UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
001-15029
(Commission file number)
GENESISINTERMEDIA, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 95-4710370
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5805 Sepulveda Boulevard, Van Nuys, CA 91411
(Address of principal executive offices)
(818) 902-4100
(Issuer's telephone number)
GENESISINTERMEDIA.COM, INC.
(Former name, former address and former fiscal year,
if changed since last report)
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 [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity. As of April 27, 2001 - 21,852,860 shares of Common Stock
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
GENESISINTERMEDIA, INC.
Index
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 2001
and December 31, 2000 2-3
Condensed Consolidated Statements of Operations for
the three months ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Change in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 17
Part III. EXHIBITS
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GENESISINTERMEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2001 AND DECEMBER, 2000
March 31 December 31,
2001 2000
(unaudited) (audited)
ASSETS
Current assets
Cash and cash equivalents $ 225,514 $ 858,848
Marketable securities at market - 1,926,746
Accounts receivable, net 4,661,084 3,846,453
Inventories 1,332,194 1,383,620
Revenue earning equipment 6,995,034 8,435,359
Prepaid advertising 877,825 2,461,928
Advances receivable 1,201,348 1,201,348
Deposits and other prepaid assets 2,813,149 2,809,428
----------- -----------
Total current assets 18,106,148 22,923,730
Property and equipment, net 27,863,634 28,133,574
Customer lists 477,645 955,287
Goodwill, net 4,287,509 4,479,560
Other assets 1,056,589 684,430
----------- -----------
Total assets $51,791,525 $57,176,581
=========== ===========
2
GENESISINTERMEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (continued)
AS OF MARCH 31, 2001 AND DECEMBER, 2000
March 31, December 31,
2001 2001
(unaudited) (audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of notes payable $ - $ -
Current portion of capital lease obligations 725,079 745,973
Convertible debentures 3,000,000 -
Line of credit 6,972,734 9,225,946
Accounts payable 8,878,963 8,329,734
Accrued payroll taxes 720,464 859,833
Accrued interest - related party 2,202,225 2,053,490
Other accrued liabilities 1,899,408 1,913,863
Due to stockholder 1,948,983 2,693,993
Income taxes payable 65,000 65,000
----------- -----------
Total current liabilities 26,412,856 25,887,832
Notes payable, net of current portion 7,856,250 7,856,250
Note payable to related party 31,882,266 30,382,266
Capital lease obligations, net of current portion 578,207 518,172
----------- -----------
Total liabilities 66,729,579 64,644,520
Commitments and contingencies
Stockholders' equity
Convertible preferred stock, $0.001 par value, 5,000,000 authorized
71,429 and 71,429 shares issued and outstanding ($7.00 per share
liquidation preference Dividends of $91,146 in arrears) 71 71
Common stock, $0.001 par value
75,000,000 shares authorized
22,300,344 and 20,971,560 shares issued and outstanding 21,300 20,972
Additional paid-in capital 37,213,100 35,752,544
Accumulated deficit (49,770,042) (41,827,177)
Treasury stock (2,402,483) (2,402,483)
Accumulated comprehensive income - 988,134
----------- -----------
Total stockholders' equity (deficit) (14,938,054) (7,467,939)
----------- -----------
Total liabilities and stockholders' equity $51,791,525 $57,176,581
=========== ===========
See the accompanying notes
3
GENESISINTERMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
3 Months 3 Months
Ended Ended
March 31, March 31,
2001 2000
---------------- ----------------
(unaudited) (unaudited)
Revenue $12,535,464 $ 7,472,669
