UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
001-15029
(Commission file number)
GENESISINTERMEDIA, INC.
(Exact name of 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)
(818) 902-4100
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity. As of August 13, 2001 - 23,279,621 shares of Common Stock
GENESISINTERMEDIA, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 2001
and December 31, 2000 2-3
Condensed Consolidated Statements of Operations for
the three months ended June 30, 2001 and 2000 4
Condensed Consolidated Statements of Operations for
the six months ended June 30, 2001 and 2000 5
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 2001 and 2000 6
Notes to Condensed Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Change in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 20
Part III. EXHIBITS
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GENESISINTERMEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2001 AND DECEMBER, 2000
JUNE 30 DECEMBER 31,
2001 2000
(unaudited) (audited)
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,775,211 $ 858,848
Marketable securities at market - 1,926,746
Accounts receivable, net 5,254,209 3,846,453
Inventories 968,693 1,383,620
Revenue earning equipment 7,622,145 8,435,359
Prepaid advertising 628,132 2,461,928
Advances receivable 1,103,665 1,201,348
Deposits and other prepaid assets 4,577,852 2,809,428
----------- -----------
TOTAL CURRENT ASSETS 21,929,907 22,923,730
PROPERTY AND EQUIPMENT, NET 27,105,204 28,133,574
CUSTOMER LISTS - 955,287
GOODWILL, NET 4,095,456 4,479,560
OTHER ASSETS 1,006,724 684,430
----------- -----------
TOTAL ASSETS $54,137,291 $57,176,581
=========== ===========
2
GENESISINTERMEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF JUNE 30, 2001 AND DECEMBER, 2000
JUNE 30, DECEMBER 31,
2001 2001
(unaudited) (audited)
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current portion of notes payable $ 121,119 $ -
Current portion of capital lease obligations 576,062 745,973
Line of credit 8,349,587 9,225,946
Accounts payable 6,631,053 8,329,734
Accrued payroll taxes 729,163 859,833
Accrued interest - related party 2,059,695 2,053,490
Other accrued liabilities 1,837,920 1,913,863
Due to stockholder 68,567 2,693,993
Income taxes payable 65,000 65,000
------------ ------------
TOTAL CURRENT LIABILITIES 20,438,166 25,887,832
NOTES PAYABLE, NET OF CURRENT PORTION 7,856,250 7,856,250
NOTE PAYABLE TO RELATED PARTY 34,661,445 30,382,266
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 480,383 518,172
------------ ------------
TOTAL LIABILITIES 63,436,244 64,644,520
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Convertible preferred stock, $0.001 par value, 5,000,000
authorized 71,429 and 71,429 shares issued and outstanding
($7.00 per share liquidation preference
Dividends of $102,083 in arrears) 71 71
Common stock, $0.001 par value
75,000,000 shares authorized
22,311,881 and 20,971,560 shares issued and outstanding 22,312 20,972
Additional paid-in capital 50,581,373 35,752,544
Accumulated deficit (57,500,226) (41,827,177)
Treasury stock (2,402,483) (2,402,483)
Accumulated comprehensive income - 988,134
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (9,298,953) (7,467,939)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 54,137,291 $ 57,176,581
============ ============
See the accompanying notes
3
GENESISINTERMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
3 MONTHS 3 MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2001 2000
------------ ------------
(unaudited) (unaudited)
REVENUE $ 12,395,635 $ 7,315,341
COST OF REVENUE 3,745,097 2,788,549
------------ ------------
GROSS PROFIT 8,650,538 4,526,792
OPERATING EXPENSES
Selling, general and administrative expenses 11,901,307 9,844,423
Depreciation and amortization 1,577,687 1,022,268
Loss from operations of DynaMedia - 41,158
------------ ------------
TOTAL OPERATING EXPENSES 13,478,994 10,907,849
------------ ------------
LOSS FROM OPERATIONS (4,828,456) (6,381,057)
OTHER INCOME (EXPENSES)
Gain on sale of assets 24,147 -
Interest expense (1,473,166) (959,128)
Financing costs (1,452,709) -
------------ ------------
TOTAL OTHER INCOME (EXPENSES) (2,901,728) (959,128)
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (7,730,184) (7,340,185)
PROVISION (BENEFIT) FOR INCOME TAXES - -
------------ ------------
NET LOSS $ (7,730,184) $ (7,340,185)
============ ============
BASIC LOSS PER COMMON SHARE $ (0.36) $ (0.43)
============ ============
