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Genesisintermedia Inc – ‘10QSB’ for 3/31/00

On:  Monday, 5/15/00, at 4:44pm ET   ·   For:  3/31/00   ·   Accession #:  890163-0-182   ·   File #:  1-15029

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/15/00  Genesisintermedia Inc             10QSB       3/31/00    3:193K                                   Starkey & Henricks/FA

Quarterly Report — Small Business   —   Form 10-QSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10QSB       Quarterly Report -- Small Business                    19     87K 
 2: EX-10       Agreement and Plan of Merger                          48    196K 
 3: EX-27       FDS -- Genesisintermedia.Com Inc.                      1      6K 


10QSB   —   Quarterly Report — Small Business
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
2Item 1. Financial Statements
"Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-15
"Item 1. Legal Proceedings 16-17
11Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
17Item 1. Legal Proceedings
19Item 2. Change in Securities and Use of Proceeds
"Item 3. Defaults Upon Senior Securities
"Item 4. Submission of Matters to a Vote of Security Holders
"Item 5. Other Information
"Item 6. Exhibits and Reports on Form 8-K
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ________________ to _______________ 001-15029 (Commission file number) GENESISINTERMEDIA.COM, INC. (Exact name of small business issuer as specified in its charter) DELAWARE 95-4710370 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 5805 SEPULVEDA BOULEVARD, VAN NUYS, CA 91411 (Address of principal executive offices) (818) 902-4100 (Issuer's telephone number) (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity. As of May 15, 2000 - 5,415,000 shares of Common Stock Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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GENESISINTERMEDIA.COM, INC. INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheet as of March 31, 2000 2-3 Condensed Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-15 Part II. OTHER INFORMATION Item 1. Legal Proceedings 16-17 Item 2. Change in Securities and Use of Proceeds 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 18 Part III. EXHIBITS 1
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PART I. FINANCIAL INFORMATION Item 1. Financial Statements GENESISINTERMEDIA.COM, INC. CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000 (unaudited) [Download Table] ASSETS CURRENT ASSETS Cash and cash equivalents $ 350,425 Accounts receivable, net 2,926,644 Inventories 637,319 Prepaid advertising 2,279,966 Advances receivable 1,166,981 Deposits and other prepaid assets 2,622,461 ------------- TOTAL CURRENT ASSETS 9,983,796 PROPERTY AND EQUIPMENT, NET 17,982,003 CUSTOMER LISTS 2,388,210 GOODWILL, NET 403,173 OTHER ASSETS 773,533 ------------- TOTAL ASSETS $ 31,530,715 ============= 2
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GENESISINTERMEDIA.COM, INC. CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED) AS OF MARCH 31, 2000 (unaudited) [Enlarge/Download Table] LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of notes payable $ 571,041 Current portion of capital lease obligations 314,487 Line of credit 1,301,735 Accounts payable 5,200,376 Accrued payroll taxes 1,746,722 Other accrued liabilities 692,761 Income taxes payable 65,000 ------------ TOTAL CURRENT LIABILITIES 9,892,122 NOTES PAYABLE, NET OF CURRENT PORTION 16,884,894 CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 345,047 ------------ TOTAL LIABILITIES 27,122,063 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Convertible preferred stock, $0.001 par value 5,000,000 shares authorized 142,858 shares issued and outstanding ($7.00 per share liquidation preference 143 Dividends of $94,792 in arrears) Common stock, $0.001 par value 25,000,000 shares authorized 5,415,000 shares issued and outstanding 5,415 Additional paid-in capital 17,780,271 Common stock committed 28,440 Accumulated deficit (13,299,947) Treasury stock (105,670) ------------ TOTAL STOCKHOLDERS' EQUITY 4,408,652 ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,530,715 ============ See the accompanying notes 3
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GENESISINTERMEDIA.COM, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [Enlarge/Download Table] 3 MONTHS 3 MONTHS ENDED ENDED MARCH 31, MARCH 31, 2000 1999 ------------------ ------------------ (unaudited) (unaudited) NET REVENUE Media sales $ 395,382 $ 3,938,020 Product sales 5,781,410 3,789,988 Commission and royalties 1,087,972 69,606 Other 630,839 - ------------------ ------------------ TOTAL NET REVENUE 7,895,603 7,797,614 ------------------ ------------------ OPERATING COSTS AND EXPENSES Media purchases 308,561 3,500,462 Direct costs 1,586,720 373,054 Selling, general and administrative expenses 10,754,453 3,299,688 ------------------ ------------------ TOTAL OPERATING COSTS AND EXPENSES 12,649,734 7,173,204 ------------------ ------------------ INCOME (LOSS) FROM OPERATIONS (4,754,131) 624,410 OTHER EXPENSES Interest expense 275,889 46,207 Financing costs 103,125 ------------------ ------------------ TOTAL OTHER EXPENSES 379,014 46,207 ------------------ ------------------ INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (5,133,145) 578,203 PROVISION (BENEFIT) FOR INCOME TAXES - 195,000 ------------------ ------------------ NET INCOME (LOSS) $ (5,133,145) $ 383,203 ================== ================== BASIC EARNINGS (LOSS) PER COMMON SHARE $ (0.95) $ 0.12 ================== ================== DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (0.95) $ 0.12 ================== ================== WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 5,407,501 3,240,556 ================== ================== See the accompanying notes 4