Cost of Revenue 2,604,553 1,895,281
----------- -----------
Gross Profit 9,930,911 5,577,388
Operating expenses
Selling, general and administrative expenses 14,729,465 9,621,051
Depreciation and amortization 1,420,162 820,066
Income from operations of DynaMedia - (110,519)
----------- -----------
Total operating expenses 16,149,627 10,330,598
----------- -----------
Income (loss) from operations (6,218,726) (4,753,210)
Other income (expenses)
Gain on sale of marketable securities 177,945
Interest expense (1,631,542) (276,810)
Financing costs (270,542) (103,125)
----------- -----------
Total other income (expenses) (1,724,139) (379,935)
----------- -----------
Income (loss) before provision for income taxes (7,942,865) (5,133,145)
Provision (benefit) for income taxes - -
----------- -----------
Net income (loss) $(7,942,865) $(5,133,145)
=========== ===========
Basic earnings (loss) per common share $ (0.38) $ (0.32)
=========== ===========
Diluted earnings (loss) per common share $ (0.38) $ (0.32)
=========== ===========
Weighted-average common shares outstanding 21,107,247 16,222,503
=========== ===========
See the accompanying notes
4
GENESISINTERMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
3 Months 3 Months
Ended Ended
March 31, March 31,
2001 2000
--------------- ------------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income (loss) $(7,942,865) $(5,133,145)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 2,088,084 820,066
Gain on sale of marketable securities (177,945) -
Stock issued for financing costs 270,542 103,125
(Increase) decrease in operating assets 1,589,580 (1,039,207)
Increase (decrease) in operating liabilities 544,140 (1,147,528)
----------- -----------
Net cash used in operating activities (3,628,464) (6,396,689)
----------- -----------
Cash flows from investing activities
Purchase of property and equipment (282,085) (1,169,314)
Proceeds from sale of marketable securities 1,116,557 -
Cash acquired with purchase of Dynamedia and CRD - 174,710
Other (372,159) 31,561
----------- -----------
Net cash used in investing activities 462,313 (963,043)
----------- -----------
Cash flows from financing activities
Net proceeds from related parties (745,010) -
Net proceeds from line of credit (2,253,212) (203,671)
Proceeds from notes payable - related party 1,500,000 6,360,248
Proceeds from convertible debentures 3,000,000 1,000,000
Proceeds from exercise of options and warrants 354,342 -
Payment on notes payable and capital leases (159,303) (36,165)
Disgorgement of short-swing profits from generated by
stockholder 836,000
----------- -----------
Net cash provided by financing activities 2,532,817 7,120,412
----------- -----------
Net increase (decrease) in cash and cash equivalents
during period (633,334) (239,320)
Cash and cash equivalents, beginning of period 858,848 589,745
----------- -----------
Cash and cash equivalents, end of period $ 225,514 $ 350,425
=========== ===========
See the accompanying notes
5
GENESISINTERMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited Condensed Consolidated Financial Statements have been prepared by
GenesisIntermedia, Inc. (the "Company" or "Genesis"), pursuant to the rules and
regulations of the Securities and Exchange Commission. The information furnished
herein reflects all adjustments (consisting of normal recurring accruals and
adjustments) which are, in the opinion of management, necessary to fairly
present the operating results for the respective periods. Certain information
and footnote disclosures normally present in annual consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The results of the
three months ended March 31, 2001 are not necessarily indicative of the results
to be expected for the full year ending December 31, 2001.