DILUTED LOSS PER COMMON SHARE $ (0.36) $ (0.43)
============ ============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 21,690,805 17,077,278
============ ============
See the accompanying notes
4
GENESISINTERMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
6 MONTHS 6 MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2001 2000
------------ ------------
(unaudited) (unaudited)
REVENUE $ 24,931,089 $ 14,788,010
COST OF REVENUE 6,349,650 4,683,830
------------ ------------
GROSS PROFIT 18,581,439 10,104,180
OPERATING EXPENSES
Selling, general and administrative expenses 26,630,772 19,465,474
Depreciation and amortization 2,997,849 1,842,334
Income from operations of DynaMedia - (69,361)
------------ ------------
TOTAL OPERATING EXPENSES 29,628,621 21,238,447
------------ ------------
LOSS FROM OPERATIONS (11,047,182) (11,134,267)
OTHER INCOME (EXPENSES)
Gain on sale of assets 202,092 -
Interest expense (3,104,708) (1,235,938)
Financing costs (1,723,251) (103,125)
------------ ------------
TOTAL OTHER INCOME (EXPENSES) (4,625,867) (1,339,063)
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (15,673,049) (12,473,330)
PROVISION (BENEFIT) FOR INCOME TAXES - -
------------ ------------
NET LOSS $(15,673,049) $(12,473,330)
============ ============
BASIC LOSS PER COMMON SHARE $ (0.73) $ (0.75)
============ ============
DILUTED LOSS PER COMMON SHARE $ (0.73) $ (0.75)
============ ============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 21,400,637 16,649,889
============ ============
See the accompanying notes
5
GENESISINTERMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
6 MONTHS 6 MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2001 2000
------------ ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(15,673,049) $(12,473,330)
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation and amortization 4,049,960 2,236,524
Gain on sale of assets (177,945) -
Stock/warrants issued for financing costs 1,623,251 103,125
(Increase) decrease in operating assets (1,135,268) (3,394,605)
Increase (decrease) in operating liabilities (1,899,089) (1,610,013)
------------ ------------
Net cash used in operating activities (13,212,140) (15,138,299)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (365,047) (2,655,974)
Proceeds from sale of marketable securities 1,116,557 -
Cash acquired with purchase of Dynamedia and CRD - 266,131
Other (322,294) (440,525)
------------ ------------
Net cash provided by (used in) investing activities 429,216 (2,830,368)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from related parties (2,625,426) -
Net proceeds from line of credit (876,359) (1,731,245)
Proceeds from notes payable - related party 9,322,978 18,334,596
Proceeds from sale of stock, net - 3,798,035
Proceeds from convertible debentures 3,000,000 -
Proceeds from exercise of options and warrants 3,220,998 770,969
Repurchase of common stock - (2,296,813)
Payments on notes payable - related party (5,043,799) -
Payment on notes payable and capital leases (285,025) (1,088,697)
Disgorgement of short-swing profits generated by
stockholder 6,985,920 -
------------ ------------
Net cash provided by financing activities 13,699,287 17,786,845
------------ ------------
Net increase (decrease) in cash and cash equivalents
during period 916,363 (181,822)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 858,848 589,745
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,775,211 $ 407,923
============ ============
See the accompanying notes
6
GENESISINTERMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been prepared by
GenesisIntermedia, Inc. (the "Company" or "Genesis"), pursuant to the rules and
regulations of the Securities and Exchange Commission. The information furnished
herein reflects all adjustments (consisting of normal recurring accruals and
adjustments) which are, in the opinion of management, necessary to fairly
present the operating results for the respective periods. Certain information
and footnote disclosures normally present in annual consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The results of the six
months ended June 30, 2001 are not necessarily indicative of the results to be
expected for the full year ending December 31, 2001. These financial statements
should be read in conjunction with the Company's consolidated audited financial
statements and related footnotes for the year ended December 31, 2000 included
in the Company's annual report on Form 10-K.