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GENESISINTERMEDIA.COM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS [Enlarge/Download Table] 3 MONTHS 3 MONTHS ENDED ENDED MARCH 31, MARCH 31, 2000 1999 --------------------- --------------------- (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(5,133,145) $ 383,203 Adjustments to reconcile net income to net cash Provided by (used in) operating activities Depreciation and amortization 820,066 84,758 Stock issued for financing costs 103,125 Deferred taxes - (7,000) (Increase) decrease in operating assets (1,039,207) (312,525) Increase (decrease) in operating liabilities (1,147,528) 329,789 --------------------- --------------------- Net cash provided by (used in) operating activities (6,396,689) 478,225 --------------------- --------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (1,169,314) (176,966) Cash acquired with purchase of Dynatype 174,710 - Other 31,561 (161,939) --------------------- --------------------- Net cash used in investing activities (963,043) (338,905) --------------------- --------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from related parties - (3,281) Net proceeds from line of credit (203,671) 67,868 Distribution to stockholder - (2,000,000) Proceeds from notes payable 7,360,248 - Proceeds from sale of common stock, net - 1,548,750 Payment of offering costs - (106,556) Payments on notes payable and capital leases (36,165) (542,206) --------------------- --------------------- Net cash provided by financing activities 7,120,412 (1,035,425) --------------------- --------------------- Net decrease in cash and cash equivalents during period (239,320) (896,105) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 589,745 1,841,562 --------------------- --------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 350,425 $ 945,457 ===================== ===================== See the accompanying notes 5
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GENESISINTERMEDIA.COM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The unaudited Condensed Consolidated Financial Statements have been prepared by GenesisIntermedia.com, Inc. (the "Company" or "Genesis"), pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The results of the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year ending December 31, 2000. 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. There are no common stock equivalents for the three months ended March 31, 2000 since the Company incurred a net loss; therefore any common stock equivalents would be anti-dilutive. NOTE 3 - NOTES PAYABLE In February 2000, the Company issued a $1,000,000 convertible debenture, warrants to purchase 22,500 shares of the Company's common stock at an exercise price of $12.00 per share and 15,000 shares of the Company's common stock. The debenture is convertible into the Company's common stock at $5.00 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 15,000 shares of common stock in the amount of $103,125. During the first quarter of 2000, the Company received $7,360,248 from the same lender to whom the Company had the unsecured note payable at December 31, 1999 of $1,463,403. The payment terms for these are the same as for the previous funds 6
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GENESISINTERMEDIA.COM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 4 - STOCKHOLDERS' EQUITY 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 112,000 warrants to purchase the Company's common stock at $17.74 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. NOTE 5 - CONTINGENCIES On November 14, 1997, the Commodity Futures Trading Commission issued an order authorizing the issuance of subpoenas and depositions in a private investigation involving Jake Bernstein and MBH Commodity Advisors, a company not affiliated with Genesis. Although the order does not reference Genesis, its employees or affiliates, the CFTC has nonetheless requested that the Company provide various documents arising out of our involvement in the production and marketing of an infomercial titled Success and You which promotes and markets a video series titled Trade Your Way To Riches. To date, the CFTC has directed one subpoena to Genesis. Various documents have been produced on our behalf in response to the subpoena. Additionally, the CFTC has taken the deposition of Ramy El-Batrawi, our president, in