense
Interest income, net 15,000 58,000 75,000 211,000
Loss on investments --- (150,000) (1,285,000) (150,000)
------------ ------------ ------------ ------------
Loss from continuing
operations (64,000) (651,000) (2,384,000) (1,725,000)
Discontinued operations:
Loss from operations --- (14,000) --- (1,813,000)
Estimated loss on
disposal --- 690,000 --- (10,751,000)
------------ ------------ ------------ -------------
Total discontinued
operations --- 676,000 --- (12,564,000)
------------ ------------ ------------ -------------
Net income (loss) $ (64,000) $ 25,000 $ (2,384,000) $(14,289,000)
============ ============ ============ ============
Basic and diluted net
loss per common share:
loss per common share
from continuing $ (0.04) $ (0.33) $ (1.32) $ (0.84)
operations
effect of adjustable
common stock warrants -- -- -- (1.54)
------------ ------------ ------------ ------------
loss per common share
from continuing
operations including
effect of adjustable
common stock warrants (0.04) (0.33) (1.32) (2.38)
loss per common share
from discontinued
operations -- (0.01) -- (0.88)
loss per common share
from estimated loss
on disposal of
discontinued operations -- 0.35 -- (5.24)
------------ ------------ ------------ ------------
Net loss per common
share including
effect of adjustable
common stock warrants $ (0.04) $ 0.01 $ (1.32) $ (8.50)
============ ============ ============ ============
Weighted average common
Shares outstanding,
basic and diluted 1,797,000 1,958,000 1,808,000 2,052,000
=========================================================================================
</table>
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)
<table>
<s> <c> <c>
Nine Months Ended September 30,
------------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (2,384,000) $(14,289,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 45,000 253,000
Non-cash compensation expense --- 32,000
Writedown of securities held for sale 1,285,000 --
Estimated loss on disposal of discontinued
operations --- 12,564,000
Increase (decrease) in cash from changes in:
Accounts receivable, net --- 737,000
Inventories --- 282,000
Prepaid expenses and other 58,000 723,000
Other assets 21,000 (14,000)
Accounts payable (257,000) (3,281,000)
Accrued liabilities --- (598,000)
Deferred rent (42,000) (7,000)
Tenant security deposits 51,000 ---
------------ ------------
Net cash used in operating activities (1,223,000) (3,598,000)
------------ ------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired --- (1,878,000)
------------ ------------
Net cash used in investing activities --- (1,878,000)
Cash flows from financing activities:
Sale of preferred stock, net of costs 380,000 ---
Purchase of treasury stock (45,000) (450,000)
Proceeds from exercise of stock options --- 87,000
------------ ------------
Net cash (used in) provided by
financing activities 335,000 (363,000)
------------ ------------
Net decrease in cash (888,000) (5,839,000)
Cash and cash equivalents, beginning of period 2,333,000 8,471,000
------------ ------------
Cash and cash equivalents, end of period $ 1,445,000 $ 2,632,000
============ ============
</table>
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. The Company has also actively pursued
acquisition opportunities in the United States. To date, no acquisitions
have been agreed upon. 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. As of September 30, 2001, the Company's
investments were valued at approximately 5.5% of the total value of its
assets. Accordingly, 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 September 30, 2001 and for the nine-month
periods ending September 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 September 30, 2001, the results of
its operations for the three and nine-month periods ended September 30, 2001
and 2000 and its cash flows for the nine-month periods ended September 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 completed the Company's
divestiture of its retailing assets and the transition to its recently
adopted Internet incubator and investment strategy.
5
Total losses of $12,564,000 from discontinued operations for the nine
Months ended September 30, 2000 consist of $1,813,000 of operating losses from
Disposed subsidiaries and $10,751,000 in estimated disposal costs of
electronics.net and Tools for Living, including a writeoff of goodwill. The
measurement dates for the closing of electronics.net and the sale of Tools for
Living were March 31, 2000 and June 30, 2000, respectively. The consolidated
net provision for discontinued operations as of September 30, 2000 was
$178,000. The carrying value of the remaining assets and liabilities of
electronics.net as of September 30, 2000 was zero.
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. The Company did not record
any further charges to operations for impairment of these investments during
the quarter ended September 30, 2001.
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.
6
5. Stock Option Plan
During the nine months ended September 30, 2001, options to purchase
approximately 60,000 shares of the Company's Common Stock were granted, at
market value on date of grant, to employees under the 1998 Stock Option Plan.
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 June 21, 2001, options to purchase an aggregate of 60,000
shares of common stock at an exercise price of $0.30 per share were issued
to three 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
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.