NOTE 2 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standard Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. Basic earnings per
share is computed using the weighted-average number of common shares outstanding
during the period. Common equivalent shares are excluded from the computation if
their effect is anti-dilutive. The following potential common shares have been
excluded from the computation of diluted net loss per share for all periods
presented because the effect would have been anti-dilutive:
7
GENESISINTERMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 2 - EARNINGS PER SHARE, CONTINUED
For the six months Ended
June 30,
-----------------------------------
2001 2000
--------------- ---------------
(unaudited) (unaudited)
Options outstanding under
the Company's stock option plan 3,823,030 1,326,351
Options issued as part of the acquisition
of Vision Digital 150,000 150,000
Warrants issued in conjunction with
common stock 750,000 750,000
Warrants issued in conjunction with
Series A convertible preferred stock 364,284 428,571
Warrants issued in conjunction with
notes payable to related party - 2,250,000
Warrants issued in conjunction with
notes payable 64,287 64,287
Warrants issued in conjunction with
Note payable to affiliate 483,750 491,250
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
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2001 consisted of the following:
Land $ 1,450,000
Building and improvements 13,089,375
Vehicles 113,269
Furniture and equipment 17,223,095
-----------
31,875,739
Less accumulated depreciation (4,770,535)
-----------
Total $27,105,204
===========
8
GENESISINTERMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4 - CONVERTIBLE DEBENTURE
On March 14, 2001, the Company entered into a Securities Purchase Agreement
whereby the Company issued a 7% convertible debenture in the amount of
$3,000,000. The debentures are convertible into the Company's common stock at a
conversion price of $6.83. The debenture is to be repaid either in cash or by
conversion to common stock as follows: $1,000,000 on each of April 15, May 15
and June 15, 2001, subject in the case of cash repayment to the effectiveness of
a registration statement covering resale of the shares. In addition, the Company
issued 300,000 warrants to purchase the Company's common stock at $7.67 per
share that expire on March 15, 2004. The Company has recognized an expense of
$1,623,251 related to these warrants during the six months ended June 30, 2001.
On June 4, 2001, the debenture holder converted the $3,000,000 debenture into
445,534 shares of the Company's common stock and exercised 300,000 warrants
which resulted in gross proceeds to the Company of $2,300,000.
NOTE 5 - NOTE PAYABLE - RELATED PARTY
On January 5, 2001, the Company entered into a note payable agreement with
Ultimate Holdings, Ltd ("Ultimate"), a significant stockholder of the Company,
whereby Ultimate has agreed to loan the Company an additional $5,000,000 on
terms similar to the previous note payable agreements with Ultimate.
On April 16, 2001, the Company entered into 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.
NOTE 5 - STOCKHOLDERS' EQUITY
In January 2001, warrants to purchase 64,287 shares of the Company's common
stock, issued in conjunction with the Series A Convertible Preferred Stock, were
exercised for proceeds of $218,576.
During the six months ended June 30, 2001, the Company received $411,173 and
$2,809,825 from the exercise of 152,210 employee stock options and 458,472
warrants, respectively. The Company also received $6,985,920 from Ultimate who
disgorged to the Company "short-swing" profits in such amount. Of such
"short-swing" profits, the Company paid accrued interest of $1,106,121, repaid
principal of $5,043,799 and retained $836,000.
9
GENESISINTERMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 6 - SEGMENT INFORMATION
The Company has four business units that have separate management and reporting
infrastructures that offer different products and services. The business units
have been aggregated into four reportable segments: Media, Intermedia,
Properties and Car Rental. The Media group conducts direct response advertising
campaigns and buys media time and either sells it to third parties or uses it to
market its own products. The Intermedia group is deploying the CENTERLINQ
network of public access Internet kiosks in shopping malls within the United
States. The Properties group maintains the Company's building and generates
revenue from the building's tenants. The Car Rental group rents vehicles to
consumers and commercial businesses primarily in the replacement market. Most
corporate expenses, such as internal administrative costs, legal expenses, and
debt issuance costs, are included in the Media group.
The Company evaluates the performance of its operating segments based on income
from operations, before income taxes, accounting changes, non-recurring items,
and interest income and expense.