connection with its investigation. The Company has not to date been required to discontinue sales of Trade Your Way To Riches products or services as a result of the CFTC's actions. Although the CFTC has articulated its belief that Genesis, by virtue of our involvement in the production and marketing of the infomercial, may be required to be registered in some capacity to continue to engage in our sales activities related to the Trade products, the Company believes the CFTC's analysis and conclusions are incorrect and are based on incomplete information. In October 1998, the Company issued a written response to the CFTC's position setting forth the reasons why the Company is not required to register in any capacity with the CFTC. The CFTC has indicated that registration may be required. The Company has been advised by our counsel that the initiation of a CFTC enforcement action against us requiring registration or seeking the imposition of sanctions is unwarranted. As of the date of this filing, there has been no indication that the CFTC seeks any relief other than registration. To date, no complaint or enforcement action has been asserted against Genesis, our officers, directors or employees. 7
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GENESISINTERMEDIA.COM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 5 - CONTINGENCIES, CONTINUED If it is determined in the investigation or any resulting proceeding that registration is required, the Company intends promptly to effect any required registration. It is estimated that the cost of registering Genesis with the CFTC will be less than $1,000. In the event that the CFTC were to bring an enforcement action against Genesis by virtue of our failure to register, which the Company believes would be unwarranted, any adverse determination or settlement in this action could adversely affect us. The range of possible sanctions available to the CFTC in enforcement actions generally includes a simple request to become registered, a cease and desist order--which could, if successfully applied to the Company or TYWR, terminate sales of some Trade Your Way To Riches products or services--and a possible order of disgorgement of profits--which could, again if applied to us, result in substantial payments by us. In February 1999, the Company commenced negotiations with the CFTC to terminate the investigation and settle all underlying claims against us and all other persons subject to the investigation. Although the Company believes that a settlement can be reached that will not have a material adverse impact on us, the Company can not predict whether any settlement proposal the Company may make will be accepted by the CFTC or by what time. For the reasons discussed in the preceding paragraph, the Company believes that if the Company is unable to reach agreement on a consensual resolution with the CFTC, then the final resolution of the investigation or any ensuing action or proceeding will not have a material adverse effect on the Company. On February 5, 1999, the former chief executive officer of our Genesis Intermedia, Inc. subsidiary commenced a suit for wrongful termination in California Superior Court in Los Angeles County. The plaintiff is Sam Hassabo and the principal defendants are Genesis, our Genesis Intermedia, Inc. subsidiary and our chief executive officer, Mr. El-Batrawi. The complaint alleges wrongful termination and breach of employment contract. The complaint also alleges that the defendants engaged in fraud and negligent misrepresentation in connection with the plaintiff's hiring and the termination of his employment. Mr. Hassabo was terminated from his position as director and chief executive officer of Genesis Intermedia, Inc. in December 1998. The complaint primarily seeks monetary and punitive damages. The Company believes the suit is frivolous and the Company intends to defend it vigorously. The Company carries employment practices and general liability insurance which the Company believes is adequate to cover any potential liability. 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. As an advertiser, the Company may be exposed to unforeseen liability to consumers, competitors or others, against which the Company is not insured. The Company from time to time may be, or may be joined as, a defendant in litigation brought against us or our clients by third parties. As the Company acquires the rights to diverse new products and increases our client base, the likelihood of that type of suit will increase. These possible claims include those brought by clients' competitors, regulatory bodies or consumers alleging that advertising claims are false, deceptive or misleading, that our clients' products are defective or injurious or that marketing and communications materials infringe on the proprietary rights of third parties. The Company does not maintain insurance designed specifically for advertising agency liability. If the Company is not adequately insured or indemnified, then the damages, costs, expenses or attorneys' fees could have an adverse effect on us. 8
