UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
001-15029
(Commission file number)
GENESISINTERMEDIA.COM, INC.
(Exact name of registrant 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) (Zip Code)
(818) 902-4100
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, $.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant at April 12, 2001 was $31,908,524. The number
of shares outstanding of the registrant's Common Stock as of April 12, 2001 was
21,222,767.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated herein by reference: Part
III -- The Registrant's Proxy Statement for its 2001 Annual Meeting (the "2001
Proxy").
PART I
This Annual Report on Form 10-K contains statements that are
forward-looking, including statements relating to anticipated operating results,
growth, financial resources, the development of new markets, the development,
distribution, and commercial acceptance of new products and new applications for
GenesisIntermedia.com, Inc.'s existing product lines. Investors are cautioned
that, although we believe that our expectations are based on reasonable
assumptions, forward-looking statements involve risks and uncertainties which
may affect our business and prospects, including changes in economic and market
conditions, acceptance of ours products, maintenance of strategic alliances and
other factors discussed under the caption "Risk Factors" in our Registration
Statement on Form SB-2, No. 333-66281 filed with the Securities and Exchange
Commission and declared effective on June 14, 1999.
ITEM 1. BUSINESS
THE COMPANY
GenesisIntermedia.com, Inc. was incorporated in Florida on October 28,
1993 under the name Genesis Media Group, Inc., and re-incorporated in Delaware
under the name GenesisIntermedia.com, Inc. on December 3, 1998.
GenesisIntermedia.com, Inc. uses its core competencies to develop technologies
and technology-related companies to market and sell products and services in
strategically identified market segments. We own distinct marketing channels,
and through CENTERLINQ, are a leading provider of public Internet access portals
in shopping malls. We have been establishing an infrastructure to build, develop
and nurture new companies and technologies, with an emphasis on matching
traditional products, services and businesses with compatible technologies. We
market our products and services, which we develop, license exclusively or
distribute for third parties, utilizing traditional media, including network and
cable television, radio, newspapers and magazines, as well as newer
technologies, including the Internet and our CENTERLINQ network. As we have done
with CENTERLINQ, we leverage our strength in operations, marketing and the
deployment of traditional and new media to advance new and innovative
technologies within strategically identified market segments.
Historically, our operation has consisted of the marketing, advertising
and sales of our own products and those of our clients utilizing traditional
marketing channels. While we continue to utilize conventional media to fulfill
our marketing needs and those of our clients, our focus more recently has been
on investing in and bringing to market innovative technology-based concepts that
center around use of emerging technologies, including the Internet.
We intend to continue to search for market segments in which we believe
marketing and technology strategies can be applied to leverage growth and
efficiency. As we identify these segments, we intend to develop, acquire or
otherwise apply technologies or our marketing capabilities to achieve growth and
increased market share. We may do this through the acquisition of businesses, as
we have done with Car Rental Direct.com, Inc., through services agreements where
we make our technologies and marketing available to third parties or for our own
products, as we do with the Men are From Mars, Woman are From Venus products, or
through the development of new technologies to create new market opportunities,
as we have done with CENTERLINQ.
CENTERLINQ is an integration of equipment and software that creates an
attractive physical presence in retail malls, allowing for interactive
advertising and retailing. CENTERLINQ is also accessible through the Internet at
www.CENTERLINQ.com. Advertising displayed on large screen monitors on and
1
adjacent to the public access kiosks enhances network usage and revenues. We
have invested heavily to support the operational needs of CENTERLINQ and to
attain a leadership position as a network of public Internet portals.
At December 31, 2000, CENTERLINQ was deployed and operating in 32
shopping malls across the United States. Traffic at these malls could enable
CENTERLINQ to create up to approximately 33 million impressions per month. We
foresee CENTERLINQ network expansion in additional malls through North America,
and are discussing expansion in Europe and Latin America.
Even though we are entering emerging markets and have begun to generate
revenue from CENTERLINQ and Car Rental Direct.com, we continue to rely on
marketing products for a substantial part of our revenues. Proprietary products
sold by us through integrated marketing capabilities including audio and video
tapes and companion material products based on the book Men Are From Mars, Women
Are From Venus, by John M. Gray, Ph.D., and other new products we have recently
acquired. We expect that revenue from marketing products will continue to
account for a major percentage of our revenues in the foreseeable future but,
while revenues are expected to rise, the overall percentage of revenues that can
be attributed to the these marketing activities will decline as we make
additional investments and acquisitions and generate additional growth from
technology-related enterprises.
Our CENTERLINQ experience has helped prove our model of how to apply
technology and marketing development standards and resources to targeted
industry segments to achieve an effective rollout of product. We believe our
best opportunity to create and enhance long-term shareholder value will be our
ability to identify targeted market segments, businesses and products where our
marketing and technology capabilities can be a catalyst for rapid growth and
market leadership. In addition to identifying businesses or products that may
benefit by our marketing and technology capabilities, our acquisition candidates
will include companies whose core competencies include the development of
communications and information technologies, networking solutions, interactive
concepts and a variety of other technologies that can be integrated to create
new or significantly expanded market opportunities. We also examine joint
venture and strategic alliance candidates. We will focus on acquiring or forming
alliances with relatively well-established, revenue producing, e-commerce
businesses, or businesses that can be marketed and sold effectively in
e-commerce, that will complement our existing capabilities. Key personnel who
possess technical expertise will be encouraged to remain with us on a long-term
basis.
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 rental to temporarily replace
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.
In May 2000, we acquired Dynatype Design and Graphics Centers, Inc.
("DynaMedia"), a full-service integrated marketing, communications and design
film. Effective December 31, 2000, we sold DynaMedia back to its original owner.
2
In April 2000, the Company purchased the assets of DoWebsites.com, Inc.
for 72,000 shares of common stock valued at $1,224,000. The principal asset
purchased was goodwill. The Company wrote off the goodwill established as a
result of the acquisition of DoWebsites.com as the Company believes that the
market for services offered by DoWebsites.com has decreased substantially due to
the recent closures of many Internet related companies.
CENTERLINQ
CENTERLINQ is an integration of equipment and software that creates an
attractive physical presence in retail malls, allowing for interactive
advertising and retailing. CENTERLINQ combines an interactive touch screen with
state-of-the-art large plasma overhead video screens that allow advertisers and
retailers to deliver focused content to consumers.
We believe structural changes are occurring throughout the retailing
industry. Retailers and retail real estate owners are seeking to compete more
effectively by creating closer relationships with shoppers and knowing how each
person likes to shop. We believe that improving the shopping experience is an
important objective for retailers and owners of retail centers. CENTERLINQ, with
its strategic location in the retail center and its strong technology
applications, can become an important portal to deliver information and content
to the shopper. We see CENTERLINQ as a platform for transacting business such as
ticket sales, as an aggregator of information with respect to shopping
preferences (customized shopping lists), as a site for distributing advertising
messages and promotional campaigns and as a content portal for themes such as
movie trailers, music videos or sporting events.
CENTERLINQ uses 40-inch elevated plasma screens to deliver high-energy
advertising using a combination of visual and audio content. This is augmented
by a more interactive experience using a touch screen format on a 20-inch touch
screen component of kiosks located throughout each mall. Through the interactive
touch screen, advertisers deliver advertising copy and conduct business with
consumers through promotional discount campaigns, affinity programs, streaming
media-rich content or by attracting the consumer to the sponsor's web site.
CENTERLINQ delivers these features in an attractive and engaging modular format.
Using CENTERLINQ, advertisers are able to influence a consumer decision in an
environment conducive to an immediate retail transaction. Print, radio and
television cannot achieve this, as their channels are more remote.
Currently, 32 malls are deployed with CENTERLINQ kiosks and we estimate
33 million impressions per month are generated at CENTERLINQ stations.
Additional malls are scheduled for deployment over the next several months and
we are in conversation with mall owners for the deployment in 115 new malls in
2001 and 2002. We have contracts with some of the country's largest mall owners,
including The Taubman Company, Forest City Enterprises, Urban Retail Properties,
Colonial Properties and Crown American Realty Trust.
The CENTERLINQ platform will generate revenue from several different
sources. We believe it can offer advertisers a flexible configuration capable of
incorporating video, rich media, data mining, banner advertising and
interactivity. Advertising and transactions from data mining will be the prime
source of revenue during the initial deployment of the CENTERLINQ network.
However, we believe that e-commerce revenues from participation in commercial
transactions taking place through CENTERLINQ can be an additional source of
downstream revenue.
3
In 2000, we entered into a marketing and sales agreement with Infinity
Outdoor, Inc. ("Infinity Outdoor"), a subsidiary of Infinity Broadcasting
Corporation (NYSE: INF), which is owned by Viacom, Inc. (NYSE: VIA). Infinity
Outdoor, which has contractual relationships with several hundred malls in the
US, operates approximately 117,000 bulletin, poster, mall and transit
advertising display faces and sports marketing services in 90 metropolitan areas
in the United States, 13 metropolitan markets in Canada and 44 metropolitan
markets in Mexico.
BUSINESS OVERVIEW
As retailers redesign their strategies to create a closer relationship
with their shoppers, technology is expected to be at the forefront of their
efforts. Technology can allow retailers and retail real estate owners to become
more attuned to shopping patterns and to deliver value-added services. We
believe the bricks-and-mortar retail presence will continue to be an important
link to shoppers who will demand an improved shopping experience. We see
CENTERLINQ as a platform for transacting business such as ticket sales, as an
aggregator of information with respect to shopping preferences (customized
shopping lists), as a site for distributing advertising messages and promotional
campaigns and as a content portal for themes such as movie trailers, music
videos or sporting events. By entering into long-term leases for exclusive
presence in strong retail centers, CENTERLINQ is positioned to be the portal for
such delivery.
We have to position CENTERLINQ as a tool for retailers and advertisers
to customize their messages to shoppers. This will be achieved by promoting
CENTERLINQ's Affinity Shopping Program. The Affinity Shopping Program (Platinum
Reward Card) encourages shoppers to use CENTERLINQ to earn discounts on
merchandise and participate in promotional programs, allowing CENTERLINQ to
gather data on shopping preferences. We intend to use this information in
several ways, including, for example, providing the shopper lists to YesMail.com
in connection with its permission-based e-mail program, and to provide
advertisers and retailers a more informed and direct connection to shoppers.
As the deployment program evolves, CENTERLINQ will be positioned as a
more dynamic portal allowing a retailer additional points of contact within a
mall setting through a unique platform that is designed for flexibility in the
advertising message. Malls are going through significant structural changes
whereby space is being retooled. Malls are being wired with fiber optics to link
retailers and allow them to create a more efficient form of transacting
business. This will allow retailers to manage their inventory and back-office
operations more efficiently and will also provide opportunities to market to
consumers more efficiently. CENTERLINQ provides a platform for interactive
delivery that saves the retailer the investment in the development of the
platform and allows them to focus on development of content. CENTERLINQ gives
the advertiser and retailers access to a consumer in a setting that other more
traditional media, such as print, radio and television, cannot provide. Further,
with centralized control of the individual kiosk content, CENTERLINQ can provide
retailers real-time opportunities to deliver information to consumers.
MARKET
We believe we have forged a leading position in the marketplace.
Thirty-two malls in 18 states are currently deployed with CENTERLINQ systems.
All of the systems are operational and feature our latest 3.9 generation
software. The 3.9 version upgrade provides a significantly expanded feature set
and supports rich media content. We support the installed base with
4
mission-critical centralized system architecture. Significant time and expense
have been expended in developing this backbone infrastructure. We believe any
serious competitor would have to expend similar time and resources to compete
effectively. We believe this gives CENTERLINQ a significant time-to-market
advantage. We have been successful in entering into contracts with respected
mall owners for CENTERLINQ deployment. Now that the network infrastructure is in
place, an installed base has been deployed and mall owners have signed on, we
are at the threshold of aggressive mall deployment, which has created a
commanding position in the marketplace.
We have aggressively marketed our product to major mall portfolio
owners. With two notable exceptions, most mall owners appear reluctant to tackle
the technical complexities and the major cost of developing their own captive
systems. This contrasts with other real estate e-commerce initiatives, where
major property owners have formed consortiums to control access to their real
estate assets. We believe that providing an attractive system and good support
services to the equipment in the malls is important in gaining the confidence of
mall owners. More importantly, however, we offer strong economic motivations for
mall owners to enter into contracts with us.
Contracts with mall owners take the form of lease contracts. The lease
contracts are typically multi-year contracts providing for (with one exception)
exclusive rights to deploy video and interactive advertising platforms in the
malls. A majority of the leases call for a base lease rate and percentage rent
based on a percentage of revenues over a threshold level. Mall owner economic
participation can be significant and provides strong motivation to accommodate
deployment and to promote a high profile in the malls. Most malls in the
installed base have on average, six kiosk systems and twenty television/plasma
screens deployed in high traffic areas.
The following is a list of the 32 malls where CENTERLINQ is currently deployed:
Alabama: Bel Air Mall, Mobile
Arizona: Fiesta Mall, Mesa
Tucson Mall, Tucson
California: Antelope Valley Mall, Palmdale
Beverly Center, Los Angeles
Galleria at Tyler, Riverside
Hilltop, Richmond
Lakewood Center, Lakewood
MainPlace, Santa Ana
Santa Monica Place, Santa Monica
Stoneridge, Pleasanton
Stonestown Galleria, San Francisco
Sunvalley, Concord
The Galleria at South Bay, Redondo Beach
The Promenade Mall in Temecula, Temecula
Colorado: Park Meadows, Littleton
Florida: Orlando Fashion Square, Orlando
University Mall, Tampa
Illinois: Fox Valley Shopping Center, Aurora
Indiana: Circle Centre, Indianapolis
Michigan: Great Lakes Crossing, Auburn Hills
Twelve Oaks, Novi
Nevada: Galleria at Sunset, Henderson
New Jersey: Jersey Gardens, Elizabeth
New York: Boulevard Mall, Amherst
No. Carolina: Colonial Mall Greenville, Greenville
5
Ohio: The Avenue at Tower City, Cleveland
Oregon: Lloyd Center, Portland
Pennsylvania: Exton Square, Exton
Texas: Valley View Center, Dallas
Virginia: Ballston Common Mall, Arlington
Washington: SuperMall of the Great Northwest, Auburn
INFRASTRUCTURE
A sophisticated infrastructure supports the CENTERLINQ system. This
includes network architecture, information services, installation teams, field
maintenance and client service personnel, programming and creative services,
research and development, quality assurance, and the build-out of physical space
and infrastructure to support the operations. The infrastructure provides
important benefits, such as the ability to update and maintain software
upgrades, centrally monitor individual kiosks and react immediately to problems,
automate the advertising display and deliver system mall performance to mall
owners in real time. A reliable support system facilitates more rapid deployment
of kiosk equipment. The existing base of malls, installed while the system
infrastructure was being developed, took an average of two weeks to deploy per
mall. We estimate that, as a result of our recent efforts to streamline the
process, it now takes only two days to fully deploy a new mall. Approximately 60
employees comprise the infrastructure support functions.
We have invested over $20 million in these activities since the
acquisition of CENTERLINQ. We believe it is the industry leader in terms of
overall system development, and that the complexity and size of investment in a
network of this nature represent major impediments to competitors.
COMPETITION
There are several companies that have or are contemplating offering a
kiosk-based product within shopping malls. These products range from digital
mall directories to single terminals with controlled access to the Internet to
multiple unit entertainment destinations with unlimited access to the Internet.
Selected independent competitors include BigFatWow, Inc., CyberExpo, Golden
Screens and ScreenZone. To the best of our knowledge, none of the competitors
have received significant funding to date. We believe we have a sufficient
headstart with respect to the number of malls deployed, malls under contract and
investment in the network infrastructure to sustain a high quality service to
the mall owners.
According to PriceWaterhouseCoopers, the on-line advertising industry
has experienced dramatic growth over the last two years, from just under $1
billion in revenue for 1997 to $4.6 billion in revenue for 1999, and just under
$2.0 billion in revenue for the first quarter of 2000. The on-line industry is
populated by Internet portals such as AOL and Yahoo and by ad banner servers,
such as DoubleClick, GoTo, Engage and ValueClick, who profile users and assist
advertisers in reaching target consumer audiences on-line. The Internet provides
a focused delivery mechanism, allowing for precise and efficient target
advertising on a per user basis.
Several research organizations publish analyses of the online
advertising industry including Jupiter Communications, Forrester Research,
Internet Advertising Bureau and Veronis Suhler. Forrester Research forecasts
that online marketing per company will rise from $550,000 this year to $1
million in 2003. It expects a new wave of online ad spending to power a recovery
in 2003 that could propel U.S. digital marketing, not just impression-based
advertising, to $63 billion in 2005, according to a report issued January 22,
2001. AdRelevance, a division of Jupiter Media Metrix, found that online ad
impressions, or the number of times an ad appears online, increased in December
2000 by 21 percent from November 2000, revealing an all-time high of more than
65 billion impressions.
6
In late July 2000, the Clinton administration and online advertising
firms reached an important agreement aimed at outlining rules governing tracking
of web surfers. Under the agreement between the Federal Trade Commission, the
Commerce Department and members of the Network Advertising Initiative, on-line
advertisers agreed to self regulation on business practices regarding the
aggregation of personal information. Among other elements of the agreement,
on-line advertisers agreed to refrain from combining online data collected with
off-line banks of information.
MEDIA AND INFOMERCIAL DIVISION
We began by producing infomercials and performing telemarketing
services for our own products and for products owned by others. More recently,
we have diversified our product offerings and have acquired the rights to market
and distribute new consumer products developed by third parties.
MARKET
The demand for targeted marketing strategies has continued through the
development of new marketing channels. We believe that many businesses will be
unable to ignore the competitive challenge posed by the emerging e-commerce
market and, as a result, will demand that their marketing strategies target a
generation accustomed to the fast-paced power of the Internet and other
interactive technologies, as well as those individuals who continue to rely on
conventional media for information and entertainment. Systems that enable a
business to deliver customized messages to customers in an interactive format
and to instantaneously evaluate the success of their promotional activities
address that demand.