Summarized financial information concerning the Company's reportable segments is
shown in the following table as of and for the six months ended June 30, 2001:
Net Total
Revenue Loss Assets
---------------- --------------- -----------------
Media $ 20,248,627 $ (7,588,063) $ 12,976,483
Intermedia 350,154 (4,812,723) 14,650,261
Properties 371,295 (700,353) 12,150,068
Car Rental 3,961,013 (2,571,910) 14,360,479
---------------- ---------------- -----------------
Total $ 24,931,089 $ (15,673,049) $ 54,137,291
================ ================ =================
NOTE 7 - SUBSEQUENT EVENTS
On June 29, 2001, the Company announced that it received a conditional loan
commitment from Riverdale LLC ("Riverdale"), a company owned by Carl C. Icahn,
the New York-based financier, for a $100 million credit facility. In connection
with the loan commitment, on July 2, 2001 the Company issued to Riverdale
warrants to purchase an aggregate of 4 million shares of the Company's common
stock at exercise prices ranging from $2 to $9 per share and granted to
Riverdale registration rights with respect to the common stock issuable upon
exercise of the warrants. The warrants are exercisable any time after July 2,
2001 and before July 1, 2005. Concurrently with the issuance of the warrants by
the Company, the Company's CEO granted Riverdale an option to purchase 1.0
million and 500,000 shares of common stock held by him, at purchase prices of
$2.00 and $4.00 per share, respectively. In a related transaction, the Company's
CEO and Ultimate granted options to the Company to acquire 3.0 million shares of
common stock at exercise prices of $2.00 and $9.00 per share. Such options are
exercisable if Riverdale exercises the corresponding series of warrants issued
by the Company. If Riverdale exercises all of the warrants issued by the Company
and the Company exercises all of the options issued to it, the Company will
issue a net of 1.0 million shares at $2.00 per share. In the transaction,
Riverdale agreed to lock-up their shares acquirable upon exercise of the
warrants and options for a period of one-year and the Company's CEO and Ultimate
agreed to lock-up the shares presently held by them for the same one-year
period, subject to certain permissible resales to institutions and to certain
non-institutional purchasers who agree to lock-up their shares.
10
GENESISINTERMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 7 - SUBSEQUENT EVENTS, CONTINUED
In June 2000, the Company issued a warrant to purchase 20 shares of the common
stock of the Company's CENTERLINQ, 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 CENTERLINQ, 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. In July 2001, Infinity Outdoor tendered its subsidiary warrant
for a warrant to purchase 967,740 shares of the Company's common stock at $5.17
per share and exercised this warrant resulting in gross proceeds to the Company
of $5,000,000.
11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
The following discussion and analysis should be read in conjunction with our
consolidated financial statements and related footnotes for the year ended
December 31, 2000 included in our Annual Report on Form 10-K. The discussion of
results, causes and trends should not be construed to imply any conclusion that
such results or trends will necessarily continue in the future.
OVERVIEW
We acquired Car Rental Direct.com, Inc. ("CRD") in the spring of 2000. CRD
competes primarily in the replacement car rental market. The replacement segment
of the auto rental industry consists of rentals to replace temporarily vehicles
that have been sold, stolen or are being repaired for mechanical or accident
reasons. CRD operates locations in Southern California and Arizona, and
currently maintains a fleet of approximately 1,000 cars. CRD has established
vehicle fleet financing lines to build its vehicle inventory and is in
discussions with lenders for short-term credit facilities to support equipment
necessary to open additional locations. CRD recently diversified into the
automobile retailing sector, with the opening of a facility in Southern
California to sell pre-owned and retired rental vehicles. An important part of
our strategy in acquiring CRD was the opportunity to bring on-line efficiencies
to the business. CRD intends to augment their service by allowing consumers the
opportunity to complete a rental transaction entirely on-line and have the car
delivered to their chosen destination. We issued 260,000 shares of our common
stock valued at $4,420,000 for all the issued and outstanding shares of CRD. The
transaction was accounted for using the purchase method of accounting;
accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed based on the estimated fair values at the date of
acquisition. The excess of the purchase price over the estimated fair value of
the net assets acquired is attributed to goodwill, which is being amortized over
seven years.
In May 2000, we acquired Dynatype Design and Graphics Centers, Inc.
("DynaMedia"). DynaMedia is a 20-year-old full-service integrated marketing,
communications and design firm. 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. 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.
We plan to aggressively grow our business both internally and through strategic
acquisitions. We are aggressively looking to acquire businesses that will fit
into our business model.
