SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
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(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 2000
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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.
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Commission File Number 0-22045
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GENFINITY CORP0RATION
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(Exact name of registrant as specified in its charter)
District of Delaware 13-3525328
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
GENFINITY CORPORATION
308 West Rosemary
Chapel Hill, North Carolina 27516
(Address of principal executive offices)
(919) 960-2660
(Issuer's telephone number)
APPLE HOMES CORPORATION
124 North Belair Road
Evans, Georgia 30809
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(Former name, former address and former fiscal year
if changed since last report)
Check 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 (_)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 22,121,367 shares of Common Stock,
$.002 par value, were outstanding as of December 31, 2000.
Transitional Small Business Disclosure Forms (check one):
Yes (_) No (X)
ITEM I - FINANCIAL STATEMENTS.
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
INDEX TO FORM 10-QSB
DECEMBER 31, 2000
Page Nos.
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PART I - FINANCIAL INFORMATION:
CONSOLIDATED BALANCE SHEET 1
At December 31, 2000
CONSOLIDATED STATEMENTS OF OPERATIONS 2-3
For the Nine Months Ended December 31, 2000 and 1999
For the Three Months Ended December 31, 2000 and 1999
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY 4
For the Nine Months Ended December 31, 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
For the Nine Months Ended December 31, 2000 and 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-16
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AT DECEMBER 31, 2000
ASSETS
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CURRENT ASSETS
Cash and cash equivalents $ 82,116
Accounts receivable, net of allowance for
doubtful accounts of $105,850 59,906
Prepaid expenses 106,019
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TOTAL CURRENT ASSETS 248,041
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PROPERTY AND EQUIPMENT - at cost, net of accumulated
depreciation 85,309
INTANGIBLE ASSETS, net of accumulated amortization 34,003
SECURITY DEPOSITS 12,141
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TOTAL ASSETS $ 379,494
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
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CURRENT LIABILITIES
Accrued merger costs $ 206,881
Other accrued liabilities 186,875
Accrued interest - convertible debentures 13,764
Due to related parties 198,125
Unearned revenues 88,000
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TOTAL CURRENT LIABILITIES 693,645
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CONVERTIBLE DEBENTURES 387,500
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TOTAL LIABILITIES 1,081,145
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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Notes 5, 6 and 7)
STOCKHOLDERS' DEFICIENCY
Common stock - $.002 par value; authorized 60,000,000
shares, issued and outstanding 22,121,367 shares 44,243
Additional paid-in capital 4,743,162
Accumulated deficit (5,489,056)
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TOTAL STOCKHOLDERS' DEFICIENCY (701,651)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 379,494
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See accompanying notes.
1
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999
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2000 1999
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REVENUES $ 1,134,586 $ 456,227
COST OF REVENUES 592,074 208,098
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GROSS PROFIT 542,512 248,129
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OTHER EXPENSES:
Selling, general and administrative expenses 1,278,234 351,349
Interest expense 14,936 5,100
Provision for severance 150,000 -
Write-off of excess of acquisition cost over
fair value of net assets acquired 4,580,416 -
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TOTAL OTHER EXPENSES 6,023,586 356,449
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LOSS BEFORE INCOME TAXES (5,481,074) (108,320)
PROVISION FOR INCOME TAXES - -
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NET LOSS $(5,481,074) $ (108,320)
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BASIC AND DILUTED NET LOSS PER COMMON
SHARE $ (.27) $ -
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 20,000,000 20,000,000
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See accompanying notes.
2
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
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2000 1999
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REVENUES $ 273,729 $ 211,050
COST OF REVENUES 211,292 42,383
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GROSS PROFIT 62,437 168,667
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OTHER EXPENSES:
Selling, general and administrative expenses 495,228 294,854
Interest expense 11,436 1,700
Provision for severance 150,000 -
Write-off of excess of acquisition cost over
fair value of net assets acquired - -
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TOTAL OTHER EXPENSES 656,664 296,554
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LOSS BEFORE INCOME TAXES (594,227) (127,887)
PROVISION FOR INCOME TAXES - -
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NET LOSS $ (594,227) $ (127,887)
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BASIC AND DILUTED NET LOSS PER COMMON
SHARE $ (.03) $ -
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 20,000,000 20,000,000
=========== ===========
See accompanying notes.
3
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 2000
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Retained
Common Stock Additional Earnings
------------------------- Paid-in Subscriptions (Accumulated
Shares Amount Capital Receivable Deficit) Total
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Balance - March 31, 2000 (1) 20,000,000 $ 40,000 $ 504,671 $ (300,000) $ (7,982) $ 236,689
Common shares to Apple shareholders in
reverse merger - September 30, 2000 2,121,367 4,243 4,238,491 -- -- 4,242,734
Receipts of stock subscriptions -- -- -- 300,000 -- 300,000
Net loss -- -- -- -- (5,481,074) (5,481,074)
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Balance - December 31, 2000 22,121,367 $ 44,243 $ 4,743,162 $ -- $(5,489,056) $ (701,651)
=========== =========== =========== =========== =========== ===========
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(1) Share amounts have been restated to reflect the merger transactions effected
in April and May of 2000 (Note 1).
See accompanying notes.