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GENESISINTERMEDIA.COM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 5 - CONTINGENCIES, CONTINUED We have been subject to claims of intellectual property infringement and may increasingly be subject to these types of claims as the number of products and services and competitors in our markets grows and the functionality of products and services in other industry segments overlaps. Although we do not believe that any of our products or services infringes upon the proprietary rights of third parties, there can be no assurance that third parties will not claim infringement by us with respect to current or future products or services. In addition, we periodically acquire intellectual property from third parties, including in connection with our acquisitions. In some instances this intellectual property is prepared on a work-for-hire or similar basis, in some instances we license the intellectual property and in others we acquire it. We may in the future be party to disputes about ownership, license scope and royalty or fee terms with respect to some of this intellectual property. Any claims, with or without merit, could be time-consuming, result in costly litigation, cause product or service delays or require us to enter into royalty or licensing agreements, any of which could have an adverse effect upon us. We may also initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights, which could result in significant expense to us and divert the efforts of our technical and management personnel from productive tasks, whether or not the litigation were determined in our favor. In addition, the contracts the Company enters into with our clients sometimes require us to indemnify clients for claims brought by competitors or others claiming that advertisements or other communications infringe on intellectual property rights. Although the Company maintains business insurance the Company believe is adequate for our operations, adequate insurance coverage may not be available in the future or the insurance held by us may not be sufficient if a significant adverse claim is made. NOTE 6 - SUBSEQUENT EVENT On April 1, 2000, the Company purchased Dynatype Design and Graphics Centers, Inc. ("Dynatype"), 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 Dynatype. The Company has accounted for this business combination using the pooling of interest method. 9
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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 the Company's consolidated financial statements and related footnotes for the year ended December 31, 1999 included in this Annual Report on Form 10-KSB. 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 GenesisIntermedia.com, Inc. uses its core competencies to develop Internet technologies and Internet companies. It owns distinct marketing channels, and through CENTERLINQ, is a leading provider of public Internet access portals in shopping malls. The Company has been building an infrastructure to build, develop and nurture new Internet technology companies and businesses. The company markets products and services, which it develops, licenses exclusively or distributes for third parties, utilizing network and cable television, radio, newspapers, magazines, the Internet and the company's CENTERLINQ network. As it has done with CENTERLINQ, the Company leverages its strength in operations, marketing and the deployment of traditional and new media to advance new and innovative technologies within strategically identified market segments. Historically, the Company's operations have consisted of the marketing, advertising and sales of its own products and those of its clients utilizing traditional marketing channels. While it continues to utilize conventional media to fulfill its marketing needs and those of its clients, the Company's focus more recently has been on investing in and bringing to market innovative technology-based concepts that center around use of the Internet. CENTERLINQ is an Internet-based interactive network consisting of public access kiosks, located exclusively in shopping malls currently but adaptable to a wide range of venues. CENTERLINQ is also accessible through the Internet at www.CENTERLINQ.com. Advertising displayed on large screen monitors on and adjacent to the public access kiosks enhances network usage and revenues. The Company invested heavily to support the operational needs of CENTERLINQ and to attain a leadership position as a network of public Internet portals. Investments in CENTERLINQ included those made in network architecture, expansion of Information Services, installation, field maintenance and client service personnel, programming and Information Technology professionals, research and development, quality assurance, and the build out of physical space and infrastructure to support the operations. These investments enabled the Company to announce in December 1999 that CENTERLINQ had reached critical mass. Currently, the systems were installed in 20 shopping malls across the United States including those in California, Nevada, Arizona, Michigan, Pennsylvania and Indiana. Traffic at these malls thus far enable CENTERLINQ to create approximately 22 million impressions per month. The Company foresees CENTERLINQ network expansion in additional malls throughout North America, and is discussing expansion into Europe and Latin America. 10