12
RESULTS OF OPERATIONS
Three months Ended June 30, 2001 vs. June 30, 2000
THREE THREE
MONTHS MONTHS % OF % OF
ENDED ENDED REVENUE REVENUE
6/30/2001 6/30/2000 2001 2000
(in thousands)
REVENUE $12,396 $ 7,315 100.0% 100.0%
COST OF REVENUE 3,746 2,789 30.2% 38.1%
------- ------- ------ ------
GROSS PROFIT 8,650 4,526 69.8% 61.9%
------- ------- ------ ------
OPERATING EXPENSES
Selling, general and
administrative expenses 11,900 9,844 96.0% 134.6%
Depreciation and amortization 1,578 1,022 12.7% 14.0%
Loss from operation of Dynamedia - 41 0.0% 0.6%
------- ------- ------ ------
Total operating expenses 13,478 10,907 108.7% 149.1%
------- ------- ------ ------
LOSS FROM OPERATIONS (4,828) (6,381) -38.9% -87.2%
OTHER INCOME (EXPENSES)
Gain on sale of marketable securities 24 - 0.2% 0.0%
Interest expense (1,474) (959) -11.9% -13.1%
Financing costs (1,452) - -11.7% 0.0%
------- ------- ------ ------
Total other income (expenses) (2,902) (959) -23.4% -13.1%
------- ------- ------ ------
LOSS BEFORE TAXES (7,730) (7,340) -62.4% -100.3%
INCOME TAXES - - 0.0% 0.0%
------- ------- ------ ------
NET LOSS $(7,730) $(7,340) -62.4% -100.3%
======= ======= ====== ======
Revenue for the three months ended June 30, 2001 increased by $5,081,000 or
69.5% from $7,315,000 for the three months ended June 30, 2000 to $12,396,000
for the same period in 2001. The increase in revenue was due to the following:
o Car rental revenue for the three months ended June 30, 2001 increased by
$1,376,000 or 129.9% from $1,060,000 for the three months ended June 30,
2000 to $2,436,000 for the same period in 2000. The increase is a result of
opening new rental locations and higher utilization of our rental fleet.
o Commissions and royalties for the three months ended June 30, 2001
increased by $3,916,000 or 407.1% from $962,000 for the three months ended
June 30, 2000 to $4,878,000 for the same period in 2001. These commissions
are amounts received from the sale of other companies' products primarily
through our call center in St. George, Utah. We normally receive
commissions of 20% to 50%. The increase is due to the expansion of our
staff in our St. George, Utah location and obtaining new contracts to sell
other companies' products.
13
Cost of revenue for the three months ended June 30, 2001 increased by $957,000
or 34.3% from $2,789,000 for the three months ended June 30, 2000 to $3,746,000
for the same period in 2001. The increase in cost of revenue was due to the
following:
o Direct product costs for the three months ended June 30, 2001 increased by
$423,000 or 40.3% from $1,049,000 for the three months ended June 30, 2000
to $1,472,000 for the same period in 2001. The increase was due to more
products being sold. Direct product costs as a percentage of product sales
increased from 22.3% for the three months ended June 30, 2000 to 31.4% for
the same period in 2001. The increase is due to higher product costs
associated with our new products and programs when compared to the products
sold by us during 2000.
o Cost of renting vehicles for the three months ended June 30, 2001 increased
by $1,031,000 or 111.8% from $922,000 for the three months ended June 30,
2000 to $1,953,000 for the same period in 2001. The cost of renting a
vehicle compared to the revenue generated from such rental decreased from
87.0% for the three months ended June 30, 2000 to 80.1% for the same period
in 2001. The decrease is a result of higher utilization of our rental fleet
in 2001.
Selling, general and administrative expenses for the three months ended June 30,
2001 increased by $2,056,000 or 20.9% from $9,844,000 for the three months ended
June 30, 2000 to $11,900,000 for the same period in 2001. The increase was due
principally to an increase in payroll and related benefits in our St. George,
Utah call center and hiring additional personnel to staff our rental car
locations. We expensed $2,926,000 in media airtime during the three months ended
June 30, 2001 compared to $2,378,000 for the same period in 2000.
Depreciation and amortization expense for the three months ended June 30, 2001
increased by $556,000 or 54.4% from $1,022,000 for the three months ended June
30, 2000 to $1,578,000 for the same period in 2001. The increase in depreciation
and amortization expense is due to the increase of our depreciable assets,
especially our CENTERLINQ kiosks, and the goodwill associated with the Car
Rental Direct acquisition. Depreciation expense of $451,000 related to the
vehicle fleet is included in cost of revenue.
Effective January 1, 2000 we acquired DynaMedia and effective December 31, 2000,
we sold DynaMedia back to its original owner. For the three months ended June
30, 2000, DynaMedia reported a net loss of $41,000 on revenues of $310,000.
Gain on sale of assets for the three months ended June 30, 2001 increased by
$24,000 from $0 for the three months ended June 30, 2000 to $24,000 for the same
period in 2001. Gain on sale of assets for the three months ended June 30, 2001
relates to the sale of certain assets of CENTERLINQ. There were no such gains
during the three months ended June 30, 2000.