NOTE 2 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standard Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. Basic earnings per
share is computed using the weighted-average number of common shares outstanding
during the period. Common equivalent shares are excluded from the computation if
their effect is anti-dilutive. The following potential common shares have been
excluded from the computation of diluted net loss per share for all periods
presented because the effect would have been anti-dilutive:
6
NOTE 2 - EARNINGS PER SHARE, Continued
For the three Months Ended
March 31,
----------------------------
2001 2000
----------- ----------
(unaudited) (unaudited)
Options outstanding under
the Company's stock option plan 3,926,263 1,403,160
Options issued as part of the acquisition
of Vision Digital 150,000 150,000
Warrants issued in conjunction with
common stock 750,000 750,000
Warrants issued in conjunction with
Series A convertible preferred stock 364,284 428,571
Warrants issued in conjunction with
notes payable to related party - 2,250,000
Warrants issued in conjunction with
notes payable 64,287 235,713
Warrants issued in conjunction with
Note payable to affiliate 483,750 491,250
Warrants issued in conjunction with
convertible debentures 367,500 67,500
Warrants issued as liquidating damages 150,000 -
Warrants issued as consideration for
leasing space 600,000 -
Series A Convertible Preferred Stock 214,287 428,571
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2001 consisted of the following:
Land $ 1,450,000
Building and improvements 13,089,375
Vehicles 113,269
Furniture and equipment 17,140,133
-----------
31,792,777
Less accumulated depreciation (3,929,143)
-----------
Total $27,863,634
===========
7
GENESISINTERMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
NOTE 4 - CONVERTIBLE DEBENTURE
On March 14, 2001, the Company entered into a Securities Purchase Agreement
whereby the Company issued a 7% convertible debenture in the amount of
$3,000,000. The debentures are convertible into the Company's common stock at a
conversion price of $6.83. The debenture is to be repaid either in cash or by
conversion to common stock as follows: $1,000,000 on each of April 15, May 15
and June 15, 2001, subject in the case of cash repayment to the effectiveness of
a registration statement covering resale of the shares. In addition, the Company
issued 300,000 warrants to purchase the Company's common stock at $7.67 per
share that expire on March 15, 2004. The Company has recognized an expense of
$270,542 related to these warrants during the three months ended March 31, 2001
and will recognize an additional expense of $1,352,709 during the three months
ended June 30, 2001.
NOTE 5 - NOTE PAYABLE - RELATED PARTY
On January 5, 2001, the Company entered into a note payable agreement with
Ultimate Holdings, Ltd ("Ultimate") whereby Ultimate has agreed to loan the
Company an additional $5,000,000 on terms similar to the previous note payable
agreements with Ultimate.
On April 16, 2001, the Company entered into a note payable agreement with
Ultimate whereby Ultimate has agreed to loan the Company an additional
$15,000,000 on terms similar to the previous note payable agreements with
Ultimate.
NOTE 5 - STOCKHOLDERS' EQUITY
In January 2001, warrants to purchase 64,287 shares of the Company's common
stock, issued in conjunction with the Series A Convertible Preferred Stock, were
exercised for proceeds of $218,576.
During the three months ended March 31, 2001, the Company received $114,517 and
$239,825 from the exercise of 48,977 employee stock options and 139,287
warrants, respectively. The Company also received $836,000 from Ultimate who
disgorged the Company "short-swing" profits in such amount.
8
NOTE 6 - SEGMENT INFORMATION
The Company has four business units that have separate management and reporting
infrastructures that offer different products and services. The business units
have been aggregated into four reportable segments: Media, Intermedia,
Properties and Car Rental. The Media group conducts direct response advertising
campaigns and buys media time and either sells it to third parties or uses it to
market its own products. The Intermedia group is deploying the CENTERLINQ
network of public access Internet kiosks in shopping malls within the United
States. The Properties group maintains the Company's building and generates
revenue from the building's tenants. The Car Rental group rents vehicles to
consumers and commercial businesses primarily in the replacement market. Most
corporate expenses, such as internal administrative costs, legal expenses, and
debt issuance costs, are included in the Media group.
The Company evaluates the performance of its operating segments based on income
from operations, before income taxes, accounting changes, non-recurring items,
and interest income and expense.
Summarized financial information concerning the Company's reportable segments is
shown in the following table as of and for the three months ended March 31,
2001:
Net Total
Revenue Loss Assets
---------------- --------------- -----------------
Media $ 10,679,886 $ (3,561,105) $ 11,110,847
Intermedia 91,000 (2,424,333) 15,609,998
Properties 239,911 (322,471) 12,144,724
Car Rental 1,524,657 (1,634,956) 12,925,956
---------------- --------------- -----------------
Total $ 12,535,454 $ (7,942,865) $ 51,791,525
================ =============== =================
9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The following discussion and analysis should be read in conjunction
with our consolidated financial statements and related footnotes for the year
ended December 31, 2000 included in our Annual Report on Form 10-K. The
discussion of results, causes and trends should not be construed to imply any
conclusion that such results or trends will necessarily continue in the future.