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With the CENTERLINQ experience not only proving successful, but teaching the Company how to apply those same development standards and resources to other businesses and technologies in order to achieve an effective rollout of product, the Company's management now views its role as a creator of long-term shareholder value more closely in alignment with its ability to propagate additional Internet-based companies in accordance with its established "incubation" process. The Company, therefore, seeks to identify acquisition candidates whose core competencies include the development of Internet technology, networking solutions, interactive concepts and a variety of other high-growth areas that can be integrated into valuable business-to-business and business-to-consumer companies. GenesisIntermedia.com, Inc. intends to expand client participation in interactive e-commerce and the CENTERLINQ programs, particularly as CENTERLINQ is rolled out throughout regional shopping malls across the United States and into additional public access areas. Presently, the focus is on marketing efforts with local or regional advertisers, or local representatives of national organizations. The Company intends to seek additional national advertisers and participants in CENTERLINQ once the deployment of the network has sufficient national scope. Even though GenesisIntermedia.com, Inc. is entering emerging markets and has begun to generate revenue from CENTERLINQ, it continues to rely on marketing products for a substantial part of its revenues. Proprietary products sold by the Company through integrated marketing capabilities include 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., the Money Mastery financial mentoring products, and other new products recently acquired. The Company expects that revenues from the marketing of products will continue to account for a major percentage of its revenues in the foreseeable future but that while revenues are expected to rise, the overall percentage of revenues that can be attributed to the aforementioned marketing activities will decline as its refined business plan that concentrates on the development of business-to-business and business-to-consumer enterprises that utilize Internet technology continues onward. On April 1, 2000, the Company purchased Dynatype Design and Graphics Centers, Inc. ("Dynatype"), 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 Dynatype. The Company has accounted for this business combination using the pooling of interest method. 11
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RESULTS OF OPERATIONS Three Months Ended March 31, 2000 vs. March 31, 1999 [Enlarge/Download Table] 3 MONTHS 3 MONTHS ENDED ENDED MARCH 31, MARCH 31, PERCENTAGE OF NET REVENUE -------------------------- 2000 1999 2000 1999 ---------------- --------------- ------------ ------------ Net Revenue Media sales $ 395 $ 3,938 5.0% 50.5% Product sales 5,782 3,790 73.2% 48.6% Commissions and royalties 1,088 70 13.8% 0.9% Other 631 - 8.0% ---------------- --------------- ------------ ------------ Total net revenue 7,896 7,798 100.0% 100.0% Operating expenses Media purchases 309 3,501 3.9% 44.9% Direct costs 1,587 373 20.1% 4.8% Selling, general and administrative 10,754 3,300 136.2% 42.3% ---------------- --------------- ------------ ------------ Total operating expenses 12,650 7,174 160.2% 92.0% ---------------- --------------- ------------ ------------ Income (loss) from operations (4,754) 624 (60.2%) 8.0% Interest expense 276 46 3.5% 0.6% Financing costs 103 1.3% - ---------------- --------------- ------------ ------------ Income (loss) before income taxes (5,133) 578 (65.0%) 7.4% Provision (benefit) for income taxes - 195 - 2.5% ================ =============== ============ ============ Net income (loss) $ (5,133) $ 373 (65.0%) 4.9% ================ =============== ============ ============ Revenue for the three months ended March 31, 2000 increased by $98,000 or 1.3% from $7,798,000 for the three months ended March 31, 1999 to $7,896,000 for the same period in 2000. The increase in revenue was due to the following: 12