Interest expense for the three months ended June 30, 2001 increased by $515,000
or 53.7% from $959,000 for the three months ended June 30, 2000 to $1,474,000
for the same period in 2001. The increase in interest expense was due to an
increase in our line of credit resulting from the acquisition of Car Rental
Direct and the significant increase in notes payable to a related party.
Financing costs for the three months ended June 30, 2001 increased by $1,452,000
from $0 for the three months ended June 30, 2000 to $1,452,000 for the same
period in 2001. The financing cost for the three months ended June 30, 2001
related to the amortization of the value of warrants issued in connection with a
convertible debenture in March 2001 and certain other fees in connection with
raising capital. There were no such financing costs for the three months ended
June 30, 2000.
14
Net loss for the three months ended June 30, 2001 increased by $390,000 or 5.3%
from $7,340,000 for the three months ended June 30, 2000 to $7,730,000 for the
same period in 2001. The increase in the net loss is principally due to
significantly higher sales offset by significantly higher selling, general and
administrative expenses incurred to promote our new products and programs and to
expand our CENTERLINQ network of kiosks, and higher financing costs associated
with raising additional capital.
Six months Ended June 30, 2001 vs. June 30, 2000
SIX SIX
MONTHS MONTHS % OF % OF
ENDED ENDED REVENUE REVENUE
6/30/2001 6/30/2000 2001 2000
(in thousands)
REVENUE $ 24,931 $ 14,788 100.0% 100.0%
COST OF REVENUE 6,350 4,684 25.5% 31.7%
-------- -------- ------ ------
GROSS PROFIT 18,581 10,104 74.5% 68.3%
-------- -------- ------ ------
OPERATING EXPENSES
Selling, general and
administrative expense 26,630 19,465 106.8% 131.6%
Depreciation and amortization 2,998 1,842 12.0% 12.5%
Income from operation of Dynamedia (69) 0.0% -0.5%
-------- -------- ------ ------
Total operating expenses 29,628 21,238 118.8% 143.6%
-------- -------- ------ ------
LOSS FROM OPERATIONS (11,047) (11,134) -44.3% -75.3%
OTHER INCOME (EXPENSES)
Gain on sale of assets 202 0.8% 0.0%
Interest expense (3,105) (1,236) -12.5% -8.4%
Financing costs (1,723) (103) -6.9% -0.7%
-------- -------- ------ ------
Total other income (expenses) (4,626) (1,339) -18.6% -9.1%
-------- -------- ------ ------
LOSS BEFORE TAXES (15,673) (12,473) -62.9% -84.3%
INCOME TAXES - - 0.0% 0.0%
-------- -------- ------ ------
NET LOSS $(15,673) $(12,473) -62.9% -84.3%
======== ======== ====== ======
Revenue for the six months ended June 30, 2001 increased by $10,143,000 or 68.6%
from $14,788,000 for the six months ended June 30, 2000 to $24,931,000 for the
same period in 2001. The increase in revenue was due to the following:
15
o Product sales for the six months ended June 30, 2001 increased by
$1,886,000 or 18.1% from $10,397,000 for the six months ended June 30, 2000
to $12,283,000 for the same period in 2001. The increase is principally a
result of our success in selling our new products, principally, our herbal
diet supplement.
o Car rental revenue for the six months ended June 30, 2001 increased by
$2,901,000 or 273.7% from $1,060,000 for the six months ended June 30, 2000
to $3,961,000 for the same period in 2000. The increase is a result of
opening new rental locations and having six months of sales in 2001
compared to only three months of sales in 2000. We acquired Car Rental
Direct on April 1, 2000 so there was no such revenue reported for the first
three months in 2000.
o Commissions and royalties for the six months ended June 30, 2001 increased
by $5,882,000 or 286.9% from $2,050,000 for the six months ended June 30,
2000 to $7,932,000 for the same period in 2001. These commissions are
amounts received from the sale of other companies' products primarily
through our call center in St. George, Utah. We normally receive
commissions of 20% to 50%. The increase is due to the expansion of our
staff in our St. George, Utah location and obtaining new contracts to sell
other companies' products.