Overview
We acquired Car Rental Direct.com, Inc ("CRD") in the spring of 2000.
CRD competes primarily in the replacement car rental market. The replacement
segment of the auto rental industry consists of rentals to replace temporarily
vehicles that have been sold, stolen or are being repaired for mechanical or
accident reasons. CRD operates locations in Southern California and Arizona, and
currently maintains a fleet of approximately 1,000 cars. CRD has established
vehicle fleet financing lines to build its vehicle inventory and is in
discussions with lenders for short-term credit facilities to support equipment
necessary to open additional locations. CRD recently diversified into the
automobile retailing sector, with the opening of a facility in Southern
California to sell pre-owned and retired rental vehicles. An important part of
our strategy in acquiring CRD was the opportunity to bring on-line efficiencies
to the business. CRD intends to augment their service by allowing consumers the
opportunity to complete a rental transaction entirely on-line and have the car
delivered to their chosen destination. We issued 260,000 shares of our common
stock valued at $4,420,000 for all the issued and outstanding shares of CRD. The
transaction was accounted for using the purchase method of accounting;
accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed based on the estimated fair values at the date of
acquisition. The excess of the purchase price over the estimated fair value of
the net assets acquired is attributed to goodwill, which is being amortized over
seven years.
In May 2000, we acquired Dynatype Design and Graphics Centers, Inc.
("DynaMedia") DynaMedia is a 20-year-old full-service integrated marketing,
communications and design film. DynaMedia provides its clients with a
comprehensive scope of services including branding, signage, point of sale,
point of purchase and packaging expertise. Additionally, the firm is a leading
participant in web design, new media and presentation graphics. Its clients
include leading brand name organizations such as IBM, Bank of America, Warner
Brothers, Gateway, Toshiba and Norwest. Effective December 31, 2000, we sold
DynaMedia back to its original owner. We issued 90,000 shares of our common
stock for all of the issued and outstanding shares of common stock of DynaMedia.
However, effective December 31, 2000, we sold back to the original stockholder
of DynaMedia all the issued and outstanding shares of common stock of DynaMedia
in exchange for the 90,000 shares originally issued in this transaction. At
December 31, 2000 we had an intercompany receivable of $293,210 due from
DynaMedia which will be forgiven in connection with the sale back to the
original owners. For the year ended December 31, 2000, DynaMedia reported a net
loss of $26,721 on revenues of $1,501,715.
We plan to aggressively grow our business both internally and through
strategic acquisitions. We are aggressively looking to acquire business that
will fit into our business model.