As a creator and implementer of multi-disciplinary marketing, we are
pro-actively developing and deploying strategies that use the Internet and other
interactive platforms, as well as more traditional marketing-based strategy. We
also benefit from having the ancillary support services necessary to ensure the
success of our clients' marketing and distribution efforts.
We provide multi-disciplinary marketing for our proprietary products
and for those of our clients. These include television and print advertising,
business-to-consumer and business-to-business outbound telemarketing services
and inbound telemarketing services that typically involve responding to customer
inquiries and electronic order processing.
The success of these campaigns depends on the ability to rapidly
develop positive customer response to the products and services marketed. Future
results in product sales will be dependent upon our ability to rapidly generate
positive customer response to products and services. This is particularly the
case with directly marketed products. Customer response to direct marketing
depends on many variables, including:
o the appeal of the products being marketed,
o the effectiveness of the marketing medium chosen and the marketing script,
o the availability of competing products, and o the timing and frequency of
consumer presence, phone contacts and airtime.
Television and Print Advertising. Television and print advertisements
convey marketing information to a large number of consumers and position a
product within a broad market context. When the client's, or product's,
marketing strategy calls for coverage to the public at large, we develop and
implement marketing that uses these forms of traditional media.
7
Telemarketing Services. Business-to-consumer and business-to-business
outbound telemarketing services involve the use of client-generated,
electronically transmitted lists of customers selected to match the demographic
profile of the targeted customer for the offered product or service. We
specialize in marketing products at price points that typically range from $100
to $5,000, with an average of approximately $2,000.
We invest in improved computer and telecommunications technology to
supplement our telemarketing business and to enable us to expand this segment of
the business. This technology assists telemarketers to more accurately identify
and contact potential customers and provides telemarketing sales representatives
with more complete on-line guidance and support. The computerized call
management systems use predictive dialers to:
o automatically dial telephone numbers;
o determine if a live connection is made; and
o present connected calls to a telephone sales representative who has been
specifically trained for the particular sales program.
Our ability to train and retain sales personnel is critical to our success
because of the need to develop an in-depth knowledge of the complex products
typically sold. Such factors serve to differentiate us from many of our
competitors. Sales personnel are compensated by salary, commissions and bonuses
based on individual performance and overall profitability.
Inbound telemarketing services typically include:
o the electronic receipt and processing of all sales information;
o the communication of necessary sales information to a contracted order
fulfillment center; and
o the administration of customer order and service inquiries.
Infomercial production and teleservices for proprietary products are
still performed by us. We also perform these services for products owned by
other companies and typically we are compensated by retention of total sales
revenue for these services. The pricing for inbound teleservices may vary,
depending upon several factors, including the time spent, the number of calls
received by personnel and sales-based performance fees. We also work on a
fee-for-service basis.
Per our normal course of business, we enter into various agreements under
which we are obligated to pay royalties on the products we sell. The royalties
vary by agreement and are based on percentages of net revenue generally not to
exceed 25% or a percentage of the net profits of the venture generally not to
exceed 50%.
An in-house product development and marketing department researches,
develops and analyzes products and product ideas. The development of
relationships with third parties and the active solicitation of new clients
seeking multi-disciplinary marketing opportunities augment the activities of the
product development and marketing department. This fuels our objective of
creating additional profit centers by seeking out innovative consumer products
to market and distribute.
Our marketing operations are dependent on a continuing ability to develop
or obtain rights to new products to supplement or replace existing products as
they mature through their product life cycles. Historically, most products in
the direct marketing industry generate their most significant revenue in their
introductory year. We have brought on additional products to supplant,
supplement and eventually replace those that are expected to experience slowdown
in their lifecycles.
8
Future results of operations will also depend on the ability to spread
revenue stream over a larger number of products in a given period and to more
effectively exploit the full revenue potential of each product introduced
through all levels of consumer marketing, whether directly or through third
parties. The future revenues of the business will depend substantially on our
ability to:
o create and maintain an effective, integrated organization that develops,
introduces and markets products that address changing consumer needs on a
timely basis;
o establish and maintain effective delivery platforms for products; and
o develop new and expand established geographic markets.
COMPETITION
Our competitors include a wide span of companies and organizations,
including Internet software, content providers, technology companies,
telecommunication providers and developers of e-commerce enterprises.
We also compete with operators of traditional off-line media, such as
print and television for a share of the advertisers' total advertising
expenditures. There can be no assurances that we will be able to compete
sufficiently against our current or future competitors or that competition will
not have a material adverse effect on our business, results of operation or
financial conditions.
Because the market for "new media" being relatively new and subject to
rapid technological change, we anticipate that overall competition will persist,
intensify and increase in the future. There are relatively low barriers to entry
into this market. We rely heavily on the skill of our personnel and the quality
of our client service and there is no patented technology that would preclude or
inhibit competitors from entering the market. We expect to face additional
competition from new entrants into the market in the future. Principal
competitive factors include:
o a company's creative reputation,
o knowledge of media,
o financial controls,
o geographical coverage and diversity,
o relationships with clients,
o technological capability, and
o quality and breadth of services.
If existing or future competitors develop or offer services that
provide significant performance, price, creative or other advantages over those
offered by us, then we anticipate that our business, results of operations and
financial condition would be negatively affected.
Some current and potential competitors have longer operating histories,
larger installed customer bases and longer relationships with clients and
significantly greater financial, technical, marketing and public relations
resources than we do. These competitors could decide at any time to increase
their resource commitments to compete directly with us in certain markets or
offer similar products.
INTELLECTUAL PROPERTY
Our trademarks, trade secrets and similar intellectual property are
regarded as critical to our success. Although we currently have no registered
9
copyrights, trademarks or patents covering any of our proprietary technology, we
currently rely on a combination of common law copyright and trademark laws,
trade secret protection, confidentiality and non-disclosure agreements and
contractual provisions with employees and with third parties to establish and
protect our proprietary rights. For the development of marketing channel
capabilities and technologies, we intend to rely upon unpatented trade secrets
and know-how and on the expertise of our employees. These steps may not be
adequate to protect our proprietary technology.
We intend to pursue the registration of our copyrights and trademarks
based upon anticipated use internationally. We may not be able to secure
copyright or trademark registrations for all of our marks in the United States
or other countries. We filed trademark claims for "Genesis Intermedia" and "Show
Super Star Interactive Video Presentation Systems," which is an interactive
media presentation software product developed for the entertainment industry.
Owners of other registered or unregistered copyrights, trademarks or
service marks could bring potential copyright or trademark infringement claims.
If our technology infringes on the rights of other companies, we may be required
to seek licenses from third parties. However, we may not be able to do so on
commercially reasonable terms, if at all. In addition, we may be subject to
litigation to defend against claims of infringement of the rights of others or
to determine the scope and validity of the intellectual property rights of
others. Likewise, and particularly because of our acquisition and growth
strategy, disputes may arise with respect to ownership of technology developed
by current employees who were previously employed by other companies.
If competitors prepare and file applications in the United States that
claim trademarks used or registered by us, we may oppose those applications and
be required to participate in proceedings before the United States Patent and
Trademark Office to determine priority of rights to the trademark, which could
result in substantial costs. Similarly, actions could be brought by third
parties claiming that our products or technology infringe patents or copyrights
owned by others. An adverse outcome could require us to license disputed rights
from third parties or to cease using a trademark or infringing product or
technology. Any litigation regarding proprietary rights could be costly and
divert management's attention, result in the loss of some of proprietary rights,
require us to seek licenses from third parties and prevent us from selling our
products and services.
We generally license intellectual property from third parties, such as
the rights to John M. Gray, Ph.D.'s book Men Are From Mars, Women Are From Venus
for creation and marketing of the video and audio products that we directly
market. We have also licensed the rights to produce and market other products.
We are dependent upon the protection of these intellectual properties by their
licensors and are responsible for protecting them as well. In addition, we
anticipate that we will license our content, or a portion thereof, from third
parties in the future. As a result, exposure to copyright infringement actions
may increase because we must rely upon those third parties for information as to
the origin and ownership of the licensed content. We intend to obtain
representations as to the origin and ownership of licensed content and to
indemnification to cover any breach of any representations. However, the
representations may not be accurate and the indemnification may not adequately
protect us.
10
REGULATION
Advertising is regulated by the government, by private organizations,
including self-regulatory bodies and trade associations, and by consumer groups.
The Federal Trade Commission Act
The Federal Trade Commission may seek cease and desist orders, impose
monetary penalties, or pursue other remedies in the event that an advertising
company violates the Federal Trade Commissions Act's rules or regulations
pertaining to false, misleading and unfair advertising. We believe that we are
in compliance with this Act and the regulations promulgated under this Act.
The Federal Telemarketing and Consumer Fraud and Abuse Prevention Act
A variety of deceptive, unfair or abusive practices in telemarketing
sales have been prohibited under the Federal Telemarketing and Consumer Fraud
and Abuse Protection Act. Generally, these rules prohibit misrepresentations of
the cost, quantity, terms, restrictions, performance or characteristics of
products or services offered by telephone solicitation or of refund,
cancellation or exchange policies. The regulations also regulate the use of
prize promotions in telemarketing to prevent deception and require that a
telemarketer identify promptly and clearly the seller on whose behalf the
telemarketer is calling, the purpose of the call, the nature of the goods or
services offered and, if applicable, that no purchase or payment is necessary to
win a prize. The regulations also require that telemarketers maintain records on
various aspects of their business. We believe that we are in compliance with
this Act and the regulations promulgated under this Act.
Violation of the rules and regulations applicable to telemarketing
practices may result in injunctions against violative operations, monetary
penalties or disgorgement of profits. Violations may also give rise to private
actions for damages.
The Federal Telephone Consumer Protection Act of 1991
The Federal Telephone Consumer Protection Act of 1991imposes
restrictions on unsolicited automated telephone calls to residential telephone
subscribers. Under this Act it is unlawful to initiate telephone solicitations
to residential telephone subscribers before 8:00 a.m. or after 9:00 p.m., local
time at the subscriber's location, or to use automated telephone dialing systems
or artificial or prerecorded voices to call specified subscribers. Additionally,
this Act requires teleservice firms to develop a written policy that:
o clearly delineates the types of calls that the firms are prohibited from
making under this Act,
o lists specific individuals or groups of individuals that the firms are
prohibited from contacting under this Act, and
o prohibits its personnel from making the calls.
Our call management system has been modified to eliminate some of our
capabilities to help prevent violations of this Act. These modifications prevent
personnel from initiating telephone calls during restricted hours or to
individuals listed on a "do not call" list. We also educate our personnel on the
restrictions and prohibitions of this Act.
11
State Regulation
Most states have enacted statutes similar to the Federal Trade
Commission Act prohibiting unfair or deceptive acts and practices. A number of
states have enacted legislation and other states are considering enacting
legislation to regulate telemarketing. For example, telephone sales in some
states are not final until a written contract is delivered to and signed by the
buyer, and that contract may often be canceled within three business days. At
least one state also prohibits telemarketers from requiring credit card payment
and several other states require some telemarketers to obtain licenses, post
bonds or submit sales scripts to the state's attorney general. State regulation
has not materially affected our operations as we currently conduct them and we
do not presently anticipate that state regulation will materially and adversely
affect our operations in the future.
International Regulation
Advertising is subject to regulation in countries other than the United
States in which we may choose to do business. We will need to review any of
these regulations before conducting business in any other country.
Self-Regulatory Bodies, Trade Associations and Consumer Groups
Self-regulatory activities have become significant in the advertising
business. The Council of Better Business Bureaus has created the National
Advertising Division and the National Advertising Review Board. These are
private organizations that review and process allegations that a company has
violated state or federal rules or regulations pertaining to advertising.
Additionally:
o the national television networks and various other media have adopted
extensive regulations for advertising that is acceptable for broadcast or
publication,
o trade associations in some industries publish advertising guidelines
for their members, and o various consumer groups have been and continue
to be powerful advocates of increased regulation of advertising.
Industry Regulation
Some industries served by us are also subject to government regulation.
Our employees who complete the sale of insurance products are required, for
example, to be licensed by various state insurance commissions and to
participate in regular continuing education programs. We provide this continuing
education to our employees and believe that we have, in all material respects,
complied with this and other relevant industry regulations. We may also be
subject to regulation by the Commodity Futures Trading Commission, which
regulates commodities trading. The Commission has initiated an investigation
that may affect the infomercial titled Success and You based on Jake Bernstein's
Trade Your Way To Riches product.
The Communications Decency Act of 1996
The Communications Decency Act of 1996 was enacted in 1996. Although
those sections of this Act that, among other things, proposed to impose criminal
penalties on anyone distributing "indecent" material to minors over the Internet
were held to be unconstitutional by the U.S. Supreme Court, similar laws may be
proposed and adopted. Although we do not currently distribute the types of
materials that this Act may have deemed illegal, the nature of this legislation
and the manner in which it may be interpreted and enforced cannot be fully
determined. Legislation similar to the Communications Decency Act could subject
us to potential liability, which in turn could have an adverse effect on our
business. These types of laws could also damage the growth of the Internet
generally and decrease the demand for our products and services.
12
Regulatory Compliance
We have developed internal review procedures to help ensure that our
work product is accurate and fairly disclose the nature of the products marketed
and sold by us. We believe we are in compliance with federal, state and local
laws and regulations pertaining to advertising and the pre-clearance procedures
of the broadcast media.
CAR RENTAL DIRECT
Car Rental Direct is based in Southern California which is home to the
top five replacement and suburban car rental markets in the country. Currently,
CRD is open for business with 15 locations including 11 in Southern California
and four in the Phoenix AZ area. We anticipate opening a minimum of nine
additional locations during 2001, primarily in Southern California and Arizona.
Our facilities are located within strip malls, as well as in freestanding
buildings. There are also CRD locations in hotels and car dealerships. In all
cases, the locations are within high-traffic areas. One distinguishing feature
that all our locations have in common is the manager's office within plain view
of the reception area and counters. This ensures that management is apprised, at
all times, of conditions at the counters and that our customer service index
remains high. All locations have a reception area, an accounting office and two
counters with one each for returns and rentals. The 15 locations currently open
are as follows:
ARIZONA
o 477 N. Cooper Rd, #2, Gilbert
o 1911 W. Broadway, Mesa
o 14950 N. 83 Pl., Scottsdale
o 7970 S. Autoplex Loop, Tempe
SOUTHERN CALIFORNIA
o 1301 West Main St., Alhambra
o 1444 East Valley Blvd., Alhambra
o 17639 Bellflower Blvd., Bellflower
o 1525 South Brand Blvd., Glendale
o 1517 South Western Av., Los Angeles
o 1500 N. Sepulveda Blvd., Manhattan Beach
o 18330 Colima Rd. #A1, Rowland Heights
o 2305 Pacific Highway, San Diego
o 1433 Camino del Rio South, San Diego
o 21333 Hawthorne Blvd., Torrance
o 5 Auto Center Dr., Tustin
We currently maintain a fleet of approximately 1,000 cars in the 15
facilities and will increase the fleet as we increase unit utilization. Our
fleet mix consists of 3% luxury class cars, such as Lexus, BMW and Mercedes
Benz, 12% truck and SUV rentals, such as 15- and 8- passenger vans as well as
Ford Expeditions and Chevrolet Suburbans, 10% premium car rentals, which include
VW Beetles, Ford Crown Victoria, Ford Mustangs and convertibles with the
remainder of the fleet consisting of standard full sized cars to subcompacts.
13
We intend to expand our operating base in the following four areas:
o Development of new facilities;
o Creation of Exotic and Studio Rentals division;
o Acquisition and roll-up of independent rental car operations; and
o Implementation of the Toyota Rent a Car management program.
Development of new facilities: We intend to identify new locations that will
require minimal startup capital and that are convenient to our core market.
These types of facilities include new car dealers, automotive garages and body
shops, hotels and easily converted freestanding facilities.
Creation of Exotic and Studio Rentals division: Capitalizing on the strategic
advantages of our Southern California location, we are opening exotic car rental
locations in our home market, where the demand is high. Renting cars to film and
television studios is a niche already being exploited.
Acquisition and roll-up of independent rental car operations: There are
currently 14,427 independent rental car locations that have a total vehicle
fleet of approximately 226,350 rental vehicles and generate approximately $18.3
billion in revenue. We are currently evaluating a number of acquisition
candidates.
Implementation of the Toyota Rent a Car program (TRAC): Operations are
commencing at two facilities in Tempe, Arizona and Manhattan Beach, California.
More TRAC facilities will follow, as start-up costs are 50% to 75% less than a
normal CRD location, and the Toyota dealer finances all Toyota inventory for the
operation. The cars can be optionally purchased after an initial period at a
favorable cost to be rented at our other locations.
BUSINESS OVERVIEW
The CRD business model is unique. Although selecting and reserving a
car through a rental agency via the Internet is now commonplace, we are moving
the process forward. Not only will a CRD consumer be able to choose and reserve
cars online, but they will also be able to pay for and arrange delivery of their
rental car through the Internet. Furthermore, we intend to build a competency
into our operations that will allow us to accept and verify driver's license
information online. By arranging the entire rental agreement through the
Internet, the customer's first face-to-face interaction with a CRD employee
would be upon delivery of the vehicle to the consumer's home or office.
We will combine this comprehensive online functionality with locations
in the suburban and neighborhood areas where the general population lives and
works. This will enable a higher degree of walk-in business than if we had
chosen to locate near airports.
A key contributor to growth will be our established and authorized
relationships with major insurance carriers. We have already established two
such relationships and intend to continue to gain additional relationships for
authorized billing. We view this as an important facet of the operation for
development of business with customers, body shops and insurance agencies. The
ability to bill directly to insurance companies and other vendors is an option
that is not available to small independent operators. Customers and auto body
shops prefer a direct billing method, as it relieves them of the paperwork and
logistics.
14
To augment growth, we have partnered with AutoNation and Van Tuyl
Automotive Investment Group, two of the largest dealership groups in the
country. AutoNation owns and operates over 244 dealerships nationwide and is the
largest publicly traded company in the new car dealership sector. We currently
have two facilities on site at AutoNation dealerships, and are negotiating for
space in an additional 10 locations. Van Tuyl Automotive Investment Group, which
owns and operates over 70 dealerships nationwide, is the largest privately held
dealership group. We have an agreement to put facilities on two of their
dealerships and are negotiating for an additional six locations.