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* Product sales increased $1,992,000 or 52.6% principally as a result of the Company's success in selling its new products and programs. The Company has acquired several new products over the past 12 months; * Commissions and royalties increased by $1,018,000 from $70,000 for the three months ended March 31, 1999 to $1,088,000 for the same period in 2000. The increase is due to the Company's call center in St. George, Utah focusing on selling other company's products and on a marketing alliance entered into by the Company whereby its receives a commission for selling other companies products. * Other revenue increased by $631,000 from $0 for the three months ended March 31, 1999 to $631,000 for the same period in 2000. Other revenue consists of rental income of $208,000 from leasing office space in the Company's office building to third parties and services revenue of $423,000 from creating design and graphic products for customers. The increase in other income is due to the Company purchasing its office building in July 1999 and the acquisition of Dynatype Design and Graphics Centers, Inc. on April 1, 2000, which has been accounted for using the pooling of interest method. * Media sales decreased from $3,938,000 for the three months ended March 31, 1999 to $395,000 for the same period in 2000 due to the Company focusing more time and resources on promoting its new products and not focusing on selling media time to third parties; Media purchases for the three months ended March 31, 2000 decreased by $3,192,000 or 91.2% from $3,501,000 for the three months ended March 31, 1999 to $309,000 for the same period in 1999. The decrease is due to the Company focusing more effort on selling its products rather than selling media time to third parties. Direct costs for the three months ended March 31, 2000 increased by $1,214,000 or 325.5% from $373,000 for the three months ended March 31, 1999 to $1,587,000 for the same period in 2000. The increase was due to significant increased product sales during the first quarter of 2000. Direct costs as a percentage of product sales increased from 9.8% for the three months ended March 31, 1999 to 27.4% for the same period in 2000. The increase is due to higher product costs associated with the products and programs the Company is currently selling when compared to the products sold by the Company the first quarter of 1999. Selling, general and administrative expenses for the three months ended March 31, 2000 increased by $7,454,000 or 225.9% from $3,300,000 for the three months ended March 31, 1999 to $10,754,000 for the same period in 2000. The increase was due principally to an increase in payroll and related benefits of $1,497,000 and an increase in selling related expenses of 4,075,000. Selling related expenses include the cost of acquiring customer names, purchasing media time for airing of infomercials, royalties and telemarketing costs. The Company expensed $3,593,000 in media airtime during the first quarter of 2000. As a result of expanding operations through the creation of Genesis Intermedia, the Company's general and administrative costs have increased. Most of the expenses incurred by Genesis Intermedia to develop its Centerlinq Network are classified as general and administrative expenses. The Company has taken steps to significantly expand its Centerlinq Network of kiosks in shopping malls. 13
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Interest expense for the three months ended March 31, 2000 increased by $230,000 or 500% from $46,000 for the three months ended March 31, 1999 to $276,000 for the same period in 2000. The increase in interest expense was due to the issuance of a note payable secured by the Company's new corporate office building in Van Nuys, California, an increase in the Company's line of credit, notes payable and capitalized lease obligations. Financing costs for the three months ended March 31, 2000 increased by $103,125 from $0 for the three months ended March 31, 1999 to $103,125 for the same period in 2000. The increase is due to the issuance of 15,000 shares of the Company's common stock in connection with a note payable issued in February 2000. Income taxes for the three months ended March 31, 2000 decreased by $195,000 or 100% from $195,000 for the three months ended March 31, 1999 to $0 for the same period in 2000. The decrease in the provision for income taxes is due to the net loss incurred by the Company in the first quarter of 2000. 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 and a line of credit. In January and April 1999, we sold a total of 250,000 shares of common stock and warrants to purchase an additional 250,000 shares of common stock in a private placement at $7 per share for an aggregate of $1,750,000, with underwriting commissions and expenses of $201,250 and in April 1999 we sold 142,858 shares of convertible preferred stock and warrants to purchase 142,858 shares of common stock in a private placement at $7 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 notes payable agreements, we also issued warrants to purchase 78,571 shares of common stock. In June 1999 we sold 2,000,000 shares of common stock in its initial public offering at $8.50 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, 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, and the loan is guaranteed by our majority stockholder. From November 1999 to March 2000 we have borrowed $7,823,651 from debenture secured in November 1999. In connection with this debenture, we issued warrants to purchase 750,000 shares of common stock with an exercise price of $7.00. In February 2000, the Company issued a convertible debenture in the amount of $1,000,000 along with a warrant to purchase 22,500 shares of the Company's common stock at an exercise price of $12.00 and the issuance of 15,000 shares of the Company's common stock. The debenture is convertible into common stock at $5.00 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 15,000 common shares issued in connection with this debenture in the amount of $103,125. 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 112,000 warrants to purchase the Company's common stock at $17.74 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. 14