10
Results of Operations
Three Months Ended March 31, 2001 vs. March 31, 2000
Three Three
Months Months % of % of
Ended Ended revenue revenue
3/31/2001 3/31/2000 2001 2000
(in thousands)
Revenue $ 12,535 $ 7,473 100.0% 100.0%
Cost of revenue 2,604 1,895 20.8% 25.4%
-------- ------- ------ ------
9,931 5,578 79.2% 74.6%
-------- ------- ------ ------
Operating expenses
Selling, general and
administrative expenses 14,730 9,621 117.5% 128.7%
Depreciation and amortization 1,420 820 11.3% 11.0%
Income from operation of Dynamedia - (110) 0.0% -1.5%
-------- ------- ------ ------
Total operating expenses 16,150 10,331 128.8% 138.2%
-------- ------- ------ ------
Loss from operations
(6,219) (4,753) -49.6% -63.6%
Other income (expenses)
Gain on sale of marketable securities 178 - 1.4% 0.0%
Interest expense (1,631) (277) -13.0% -3.7%
Financing costs (271) (103) -2.2% -1.4%
-------- ------- ------ ------
Total other income (expenses) (1,724) (380) -13.8% -5.1%
-------- ------- ------ ------
Loss before taxes (7,943) (5,133) -63.4% -68.7%
Income taxes - - 0.0% 0.0%
-------- ------- ------ ------
Net loss $ (7,943) $(5,133) -63.4% -68.7%
======== ======= ====== ======
Revenue for the three months ended March 31, 2001 increased by $5,062,000 or
67.7% from $7,473,000 for the three months ended March 31, 2000 to $12,535,000
for the same period in 2001. The increase in revenue was due to the following:
o Product sales increased $1,895,000 or 33,23% principally as a result of our
success in selling our new products, principally, our herbal diet
supplement;
o Car rental revenue for the three months ended March 31, 2001 was
$1,525,000. We acquired Car Rental Direct on April 1, 2000 so there
was no such revenue reported for the three months ended March 31, 2000.
11
o Commissions and royalties increased from $1,088,000 for the three months
ended March 31, 2000 to $3,054,000 for the same period in 2001. These
commissions are amounts received from the sale of other companies' products
primarily through our call center in St. George, Utah. We normally receive
commissions of 20% to 50%.
Cost of revenue for the three months ended March 31, 2001 increased by $709,000
or 37.4% from $1,895,000 for the three months ended March 31, 2000 to $2,604,000
for the same period in 2001. The increase in cost of revenue was due to the
following:
o Direct product costs for the three months ended March 31, 2001
decreased by $479,000 or 30.1% from $1,558,000 for the three months
ended March 31, 2000 to $1,079,000 for the same period in 2001. The
decrease was due lower product costs. Direct product costs as a
percentage of product sales decreased from 21.7% for the three months
ended March 31, 2000 to 10.1% for the same period in 2001. The decrease
is due to lower product costs associated with our new products and
programs when compared to the products sold by us during 2000.
o Cost of renting vehicles was $1,217,000 for the three months ended
March 31, 2001. There was no such cost for the three months ended March
31, 2000. The cost of renting a vehicle compared to the revenue
generated from such rental for the three months ended March 31, 2001
was 79.8%.
Selling, general and administrative expenses for the three months ended March
31, 2001 increased by $5,109,000 or 53.1% from $9,621,000 for the three months
ended March 31, 2000 to $14,730,000 for the same period in 2001. The increase
was due principally to an increase in payroll and related benefits of $1,505,000
and an increase in selling related expenses of $2,500,000. Selling related
expenses include the cost of acquiring customer names, purchasing media time for
airing of infomercials, royalties and telemarketing costs. We expensed
$3,079,000 in media airtime during the three months ended March 31, 2001
compared to $3,593,000 for the same period in 2000.
Depreciation and amortization expense for the three months ended March 31, 2001
increased by $600,000 or 73.2% from $820,000 for the three months ended March
31, 2000 to $1,420,000 for the same period in 2001. The increase in depreciation
and amortization expense is due to the increase of our depreciable assets,
especially our CENTERLINQ kiosks, and the amortization of the customer list
purchased in the second quarter of 2000 and the goodwill associated with the Car
Rental Direct acquisition. Depreciation expense of $668,000 related to the
vehicle fleet is included in cost of revenue.
In 2000 we acquired DynaMedia and effective December 31, 2000, we sold DynaMedia
back to its original owner. For the three months ended March 31, 2000, DynaMedia
reported net income of $110,000 on revenues of $423,000.
Gain on sale of marketable securities for the three months ended March 31, 2001
increased by $178,000 or 100.0% from $0 for the three months ended March 31,
2000 to $178,000 for the same period in 2001. Gain on sale of marketable
securities for the three months ended March 31, 2001 relates to the sale of our
investment in Fashionmall.com, Inc. There were no such gains during the three
months ended March 31, 2000.