Cost of revenue for the six months ended June 30, 2001 increased by $1,666,000
or 35.6% from $4,684,000 for the six months ended June 30, 2000 to $6,350,000
for the same period in 2001. The increase in cost of revenue was due to the
following:
o Direct product costs for the six months ended June 30, 2001 decreased by
$56,000 or 2.2% from $2,607,000 for the six months ended June 30, 2000 to
$2,551,000 for the same period in 2001. The decrease was due to lower
product costs. Direct product costs as a percentage of product sales
decreased from 25.1% for the six months ended June 30, 2000 to 20.7% for
the same period in 2001. The decrease is due to lower product costs
associated with our new products and programs when compared to the products
sold by us during 2000.
o Cost of renting vehicles for the six months ended June 30, 2001 increased
by $2,247,000 or 243.7% from $922,000 for the six months ended June 30,
2000 to $3,169,000 for the same period in 2001. The increase is due to
rental costs being incurred for only three months in 2000 compared to six
months in 2001. The cost of renting a vehicle compared to the revenue
generated from such rental decreased from 87.0% for the six months ended
June 30, 2000 to 80.0% for the same period in 2001. The decrease is a
result of higher utilization of our rental fleet in 2001.
Selling, general and administrative expenses for the six months ended June 30,
2001 increased by $7,165,000 or 36.8% from $19,465,000 for the six months ended
June 30, 2000 to $26,630,000 for the same period in 2001. The increase was due
principally to an increase in payroll and related benefits in our St. George,
Utah call center and hiring additional personnel to staff our rental car
locations. We expensed $6,005,000 in media airtime during the six months ended
June 30, 2001 compared to $5,970,000 for the same period in 2000.
Depreciation and amortization expense for the six months ended June 30, 2001
increased by $1,156,000 or 62.8% from $1,842,000 for the six months ended June
30, 2000 to $2,998,000 for the same period in 2001. The increase in depreciation
and amortization expense is due to the increase of our depreciable assets,
especially our CENTERLINQ kiosks and the goodwill associated with the Car Rental
Direct acquisition. Depreciation expense of $1,119,000 related to the vehicle
fleet is included in cost of revenue.
16
Effective January 1, 2000 we acquired DynaMedia and effective December 31, 2000,
we sold DynaMedia back to its original owner. For the six months ended June 30,
2000, DynaMedia reported net income of $69,000 on revenues of $733,000.
Gain on sale of assets for the six months ended June 30, 2001 increased by
$202,000 from $0 for the six months ended June 30, 2000 to $202,000 for the same
period in 2001. Gain on sale of assets for the six months ended June 30, 2001
relates to the sale of our investment in Fashionmall.com, Inc. that resulted in
a gain of $178,000 and the sale of certain assets of CENTERLINQ that resulted in
a gain of $24,000. There were no such gains during the six months ended June 30,
2000.
Interest expense for the six months ended June 30, 2001 increased by $1,869,000
or 151.2% from $1,236,000 for the six months ended June 30, 2000 to $3,105,000
for the same period in 2001. The increase in interest expense was due to an
increase in our line of credit resulting from the acquisition of Car Rental
Direct and the significant increase in notes payable to a related party.
Financing costs for the six months ended June 30, 2001 increased by $1,620,000
or 1,572.8% from $103,000 for the six months ended June 30, 2000 to $1,723,000
for the same period in 2001. The financing costs for the six months ended June
30, 2000 related to the issuance of stock in February 2000 to secure a
$1,000,000 bridge loan. The financing costs for the six months ended June 30,
2001 related to the value of warrants issued in connection with a convertible
debenture in March 2001 and certain other fees in connection with raising
capital.
Net loss for the six months ended June 30, 2001 increased by $3,200,000 or 25.7%
from $12,473,000 for the six months ended June 30, 2000 to $15,673,000 for the
same period in 2001. The increase in the net loss is principally due to
significantly higher sales offset by significantly higher selling, general and
administrative expenses incurred to promote our new products and programs and to
expand our CENTERLINQ network of kiosks, and higher financing cost associated
with raising additional capital.
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 November 1999 to June 2001, we borrowed from Ultimate $49,040,683 through
the issuance of debentures. Ultimate is a significant stockholder. We repaid
$14,379,238 during the same period. In connection with the debenture issued in
November 1999, we issued warrants to purchase 2,100,000 shares of common stock
with an exercise price of $2.33. The warrant for 2,100,000 was exercised in
August 2000. The exercise price for these warrants of $4,900,000 was paid via a
reduction of the debenture.