Our Advanced Innovations Management Group division operates and manages
the Toyota Rent A Car facilities under license from Toyota. Under an exclusive
agreement with Toyota, we are supplied with facilities, cars and financing by
Toyota dealers. Most of the vehicles ordered have no interest costs for the
first six months. All billing and receipts are collected by the Toyota
dealership, which in turn pays Advanced Innovations Management Group 97.5% of
the gross revenue.
We intend to use our extensive industry experience to target and
acquire both major and independent local and replacement car rental companies.
We plan to grow through acquisition and through internal growth strategies.
MARKET
The car rental industry, exclusive of truck rentals, is valued at $18.3
billion per year. There are an aggregate of 23,338 rental car locations with
1,733,391 vehicles. Enterprise Rent a Car has the largest market share, or
nearly 23%, with revenues of $3.85 billion from approximately 400,000 cars in
3600 locations.
Enterprise dominates the local and replacement segment of the auto
rental industry. The remainder of the major car rental companies, such as Hertz
and Avis, focus on the leisure and business segments of the car rental industry.
The local and replacement auto rental segment of the industry consists
of rentals for the purpose of temporary fleet enhancement and temporary
replacement of vehicles that have been sold, stolen or are being repaired. The
replacement auto rental segment has lower administrative and marketing costs as
well as higher fleet utilization factors than the business and leisure travel
segment, thereby creating a higher gross margin and return on investment.
We are currently advertising Car Rental Direct over the CENTERLINQ
network. CENTELINQ is a rapidly expanding unified network that is accessible via
the world wide web and through public access touch-screen Internet kiosks in
shopping malls. We are in the enviable position of obtaining Internet exposure
to a large consumer base at relatively little cost. In addition, as the
CENTERLINQ network expands to new markets, it creates an instant introduction
for CRD into those potential markets and eases our need to allocate funds for
promotion.
15
With access to production facilities for television spots, as well as
inexpensive access to media time with which to run such television spots as
trailers to our other marketing messages, we can take advantage of our position
within the GenesisIntermedia family. Genesis Media Group holds media time on
several nationally broadcast cable television networks as well as television
stations, including major network affiliates, in key US markets.
One of the distinct advantages that characterizes our operations and
our ability to gain additional business is our accessibility to the insurance
industry. Our Claim Center Rental Control program increases the productivity of
insurance claims adjustors, thereby increasing the opportunity for us to gain
additional volume. By providing the insurance claims adjustor with access to our
database and the ability to update "work in process" folders, cases can be
closed faster and at less expense to the insurance company. With the average
replacement rental currently requiring seven or more telephone calls from start
to finish, and the average claims adjustor handling a load of approximately 150
cases, our streamlined information sharing process is a strategic advantage
welcomed by the insurance industry.
COMPETITION
We consider Enterprise Rent A Car to be our primary competitor and
believe that it is essential to understand the chemistry and perception of
Enterprise. Over the past 10 years, Enterprise has built its operations by
allowing young entrepreneurs to run a business. Enterprise allows each office
manager to run their location however they like as long as they follow the same
corporate strategy and philosophy. This flexibility has proven successful for
Enterprise and has allowed it to grow and gain market dominance. Following the
same strategy will create opportunities for us to secure a significant market
share.
Referral sources have often had no a choice but to send Enterprise
their business since no reliable alternative was available. This is a key
component in understanding how to gain market share. Our entire organization
will have the "real" and "profitable" experience needed to gain trust from
various referral sources. We believe that this factor will open several doors
immediately for us.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Because our revenues depend on a limited number of products and clients, we must
retain our current products and clients or attract new ones
Our revenues to date have been derived from a relatively small number
of products and clients. If there is a significant reduction in product sales or
if we lose one of our larger products, our business will be adversely impacted.
In addition, a decrease in the marketing expenditures of our clients or the loss
of a major client would also have an adverse affect on our business. In 2000,
approximately 34% of our revenues came from the sale of one product. In
addition, our products and the sales of media time are frequently based on oral
agreements that may be terminated at any time. Our failure to diversify our
product line and expand our client base could adversely affect our results of
operations.
If our new products are not successful or if we are unable to continue to sell
media time to third parties, our business will be adversely affected
We only began to market new products that we acquired from third
parties in 1998. Prior to that, in 1997, approximately 41% of our revenues were
derived from media sales to a corporation that is owned by a majority
16
stockholder of ours. In 1998, approximately 25% of our revenues were derived
from media sales to this corporation. In addition, revenue from telemarketing
for products owned by this client accounted for approximately 78% of our total
telemarketing revenues in 1997 and approximately 90% in 1998. In 2000, none of
our media sales and none of telemarketing revenues were derived from
transactions with this client. We must begin to derive significant revenues from
our new products and, to the extent we continue our media sales business,
continue to make media sales to third parties for our business to succeed.
Recent expansion into new interactive multimedia markets has not yet generated
significant revenue
Since 1998, we have expanded our media offerings to include interactive
multimedia technologies, including the Internet, and interactive kiosks through
the CENTERLINQ network to businesses seeking to conduct electronic commerce. The
expansion included the formation of our Genesis Intermedia, Inc. subsidiary.
However, revenue generated by this subsidiary has not been significant and
capital investments to develop and deploy the CENTERLINQ network have been
substantial. We expended approximately $7 million in 1999 and $17 million in
2000 on CENTERLINQ network development. We expect that we will continue to
invest in the building of our infrastructure and expansion. As a result, we
expect to experience losses in these areas in 2001.
Our ability to compete effectively will be adversely affected if our marketing
channels and technologies do not gain acceptance
We are developing multidisciplinary marketing that we believe will be
competitive. This development includes choices about the marketing channels we
employ and using the appropriate technology to exploit those channels. If our
marketing channels are not successful or if we fail to effectively exploit those
channels, our business will be adversely affected.
Our ability to expand our business will be significantly limited if we cannot
obtain additional financing
To accomplish our plans to expand CENTERLINQ, purchase new products and
media time to advertise these products, we need substantial additional capital
which we may not be able to obtain. We are currently negotiating with lenders to
obtain additional financing, but this additional financing may not be available
on terms that are favorable to us, or at all. If adequate funds are not
available, or are not available on acceptable terms, our ability to implement
our expansion plans will be significantly limited.
Reliance on external sales force
Our strategy has been to concentrate on developing the infrastructure
supporting CENTERLINQ and the technology needed to make the system work
properly. Efforts are now under way to bolster the management team with
marketing and sales personnel. We have placed significant reliance on our
strategies and the effectiveness in selling advertising on the CENTERLINQ
network. Should we fall short in our expectations or the timing in selling
advertising be delayed, we could experience a significant decline in our
projected CENTERLINQ operations.
Threat of mall owners sponsoring competing platforms
The real estate community has been characterized by property owner
consortiums and efforts by larger capitalization owners to sponsor their own
e-commerce platforms. There is some risk that kiosk-based platforms will be
offered by mall owners. The Simon Property Group and General Growth Properties
have both announced intentions to sponsor such interactive advertising in their
malls.
Ability to sign up additional malls.
We have recently entered into lease contracts with mall owners for
deployment of CENTERLINQ systems and are pursuing contracts for additional
17
malls. There is no assurance that we will be successful in signing additional
mall contracts or renewing our existing contracts on acceptable terms. Failure
to enter into new contracts for deployment of CENTERLINQ on acceptable terms
could negatively impact capital raising and could adversely affect or operating
results.
Our success depends on our ability to retain Ramy El-Batrawi and other key
personnel.
We believe that the development of our business to date has been
largely the result of the services of our chief executive officer, Ramy
El-Batrawi. Although we are developing a management team, the loss of Mr.
El-Batrawi's services would have a detrimental impact on the further development
of business. Our success also depends on our ability to hire and retain other
qualified employees. We may not be able to locate and hire those employees
because of the intense competition in our industry for personnel with the
requisite skills.
Dependence on a small number of clients and products
A relatively small number of clients and products have historically
contributed significantly to our revenues. If there is a significant reduction
in product sales or in a large client's marketing expenditures or the loss of
one or more of our largest products or clients, and this is not replaced by new
products or client accounts or an increase in business from existing products or
clients, then this will have a significant adverse impact on us. However,
because we intend to continue to rely on broad-or multi-market products like the
Men From Mars products, it is possible that the dependence on revenues from a
limited number of products will continue in the future. If we do not diversify
our product lines and client base, we may put ourselves in a position of risk
that the loss or under-performance of a single product or client may adversely
affect us.
Related party transactions have historically generated a substantial portion
of our revenue
Selling media time to Trade Your Way To Riches, Inc., a corporation
owned by our majority stockholder, represented none of our revenue in 1996,
approximately 41% in 1997 and approximately 25% in 1998. In addition, in 1997
and 1998, revenue from Trade represented approximately 90% and 78% of our
revenue from telemarketing for products owned by our clients. Although total
revenue related to Trade in 1999 and 2000 declined to less than 1% of total
revenue, and we anticipate that Trade-related revenue will continue to represent
less than 1% of future revenue, we have only since October 1998 begun to sell
media time to a significant number of new clients. In addition, we have recently
begun marketing the new products we acquired in the late 1998. Any inability to
continue media sales to third parties or failure of our new products could
significantly and adversely affect us.
Our current business structure may not be successful in addressing quarterly
fluctuations
Our management believes that our business structure of offering
multi-disciplinary marketing for our own and third parties' disparate products
and services is unique. We believe the uniqueness of this structure, as well as
18
the inherent uncertainty of forecasting product sales generally will make
quarterly forecasts difficult and quarterly results will fluctuate. These
quarterly fluctuations and resulting deviations from forecast results may cause
volatility in the price for the common stock that may not reflect long-term
results or prospects. We expect these fluctuations to be exaggerated as we
execute our acquisition strategy, which will involve direct expenses, as well as
new product development and marketing expenses. The magnitude and timing of
these expenses will vary. Integration of disparate products, services and
distribution channels that are developed internally, acquired or contracted with
third parties to market will also contribute to the unpredictability of
quarterly results.
Acceptance of marketing channels and technologies are key to our ability to
compete
We are developing multi-disciplinary marketing that we believe will be
competitive. This development includes choices about the right marketing
channel--such as CENTERLINQ and its versatile kiosk system for deployment in
regional shopping malls and other public access areas--and the right technology
to exploit that channel--the Internet and the interface of the kiosks. A number
of factors related to those choices may adversely affect competitiveness,
including:
o rapid technological changes that make these or future offerings obsolete;
o changes in, or mistakes in gauging user and client requirements and
preferences; and
o frequent new product and service introductions by others or evolving
industry standards and practices in emerging markets that may promote
adoption of technologies other than those chosen by us.
The oral agreements on which much of our business relies are terminable at will
We frequently market products on the basis of oral agreements that may
be terminated by either party at any time, and there are no written contracts
relating to the sale of media time to clients. Because of those terminable
arrangements, any of our clients may discontinue utilizing their services at any
time in the future.
Future expansion is dependent on raising additional capital
We are currently negotiating to obtain additional financing for the
expansion of CENTERLINQ. If the negotiations do not materialize and we are
unable to obtain additional financing, the future expansion of CENTERLINQ will
be slowed significantly and will adversely affect us.
We are also seeking additional financing to expand our existing
business to purchase new products and purchase media time to advertise for these
products. If we are unable to obtain this financing, our ability to purchase
media time to advertise our products will be significantly limited.
Future sales of our common stock by existing stockholders or sales by us to new
investors could depress our stock price
As of March 22, 2001, after giving effect to a 3-for-1 stock split of
our common shares, we had 21,224,685 shares of common stock outstanding, and
approximately 3,988,932 additional shares of common stock were issuable upon the
exercise of outstanding employee stock options, of which 1,977,816 where
exercisable. All of the shares underlying those options have been registered for
resale on Form S-8. Dilution of existing shareholders' interests may occur if we
issue additional shares of common stock underlying outstanding shares of our
preferred stock. Dilution of existing shareholders' interests may also occur if
we issue additional shares of common stock through private placements.
19
Sales of a substantial number of shares of our common stock in the
public market, or the perception that substantial sales might occur, could cause
the market price of our stock to decrease significantly. This could also make it
more difficult for us to raise capital by selling stock or use our stock as
currency in acquisitions.
International expansion may result in new business risks
If we expand internationally, this expansion could subject us to new
business risks, including:
o adapting to the differing business practices and laws in foreign commercial
markets;
o difficulties in managing foreign operations;
o limited protection for intellectual property rights in some countries;
o difficulty in accounts receivable collection and longer collection periods;
o costs of enforcement of contractual obligations;
o impact of recessions in economies outside the United States;
o currency exchange rate fluctuations; and
o potentially adverse tax consequences.
Market volatility may have an adverse effect on our stock price
The trading price of our common stock has fluctuated widely in the past
and, like most stocks, it will continue to fluctuate in the future. The price
could fluctuate widely based on numerous factors, including:
o quarter-to-quarter variations in our operating results;
o changes in analysts' estimates of our earnings or our competitors'
earnings;
o announcements by us or our competitors of technological innovations or new
services;
o general conditions in the commercial real estate industry;
o developments or disputes concerning copyrights or proprietary rights;
o regulatory developments; and
o economic or other factors.
In addition, in recent years, the stock market in general, and the shares
of Internet-related and other technology companies in particular, have
experienced extreme price fluctuations. This volatility has had a substantial
effect on the market prices of securities issued by many companies for reasons
unrelated to the operating performance of the specific companies.
Stock ownership by executive officers and directors provides substantial
influence over matters requiring a vote of stockholders
Our executive officers and directors beneficially own a sufficient number
of our outstanding common stock to exercise substantial influence over the
election of directors and other matters requiring a vote of stockholders. This
concentrated ownership might delay or prevent a change in control and may impede
or prevent transactions in which stockholders might otherwise receive a premium
for their shares.
EMPLOYEES
As of March 30, 2001, we had 450 full-time employees. None of these
employees are covered by collective bargaining agreements and we believe that
our relations with our employees are good.
20
ITEM 2. PROPERTY
Prior to September 1999, we owned an office building at 13063 Ventura
Boulevard, Studio City, California 91604-2238. The building consisted of 6,300
square feet and was entirely occupied by us. In July 1999, we purchased an
80,000 square foot building at 5805 Sepulveda Boulevard, Van Nuys, California
91411 to house our expanding business and sold our previous corporate office in
Studio City, California. The new office building gives us room to expand as we
continue to increase our workforce. We occupy approximately 60% of the new
building and sublease the remaining 40% under lease arrangements ranging from
one to four years. Most of our administrative, telemarketing and media time
operations are conducted at our Van Nuys, California location. We lease
production facilities for the production of direct marketing programming on an
as-needed basis from third parties on commercially available terms. We also
operate a call center in St. George, Utah, in approximately 2,000 square feet of
space under a lease ending May 31, 2001. The lease provides for monthly rental
payments of $6,720.
ITEM 3. LEGAL PROCEEDINGS
The Company may also be involved from time to time in various other
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 would have a
material impact on the financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock commenced trading on the Nasdaq National Market under the
symbol "GENI" on June 14, 1999. The following table sets forth, for the periods
indicated, the high and low closing sales prices per share of our common stock
on the Nasdaq National Market.
HIGH LOW
--------- ----------
For the quarter ended December 31, 2000 $6.12 $5.00
For the quarter ended September 30, 2000 $5.63 $5.00
For the quarter ended June 30, 2000 $6.58 $5.00
For the quarter ended March 31, 2000 $9.33 $1.88
For the quarter ended December 31, 1999 $2.60 $1.33
For the quarter ended September 30, 1999 $2.94 $1.50
June 14, 1999 to June 30, 1999 $2.85 $1.92
21
RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS OF UNREGISTERED
SECURITIES
In September 2000, as part of a settlement release agreement, we issued
150,000 shares of our common stock at an exercise price of $5.33 to a previous
investor as liquidated damages under an earlier securities purchase agreement.
The issuance of the shares was based, in part, upon representations and
warranties of the investor, including a representation as to the status as
"accredited" investors (as such term is defined in Rule 501(a) of the Securities
Act of 1933, as amended (the "Act") and to their status as not a U.S. person as
defined in Rule 902(k) of the Act. These sales were exempt from the registration
requirements of the Act pursuant to Regulation S promulgated by the Securities
and Exchange Commission under Section 5 of the Act.
On November 2000, we issued a warrant to purchase up to 600,000 shares
of our common stock which was issued to The Macerich Partnership, L.P. at an
exercise price of $5.00 per share. The warrants were issued pursuant to a space
lease agreements with affiliates of Macerich as additional consideration for
leasing space in shopping malls owned or operated by Macerich as part of our
Centerlinq expansion. The issuance of the warrants was based in part, upon
representations and warranties of the recipient of the warrants, including a
representation as to the status as "accredited" investors (as such term is
defined in Rule 501(a) of the Act and to their status as not a U.S. person as
defined in Rule 902(k) of the Act. These sales were exempt from the registration
requirements of the Act pursuant to Regulation D promulgated by the Securities
and Exchange Commission under Section 4(2) of the Act.
RECORD HOLDERS
The last reported sale price of our common stock on the Nasdaq National
Market on March 30, 2001 was $7.53. As of March 30, 2001, there were
approximately 1,957 stockholders of record of our common stock.
DIVIDENDS
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain all available funds for use in our business and
therefore do not anticipate paying any cash dividends in the foreseeable future.
Any future determination relating to dividend policy will be made in the
discretion of our Board of Directors and will depend on a number of factors,
including the future earnings, capital requirements, financial condition and our
future prospects and such other factors as our Board of Directors may deem
relevant.
22
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data, which should be read in conjunction with our consolidated financial
statements and notes thereto included elsewhere herein and with "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The
selected consolidated financial data as of December 31, 2000, 1999, 1998, 1997,
and 1996 and for each of the five years in the period ended December 31, 2000
have been derived from our internally prepared unaudited financial statements
and from the audited financial statements of GenesisIntermedia.com Inc. The
audited financial statements, which are included elsewhere in this Annual
Report, have been audited by Singer Lewak Greenbaum & Goldstein, LLP, our
independent auditors.