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:
<table>
<s> <c> <c> <c> <c> <c>
For the Nine Months Ended September 30,
-------------------------------------------------------------------
2001 2000
--------------------------------- -------------------------------
Per Per
--- ---
Loss Shares Share Loss Shares Share
---- ------ ----- ---- ------ -----
Loss from continuing
operations $ (64,000) 1,797,000 $ (0.04) $(1,725,000) 2,063,000 $ (0.84)
Effect of adjustable common
stock warrants --- --- --- (3,163,000) (1.54)
------------ ---------- --------- ----------- --------- ---------
Loss from continuing
operations including effect
of adjustable common stock
warrants (64,000) 1,797,000 (0.04) (4,888,000) 2,063,000 (2.38)
Loss from discontinued
operations --- --- --- (1,813,000) --- (0.88)
Estimated loss on disposal
of discontinued operations --- --- --- (10,751,000) --- (5.24)
------------ ---------- ---------- ------------ --------- --------
Net loss including effect of
adjustable common stock
warrants $ (64,000) 1,797,000 $ (0.04) $(17,452,000) 2,063,000 $(8.50)
============ ========== ========= ============ ========== ========
</table>
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 that 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 made substantial
write downs to more accurately reflect current market valuations of its
investments, and as described above, has changed its operations. As of
September 30, 2001, the Company's investments were valued at approximately
5.5% of the total value of its assets. Accordingly, 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 September 30, 2001 compared to Three Months Ended
September 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 77%, or $431,000 to $128,000 in the third quarter of 2001 from
$559,000 in the third quarter of 2000. The decrease in the current period is
primarily due to further reductions in operating costs to reflect its current
level of operations.
Interest income, net: Interest income decreased $43,000 to $15,000 in
the third quarter of 2001 from $58,000 in the third quarter of 2000. The
decrease is primarily the result of a decrease in average cash and cash
equivalents.
Net Losses: Loss from continuing operations decreased by $587,000 from
$651,000 in the third quarter of 2000, or ($0.33) per basic and diluted common
share, (as adjusted for a 1 for 5 reverse stock split initiated in August
of 2000) to $64,000 in the third quarter of 2001, or ($0.04) per basic and
diluted common share. Net loss in the third quarter of 2001 was $64,000, or
($0.04) per basic and diluted common share, as compared to income of $25,000
($0.01) in the third quarter of 2000. The third quarter of 2000 included
a gain adjustment to the estimated loss on disposal of discontinued operations,
in the amount of $690,000, primarily attributable to the forgiveness of
outstanding debt.
Nine Months Ended September 30, 2001 compared to Nine Months Ended
September 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 30%, or $535,000 to $1,251,000 in first nine months of 2001 from
$1,786,000 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 $136,000 to $75,000 in
the first nine months of 2001 from $211,000 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 $659,000 from
$1,725,000 in the first nine months of 2000, or ($0.48) per basic and diluted
common share, to $2,384,000 in the same period of 2001, or ($1.32) 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 charge to operations of $1,285,000. Net loss in the first nine months
of 2001 was $2,384,000, or ($1.32) per basic and diluted common share, as
compared to $14,289,000 or ($8.50) 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 nine months of 2000 included a $10,751,000 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 $2,375,000, from $3,598,000 in the
first nine months of 2000 to $1,223,000 in the first nine months of 2001. The
decrease is primarily attributed to the Company's cessation of the Internet
retailing activities. The decrease is also attributed to the Company's efforts
in the prior year to settle outstanding accounts payable and accrued
liabilities for discontinued divisions.
Net cash used in investing activities during the first nine months of 2001
was zero, as compared to $1,878,000 used during the same period in the prior
year, consistent with the determination of the Board of Directors in May 2001
to change the Company's operations to active business activities; the Company
has ceased its investing activities.
Net cash provided by financing activities during the first nine months of
2001 was $335,000 as compared to $(363,000) used during the same period of the
prior year. Sources of cash during the prior period included proceeds from the
exercise of employee stock options offset by the purchase of treasury stock.
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. We cannot assure you 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 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 completed 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 nine months ended
September 30, 2000 for Cybershop.com included operating losses of $1,575,000,
a loss from discontinued operations of $1,813,000 and a loss on disposal of
assets. This was due mainly to the write down of goodwill related to the sale
of Tools for Living completed on August 14, 2000. During the nine months
ended September 30, 2000, the provision was reduced by $684,000 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.
The Company, during the quarter ending September 30, 2000 lost $651,000
on continuing operations. The Company lost $14,000 on discontinued operations.
During the quarter ending September 30, 2000 the company recognized a gain of
$690,000 on disposal of assets related to the extinguishing of a loan to Tools
for Living. The consolidated net provision for discontinued operations as of
September 30, 2000 is $178,000. Net revenues applicable to electronics.net for
the nine months ended September 30, 2000, during only four of which
electronics.net was in operation, were $334,000, and net revenues applicable to
electronics.net for the same period of the prior year were $1,116,000, for
which electronics.net was in operation for the full period.
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."
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 10-Q 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
10-K 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 8-K, 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 8-K 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 10-Q 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 10-Q 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 10-Q 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 10-Q 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 10-Q
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 10-Q 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 10-Q 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 10-K 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 10-K 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 10-K 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 10-K 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 10-K
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 10-K 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 10-K for the year
ended December 31, 1999. File No 000-23901.)
10.20 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 8-K, 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 8-K 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: October 29, 2001 By: /s/ Gilad Gat
Gilad Gat
Chief Executive Officer
(Principal Executive Officer)