Interest expense for the three months ended March 31, 2001 increased by
$1,354,000 or 488.8% from $277,000 for the three months ended March 31, 2000 to
$1,631,000 for the same period in 2001. The increase in interest expense was due
to the issuance of a note payable secured by our new corporate office building
in Van Nuys, California, an increase in our line of credit resulting from the
acquisition of Car Rental Direct and the significant increase in notes payable
to related party.
12
Financing costs for the three months ended March 31, 2001 increased by $168,000
or 163.1% from $103,000 for the three months ended March 31, 2000 to $271,000
for the same period in 2001. The financing cost for the three months ended March
31, 2000 related to the issuance of stock in February 2000 to secure a
$1,000,000 bridge loan. The financing cost for the three months ended March 31,
2001 related to the value of warrants issued in connection with a convertible
debenture in March 2001.
Net loss for the three months ended March 31, 2001 increased by $2,539,000 or
49.5% from $5,133,000 for the three months ended March 31, 2000 to $7,672,000
for the same period in 2001. The increase in the net loss is principally due to
significantly higher sales offset by significantly higher selling, general and
administrative expenses incurred to promote our new products and programs and to
expand our CENTERLINQ network of kiosks.
Liquidity and capital resources
We financed our operations initially from cash generated from
operations. More recently, we have financed our operations through the sale of
common and preferred stock in private placement offerings, sale of common stock
in our initial public offering, a long-term mortgage, a line of credit, and
borrowings.
In January and April 1999, we sold a total of 750,000 shares of common
stock and warrants to purchase an additional 750,000 shares of common stock in a
private placement at $2.33 per share for an aggregate of $1,750,000, with
underwriting commissions and expenses of $201,250.
In April 1999, we sold 142,858 shares of convertible preferred stock
and warrants to purchase 428,574 shares of common stock in a private placement
at $3.40 per share for an aggregate of $1,000,000 with underwriting commissions
and expenses of $115,000.
In May 1999, we issued three notes payable in a private placement for
aggregate proceeds of $550,000, net of commissions and expenses of $108,000. In
connection with these three note payable agreements, we also issued warrants to
purchase 235,713 shares of common stock.
In June 1999, we sold 6,000,000 shares of common stock in our initial
public offering at $2.83 per share for an aggregate of $17,000,000 with
underwriting commissions and expenses of $1,870,000 and offering expenses of
$2,722,803.
In July 1999, we purchased an office building in Van Nuys, California
for $11,100,000 for which we issued a note payable in the amount of $7,856,250.
In the third quarter of 1999, we increased our $750,000 line of credit
to $1,500,000 from a major financial institution that is collateralized by
substantially all of our assets, except our office building. The loan is
guaranteed by our majority stockholder. This line of credit was not renewed and
we repaid the outstanding balance in full during the second quarter of 2000.
From November 1999 to December 2000, we borrowed from Ultimate
$44,617,705 through the issuance of debentures. Ultimate is a significant
stockholder. We repaid $9,335,439 during the same period. In connection with the
debenture issued in November 1999, we issued warrants to purchase 2,100,000
shares of common stock with an exercise price of $2.33. The warrant for
2,100,000 was exercised in August 2000. The exercise price for these warrants of
$4,900,000 was paid via a reduction of the debenture.
13
In February 2000, we issued a convertible debenture in the amount of
$1,000,000 along with a warrant to purchase 67,500 shares of common stock at an
exercise price of $4.00 and the issuance of 45,000 shares of our common stock.
The debenture is convertible into common stock at $1.67 per share if it is held
to maturity. The debenture was due on April 7, 2000 and has been repaid. We took
a charge to earnings for the 45,000 common shares issued in connection with this
debenture in the amount of $103,125.