STATEMENT OF OPERATIONS DATA
For the Years Ended December 31,
-----------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ---------- ------------
(in thousands, except per share data)
Revenue $ 42,322 $ 31,671 $ 14,906 $ 18,164 $ 14,342
Cost of Revenue 12,636 8,270 5,135 7,158 1,842
----------- ----------- ----------- ---------- ------------
Gross Profit 29,686 23,401 9,771 11,006 12,500
Operating expenses 58,910 31,202 8,179 8,571 12,114
----------- ----------- ----------- ---------- ------------
Income (loss) from operations (29,224) (7,801) 1,592 2,435 386
Other income (expenses) (4,307) (496) (135) (33) -
------------ ----------- ----------- ---------- ------------
Income (loss) before taxes (33,531) (8,297) 1,457 2,402 386
Provision for income taxes(1) - - 583 961 154
----------- ----------- ----------- ---------- ------------
Net income (loss) (1) $ (33,531) $ (8,297) $ 874 $ 1,441 $ 232
============ =========== =========== ========== ============
Basic earnings (loss) per share $ (1.85) $ (0.63) $ 0.08 $ 0.12 $ 0.02
=========== =========== =========== ========== ===========
Diluted earnings (loss) per share $ (1.85) $ (0.63) $ 0.08 $ 0.12 $ 0.02
=========== =========== =========== ========== ===========
Weighted average shares
outstanding 18,111 13,150 11,543 11,651 11,650
=========== =========== =========== ========== ============
(1) prior to 1999 we were taxed as an "S" corporation. The provision for income
taxes and net income for the years ended December 31, 1998, 1997 and 1996 are
presented in the above table as pro forma information as if we were taxed as a
"C" corporation for those years.
23
BALANCE SHEET DATA
As of December 31,
-----------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ---------- ------------
(unaudited)
(in thousands)
Working capital (deficit) $ (2,964) $ (1,855) $ 2,449 $ 3,037 $ 334
Current assets 22,924 9,064 6,690 5,523 708
Total Assets 57,177 29,859 9,988 6,714 726
Long-term debt 38,757 9,717 1,056 609 -
Stockholders' equity (deficit) (7,468) 9,223 4,691 3,619 352
ITEM 7. MANAGEMENT'S DISCUSSIONS 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 this 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.
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.
24
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.
In April 2000, we purchased the assets of DoWebsites.com, Inc. for
72,000 shares of common stock valued at $1,224,000. The principal asset
purchased was goodwill. At December 31, 2000, we wrote off the goodwill
established as a result of the acquisition of DoWebsites.com as we believe that
the market for services offered by DoWebsites.com has decreased substantially
due to the recent closures of many Internet related companies.
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.
25
RESULTS OF OPERATIONS
Year Ended December 31, 2000 vs. Year Ended December 31, 1999
YEAR YEAR % OF % OF
ENDED ENDED REVENUE REVENUE
12/31/2000 12/31/1999 2000 1999
(in thousands)
REVENUE $ 42,322 $ 31,671 100.0% 100.0%
COST OF REVENUE 12,636 8,270 29.9% 26.1%
-------- -------- ---------- ---------
GROSS PROFIT 29,686 23,401 70.1% 73.9%
-------- -------- ---------- ---------
OPERATING EXPENSES
Selling, general and
administrative expenses 52,548 29,500 124.2% 93.1%
Depreciation and amortization 4,818 1,702 11.4% 5.4%
Loss from operations of Dynamedia 27 - 0.1% 0.0%
Loss on sale of Dynamedia 293 - 0.7% 0.0%
Write down of goodwill 1,224 - 2.9% 0.0%
-------- -------- ---------- ---------
Total operating expenses 58,910 31,202 139.2% 98.5%
-------- -------- ---------- ---------
INCOME (LOSS) FROM OPERATIONS (29,224) (7,801) -69.1% -24.6%
OTHER INCOME (EXPENSES)
Gain on sale of assets - 282 0.0% 0.9%
Other income 43 0.1% 0.0%
Interest expense (3,804) (670) -9.0% -2.1%
Financing costs (546) (108) -1.3% -0.3%
-------- -------- ---------- ---------
Total other income (expenses) (4,307) (496) -10.2% -1.6%
-------- -------- ---------- ---------
INCOME (LOSS) BEFORE TAXES (33,531) (8,297) -79.2% -26.2%
INCOME TAXES - 0.0% 0.0%
======== ======== ========== =========
NET INCOME (LOSS) $(33,531) $ (8,297) -79.2% -26.2%
======== ======== ========== =========
Revenue for the year ended December 31, 2000 increased by $10,651,000 or 33.6%
from $31,671,000 for the year ended December 31, 1999 to $42,322,000 for the
same period in 2000. The increase in revenue was due to the following:
o Product sales increased $3,236,000 or 13.9% principally as a result of
our success in selling our new products, principally, DietZX;
o Car rental revenue from our newly acquired subsidiary Car Rental Direct
from the date of acquisition on April 1, 2000 to December 31, 2000 was
$4,269,000.
26
o Commissions and royalties increased from $1,915,000, for the year ended
December 31, 1999 to $8,747,000 for the same period in 2000. 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%.
o Media sales to unrelated third parties decreased from $5,793,000 in 1999 to
$1,340,000 in 2000 due to us finding new products and services we can sell
that have higher margins than the margins from selling media time;
Cost of revenue for the year ended December 31, 2000 increased by $4,366,000 or
52.8% from $8,270,000 for the year ended December 31, 1999 to $12,636,000 for
the same period in 2000. The increase in cost of revenue was due to the
following:
o Direct product costs for the year ended December 31, 2000 increased by
$3,248,000 or 97.3% from $3,337,000 for the year ended December 31,
1999 to $6,585,000 for the same period in 2000. The increase was due to
increased product sales during 2000, principally the sale of our new
product, DietZX. Direct product costs as a percentage of product sales
increased from 14.3% for the year ended December 31, 1999 to 24.8% for
the same period in 2000. The increase is due to higher product costs
associated with our new products and programs when compared to the
products sold by us during 1999.
o Media purchases for the year ended December 31, 2000 decreased by
$3,619,000 or 74.6% from $4,849,000 for the year ended December 31,
1999 to $1,230,000 for the same period in 2000. The decrease was due to
less media time sold to unrelated third parties in 2000.
o Cost of renting vehicles was $3,541,000 in 2000. There was no such cost
in 1999. The cost of renting a vehicle compared to the revenue
generated from such rental for 2000 was 82.9%.
Selling, general and administrative expenses for the year ended December 31,
2000 increased by $23,048,000 or 78.1% from $29,500,000 for the year ended
December 31, 1999 to $52,548,000 for the same period in 2000. The increase was
due principally to an increase in payroll and related benefits of $4,622,000 and
an increase in selling related expenses of $13,792,000. Selling related expenses
include the cost of acquiring customer names, purchasing media time for airing
of infomercials, royalties and telemarketing costs. We expensed $13,831,000 in
media airtime during 2000 compared to $9,867,000 in 1999.
Depreciation and amortization expense for the year ended December 31, 2000
increased by $3,116,000 or 183.1% from $1,702,000 for the year ended December
31, 1999 to $4,818,000 for the same period in 2000. 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 $1,441,000 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 year ended December 31, 2000, DynaMedia
reported a net loss of $26,721 on revenues of $1,501,715. Since we owned
Dynamedia during 2000, we have recorded the loss incurred by Dynmedia in our
consolidated statement of operations. 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 and recognized as an
expense on our consolidated statement of operations.
27
In April 2000, we purchased the assets of DoWebsites.com, Inc. for 72,000 shares
of common stock valued at $1,224,000. The principal asset purchased was
goodwill. We wrote off the goodwill established as a result of the acquisition
of DoWebsites.com as we believe that the market for services offered by
DoWebsites.com has decreased substantially due to the recent closures of many
Internet related companies.
Interest expense for the year ended December 31, 2000 increased by $3,134,000 or
467.8% from $670,000 for the year ended December 31, 1999 to $3,804,000 for the
same period in 2000. 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.
Financing costs for the year ended December 31, 2000 increased by $438,000 or
405.6% from $108,000 for the year ended December 31, 1999 to $546,000 for the
same period in 2000. The increase is principally due to the issuance of stock in
February to secure a $1,000,000 bridge loan and the issuance of warrants in
connection with a note payable.
Net loss for the year ended December 31, 2000 increased by $25,234,000 or 304.1%
from $8,297,000 for the year ended December 31, 1999 to $33,531,000 for the same
period in 2000. 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.
28
Year Ended December 31, 1999 vs. Year Ended December 31, 1998
YEAR YEAR % OF % OF
ENDED ENDED REVENUE REVENUE
12/31/1999 12/31/1998 1999 1998
(in thousands)
REVENUE $ 31,671 $ 14,906 100.0% 100.0%
COST OF REVENUE 8,270 5,135 26.1% 34.4%
-------- -------- ---------- ---------
GROSS PROFIT 23,401 9,771 73.9% 65.6%
-------- -------- ---------- ---------
OPERATING EXPENSES
Selling, general and
administrative expenses 29,500 8,037 93.1% 53.9%
Depreciation and amortization 1,702 142 5.4% 1.0%
-------- -------- ---------- ---------
Total operating expenses 31,202 8,179 98.5% 54.9%
-------- -------- ---------- ---------
INCOME (LOSS) FROM OPERATIONS (7,801) 1,592 -24.6% 10.7%
OTHER INCOME (EXPENSES)
Gain on sale of assets 282 - 0.9% 0.0%
Interest expense (670) (135) -2.1% -0.9%
Financing costs (108) - -0.3% 0.0%
-------- -------- ---------- ---------
Total other income (expenses) (496) (135) -1.6% -0.9%
-------- -------- ---------- ---------
INCOME (LOSS) BEFORE TAXES (8,297) 1,457 -26.2% 9.8%
INCOME TAXES - 30 0.0% 0.2%
======== ======== ========== =========
NET INCOME (LOSS) $ (8,297) $ 1,427 -26.2% 9.6%
======== ======== ========== =========
Revenue for the year ended December 31, 1999 increased by $16,765,000 or 112.5%
from $14,906,000 for the year ended December 31, 1998 to $31,671,000 for the
same period in 1999. The increase in revenue was due to the following:
o Product sales increased $17,295,000 or 273.4% principally as a result
of our success in selling our new products and programs;
o Media sales to unrelated third parties increased from $1,220,000 in 1998 to
$5,793,000 in 1999 due to us hiring personnel with media buying experience
and contacts in the industry. We retained several large customers who began
purchasing media time in the latter part of 1998 and increased their media
buys during 1999;
o Media sales to a company owed by our majority stockholder decreased from
$3,703,000 for the year ended December 31, 1998 to $0 for the same period
in 1999. We have discontinued selling media to this affiliate; and
29
o Commissions and royalties decreased from $1,789,000, for the year ended
December 31, 1998 to $0 for the same period in 1999. These commissions were
amounts received from the sale of mentoring programs for the Trade Your Way
To Riches products during the year ended December 31, 1998. There were no
Trade-related sales for the same period in 1999. During the fourth quarter
of 1998 we discontinued selling the mentoring programs for Trade Your Way
To Riches, Inc.
Cost of revenue for the year ended December 31, 1999 increased by $3,135,000 or
61.1% from $5,135,000 for the year ended December 31, 1998 to $8,270,000 for the
same period in 1999. The increase in cost of revenue was due to the following:
o Media purchases for the year ended December 31, 1999 increased by
$651,000 or 15.5% from $4,198,000 for the year ended December 31, 1998
to $4,849,000 for the same period in 1999. The increase was due to more
media time sold in 1999. Media purchases as a percentage of media sales
decreased from 85.3% for the year ended December 31, 1998 to 83.7% for
the same period in 1999. The increase is in the profit margin is due to
the sale to unrelated third parties at higher margins.
o Direct product costs for the year ended December 31, 1999 increased by
$2,484,000 or 265.1% from $937,000 for the year ended December 31, 1998
to $3,421,000 for the same period in 1999. The increase was due to
significant increased product sales during 1999, principally the sale
of our new products and programs. Direct costs as a percentage of
product sales decreased from 14.8% for the year ended December 31, 1998
to 14.5% for the same period in 1999. The decrease is due to lower
product costs associated with our new products and programs when
compared to the products sold by us during 1998.
Selling, general and administrative expenses for the year ended December 31,
1999 increased by $21,463,000 or 267.1% from $8,037,000 for the year ended
December 31, 1998 to $29,500,000 for the same period in 1999. The increase was
due principally to an increase in payroll and related benefits of $4,591,000 and
an increase in selling related expenses of $8,270,000. Selling related expenses
include the cost of acquiring customer names, purchasing media time for airing
of infomercials, royalties and telemarketing costs. We expensed $9,867,000 in
media airtime during 1999. Our general and administrative costs increased as a
result of expanding operations through the creation of Genesis Intermedia. Most
of the expenses incurred by Genesis Intermedia to develop our CENTERLINQ network
are classified as general and administrative expenses. We significantly expanded
our CENTERLINQ network of kiosks in shopping malls during the latter part of
1999. By the end of 1999, we had installed our kiosks in 20 shopping malls.
Depreciation and amortization expense for the year ended December 31, 1999
increased by $1,560,000 or 1,098.6% from $142,000 for the year ended December
31, 1998 to $1,702,000 for the same period in 1999. 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 1999.
During the third quarter of 1999, we sold our corporate office building in
Studio City, California that resulted in a gain on sale of $282,000. In July
1999, we purchased a new corporate office building in Van Nuys, California.
Interest expense for the year ended December 31, 1999 increased by $535,000 or
396.3% from $135,000 for the year ended December 31, 1998 to $670,000 for the
same period in 1999. 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 and notes payable and capitalized
lease obligations assumed as a result of the purchase of Vision Digital assets
and as part of the expansion of CENTERLINQ.
30
Financing costs for the year ended December 31, 1999 increased by $108,000 from
$0 for the year ended December 31, 1998 to $108,000 for the same period in 1999.
The increase is due to the amortization of commissions and other expenses paid
in connection with three notes payable we issued in May of 1999.
Income taxes for the year ended December 31, 1999 decreased by $30,000 from
$30,000 for the year ended December 31, 1998 to $0 for the same period in 1999.
Due to the loss incurred in 1999, the current income tax expense recognized
during the first six months of 1999 was reduced to $0. Prior to January 1, 1999
we were taxed as an S corporation.
Net income for the year ended December 31, 1999 decreased by $9,724,000 or
681.4% from net income of $1,427,000 for the year ended December 31, 1998 to a
net loss of $8,297,000 for the same period in 1999. The decrease is principally
due to significantly higher sales offset by 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 from a related party.
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.
31
From November 1999 to December 2000, we borrowed $44,617,705 from
debentures from Ultimate, a significant stockholder and repaid $9,335,439 during
the same period. In connection with the debenture secured 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.
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 has a liquidation preference of $1,000 per share and
carries 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
is 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
whereby we issued 7% convertible debentures in the amount of $3,000,000. The
debentures are convertible into our common stock at the lesser of $7.00 per
share or if the average closing price for the five day period immediately
preceding April 14, 2001 is less than $6.67, the conversion price is 105% of the
average price for the five business days preceding April 14, 2001. 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. In addition, we issued
warrants to purchase 300,000 shares of our common stock 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 year ended December 31, 2000, we spent $11,879,301 on
capital expenditures and used $24,171,482 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.
32
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 and we have also received a signed letter
of intent from an investment banker for a proposed private placement offering of
our common stock. 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.
QUARTERLY RESULTS
The following table sets forth some of our selected consolidated
financial information for our eight most recent quarters. In the opinion of
management, this unaudited financial information has been prepared on the same
basis as the audited financial information, and includes all adjustments,
consisting only of normal, recurring adjustments, necessary to present this
information fairly when read in conjunction with our consolidated financial
statements and notes thereto contained elsewhere in this annual report on this
Form 10-K.
2000
--------------------------------------------------
Q1 Q2 Q3 Q4
----------- ----------- ----------- -----------
(in thousands, except per share data)
Revenue $ 7,896 $ 7,625 $ 16,691 $ 10,110
Cost of Revenue 1,895 3,143 4,174 3,424
----------- ----------- ----------- -----------
Gross Profit 6,001 4,482 12,517 6,686
Net loss $ (5,133) $ (7,340) $ (4,247) $ (16,811)
=========== =========== =========== ===========
Basic and diluted loss per share $ (0.32) $ (0.43) $ (0.23) $ (0.82)
=========== =========== =========== ===========
1999
--------------------------------------------------
Q1 Q2 Q3 Q4
----------- ----------- ----------- -----------
(in thousands, except per share data)
Revenue $ 7,798 $ 6,068 $ 8,782 $ 9,023
Cost of Revenue 3,873 1,485 1,779 1,133
----------- ----------- ----------- -----------
Gross Profit 3,925 4,583 7,003 7,890
Net income (loss) $ 383 $ 248 $ (2,272) $ (6,656)
=========== =========== =========== ===========
Basic and diluted earnings
(loss) per share $ 0.04 $ 0.02 $ (0.14) $ (0.42)
=========== =========== =========== ===========
Our results of operations have historically fluctuated on a quarterly
basis. We expect these fluctuations to be exaggerated as we execute our
expansion strategy, which will involve direct expenses, as well as new product
development and marketing expenses. The magnitude and timing of these expenses
will vary. Integration of disparate products, services and distribution channels
that are developed internally, acquired or contracted with third parties to
market, will also contribute to the unpredictability of quarterly results.
33
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, our ability 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have invested excess funds in equity securities of other publicly
traded companies that are classified as trading securities. The main risk
associated with these investments is the fluctuation of the market price which
can be affected by the performance of the companies offering the equity
securities or the perception of the general economic condition by investors or
both.
34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
INDEX
-------------------------------------------------------------------------------
Page (s)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS 36
Consolidated Balance Sheet as of December 31, 2000 and 1999 37-38
Consolidated Statements of Operations for the Three Years
Ended December 31, 2000 39
Consolidated Statements of Comprehensive Income (Loss) for the Three
Years Ended December 31, 2000 40
Consolidated Statements of Stockholders' Equity (Deficit) for the Three
Years Ended December 31, 2000 41
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 2000 42-43
Notes to Consolidated Financial Statements 44-69
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
GenesisIntermedia.com, Inc.