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. In April 2001, the 67,500 warrants were
exercised resulting in gross proceeds to us of $270,000.
17
In connection with our acquisition of CRD. 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 June 30, 2001 was $8,349,587.
On March 14, 2001, we entered into a Securities Purchase Agreement under which
we issued 7% convertible debentures in the amount of $3,000,000. The debentures
are convertible into our common stock at a conversion price of $6.83. The
debenture is to be repaid either in cash or by conversion to common stock as
follows: $1,000,000 on each of April 15, May 15 and June 15, 2001, subject in
the case of cash repayment to the effectiveness of a registration statement
covering resale of the shares. In addition, we issued warrants to purchase
300,000 shares of our common stock at $7.67 per share that expire on March 15,
2004. On June 4, 2001, the debenture holder converted the $3,000,000 debenture
into 445,534 shares of the Company's common stock and exercised 300,000 warrants
which resulted in gross proceeds to the Company of $2,300,000.
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.
On June 29, 2001, we announced that we received a conditional loan commitment
from Riverdale LLC, a company owned by Carl C. Icahn, the New York-based
financier, for a $100 million credit facility. The credit facility will be used
to make strategic acquisitions that fit into our business model and that are
approved by Riverdale. In connection with the loan commitment, on July 2, 2001
we issued to Riverdale warrants to purchase an aggregate of 4 million shares of
our common stock at exercise prices ranging from $2 to $9 per share and granted
to Riverdale registration rights with respect to the common stock issuable upon
exercise of the warrants. The warrants are exercisable any time after July 2,
2001 and before July 1, 2005. Concurrently with the issuance of the warrants by
us, our CEO granted Riverdale options to purchase 1.0 million and 500,000 shares
of common stock held by him, at purchase prices of $2.00 and $4.00 per share,
respectively. In a related transaction, our CEO and Ultimate granted options to
us to acquire 3.0 million shares of common stock at exercise prices of $2.00 and
$9.00 per share. Such options are exercisable if Riverdale exercises the
corresponding series of warrants issued by us. If Riverdale exercises all of the
warrants issued by us and we exercise all of the options issued to us, we will
issue a net of 1.0 million shares at $2.00 per share.
In June 2000, we issued a warrant to purchase 20 shares of the common stock of
our CENTERLINQ, 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 us. At any time during the term of the subsidiary
warrant, if we have not completed a public offering under an effective
registration statement for the sale of shares of common stock of CENTERLINQ,
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
GenesisIntermedia common stock at an exercise price of $5.17 per share. In July
2001, Infinity Outdoor tendered its subsidiary warrant for a warrant to purchase
967,740 shares of GenesisIntermedia common stock at $5.17 per share and
exercised this warrant resulting in gross proceeds to us of $5,000,000.
During the six months ended June 30, 2001, we spent $365,047 on capital
expenditures and used $13,212,140 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.
18
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 believe that the credit facility
provided by Riverdale will allow us to make strategic acquisitions of profitable
companies that fit into our business model. 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 or finding strategic acquisitions, our ability to expand CENTERLINQ and
grow our business through acquisitions will be adversely affected.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Stockholders are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, 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.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved from time to time in various claims and legal actions
incident to its operations, either as plaintiff or defendant. The Company
vigorously defends itself against all lawsuits filed by plaintiffs. The Company
is not aware of any current litigation that it believes would have a material
impact on the financial position or results of operations of the Company.
Item 2. Changes in Securities and Use of Proceeds
In July 2001, the Company issued a warrant to Infinity Outdoor to purchase
967,740 shares of common stock at $5.17 per share. Infinity Outdoor exercised
this warrant resulting in gross proceeds to the Company of $5,000,000. The sale
of the securities were exempt under the Securities Act of 1933, as amended, in
reliance on Section 4(2) or Regulation D promulgated thereunder as a transaction
by an issuer not involving a public offering.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
(1) Current Report on Form 8-K dated June 29, 2001 filed with the Securities and
Exchange Commission on July 2, 2001.
(2) Current Report on Form 8-K dated June 29, 2001 filed with the Securities and
Exchange Commission on July 2, 2001.
(3) Current Report on Form 8-K/A dated June 29, 2001 filed with the Securities
and Exchange Commission on July 5, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENESISINTERMEDIA, INC.
By: /s/ Douglas E. Jacobson
---------------------------
Douglas E. Jacobson
Chief Financial and Principal
Accounting Officer
Date: August 14, 2001
20