Also in May 2000, we issued 4,000 shares of our Series B Convertible
Preferred Stock to two investors for gross proceeds of $4,000,000. The Series B
Convertible Preferred Stock had a liquidation preference of $1,000 per share and
carried a 5% cumulative dividend payable at the end of each calendar quarter. We
also issued to the investors warrants to purchase an aggregate of 336,000 shares
of our common stock at $5.91 per share, which represents 115% of the market
value of our stock at the closing date. The Series B Convertible Preferred Stock
was convertible into common stock at 110% of the market value of our common
stock at the closing date ("Fixed Price") if converted within 45 days after the
closing date, and the lesser of the Fixed Price or the market value of our
common stock at the conversion date if converted 45 days or more after the
closing date. In November 2000, the 4,000 shares of Series B Convertible
Preferred Stock were converted into 968,400 shares of our common stock. In
addition, the 336,000 warrants issued in connection with the private placement
were exercised in November 2000, which resulted in proceeds to us of $1,824,880.
In connection with our acquisition of Car Rental Direct.com, Inc. in
April 2000, we assumed a convertible debenture in the amount of $244,000 and
lines of credit to purchase vehicles. The convertible debentures were paid in
cash during 2000. The outstanding balance on these lines of credit as of
December 31, 2000 was $9,225,946.
On March 14, 2001, we entered into a Securities Purchase Agreement
under which we issued 7% convertible debentures in the amount of $3,000,000. The
debentures are convertible into our common stock at a conversion price of $6.83.
The debenture is to be repaid either in cash or by conversion to common stock as
follows: $1,000,000 on each of April 15, May 15 and June 15, 2001, subject in
the case of cash repayment to the effectiveness of a registration statement
covering resale of the shares. In addition, we issued warrants to purchase
300,000 shares of our common stock, subject in the case of cash repayment to the
effectiveness of a registration statement covering resale of the shares at $7.67
per share that expire on March 15, 2004.
On January 5, 2001 and April 16, 2001, we entered into additional note
payable agreements with Ultimate whereby Ultimate has agreed to loan us an
additional $5,000,000 and $15,000,000, respectively, on terms similar to the
previous note payable agreements with Ultimate.
During the three months ended March 31, 2001, we spent $282,085 on
capital expenditures and used $3,628,464 in operations.
We expect to spend additional capital to expand our product lines and
our telemarketing division, and to make strategic acquisitions. We anticipate
spending $15 to 20 million over the next 18 months to develop and deploy
interactive multimedia kiosks in regional shopping malls across the United
States and in other entertainment centers.
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We believe that our current cash and cash equivalents on hand, together
with existing credit facilities, principally the note agreements with Ultimate,
the cash flow expected to be generated from operations and cash generated from
future sales of our equity, will be adequate to satisfy our current and planned
operations through the middle of 2002. We just recently issued another note to
Ultimate in the amount of $15,000,000. Although we are currently in negotiations
with an investment bank regarding a placement of our common stock, our ability
to raise additional equity financing will depend upon a number of factors,
including the market acceptance of our common stock and general market
conditions. We are also negotiating a sale-leaseback of our office building,
which will help to finance future operations and acquisitions. If we are not
successful in raising additional capital, our ability to expand CENTERLINQ and
make strategic acquisitions will be adversely affected.
Forward looking statements
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Stockholders are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the ability of us to install new kiosks, general
market conditions, competition and pricing. Although we believe the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and therefore, there can be no assurance
that the forward-looking statements contained in the report will prove to be
accurate.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved from time to time in various claims and legal
actions incident to its operations, either as plaintiff or defendant. The
Company vigorously defends itself against all lawsuits filed by plaintiffs. The
Company is not aware of any current litigation that it believes would have a
material impact on the financial position or results of operations of the
Company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENESISINTERMEDIA, INC.
By: /s/ Douglas E. Jacobson
---------------------------
Douglas E. Jacobson
Chief Financial and Principal
Accounting Officer
Date: May 15, 2001
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