We have audited the accompanying consolidated balance sheet of
GenesisIntermedia.com, Inc. and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of operations, comprehensive income
(loss), stockholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of
GenesisIntermedia.com, Inc. and subsidiaries as of December 31, 2000 and 1999,
and the consolidated results of their operations and their consolidated cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 11, 2001, except for Note 13
as to which the date is April 16, 2001
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
-------------------------------------------------------------------------------
ASSETS
2000 1999
--------------- ----------------
CURRENT ASSETS
Cash and cash equivalents $ 858,848 $ 589,745
Marketable securities at market 1,926,746 -
Accounts receivable - trade, net of allowance for doubtful
accounts of $594,313 and $10,000 3,846,453 1,176,853
Inventory 1,383,620 888,546
Revenue earning equipment 8,435,359 -
Prepaid advertising 2,461,928 2,499,400
Advances receivable 1,201,348 1,190,532
Deposits and other prepaid assets 2,809,428 2,719,355
--------------- ----------------
Total current assets 22,923,730 9,064,431
PROPERTY AND EQUIPMENT, net 28,133,574 16,694,510
CUSTOMER LISTS, net 955,287 2,865,851
GOODWILL, net 4,479,560 429,063
OTHER ASSETS 684,430 805,094
--------------- ----------------
TOTAL ASSETS $ 57,176,581 $ 29,858,949
=============== ================
The accompanying notes are an integral part of these financial statements.
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
-------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
2000 1999
--------------- ----------------
CURRENT LIABILITIES
Current portion of notes payable $ - $ 582,805
Current portion of capital lease obligations 745,973 77,158
Line of credit 9,225,946 1,505,406
Accounts payable 8,329,734 6,475,317
Accrued payroll taxes 859,833 1,313,913
Accrued interest - related party 2,053,490 12,465
Other accrued liabilities 1,913,863 887,143
Due to stockholder 2,693,993 -
Income taxes payable 65,000 65,000
--------------- ----------------
Total current liabilities 25,887,832 10,919,207
NOTES PAYABLE, net of current portion 7,856,250 7,972,296
NOTES PAYABLE TO RELATED PARTY 30,382,266 1,463,403
CAPITAL LEASE OBLIGATIONS, net of current portion 518,172 281,329
--------------- ----------------
Total liabilities 64,644,520 20,636,235
--------------- ----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred stock, $0.001 par value
5,000,000 shares authorized
71,429 and 142,858 shares issued and outstanding ($7.00 per share
liquidation preference, dividends
of $80,209 in arrears) 71 143
Common stock, $0.001 par value
25,000,000 shares authorized
20,971,560 and 15,930,000 shares issued and outstanding 20,972 15,930
Additional paid-in capital 35,752,544 17,580,421
Common stock committed - 28,440
Accumulated deficit (41,827,177) (8,296,550)
Treasury stock (2,402,483) (105,670)
Accumulated comprehensive income 988,134 -
--------------- ----------------
Total stockholders' equity (deficit) (7,467,939) 9,222,714
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 57,176,581 $ 29,858,949
=============== ================
The accompanying notes are an integral part of these financial statements.
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
-------------------------------------------------------------------------------
2000 1999 1998
---------------- --------------- ----------------
REVENUE $ 42,321,596 $ 31,671,263 $ 14,905,724
COST OF REVENUE 12,636,179 8,269,841 5,134,726
---------------- --------------- ----------------
GROSS PROFIT 29,685,417 23,401,422 9,770,998
OPERATING EXPENSES
Selling, general, and administrative expenses 52,547,856 29,499,681 8,036,541
Depreciation and amortization 4,817,824 1,702,456 142,609
Loss from operations of DynaMedia 26,721 - -
Loss on sale of DynaMedia 293,210 - -
Write down of goodwill 1,224,000 - -
---------------- --------------- ----------------
Total operating expenses 58,909,611 31,202,137 8,179,150
---------------- --------------- ----------------
INCOME (LOSS) FROM OPERATIONS (29,224,194) (7,800,715) 1,591,848
OTHER INCOME (EXPENSES)
Gain on sale of asset - 282,491 -
Other income 42,933 - -
Interest expense (3,803,517) (670,120) (135,135)
Financing costs (545,849) (108,206) -
----------------- ---------------- ----------------
Total other income (expenses) (4,306,433) (495,835) (135,135)
---------------- --------------- ----------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (33,530,627) (8,296,550) 1,456,713
PROVISION FOR INCOME TAXES - - 30,000
---------------- --------------- ----------------
NET INCOME (LOSS) $ (33,530,627) $ (8,296,550) $ 1,426,713
================= ================ ================
BASIC EARNINGS (LOSS) PER COMMON SHARE $ (1.85) $ (0.63) $ 0.12
================ =============== ================
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (1.85) $ (0.63) $ 0.12
================ =============== ================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 18,111,000 13,150,392 12,248,238
================ =============== ================
The accompanying notes are an integral part of these financial statements.
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
-------------------------------------------------------------------------------
2000 1999 1998
---------------- --------------- ----------------
NET INCOME (LOSS) (33,530,627) (8,296,550) 1,426,713
UNREALIZED GAIN ON MARKETABLE SECURITIES 988,134 - -
---------------- --------------- ----------------
COMPREHENSIVE INCOME (LOSS) $ (32,542,493) $ (8,296,550) $ 1,426,713
================= ================ ================
The accompanying notes are an integral part of these financial statements.
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 2000, 1999 and 1998
------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Additional
------------------------- ------------------------ Paid-in
Shares Amount Shares Amount Capital
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 - $ - 12,000,000 $ 12,000 $ 912,582
Distribution to stockholder
Surrender of shares of common stock (3,000,000) (3,000) 3,000
Issuance of common stock for acquisition 180,000 180 599,820
Net income
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 - - 9,180,000 9,180 1,515,402
Transfer of S Corporation earnings 1,165,965
Distribution to stockholder
Private placement offerings of common stock, net 750,000 750 1,548,000
Private placement offering of Series A
preferred stock, net 142,858 143 869,857
Options granted to consultants 80,000
Stock issued for services rendered
Proceeds from initial public offering, net 6,000,000 6,000 12,401,197
Stock repurchase
Net loss
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 142,858 143 15,930,000 15,930 17,580,421
Exercise of options 191,949 192 437,700
Exercise of warrants 2,607,426 2,608 7,305,120
Common stock issued for services rendered 3,498 4 17,486
Common stock issued in connection with debt financing 45,000 45 103,080
Common stock issued for DoWebsites.com, Inc. 216,000 216 1,223,784
Common stock issued for Rental Car Direct.com, Inc. 780,000 780 4,419,220
Issuance of Series B preferred stock, net 4,000 4 3,798,031
Conversion of Series A preferred to common (71,429) (72) 214,287 214 (142)
Conversion of Series B preferred to common (4,000) (4) 968,400 968 (964)
Issuance of committed stock 15,000 15 28,425
Stock repurchase
Disgorgement of short-swing profits generated
by stockholder through sale of stock 184,314
Unrealized gain on marketable securities
Fair value of warrants issued for financing
cost and services 1,209,827
Offering costs paid by issuance of warrants (553,758)
Net loss
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 71,429 $ 71 20,971,560 $ 20,972 $35,752,544
=========== =========== =========== =========== ===========
Common Retained Accumulated
Stock Earnings Treasury Comprehensive
Committed (Deficit) Stock Income Total
----------- ---------- ---------- ----------- ----------
Balance, December 31, 1997 $ - $2,694,252 $ - $ - $3,618,834
Distribution to stockholder $ - (955,000) (955,000)
Surrender of shares of common stock -
Issuance of common stock for acquisition 600,000
Net income 1,426,713 1,426,713
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 - 3,165,965 - - 4,690,547
Transfer of S Corporation earnings (1,165,965) -
Distribution to stockholder (2,000,000) (2,000,000)
Private placement offerings of common stock, net 1,548,000
Private placement offering of Series A
preferred stock, net 870,000
Options granted to consultants 80,000
Stock issued for services rendered 28,440 28,440
Proceeds from initial public offering, net 12,407,197
Stock repurchase (105,670) (105,670)
Net loss (8,296,550) (8,296,550)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 28,440 (8,296,550) (105,670) - 9,222,714
Exercise of options 437,892
Exercise of warrants 7,307,728
Common stock issued for services rendered 17,490
Common stock issued in connection with debt financing 103,125
Common stock issued for DoWebsites.com, Inc. 1,224,000
Common stock issued for Rental Car Direct.com, Inc. 4,420,000
Issuance of Series B preferred stock, net 3,798,031
Conversion of Series A preferred to common -
Conversion of Series B preferred to common -
Issuance of committed stock (28,440) -
Stock repurchase (2,296,813) (2,296,813)
Disgorgement of short-swing profits generated
by stockholder through sale of stock 184,314
Unrealized gain on marketable securities 988,134 988,134
Fair value of warrants issued for financing cost and services 1,209,827
Offering costs paid by issuance of warrants (553,758)
Net loss (33,530,627) (33,530,627)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 $ - $(41,827,177) $(2,402,483) $ 988,134 $(7,467,939)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
-------------------------------------------------------------------------------
2000 1999 1998
---------------- --------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (33,530,627) $ (8,296,550) $ 1,426,713
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 6,258,442 1,702,456 142,609
Write down of goodwill 1,224,000 - -
Options and warrants issued for services 153,618 80,000 -
Common stock issued for services 17,490 28,440 -
Common stock issued for financing costs 103,125 - -
Warrants issued for financing costs 392,724 - -
Gain on sale of building - (282,491) -
(Increase) decrease in
Accounts receivable - trade (2,552,536) 814,313 (887,269)
Accounts receivable - affiliates - 125,415 707,444
Inventory (495,074) (708,338) 98,371
Prepaid advertising 37,472 (1,948,577) 508,600
Advances receivable (10,816) (1,190,532) -
Deposits and other prepaid assets 19,654 (1,432,775) (83,478)
Increase (decrease) in
Accounts payable 1,597,381 4,449,166 33,731
Other accrued liabilities 572,640 1,661,949 390,031
Accrued interest-related party 2,041,025 12,465 -
Income taxes - - 30,000
Deferred revenue - (288,963) 6,830
---------------- ---------------- ----------------
Net cash provided by (used in) operating activities (24,171,482) (5,274,022) 2,373,582
----------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (11,879,301) (15,943,742) (345,554)
Purchase of marketable securities (938,612) - -
Cash acquired in acquisition - - 19,673
Purchase of AniMagic - (165,000) -
Purchase of customer list - (2,270,330) -
Purchase and development of Contour system - (3,000,000) -
Proceeds from sale of building - 1,240,000 -
Other 120,664 (612,865) (192,229)
---------------- ---------------- ----------------
Net cash used in investing activities (12,697,249) (20,751,937) (518,110)
----------------- ---------------- ----------------
The accompanying notes are an integral part of these financial statements.
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
-------------------------------------------------------------------------------
2000 1999 1998
---------------- --------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (payments to) related parties 2,693,993 (15,495) (46,133)
Net proceeds from line of credit (2,313,582) 835,371 670,035
Distribution to stockholder - (2,000,000) (955,000)
Proceeds from notes payable - related party 43,154,302 1,463,403 -
Proceeds from notes payable 1,000,000 11,346,814 800,000
Proceeds from exercise of options and warrants 2,845,620 - -
Proceeds from sale of common and preferred stock 4,000,000 19,750,000 -
Payment of offering costs (201,965) (4,234,522) (689,531)
Repurchase of common stock (2,296,813) (105,670) -
Payments on capital lease obligations (649,745) (45,868) (8,745)
Payments on notes payable - related party (9,335,439) - -
Payments on notes payable (1,942,851) (2,219,891) (64,825)
Disgorgement of short-swing profits
Generated by stockholder 184,314 - -
---------------- --------------- ----------------
Net cash provided by (used in) financing activities 37,137,834 24,774,142 (294,199)
---------------- --------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 269,103 $ (1,251,817) $ 1,561,273
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 589,745 1,841,562 280,289
---------------- --------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 858,848 $ 589,745 $ 1,841,562
================ =============== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ 1,762,492 $ 670,120 $ 135,135
================ =============== ================
INCOME TAXES PAID $ - $ - $ -
================ =============== ================
NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 2000 the Company: (1) issued 780,000 shares
of common stock in connection with the acquisition of Car Rental Direct.com,
Inc.; (2) issued 216,000 shares of common stock in connection with the
acquisition of DoWebsites.com; (3) converted $4,900,000 of debt into 2,100,000
shares of common stock as the holder of the debt exercised warrants at $2.33 per
share; (4) entered into capital lease obligations of $1,555,403; and (5)
financed revenue generating equipment through lines of credit of $4,755,985.
During the year ended December 31, 1999 the Company: (1) sold the Contour system
back to Global Leisure Travel, Inc. by transferring to Global the assets and
notes payable in the amount of $3,000,000; (2) issued a note payable in
connection with an insurance policy for $836,140; (3) entered into capital lease
obligations of $303,373; and (4) exchanged advances to a related party
receivable in the amount of $3,821,134, of which advances of $2,270,330 were
made in 1999 for customer lists.
The accompanying notes are an integral part of these financial statements.
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 1 - NATURE OF BUSINESS
GenesisIntermedia.com, Inc. (the "Company") was incorporated in the
State of Florida on October 28, 1993 under the name Genesis Media
Group, Inc. The Company re-domesticated to Delaware in 1998. On
December 3, 1998, the Company amended its Certificate of Incorporation
to change its name to GenesisIntermedia.com, Inc. The Company is an
integrated marketing and business solutions provider utilizing
conventional, emerging and interactive multimedia technologies. The
Company has devoted substantially all its resources to selling products
it owned or had purchased the rights to sell through conventional
marketing methods. The Company sold these products to the general
public through the use of infomercials, radio advertisements, print
media and retail outlets.
NOTE 2 - ACQUISITIONS
Car Rental Direct
On April 1, 2000, the Company purchased all of the issued and
outstanding stock of Car Rental Direct.com, Inc. for 260,000 shares of
the Company's common stock valued at $4,420,000. 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.
The fair value of assets acquired and liabilities assumed is summarized
as follows:
Revenue earning equipment (rental cars) $ 5,119,992
Furniture and equipment 309,573
Goodwill 4,652,544
Other assets 117,064
Line of credit (5,278,137)
Other liabilities (257,036)
Convertible debentures (244,000)
-----------------
Purchase price $ 4,420,000
=================
The convertible debentures assumed by the Company are non-interest
bearing, mature on August 1, 2000 and are convertible into the
Company's common stock at $17 per share at the option of the holder. In
August 2000, the Company repaid $139,000 of these convertible notes and
paid the remaining $105,000 in October 2000.
44
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 2 - ACQUISITIONS, CONTINUED
DynaMedia
Effective January 1, 2000, the Company purchased Dynatype Design and
Graphics Centers, Inc. ("DynaMedia"), a company that provides creative
design and graphic services. Its clients include Fortune 500 companies.
The Company issued 90,000 shares of its common stock for all of the
issued and outstanding shares of common stock of DynaMedia. Effective
December 31, 2000, the Company sold back to the original stockholder of
DynaMedia all the issued and outstanding shares of common stock of
DynaMedia in exchange for 90,000 shares originally issued in this
transaction. At December 31, 2000 the Company 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.
Vision Digital
On October 26, 1998, the Company acquired certain assets of Vision
Digital Communications, Inc., ("Vision Digital") a company that places
interactive kiosks in shopping malls. The Company purchased current
assets, equipment and intangible assets in exchange for 180,000 shares
of the Company's common stock valued at $600,000 plus the assumption of
certain liabilities. The common stock was valued at $3.33 per share
which approximates the per share price the Company received when it
sold stock in December 1997. The Company also issued to the seller
options to purchase up to an additional 150,000 shares of common stock
at a weighted average exercise price of $3.19 per share. The options
will be exercisable if the acquired division meets certain targeted
levels of total revenue over a three-year period. These options were
issued outside the Stock Option Plan. Such options will expire at the
end of such three-year period. At December 31, 2000, none of these
options had been exercised.
The Company entered into employment agreements with two former
employees of Vision Digital, each providing for three-year terms and
annual salaries of $84,000. Each such employee is also eligible to
receive grants of options to purchase an aggregate of 225,000 shares of
common stock, upon the achievement of three separate performance
hurdles. The 75,000 options that may be granted to each employee at
each such hurdle will have per share exercise prices of $3.67, $4.33
and $5.00, respectively. In addition, each employee is to receive an
interest free loan of $40,000 of which $30,000 will be forgiven upon
the achievement of certain performance goals. These loans were made by
the Company during 1999.
Listed below are the assets purchased from Vision Digital:
Cash $ 19,673
Other current assets 76,911
Property and equipment 582,895
Goodwill 372,800
Current liabilities (213,914)
Long-term debt and Capital leases (238,365)
---------------
PURCHASE PRICE $ 600,000
===============
45
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 2 - ACQUISITIONS, CONTINUED
Vision Digital, continued
The following table presents the unaudited pro forma condensed
consolidated statements of operations for the year ended December 31,
1998 and reflects the results of operations of the Company as if the
acquisition of Vision Digital had been effective January 1, 1998. The
pro forma amounts are not necessarily indicative of the combined
results of operations had the acquisition been effective as of that
date, or of the anticipated results of operations, due to cost
reductions and operating efficiencies that are expected as a result of
the acquisition.
1998
---------------
(unaudited)
Total net revenue $ 15,069,347
Direct costs $ 998,057
Selling, general and administrative expenses $ 8,696,034
Income from operations $ 1,177,097
Net income $ 1,011,162
Basic earnings per share $ 0.25
AniMagic
In March 1999, the Company acquired substantially all the assets of
AniMagic Corporation, an interactive multimedia company that produces
CD-ROMs for the edutainment industry, for $165,000. The operations of
AniMagic Corporation in 1998 and through the date of acquisition in
1999 were immaterial and are not presented.