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During the three months ended March 31, 2000, we spent $1,169,314 on capital expenditures and used $6,396,689 in operations. We expect to spend additional capital to expand our product lines, expand our telemarketing division, and make strategic acquisitions. We anticipate spending $15 - 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. We believe that our current cash and cash equivalents on hand, together with existing credit facilities and the cash flow expected to be generated from operations, will be adequate to satisfy our current and planned operations through the middle of 2001. However, we are currently seeking to acquire a bank credit line or similar credit facility and seeking to refinance our mortgage on our new office building to help finance future operations and acquisitions. We are currently negotiating with certain lenders to obtain additional financing to expand CENTERLINQ. If we are not successful, out ability to expand CENTERLINQ will be adversely affected. The Company is also seeking additional financing to expand its existing business to purchase new products and purchase media time to advertise for these products. If the Company is unable to obtain this financing, its ability to purchase media time to advertise its products will be significantly limited. IMPACT OF YEAR 2000 The Company instituted a comprehensive program to address potential Year 2000 impacts and as a result, critical systems and infrastructure operated smoothly through the arrival of Year 2000 and leap year boundaries. Additionally, the Company experienced no Year 2000 related disruptions in the products and services provided by its significant suppliers or other third-party business relationships. Many of the improvements made in preparation for the Year 2000 are expected to provide the Company with long-term benefits. FORWARD LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Stockholders are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the ability of us to install new kiosks, general market conditions, competition and pricing. Although we believe the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements contained in the report will prove to be accurate. 15
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Part II. OTHER INFORMATION Item 1. Legal Proceedings On November 14, 1997, the Commodity Futures Trading Commission issued an order authorizing the issuance of subpoenas and depositions in a private investigation involving Jake Bernstein and MBH Commodity Advisors, a company not affiliated with Genesis. Although the order does not reference Genesis, its employees or affiliates, the CFTC has nonetheless requested that the Company provide various documents arising out of our involvement in the production and marketing of an infomercial titled Success and You which promotes and markets a video series titled Trade Your Way To Riches. To date, the CFTC has directed one subpoena to Genesis. Various documents have been produced on our behalf in response to the subpoena. Additionally, the CFTC has taken the deposition of Ramy El-Batrawi, our president, in connection with its investigation. The Company has not to date been required to discontinue sales of Trade Your Way To Riches products or services as a result of the CFTC's actions. Although the CFTC has articulated its belief that Genesis, by virtue of our involvement in the production and marketing of the infomercial, may be required to be registered in some capacity to continue to engage in our sales activities related to the Trade products, the Company believes the CFTC's analysis and conclusions are incorrect and are based on incomplete information. In October 1998, the Company issued a written response to the CFTC's position setting forth the reasons why the Company is not required to register in any capacity with the CFTC. The CFTC has indicated that registration may be required. The Company has been advised by our counsel that the initiation of a CFTC enforcement action against us requiring registration or seeking the imposition of sanctions is unwarranted. As of the date of this filing, there has been no indication that the CFTC seeks any relief other than registration. To date, no complaint or enforcement action has been asserted against Genesis, our officers, directors or employees. If it is determined in the investigation or any resulting proceeding that registration is required, the Company intends promptly to effect any required registration. It is estimated that the cost of registering