DoWebsites.com
In April 2000, the Company purchased the assets of DoWebsites.com for
72,000 shares of common stock valued at $1,224,000. The principal asset
purchased was goodwill. The Company wrote off the goodwill established
as a result of the acquisition of DoWebsites.com as the Company
believes that the market for services offered by DoWebsites.com has
decreased substantially due to the recent closures of many Internet
related companies
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiaries Genesis Intermedia, Inc. from
its inception in August 1998, Genesis Properties, Inc. from its
inception in July 1999 and Car Rental Direct.com, Inc. from April 1,
2000, the date of acquisition. All intercompany accounts and
transactions have been eliminated.
46
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Stock Split
On October 27, 1998, the Company effected a 38,834.95-for-1 stock split
of its common stock, increased the number of authorized shares to
25,000,000 and changed the par value of its common stock to $0.001. In
addition on March 22, 2001 the Company effected a 3-for-1 stock split
of its common stock. All share and per share data have been
retroactively restated to reflect these stock splits, change in the
authorized shares and par value.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, and other accrued liabilities,
the carrying amounts approximate fair value due to their short
maturities. The amounts shown for notes payable and capital lease
obligations also approximate fair value because current interest rates
offered to the Company for debt or leases of similar maturities are
substantially the same.
Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Stock Options
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," establishes and encourages
the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined
using the fair value of stock-based compensation determined as of the
date of grant and is recognized over the periods in which the related
services are rendered. The statement also permits companies to elect to
continue using the current implicit value accounting method specified
in Accounting Principles Bulletin ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," to account for stock-based
compensation. The Company has elected to use the implicit value based
method and has disclosed the pro forma effect of using the fair value
based method to account for its stock-based compensation.
Cash and Cash Equivalents
For purpose of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents.
47
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Marketable Securities
Marketable securities at December 31, 2000 consist of equity securities
in Fashionmall.com, Inc. The Company has classified this investment in
marketable securities as available-for-sale. At December 31, 2000, the
Company's cost basis in these securities was $938,612 and the fair
market value at that date was $1,926,746. The Company has recorded the
unrealized gain of $988,134 as other comprehensive income which is
reflected in the accompany statements of stockholders' equity and
comprehensive income.
Advances Receivable
The balance represents advances to a third party that buys and sells
media time on behalf of the Company. The amount outstanding is
unsecured and will be repaid by commissions earned by the third party
on media transactions it processes for the Company.
Inventory
Inventory consists principally of products purchased for resale and are
stated at the lower of cost (determined by the first-in, first-out
method) or market.
Revenue Earning Equipment
Revenue earning equipment consists of rental vehicles that are stated
at cost less accumulated depreciation. The straight-line method is used
to depreciate revenue earning equipment to their estimated residual
values over periods typically ranging from 6 to 36 months. In
accordance with industry practice, depreciation expense includes gains
and losses on revenue earning vehicle sales in the ordinary course of
business and is included as a component of cost of revenue in the
accompanying consolidated statements of operations. At December 31,
2000 revenue earning equipment was $8,435,359 net of accumulated
depreciation of $1,440,618. Depreciation expense for the year ended
December 31, 2000 was $1,440,618 and is included in cost of revenue.
Production Costs
Costs related to the production of the Company's direct response
televised advertising programs are capitalized and amortized over the
estimated useful life of the production, generally from 12 to 24
months. The estimated useful life of each production is regularly
evaluated and adjusted as sales response becomes available. Included in
other assets in the accompanying consolidated balance sheets as of
December 31, 2000 and 1999 are capitalized production costs of $145,533
and $438,813, net of accumulated amortization of $654,964 and $252,328,
respectively.
Deposits and Other Prepaid Assets
The balance consists primarily of deposits held by credit card
processing companies as security for future charge-backs and returns by
customers who have purchased the Company's products during the year.
48
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided
on a straight-line basis over estimated useful lives of the assets as
follows:
Building and improvements 7 to 39 years
Leasehold improvement 1 to 10 years
Vehicles 5 years
Furniture and equipment 3 to 7 years
Expenditures for maintenance and repairs are charged to operations as
incurred while renewals and betterments are capitalized. Gains and
losses on disposals are included in the results of operations.
Accrued Payroll Taxes
The balance consists of payroll taxes related to payroll paid to the
Company's employees during 1997, 1998 and 1999. Included in the balance
is an estimated amount for penalties and interest that will be due when
the payroll taxes are paid.
Revenue Recognition
Product sales are recognized when the product is shipped. Generally, it
is the Company's policy to refund unconditionally the total price of
merchandise returned within 30 days of the customer's receipt of the
merchandise. The Company provides an allowance, based upon experience,
for returned merchandise. Revenue from media sales is recognized when
the media time is aired. Commissions, royalties, and rental income are
recognized when earned.
Revenue from the Company's rental car subsidiary consists primarily of
fees from rentals and the sale of related rental products. The Company
recognizes rental revenue over the period in which vehicles are rented.
Income Taxes
From inception to December 31, 1998, the Company elected to be taxed as
an S corporation; accordingly, the stockholders were liable for federal
and state income taxes on their respective shares of Genesis's taxable
income. In addition, there was a minimal franchise tax on the Company's
taxable income for state purposes.
Effective January 1, 1999, the Company revoked its S corporation status
and elected to be taxed as a C corporation. At that date, the retained
earnings of the S corporation of $1,165,965 were transferred to
additional paid-in capital.
49
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Income Taxes, continued
Effective January 1, 1999, the Company began utilizing SFAS No. 109,
"Accounting for Income Taxes," which requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Self-Insurance Liability
The Company retains up to $35,000 of risk per claim plus claims
handling expense for its automobile collision liability risks. Costs in
excess of this retained risk per claim are insured under various
contracts with insurance carriers. The ultimate costs of these retained
insurance risks are estimated by management and are based upon
historical claims experience, adjusted for current trends and changes
in claims handling procedures.
The Company believes its insurance liability reserves for its
automobile liability risks at December 31, 2000 of $187,784 is adequate
to cover future claims. Adjustments, if any, to estimated reserves
resulting from ultimate claim payments will be reflected in operations
in the periods in which such adjustments are known.
Advertising Costs
The Company expenses advertising costs when the advertisement takes
place, except for direct-response advertising costs that elicits a
customer to respond to a specific advertisement and that results in
future benefits. These costs are capitalized and amortized using an
accelerated method over its expected period of future benefit, not to
exceed twelve months. The Company is able to identify to which
advertisement a customer is responding by using a separate toll free
number for each ad. The Company evaluates the probable future benefits
of direct-response advertising costs based on recent historical
experience based on the type of advertisement, the target audience and
the product being sold.
Direct response advertising consists principally of television airtime
purchased to broadcast the Company's infomercials and print media. At
December 31, 2000 and 1999, $0 and $2,499,400, respectively, of
advertising was reported as an asset which consisted of the unamortized
portion of the capitalized direct response advertising, net of
accumulated amortization of $0 and $14,915,539, respectively. The
Company incurred $13,831,001, $9,866,824 and $2,808,716 in advertising
expense for the years ended December 31, 2000, 1999 and 1998,
respectively.
50
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Concentration of Credit Risk
The Company places its cash with high-credit, quality financial
institutions. At times, such amounts may be in excess of the Federal
Deposit Insurance Corporation limit. As of December 31, 2000 and 1999,
the uninsured portions of the balances held at these financial
institutions aggregated to $999,377 and $325,845. The Company has not
experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash and cash equivalents.
During the year ended December 31, 2000, the Company recognized 34% of
its revenue from the sale of one product. The product is being sold
under the terms of a five-year media agreement with a third party dated
May 12, 2000. Under the terms of the media agreement with the third
party, the third party has the right but not the obligation to
terminate the media agreement with the Company if the consultants who
introduced the third party to the Company terminate their relationship
with the Company.
During the years ended December 31, 2000, 1999 and 1998, 0%, 0% and
41%, respectively, of the Company's revenue was derived from selling
media time to a corporation owned by the Company's majority
stockholder.
Earnings Per Share
The Company reports earnings per share in accordance with SFAS No. 128,
"Earnings per Share." Basic earnings per share is computed by dividing
income available to common stockholders by the weighted average number
of common shares available. Diluted earnings per share is computed
similar to basic earnings per share except that the denominator is
increased to include the number of additional common shares that would
have been outstanding if the potential common shares had been issued
and if the additional common shares were dilutive. The following
potential common shares have been excluded from the computation of
diluted net loss per share for the periods presented because the effect
would have been anti-dilutive:
51
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Earnings Per Share, continued
For the Year Ended December 31,
---------------------------------------------
2000 1999 1998
------ ------ ------
Options outstanding under
the Company's stock option plan 3,975,240 1,403,160 750,000
Options issued as part of the acquisition
of Vision Digital 150,000 150,000 150,000
Warrants issued in conjunction with
common stock 750,000 750,000 -
Warrants issued in conjunction with
Series A convertible preferred stock 428,571 428,571 -
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 491,250 491,250 -
Warrants issued in conjunction with
convertible debentures 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 -
Impairment of Long-Lived Assets
The Company continually monitors its long-lived assets to determine
whether any impairment of these assets has occurred. In making such
determination, the Company evaluates the performance, on an
undiscounted cash flow basis, of the underlying assets or group of
assets that gave rise to this amount. Goodwill is being amortized on
the straight-line basis over 60 to 84 months. Customer lists are being
amortized on the straight-line basis over 24 months. In 2000, the
Company wrote off the goodwill established as a result of the
acquisition of DoWebsites.com of $1,224,000 as the Company believes
that the market for services offered by DoWebsites.com has decreased
substantially due to the recent closures of many Internet related
companies.
52
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Environmental Conservation
The use of automobiles and other vehicles is subject to various
governmental controls designed to limit environmental damage, including
that caused by emissions and noise. Generally, these controls are met
by the manufacturer, except in the case of occasional equipment failure
requiring repair by the Company. To comply with environmental
regulations, measures are taken at certain locations to reduce the loss
of vapor during the fueling process and to maintain, upgrade and
replace underground fuel storage tanks. The Company is also incurring
and providing for expenses for the cleanup of petroleum discharges and
other alleged violations of environmental laws arising from the
disposition of waste products. The Company does not believe that it
will be required to make any material capital expenditures for
environmental control facilities or to make any other material
expenditures to meet the requirements of governmental authorities in
this area. Liabilities for these expenditures are recorded when it is
probable that obligations have been incurred and the amounts can be
reasonably estimated.
Goodwill
The Company continually monitors its goodwill to determine whether any
impairment of this asset has occurred. In making such determination
with respect to goodwill, the Company evaluates the performance, on an
undiscounted cash flow basis, of the underlying assets or group of
assets that gave rise to this amount. Goodwill is being amortized on
the straight-line basis over 60 to 84 months. As of December 31, 2000
and 1999, goodwill was $4,479,560 and $429,063, respectively, net of
accumulated amortization of $710,784 and $108,737, respectively.
Software Development Costs
Software development costs are capitalized in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Cost of Computer Software to Be Sold, Leased, or Otherwise Marketed."
Capitalization of software development costs begins upon the
establishment of technological feasibility and is discontinued when the
product is available for sale. The establishment of technological
feasibility and the ongoing assessment for recoverability of
capitalized software development costs require considerable judgment by
management with respect to certain external factors, including, but not
limited to, technological feasibility, anticipated future gross
revenues, estimated economic life, and changes in software and hardware
technologies. Capitalized software development costs are comprised
primarily of salaries and payroll costs.
Amortization of capitalized software development costs is provided on a
product-by-product basis on the straight-line method over the estimated
economic life of the products (not to exceed three years). Management
periodically compares estimated net realizable value by product to the
amount of software development costs capitalized for that product to
ensure the amount capitalized is not in excess of the amount to be
recovered through revenues. Any such excess of capitalized software
development costs over expected net realizable value is expensed at
that time. At December 31, 2000 and 1999 software development costs are
included in Other Assets and amount to $233,088 and $366,281,
respectively, net of accumulated amortization of $166,492 and $33,299,
respectively.
53
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Risks and Uncertainties
The Company operates in industries that are highly competitive. The
Company's principal competitors are marketing and communication
companies that operate in the United States. In order to maintain its
current sales levels, the Company must continue to maintain existing
client relationships, and attract new clients by demonstrating its
creative reputation, knowledge of media and high quality service.
The majority of the Company's revenue has come from selling media time
to a related party and from product sales from one group of products.
The Company must continue to develop new sources of revenue and obtain
new products to sell because the majority of products generate their
most significant revenue in their introductory year.
The Company also relies on third party fulfillment facilities to store
inventory, process orders and ship products. The termination of or
adverse change in the Company's relationship with such fulfillment
facilities or the partial or total loss of any of these facilities or
the Company's inventories stored there may have a material adverse
effect upon the Company's business.
Recently Issued Accounting Pronouncements
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." The Company
does not expect the adoption of SFAS No. 138 to have a material impact,
if any, on its financial position or results of operations.
In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB
Statement No. 53 and amendments to FASB Statements No. 63, 89, and
121." The Company does not expect the adoption of SFAS No. 138 to
have a material impact, if any, on its financial position or results
of operations.
In September 2000, the FASB issued SFAS No. 140, "Accenting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This statement is not applicable to the Company.
Reclassifications
Certain amounts in the 1998 financial statements have been
reclassified to conform with the 2000 and 1999 presentation.
54
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2000 and 1999 consisted of the
following:
2000 1999
--------------- ----------------
Land $ 1,450,000 $ 1,450,000
Building and leasehold improvements 12,952,370 10,415,935
Vehicles 113,269 113,269
Furniture and equipment 16,697,274 5,489,158
--------------- ----------------
31,212,913 17,468,362
Less accumulated depreciation (3,079,339) (773,852)
---------------- -----------------
TOTAL $ 28,133,574 $ 16,694,510
=============== ================
Depreciation expense for the years ended December 31, 2000, 1999 and
1998 was $2,305,213, $649,196 and 131,849, respectively.
NOTE 5 - NOTES PAYABLE
Notes payable at December 31, 2000 and 1999 consisted of the following:
2000 1999
--------------- ---------------
Notepayable - bank is collateralized by a 1st Trust Deed on
the land and building located in Van Nuys, California. The
note bears interest at prime (9.0% at December 31, 2000)
plus 2.75%. Monthly interest only payments with any unpaid
principal and interest due on July 20, 2004. $ 7,856,250 $ 7,856,250
Notepayable - bank is collateralized by certain furniture and
equipment. The note bears interest at 8.5%. Monthly
principal and interest payments are $4,127 with any unpaid
principal and interest due in August 2003. This note was
called by the bank in April 1999 and repaid in 2000. - 151,569
Notes payable to an insurance company. The note is unsecured
and bear interest at 6.99% Monthly principal and interest
payments are $44,596 with any unpaid principal and
interest due December 10, 2000. - 547,282
--------------- ----------------
7,856,250 8,555,101
Current portion - 582,805
--------------- ---------------
LONG-TERM PORTION $ 7,856,250 $ 7,972,296
=============== ===============
55
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 5 - NOTES PAYABLE, CONTINUED
The following is a schedule by years of future maturities of notes
payable:
Year Ending
December 31,
--------------
2001 $ -
2002 -
2003 -
2004 7,856,250
------------
TOTAL $ 7,856,250
============
In May 1999, the Company 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 notes payable
agreements, the Company also issued warrants to purchase 235,713 shares
of common stock at $3.40 per share. The notes bear interest at the rate
of 8.75% per annum and are due the earlier of nine months from the date
of issuance or 30 days after the closing of the Company's initial
public offering. The Company repaid these notes in July 1999. 171,426
of the warrants were exercised during the year ended December 31, 2000.
In February 2000, the Company issued a $1,000,000 convertible
debenture, warrants to purchase 67,500 shares of the Company's common
stock at an exercise price of $4.00 per share and 45,000 shares of the
Company's common stock. The debenture is convertible into the Company's
common stock at $1.67 per share if it is held to maturity. The
debenture was due on April 7, 2000 and was repaid by the Company on
April 14, 2000. The Company took a charge to earnings for the issuance
of the 45,000 shares of common stock in the amount of $103,125. None of
the warrants had been exercised at December 31, 2000.
NOTE 6 - NOTES PAYABLE - RELATED PARTY
Notes payable to related party at December 31, 2000 and 1999 were
$30,382,266 and $1,463,403, respectively, and are due to Ultimate
Holdings, Ltd, ("Ultimate"), a Bermuda limited company and significant
stockholder of the Company. The notes are unsecured and bear interest
at 11.5%. The notes are due as follows: $6,000,000 on April 28, 2005,
$10,000,000 on June 16, 2005, $5,000,000 on August 11, 2005, $5,000,000
on September 20, 2005 and $4,382,266 on October 16, 2005.
In addition, in August 2000, Ultimate converted $4,900,000 of
outstanding debt into 2,100,000 shares of common stock by exercising a
warrant to purchase 2,100,000 shares of the Company's common stock at
$2.33 per share. The warrant was granted to Ultimate in connections
with a $5 million note payable agreement entered into in November 1999.
Ultimate was originally issued 2,250,000 warrant to purchase common
stock at $2.33 per share. In June 2000, the agreement was revised and
reduced the number of warrants to 2,100,000.
56
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 7 - LINE OF CREDIT
At December 31, 1999 the Company had a $1,750,000 line of credit with a
financial institution. The line was repaid in full by the Company in
2000. The line of credit bore interest at prime, plus 2.9%, was
collateralized by substantially all of the Company's assets, except
real estate, and was guaranteed by the Company's majority stockholder.
At December 31, 2000, the Company had 5 lines of credit with financial
institutions to finance the purchase of vehicles for the Company's Car
Rental Direct subsidiary. The interest rates range from 1.5% to 2.0%
over prime. The Company makes monthly principal payments of 2.25% to
2.75% of the original financed amount plus interest. The lines of
credit are collateralized by the vehicles and by 200,000 shares of the
Company's common stock and are guaranteed by the Company. Management
expects vehicle obligations will generally be repaid within one year
with proceeds received from either the repurchase of the vehicles by
the manufacturers in accordance with the terms of the repurchase
programs or from the sale of the vehicles.