Genesis with the CFTC will be less than $1,000. In the event that the CFTC were to bring an enforcement action against Genesis by virtue of our failure to register, which the Company believes would be unwarranted, any adverse determination or settlement in this action could adversely affect us. The range of possible sanctions available to the CFTC in enforcement actions generally includes a simple request to become registered, a cease and desist order--which could, if successfully applied to the Company or TYWR, terminate sales of some Trade Your Way To Riches products or services--and a possible order of disgorgement of profits--which could, again if applied to us, result in substantial payments by us. In February 1999, the Company commenced negotiations with the CFTC to terminate the investigation and settle all underlying claims against us and all other persons subject to the investigation. Although the Company believes that a settlement can be reached that will not have a material adverse impact on us, the Company can not predict whether any settlement proposal the Company may make will be accepted by the CFTC or by what time. For the reasons discussed in the preceding paragraph, the Company believes that if the Company is unable to reach agreement on a consensual resolution with the CFTC, then the final resolution of the investigation or any ensuing action or proceeding will not have a material adverse effect on the Company. 16
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On February 5, 1999, the former chief executive officer of our Genesis Intermedia, Inc. subsidiary commenced a suit for wrongful termination in California Superior Court in Los Angeles County. The plaintiff is Sam Hassabo and the principal defendants are Genesis, our Genesis Intermedia, Inc. subsidiary and our chief executive officer, Mr. El-Batrawi. The complaint alleges wrongful termination and breach of employment contract. The complaint also alleges that the defendants engaged in fraud and negligent misrepresentation in connection with the plaintiff's hiring and the termination of his employment. Mr. Hassabo was terminated from his position as director and chief executive officer of Genesis Intermedia, Inc. in December 1998. The complaint primarily seeks monetary and punitive damages. The Company believes the suit is frivolous and the Company intends to defend it vigorously. The Company carries employment practices and general liability insurance which the Company believes is adequate to cover any potential liability. 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. As an advertiser, the Company may be exposed to unforeseen liability to consumers, competitors or others, against which the Company is not insured. The Company from time to time may be, or may be joined as, a defendant in litigation brought against us or our clients by third parties. As the Company acquires the rights to diverse new products and increases our client base, the likelihood of that type of suit will increase. These possible claims include those brought by clients' competitors, regulatory bodies or consumers alleging that advertising claims are false, deceptive or misleading, that our clients' products are defective or injurious or that marketing and communications materials infringe on the proprietary rights of third parties. The Company does not maintain insurance designed specifically for advertising agency liability. If the Company is not adequately insured or indemnified, then the damages, costs, expenses or attorneys' fees could have an adverse effect on us. In addition, the contracts the Company enters into with our clients sometimes require us to indemnify clients for claims brought by competitors or others claiming that advertisements or other communications infringe on intellectual property rights. Although the Company maintains business insurance the Company believe is adequate for our operations, adequate insurance coverage may not be available in the future or the insurance held by us may not be sufficient if a significant adverse claim is made. 17
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Item 2. Change in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.32 Agreement and Plan of Merger with Dynatype Design and Graphics Centers, Inc. dated April 1, 2000 27.1 Financial Data Schedule (b) Reports on Form 8-K On February 24, 2000 the Company filed a Report on Form 8-K announcing that Blair LaCorte, resigned as of December 15, 1999 as a member of the board of directors of the Company, and that on December 3, 1999, Michael Roy Fugler was appointed a member of the Company's board of directors to succeed Mr. LaCorte. 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.COM, INC. By: /s/ Douglas E. Jacobson --------------------------- Douglas E. Jacobson Chief Financial and Principal Accounting Officer Date: May 15, 2000 18

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4/14/00710KSB
4/7/00715
4/1/001019
For Period End:3/31/00116NT 10-K
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11/14/97817
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