NOTE 8 - RELATED PARTY TRANSACTIONS
Due to Stockholder
During 2000, the Company received advances totaling $2,693,993 from the
Company's Chairman and Chief Executive officer for working capital
purposes. The amount is payable on demand and accrues interest at 10%
per annum.
Media Sales and Accounts Receivable - Affiliate
The Company purchases media airtime and resells it to other companies.
For the years ended December 31, 2000, 1999 and 1998, media sold to a
company owned by the Company's majority stockholder amounted to $0, $0
and $3,702,731, respectively. The above-mentioned media sales resulted
in a gross profit of $0, $0 and $555,410, respectively. The mark-up on
the media sales was approximately 15%, which is the standard industry
mark-up and consistent with amounts that could be realized from sales
to unrelated third parties.
57
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 8 - RELATED PARTY TRANSACTIONS, CONTINUED
Customer List
During the second quarter of 1999, and in connection with the
termination of its business relationship with Trade Your Way To Riches,
Inc. ("TYWR"), a company wholly owned by the Company's majority
stockholder, the Company exercised its option to purchase the customer
lists of TYWR, which option TYWR had granted to the Company prior to
the Company's initial public offering. The purchase price of $3,821,134
for the customer lists was the approximate fair market value, based on
the projected revenues from sales from the lists' use. The purchase
price was paid through the exchange of advances made by the Company to
TYWR of $3,821,134, of which $2,270,330 of these advances were made in
1999, for the customer lists. Under the terms of the transaction, if
the gross profit to the Company from use of the list during the first
18 months did not meet or exceed the purchase price, then TYWR would
refund to the Company the difference between actual gross profit during
such period and the purchase price. The Company had the right to use
the customer list during the second quarter of 1999 in consideration of
the customary 25% commission for customer list use. Under the terms of
the option, the Company did not have to pay this commission if it
exercised the option to purchase prior to September 30, 1999. In 2000,
the gross profits generated from sales from these customer lists
exceeded the purchase price. None of the proceeds of the Company's
initial public offering were used to fund this purchase.
Genesis Aviation
In connection with the sales efforts "road show" and visits to
regulatory agencies in connection with the Company's initial public
offering, the Company leased an airplane from Genesis Aviation, Inc.
("Aviation"), a company wholly owned by the Company's majority
stockholder. During 1999, the Company reimbursed Aviation for use of
the airplane in the amount of $510,593. The lease charges to the
Company by Aviation were below the lease charges by Aviation to third
parties for the same services.
Contour System
In April 1999, the Company entered into a strategic alliance with
Global Leisure Travel, Inc. ("Global"), a leading provider of wholesale
travel to travel agents and consumers. Global's majority stockholder is
a company that is wholly owned by the Company's majority stockholder.
The strategic alliance provided that the Company would become the
principal marketing and advertising agent and the exclusive Internet
marketing and advertising agent and eCommerce consultant and provider
to Global and all of its subsidiaries and affiliates.
Global also granted the Company an option to acquire all of the
technology and assets comprising its proprietary computerized travel
marketing system known as the Contour System. The agreed purchase price
is the actual cost of development. In June 1999, the Company exercised
this option and purchased the Contour System for $2,500,000.
58
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 8 - RELATED PARTY TRANSACTIONS, CONTINUED
Contour System, continued
As a financing cost related to a loan made to Global from an unrelated
third party, the Company issued warrants to purchase 491,250 shares of
the Company's common stock at an exercise price of $2.33. The warrants
vested immediately and expire three years from the date of grant. The
Company recorded financing costs of $392,724 that were determined using
the Black Scholes option pricing model. None of the warrants had been
exercised at December 31, 2000.
In December 1999, the Company sold the Contour System back to Global by
transferring the Contour System and certain notes payable in the amount
of $3,000,000 to Global. There was no gain or loss on this transaction
as the Company's basis in the Contour System had increased by
approximately $500,000 from additional development costs paid by the
Company.
Commission Revenue
For the years ended December 31, 2000, 1999 and 1998, the Company
earned $0, $0 and $1,789,415, respectively, in commission from selling
products for companies owned by the Company's majority stockholder. The
commission received from selling these products ranged from 35% to 55%.
Transactions with Dr. Gray
On December 31, 1997, the Company sold 349,512 shares of its common
stock to Dr. John Gray for $900,000. On November 1, 1998, 29,126 of
those shares were surrendered. Royalties paid to Dr. Gray for the years
ended December 31, 2000, 1999 and 1998 were $0, $0 and $0,
respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Royalties
In the normal course of business, the Company has entered into various
agreements under which it is obligated to pay royalties on products it
sells. The royalties vary by agreement and are based on percentages of
net revenue generally not to exceed 25% or a percentage of the net
profits of the venture generally not to exceed 50%. Royalty expense for
the years ended December 31, 2000, 1999 and 1998 was $3,528,938,
$1,403,487 and $454,997, respectively.
Litigation
The Company may also be involved from time to time in various other
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 would have a material impact on the financial
position or results of operations of the Company.
59
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 9 - COMMITMENTS AND CONTINGENCIES, CONTINUED
Leases
The Company leases certain office space, office equipment, an
automobile and mall space for its kiosks under a non-cancelable
operating lease. The Company also leases certain office furniture and
equipment under capitalized lease obligations. Future minimum rental
commitments under lease agreements with initial or remaining terms of
one year or more are as follows:
Year Ending Operating Capital
December 31, Leases Leases
------------- ------------ ------------
2001 $ 2,211,908 $ 1,217,270
2002 2,476,933 1,014,334
2003 2,337,473 514,729
2004 2,277,040 306,501
2005 1,363,174 --
Thereafter 903,504 --
------------ ------------
$ 11,570,032 3,052,834
============
Less amount representing interest (1,788,689)
------------
1,264,145
Less current portion 745,973
------------
$ 518,172
============
Included in property and equipment is capitalized lease equipment of
$1,973,674 and $418,271 with accumulated amortization of $594,481 and
$54,284 at December 31, 2000 and 1999, respectively.
Rent expense for the years ended December 31, 2000, 1999 and 1998 was
$166,507 and $226,852 and $24,405, respectively.
Employment Agreements
In September 1998, the Company entered into an employment agreement
with its President, which continues until September 30, 2003, unless
terminated earlier by the Company, either for cause, death or certain
other circumstances. Pursuant to the terms of the Employment Agreement,
the President is to be paid an annual salary of $250,000 and is
eligible to receive bonuses at the discretion of the Board of
Directors.
In October 1998 the Company entered into employment agreements with two
employees retained as a result of the acquisition of certain of the
assets of Vision Digital Communications, Inc. The term of each of the
employment agreements commenced on November 1, 1998 and will terminate
on October 31, 2001, unless terminated earlier by the Company for
cause, death or under certain other circumstances. The employment
agreements provide that each of the employees is to be paid an annual
salary of $84,000 and is eligible to receive an annual bonus at the
discretion of the Board of Directors.
60
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 9 - COMMITMENTS AND CONTINGENCIES, CONTINUED
Employment Agreements, continued
In connection with the acquisition of Car Rental Direct, the Company
assumed the employment agreements already in place with three of Car
Rental Direct's executives. Each of the three agreements provide for an
annual salary of $150,000 for seven years. In 2001, the Company
terminated one of the executives. As part of the termination agreement,
the executive released all claims to his employment agreement.
NOTE 10 - STOCKHOLDERS' EQUITY
Stock Surrender
On November 1, 1998, the Company's two principal stockholders
surrendered an aggregate of 3,000,000 shares of the Company's common
stock.
Private Placement Offerings
In January 1999, the Company completed a private placement of 525,000
shares of common stock at $3.33 per share, net of commissions and
expenses of approximately $201,250. In connection with the sale of the
series A convertible preferred stock, the Company issued 225,000
additional shares of common stock and warrants to purchase an
additional 750,000 shares of common stock at $3.40 to the investors,
which brought the effective purchase price of the shares issued to
$2.33 per share. None of the warrants had been exercised at December
31, 2000 related to the purchase of shares of the Company's common
stock in January 1999.
Initial Public Offering
In June 1999 the Company sold 6,000,000 shares of common stock in its
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
Convertible Preferred Stock
In March 1999 the board of directors authorized the issuance of one
series of preferred stock Series A Convertible Preferred Stock. There
are 450,000 authorized shares of Series A Convertible Preferred Stock.
This stock has a cash dividend of 8.75% per annum, payable quarterly.
The holders of this stock have no voting rights. In April, 1999, the
Company sold 142,857 shares of convertible preferred stock at $7.00 per
share, net of commissions of $115,000, and warrants to purchase 428,571
shares of common stock at $3.40 to the same investors who purchased
shares of the Company's common stock in January 1999. In August 2000,
71,429 shares of the Series A Convertible Preferred Stock were
converted into 214,287 shares of the Company's common stock.
61
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 10 - STOCKHOLDERS' EQUITY, CONTINUED
Convertible Preferred Stock, continued
On May 2, 2000, the Company issued 4,000 shares of its Series B
Convertible Preferred Stock to two investors for gross proceeds of
$4,000,000. The Series B Convertible Preferred Stock has a liquidation
preference of $1,000 per share and carries a 5% cumulative dividend
payable at the end of each calendar quarter. The Company also issued to
the investors an aggregate of 336,000 warrants to purchase the
Company's common stock at $5.91 per share, which represents 115% of the
market value of the Company's stock at the closing date. The Series B
Convertible Preferred Stock is convertible into common stock at 110% of
the market value of the Company's 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 the Company's
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 the
Company's 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 the Company of $1,824,880.
Warrants
In June 2000, the Company issued a warrant to purchase 20 shares of the
common stock of the Company's Genesis Intermedia, Inc. subsidiary at an
exercise price of $250,000 per share. The subsidiary warrant vested
immediately and was issued pursuant to a securities purchase agreement
as an incentive for Infinity Outdoor to maximize its joint marketing
efforts with the Company. At any time during the term of the subsidiary
warrant, if the Company has not completed a public offering under an
effective registration statement for the sale of shares of common stock
of Genesis Intermedia, Inc. for at least $20,000,000, Infinity Outdoor
has the option to tender the subsidiary warrant in exchange for a
warrant to purchase 967,740 shares of the Company's common stock at an
exercise price of $5.17 per share. Both warrants expire in June 2001 if
Infinity Outdoor does not generate gross revenues in excess of $1
million during the twelve month period between June 2000 and June 2001
from any sites where the interactive kiosk networks and Infinity
Outdoor's display advertising systems are jointly marketed. The
expiration date will be extended to June 2003 if the gross revenues
exceed $1 million. The subsidiary warrant was valued at $263,345 using
the Black Scholes option pricing model. The warrant had not been
exercised at December 31, 2000.
In September 2000, as part of a release agreement, the Company issued a
warrant to purchase 150,000 shares of common stock at an exercise price
of $5.33. The warrant vested immediately and expires in September 2005.
It was issued to the lender from whom the Company borrowed $1 million
in February 2000 as liquidated damages under that securities purchase
agreement. The warrant was valued at $553,758 using the Black Scholes
option pricing model and recorded as an offering cost for the year
ended December 31, 2000. The warrant had not been exercised at December
31, 2000.
62
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 10 - STOCKHOLDERS' EQUITY, CONTINUED
Warrants, continued
On November 2000, the Company issued warrants to purchase up to 600,000
shares of common stock at an exercise price of $5.00 per share that
expire five years from the date of vesting to The Macerich Partnership,
L.P. The warrants were issued pursuant to space lease agreements with
affiliates of Macerich as additional consideration for leasing space in
shopping malls owned or operated by Macerich as part of the Company's
Centerlinq expansion. 199,998 of the warrants will vest upon the
installation of the Centerlinq kiosks in certain malls and the
remaining 400,002 warrants will vest proportionately as Centerlinq
kiosks are installed in an additional 22 malls. None of the warrants
were vested as of December 31, 2000 and none of the warrants had been
exercised at December 31, 2000.
Treasury Stock
During 2000 and 1999, the Company repurchased 127,600 and 67,200 shares
of its common stock for $2,296,813 and $105,670, respectively.
Stock Option Plan
In October 1998, the board of directors adopted and the stockholders
approved the Company's 1998 Stock Incentive Program ("Stock Option
Plan"). Under the Stock Option Plan, the board of directors, or its
designated administrators, has the flexibility to determine the type
and amount of awards to be granted to eligible participants. The Stock
Option Plan is intended to secure for the Company and its stockholders
the benefits arising from ownership of the Company's common stock by
individuals employed or retained by the Company who will be responsible
for the future growth of the Company. The Stock Option Plan is designed
to help attract and retain superior personnel for positions of
substantial responsibility, and to provide individuals with an
additional incentive to contribute to the Company's success.
The Stock Option Plan is composed of seven parts and the program
administrators may make the following types of awards under the Stock
Option Plan: (1) incentive stock options under the Incentive Stock
Option Plan; (2) nonqualified stock options under the Nonqualified
Stock Option Plan; (3) restricted shares under the Restricted Shares
Plan; (4) rights to purchase stock under the Employee Stock Purchase
Plan; (5) stock appreciation rights under the Stock Appreciation Rights
Plan; (6) grants of options under the Non-Employee Director Stock
Option Plan; and (7) certain other stock rights under the Stock Rights
Plan, which may include the issuance of units representing the
equivalent of shares of common stock, payments of compensation in the
form of shares of common stock and rights to receive cash or shares of
common stock based on the value of dividends paid with respect to a
share of common stock.
63
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 10 - STOCKHOLDERS' EQUITY, CONTINUED
Stock Option Plan, continued
The Company had originally authorized and reserved for issuance an
aggregate of 1,800,000 shares of common stock under the Stock Option
Plan. The amount authorized and reserved for issuance was increased by
2,400,000 shares at the Company's annual stockholder meeting in June
2000, bringing the total authorized under the Stock Option Plan to
4,200,000. The aggregate number of shares of common stock which may be
granted through awards under the Stock Option Plan, other than stock
payments and the purchase of stock under the Employee Stock Purchase
Plan, to any employee in any calendar year may not exceed three percent
of the then-outstanding shares of common stock. The shares of common
stock issuable under the Stock Option Plan may be authorized but
unissued shares, shares issued and reacquired by the Company or shares
purchased by the Company on the open market. If any of the awards
granted under the Stock Option Plan expire, terminate or are forfeited
for any reason before they have been exercised, vested or issued in
full, the unused shares subject to those expired, terminated or
forfeited awards will again be available for purposes of the Stock
Option Plan.
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting
Principles Bulletin ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its
Stock Option Plan and does not recognize compensation expense for its
Stock Option Plan other than for restricted stock and options issued to
outside third parties. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for
awards under the Stock Option Plan consistent with the methodology
prescribed by SFAS No. 123, the Company's net income and earnings per
share would be reduced to the pro forma amounts indicated below for the
years ended December 31, 2000, 1999 and 1998:
2000 1999 1998
---------------- --------------- ----------------
Net income (loss)
As reported $ (33,530,627) $ (8,296,550) $ 1,426,713
Pro forma $ (35,644,789) $ (8,986,973) $ 1,074,630
Basic earnings (loss) per common share
As reported $ (1.85) $ (0.63) $ 0.12
Pro forma $ (1.97) $ (0.68) $ 0.09
Diluted earnings (loss) per common share
As reported $ (1.85) $ (0.63) $ 0.12
Pro forma $ (1.97) $ (0.68) $ 0.09
For purposes of computing the pro forma disclosures required by SFAS
No. 123, the fair value of each option granted to employees and
directors is estimated using the Black-Scholes option-pricing model.
The fair value is computed as of the date of grant using the following
assumptions for grants in 2000, 1999 and 1998: (i) dividend yield of
0%, 0% and 0%, (ii) expected volatility of 121%, 100% and 65%, (iii)
weighed-average risk-free interest rate of approximately 6.5%, 6.2% and
5.5%, and (iv) expected life of 2, 2 and 2 years, respectively.
64
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 10 - STOCKHOLDERS' EQUITY, CONTINUED
Stock Option Plan, continued
The following is table summarizes the options and warrants outstanding:
Weighted- All Weighted-
Stock Average Other Average
Option Exercise Options/ Exercise
Plan Price Warrants Price
Balance, December 31,
1997 - $ - - $ -
Granted 1,350,000 $ 2.83 150,000 $ 3.19
Exercised - $ - - $ -
Canceled 600,000 $ 2.83 - $ -
--------------- ---------------
Balance, December 31,
1998 750,000 $ 2.83 150,000 $ 3.19
Granted 693,660 $ 2.13 4,005,534 $ 2.71
Canceled (40,500) $ 2.13 - $ -
--------------- ---------------
Balance, December 31,
1999 1,403,160 $ 2.65 4,155,534 $ 2.73
Granted 2,948,964 $ 3.79 2,121,240 $ 5.21
Exercised (191,949) $ 2.28 (2,607,426) $ 2.80
Canceled (184,935) $ 4.03 - $ -
--------------- ---------------
BALANCE, DECEMBER 31,
2000 3,975,240 $ 3.46 3,669,348 $ 4.07
=============== ===============
EXERCISABLE, DECEMBER
31, 2000 1,967,876 $ 2.75 3,669,348 $ 4.07
=============== ===============
There were 224,760 options available for future grant at December 31,
2000 under the Company's Stock Option Plan.
The weighted average remaining contractual life of options outstanding
issued under the Stock Option Plan is 5.5 and 3.09 years, respectively,
at December 31, 2000 and 1999. The exercise price for the options
outstanding under the Stock Option Plan at December 31, 2000 ranged
from $1.42 to $5.73. No compensation expense was recognized as a result
of the issuance of stock options during the years ended December 31,
2000, 1999 and 1998.
For options granted during the years ended December 31, 2000, 1999 and
1998 where the exercise price equaled the stock price at the date of
the grant, the weighted-average fair value of such options was $3.22,
$1.18 and $1.12, respectively, and the weighted-average exercise price
of such options was $3.79, $2.13 and $2.83, respectively. No options
were granted during the years ended December 31, 2000, 1999 and 1998
where the exercise price was greater than the stock price at the date
of grant or where the exercise price was less than the stock price at
the date of the grant.
65
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 11 - PROVISION FOR INCOME TAXES
The following table presents the current and deferred income tax
provision for federal and state income taxes for the years ended
December 31, 2000, 1999 and 1998:
2000 1999 1998
------------- ------------- --------------
Current
Federal $ - $ - $ -
State - - 30,000
------------- ------------- --------------
- - 30,000
------------- ------------- --------------
Deferred
Federal - - -
State - - -
------------- ------------- --------------
- - -
------------- ------------- --------------
PROVISION FOR INCOME TAXES $ - $ - $ 30,000
============= ============= ==============
The provision for income taxes differs from the amount that would
result from applying the federal statutory rate as follows. No
reconciliation is shown for the year ended December 31, 1998 as the
Company elected to be taxed as an "S" corporation until December 31,
1998.
Year Ended December 31,
-------------------------------
2000 1999
--------------- --------------
Statutory regular federal income tax rate 34.0% 34.0%
Effect of valuation allowance (34.0%) (34.0%)
--------------- --------------
TOTAL 0.0% 0.0%
=============== ==============
66
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 11 - PROVISION FOR INCOME TAXES, CONTINUED
The components of the deferred income tax assets (liabilities) as of
December 31, 2000 and 1999 are as follows:
Year Ended December 31,
---------------------------------
2000 1999
--------------- ----------------
Deferred tax assets
Amortization of goodwill $ 153,000 $ 20,000
Accounts receivable allowance 236,000 4,000
Net operating loss carryforward 16,324,000 3,265,000
--------------- ----------------
Total deferred tax assets 16,713,000 3,289,000
--------------- ----------------
Deferred tax liabilities
Depreciation of property and equipment 1,326,000 380,000
--------------- ----------------
Total deferred tax liabilities 1,326,000 380,000
--------------- ----------------
Net deferred tax asset 15,387,000 2,909,000
Valuation allowance (15,387,000) (2,909,000)
--------------- ----------------
$ - $ -
=============== ================
At December 31, 2000 and 1999, the Company has provided a valuation
allowance for the deferred tax asset since management has not been able
to determine that the realization of that asset is more likely than
not. The net change in the valuation allowance for the years ended
December 31, 2000 and 1999, was an increase of $12,478,000 and
$2,909,000, respectively. Net operating loss carry forwards expire
starting in 2014.
NOTE 12 - 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.
67
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 12 - SEGMENT INFORMATION, CONTINUED
Summarized financial information concerning the Company's reportable
segments is shown in the following table for the years ended December
31, 2000, 1999 and 1998:
December 31, 2000
------------------------------------------------------------------------------
Media Intermedia Properties Car Rental Consolidated
------------ ------------- ------------- ------------ ------------
Sales to unaffiliated
customers $ 36,674,053 $ 451,967 $ 926,174 $ 4,269,402 $ 42,321,596
Operating loss $ (17,726,317) $ (8,493,253) $ (535,658) $ (2,468,966) $ (29,224,194)
Depreciation and
amortization $ 2,114,289 $ 1,737,393 $ 390,540 $ 2,016,220 $ 6,258,442
Interest expense $ 2,132,016 $ 264,154 $ 882,262 $ 525,085 $ 3,803,517
Identifiable assets $ 14,957,340 $ 16,244,603 $ 12,130,869 $ 13,843,769 $ 57,176,581
Capital expenditures $ 471,496 $ 12,120,271 $ 703,286 $ 139,651 $ 13,434,704
December 31, 1999
------------------------------------------------------------------------------
Media Intermedia Properties Car Rental Consolidated
------------ ------------- ------------- ------------ ------------
Sales to unaffiliated
customers $ 31,060,083 $ 269,652 $ 341,528 $ - $ 31,671,263
Operating loss $ (4,375,118) $ (3,218,351) $ (207,247) $ - $ (7,800,715)
Depreciation and
amortization $ 1,268,630 $ 520,785 $ 126,212 $ - $ 1,915,627
Interest expense $ 329,901 $ 23,159 $ 317,660 $ - $ 670,120
Identifiable assets $ 12,741,652 $ 5,305,650 $ 11,811,647 $ - $ 29,858,949
Capital expenditures $ 489,998 $ 3,830,258 $ 11,886,239 $ - $ 16,206,495
December 31, 1998
------------------------------------------------------------------------------
Media Intermedia Properties Car Rental Consolidated
------------ ------------- ------------- ------------ ------------
Sales to unaffiliated
customers $ 9,262,384 $ 151,214 $ - $ - $ 9,413,598
Operating income (loss) $ 1,946,481 $ (354,633) $ - $ - $ 1,591,848
Depreciation and
amortization $ 106,132 $ 36,477 $ - $ - $ 142,609
Interest expense $ 125,500 $ 9,635 $ - $ - $ 135,135
Identifiable assets $ 8,717,276 $ 1,271,042 $ - $ - $ 9,988,318
Capital expenditures $ 264,856 $ 156,538 $ - $ - $ 421,394
68
GENESISINTERMEDIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 13 - SUBSEQUENT EVENTS
On January 5, 2001, the Company entered into another note payable
agreement with 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.
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.
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 the lesser of $7.00 per share or if the average closing
price for the five day period immediately preceding April 14, 2001 is
less than $6.67, the conversion price is 105% of the average price for
the five business days preceding April 14, 2001. 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. 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.
On April 16, 2001, the Company entered into another 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.
69
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULES
Board of Directors and Shareholders
GenesisIntermedia.com, Inc.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental Schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 11, 2001, except for Note 13
as to which the date is April 16, 2001
70
GENESISINTERMEDIA.COM, INC.
VALUATION AND QUALIFYING ACCOUNTS - SCHEDULE II
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------------------- ------------------ --------------------------------------- ------------------- ---------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
-------------------- ------------------ ------------------- ------------------- ------------------- ---------------------
Allowance for
doubtful accounts
1998 $ 75,000 $ 100,000 $ 175,000
1999 $ 175,000 $ (165,000) $ 10,000
2000 $ 10,000 $ 584,313 $ 594,313
Self-insurance reserve
1998 $ - $ -
1999 $ - $ -
2000 $ - $ 187,784 $ 187,784
71
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors and Executive Officers of the Company
is incorporated by reference to the Company's definitive Proxy Statement for its
annual meeting of stockholders to be filed not later than 120 days after
December 31, 2000 with the Securities and Exchange Commission (the "2001 Proxy).
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated by reference to the
Company's 2001 Proxy.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is incorporated by reference to the
Company's 2001 Proxy.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item is incorporated by reference to the
Company's 2001 Proxy.
72
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See index to financial statements under Item 8 for a list of all
financial statements filed as part of this report.
2. Financial Statement Schedules
The following financial statement schedules are filed as a part of this
Annual Report on Form 10-K:
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
3. Exhibits Required To Be Filed By Item 601 of Regulation S-K
The following exhibits are filed as part of this Annual Report on Form
10-K or are incorporated herein by reference:
EXHIBIT DESCRIPTION
1.1 Form of Underwriting Agreement(1)
2.1 Agreement and Plan of Merger between Genesis Media Group, Inc., a Florida
corporation ("Genesis Florida") and GenesisIntermedia.com, Inc. (formerly
Genesis Media Group, Inc.), a Delaware corporation ("Genesis Delaware")(1)
2.2 Asset Purchase Agreement between the Registrant and Vision Digital
Communications, Inc. dated as of October 26, 1998(1)
2.3 Letter Agreement between the Registrant and AniMagic Corporation dated October
27, 1998(1)
2.4 Letter of Agreement between the Registrant and Crown American Enterprises, Inc.
dated as of November 17, 1998(1)
3.1 Articles of Incorporation of Genesis Florida filed with the Florida Secretary
of State on October 28, 1993(1)
3.2 Articles of Amendment of Genesis Florida filed on October 27, 1998(1)
3.3 Certificate of Incorporation of Genesis Delaware filed with the Delaware
Secretary of State on October 26, 1998(1)
3.4 Bylaws of Genesis Florida(1)
3.5 Bylaws of Genesis Delaware(1)
3.6 Certificate of Amendment of Certificate of Incorporation of
Genesis Delaware filed with the Delaware Secretary of State on
December 3, 1998(2)
3.7 Certificate of Merger of Genesis Florida into Genesis Delaware filed with the
Delaware Secretary of State on December 9, 1998(2)
3.8 Certificate of Designation, Rights and Preferences of the Series A Convertible
Preferred Stock of Genesis Intermedia.com, Inc.(3)
3.9 Certificate of Designations of the Powers, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock and
Qualifications, Limitations and Restrictions Thereof of Series B Cumulative
Convertible Preferred Stock for GenesisIntermedia.com, Inc.(8)
73
4.1 Specimen Stock Certificate(1)
10.1 Genesis Intermedia.com, Inc. Amended and Restated 1998 Stock Incentive
Program(5)
10.2 Form of Indemnification Agreement with Directors and Executive Officers(1)
10.3 Form of Representative's Warrant(1)
10.4 Form of Lock-Up Agreement(1)
10.5 Employment Agreement between the Registrant and Ramy El-Batrawi(1)
10.6 Employment Agreement between the Registrant and Sam I. Hassabo(1)
10.7 Deed of Trust (dated July 24, 1997)(1)
10.8 Note U.S. Small Business Administration (dated July 24, 1997)(1)
10.9 Promissory Note (dated January 1, 1998)(1)
10.10 Promissory Note (dated April 23, 1998)(1)
10.11 Note U.S. Small Business Administration (dated August 20, 1998)(1)
10.12 Commercial Security Agreement (dated August 20, 1998)(1)
10.13 Lease Agreement (dated July 24, 1998)(1)
10.14 WCMA Note, Loan and Security Agreement between the Registrant and Merrill Lynch
Business Financial Services, Inc.(1)
10.15 Addendum to that Lease dated July 24, 1998 between the Registrant and Southern
California Sunbelt Developers, Inc.(2)
10.16 License Agreement between the Registrant (as assignee) and John Gray, Ph.D.
dated September 29, 1993(2)
10.17 Amendment to Agreement between the Registrant (as assignee) and John Gray,
Ph.D.(2)
10.18 Employment Agreement between Registrant and Michael F. Costa(2)
10.19 Employment Agreement between Registrant and Christopher Miglino(2)
10.20 Assignment between Registrant (as Assignee) and Ramy El-Batrawi (as Assignor)(2)
10.21 Surrender and Cancellation Agreement among the Registrant, Ramy El-Batrawi and
John M. Gray(2)
10.22 Term Sheet between the Registrant and Global Leisure Travel, Inc.(4)
10.23 Form of Securities Purchase Agreement dated January 1999(9)
10.24 Form of Warrant(9)
10.25 Form of Letter Agreement dated April 1999(9)
10.26 Form of Securities Purchase Agreement dated March 31, 1999(9)
10.27 Letter Amendment to Employment Agreement between Registrant and Michael F.
Costa dated as of April 9, 1999(9)
10.28 Letter Amendment to Employment Agreement between Registrant and Christopher
Miglino dated as of April 9, 1999(9)
10.29 Lease Agreement between Winter Quarters Resort Properties Ltd. and the
Registrant dated April 29, 1999(3)
10.30 Registration Rights Agreement between Registrant and Purchases of Genesis
Intermedia.com, Inc. Series A Convertible Preferred Stock and Warrants(3)
10.31 Stock Purchase Agreement between Registrant and Global Leisure Travel, Inc.
dated June 1999(4)
10.32 Stock Purchase Agreement between Registrant and Global Leisure Travel, Inc.
dated December 1999(6)
10.33 Securities Purchase Agreement between Registrant and Ultimate Holding, Ltd., a
Bermuda Ltd. dated November 1999(6)
10.34 Securities Purchase Agreement and Warrants dated November 25, 1999 with
Ultimate Holding, Ltd. a Bermuda Ltd.(6)
74
10.35 Securities Purchase Agreement by and between GenesisIntermedia.com, Inc. and
Denmore Investments, Ltd. dated February 7, 2000.(6)
10.36 Warrant issued to Denmore Investments, Ltd.(6)
10.37 Agreement and Plan of Reorganization between the Registrant, United Pacific
Alliance and DoWebsites.com, Inc. dated March 29, 2000(9)
10.38 Stock Purchase Agreement between Car Rental Direct.com, Inc. d/b/a Car Rental
Direct, Brian Wood, Keenan Cheung and the Registrant dated April 1, 2000(9)
10.39 Shareholder Joinder and Indemnity Agreement among the shareholders of Car
Rental Direct.com, Inc., Brian Wood, Keenan Cheung and the Registrant dated
April 1, 2000(9)
10.40 Securities Purchase Agreement by and between GenesisIntermedia.com, Inc.,
Elliott Associates, L.P., Westgate International, L.P. dated April 28, 2000(8)
10.41 Warrant issued to Elliott Associates(8)
10.42 Warrant issued to Westgate International, L.P. (8)
10.43 Warrant issued to Shoreline Pacific Institutional Financial, the Institutional
Division of Financial West(8)
10.44 Registration Rights Agreement by and between the Registrant and Elliott
Associates, L.P., Westgate International, L.P. dated April 28, 2000(8)
10.45 Agreement and Plan of Merger by and between Dyna-Acquisitions, Inc., Dynatype
Design and Graphics Centers, Inc., Kathryn A. Smith and the Registrant dated
May 8, 2000(7)
10.46 Warrant issued to Ultimate Holdings, Inc.(9)
10.47 Warrant issued to Kenneth D'Angelo(9)
10.48 Form of Debenture Purchase Agreement(9)
10.49 Form of Warrant(9)
10.50 Form of Debenture(9)
10.51 GenesisIntermedia.com, Inc. Second Amended and Restated 1998 Stock Incentive
Program(10)
10.52 Securities Purchase Agreement by and between GenesisIntermedia.com, Inc. and
Infinity Outdoors, Inc. dated June 2000*
10.53 Release Settlement Agreement by and between Denmore Investments, Ltd. and
GenesisIntermedia.com, Inc. dated September 2000*
10.54 Note Purchase Agreement by and between Ultimate Holdings, Ltd. and
GenesisIntermedia.com, Inc. dated October 16, 2000*
10.55 Promissory Note by and between Ultimate Holdings, Ltd. and
GenesisIntermedia.com, Inc. dated October 16, 2000*
10.56 Warrant Agreement by and between GenesisIntermedia.com, Inc. and The Macerich
Partnership, L.P. dated November 2, 2000 *
10.57 Space Lease Agreement by and between GenesisIntermedia.com, Inc., The Macerich
Management Company and Macerich Property Management dated November 2, 2000 *
10.58 Warrant issued to Macerich Partnership*
10.59 Securities Purchase Agreement by and between GenesisIntermedia.com, Inc., and
Elliott Associates, L.P., and Elliott International, L.P. dated March 15, 2001*
10.60 7% Convertible Debenture due December 31, 2001 - Debenture No. 1 dated March
15, 2001*
10.61 7% Convertible Debenture due December 31, 2001 - Debenture No. 2 dated March
15, 2001*
10.62 Warrant issued to Elliott Associates, L.P. *
75
10.63 Warrant issued to Elliott International, L.P. *
10.64 Registration Rights Agreement by and between GenesisIntermedia.com, Inc.,
Elliott Associates, L.P. and Elliott International, L.P. dated March 15, 2001*
21.1 Subsidiaries of the Registrant*
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP*
(1) Incorporated by reference to the Exhibits to the Registration Statement
filed by the Registrant on Form SB-2 (Commission File No. 333-66281)
dated October 28, 1998.
(2) Incorporated by reference to the Exhibits to the Registration Statement
filed by the Registrant on Form SB-2 Amendment No.1 (Commission File
No. 333-66281) dated December 4, 1998.
(3) Incorporated by reference to the Exhibits to the Registration Statement
filed by the Registrant on Form SB-2 Amendment No.5 (Commission File
No. 333-66281) dated April 15, 1999.
(4) Incorporated by reference to the Exhibits to the Registration Statement
filed by the Registrant on Form SB-2 Amendment No.6 (Commission File
No. 333-66281) dated May 17, 1999.
(5) Incorporated by reference to the Exhibits to the Registration Statement
filed by the Registrant on Form S-8 (Commission File No. 001-95417)
dated January 26, 2000.
(6) Incorporated by reference to the Exhibits to the Annual Report filed by
the Registration on Form 10-KSB (Commission File No.: 001-15029) dated
April 14, 2000.
(7) Incorporated by reference to the Exhibits to the Current Report filed
by the Registrant on Form 8-K (Commission File No.001-15029) dated May
15, 2000.
(8) Incorporated by reference to the Exhibits to the Quarterly Report filed
by the Registrant on Form 10-QSB (Commission File No.: 001-15029) dated
May 15, 2000.
(9) Incorporated by reference to the Exhibits to the Registration Statement
filed by the Registrant on Form S-3 (Commission File No. 333-41120)
dated July 10, 2000.
(10) Incorporated by reference to the Exhibits to the Registration Statement
filed by the Registrant on Form S-8 POS (Commission File No. 333-95417)
dated January 29, 2001.
* Filed herewith
** Previously filed
(b) Reports on Form 8-K
On December 29, 2000 we filed a Report on Form 8-K announcing that we
had delivered a letter to the Board of Directors of Fashionmall.com, Inc., a
Delaware corporation, describing our interest in entering into a business
combination. The letter contemplated that we would be prepared to offer, subject
to certain conditions, (a) $2.00 in cash and (b) .29 shares of our common stock
for each share of common stock of Fashionmall.com, Inc.
76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
GENESISINTERMEDIA.COM, INC
By: /s/ RAMY EL-BATRAWI
----------------------------------------
Ramy El-Batrawi
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ RAMY EL-BATRAWI
-----------------------------------------
Ramy El-Batrawi Chairman of the Board and Chief Executive
Officer (Principal Executive Officer) April 16, 2001
/s/ DOUGLAS E. JACOBSON
-----------------------------------------
Douglas E. Jacobson Director, Chief Financial Officer (Principal
Financial and Accounting Officer) April 16, 2001
/s/ GEORGE W. HEYWORTH
-----------------------------------------
George W. Heyworth Director April 16, 2001
/s/ MICHAEL R. FUGLER
-----------------------------------------
Michael R. Fugler Director April 16, 2001
/s/ STEVE WEBER
-----------------------------------------
Steve Weber Director April 16, 2001
77