4
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(5,481,074) $ (108,320)
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Non-cash portion of write-off of excess of
acquisition cost over fair value of net
assets acquired 4,104,560 -
Depreciation and amortization 112,497 16,030
Provision for bad debts 75,000 15,850
Provision for severance 150,000 -
Cash (used in) provided by:
Accounts receivable (28,360) (10,264)
Prepaid expenses and other assets (101,463) (1,000)
Accounts payable and accrued liabilities 298,184 95,337
Security deposit (12,141) -
Increase in unearned revenues 88,000 -
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NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (794,787) 7,633
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (124,051) (13,696)
Intangible assets expenditures (13,319) -
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NET CASH USED IN INVESTING ACTIVITIES (137,370) (13,696)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt due to related parties (24,545) -
Proceeds from issuance of stock 300,000 -
Proceeds from asset sale 600,000 -
Proceeds from stockholder loans 90,000 36,841
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NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 965,455 36,841
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INCREASE IN CASH 33,288 30,778
CASH AND CASH EQUIVALENTS - BEGINNING 48,828 3,072
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CASH AND CASH EQUIVALENTS - ENDING $ 82,116 $ 33,850
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SUPPLEMENTAL INFORMATION:
------------------------
Cash paid during the period for:
Interest $ 14,936 $ 5,100
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Convertible debentures and interest
assumed in merger $ 400,826 $ -
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Severance liability satisfied by
transfer of equipment $ 150,000 $ -
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See accompanying notes.
5
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
NOTE 1 - NATURE OF BUSINESS
Basis of Presentation
---------------------
The accompanying consolidated financial statements are unaudited. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission ( the "SEC"). Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
the financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to state fairly the financial position and
results of operations as of and for the periods indicated. These financial
statements should be read in conjunction with the Company's financial statements
and notes thereto for the year ended March 31, 2000, included in the Company's
Form 10KSB as filed with the Securities and Exchange Commission. Fiscal years
will continue to end on March 31st.
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Description of Business
-----------------------
Genfinity Corporation ("Genfinity"), previously known as Apple Homes
Corporation, was organized as a Delaware corporation on April 17, 1989 under the
name PLAM Properties, Inc. It changed its name to Mayfair Homes Corporation in
1993 to reflect the name of its principal residential development and again to
Apple Homes Corporation in 1997 to reflect the trade name under which it
operates its manufactured home sales centers. On September 30, 2000, Genfinity
merged with Bravo.com Acquisition Corp. ("Bravo") and PlayRadio.net Acquisition
Corp. ("PlayRadio") and sold its historical business of the selling and the
installation of manufactured homes (the "Merger Transaction"). Upon the filing
of the Certificates of Merger with the State of Delaware the name of the
corporation was changed to Genfinity Corporation. Genfinity's new business
consists of the combined operations of Bravo and PlayRadio. The operations,
which have generated revenues, consist of web development, application services
and hosting services.
During the quarter ended December 31, 2000, the Company downsized its operations
through substantial reductions in its personnel and facilities. Further, the
Company has ceased active sales of the web design and development and has
refocused its web-hosting operations.
Substantially, all of the Company"s revenue, subsequent to December 31, 2000, is
related to a revenue project with a significant customer. The project is
expected to be concluded by June of 2001.
In addition, the Company has decided not to fund any of the development-stage
business acquired as a result of the merger with Bravo and PlayRadio. No
assurance can be given that the Company can complete the development and
successfully commercialize the above described businesses under development.
6
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
NOTE 1 - NATURE OF BUSINESS (Continued)
Basis of Consolidation
----------------------
The consolidated financial statements include the accounts of Bravo and
PlayRadio, and commencing September 30, 2000, Genfinity (collectively, the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
NOTE 2 - MERGER TRANSACTIONS
Merger - September 30, 2000
---------------------------
On September 30, 2000, pursuant to a merger agreement dated May 10, 2000,
Genfinity completed a merger with Bravo.com Acquisition Corp. ("Bravo") and
PlayRadio.net Acquisition Corp. ("PlayRadio"), whereby all of the outstanding
common shares of Bravo and PlayRadio held by its shareholders were exchanged for
20,000,000 shares of common stock of Genfinity. The merger was considered a
reverse merger in that the shareholders of Bravo and PlayRadio collectively
owned 90.4% of the common stock of Genfinity after the stock issuances.
Bravo and PlayRadio were incorporated on April 3, 2000 in the state of New York
for the purpose of bringing together existing internet-related businesses. Bravo
and PlayRadio each had 10,000,000 shares of authorized, issued and outstanding
common stock at $0.0001 par value at the date of the merger with Apple. On the
effective date of the merger, the separate existence of Bravo and PlayRadio
ceased, and Apple survived as the surviving corporation, governed under the laws
of Delaware. The reverse merger has been accounted for under the purchase method
of accounting with Bravo and PlayRadio being the acquirer. The excess of the
acquisition cost over the fair value of the net assets acquired of $4,043,560
was treated as an expense on the effective date of the merger, September 30,
2000.
The merger agreement also provided that on the effective date of closing, the
surviving corporation will sell to Apple Homes Acquisition Corp. ("AHAC") all of
Apple's existing assets and business, along with the assumption of all of
Apple's contracts, liabilities and duties other than Apple's debentures and
Apple's warrants. AHAC, Bravo, and PlayRadio have a major common shareholder,
Thomas Kontogiannis. As a purchase price for the sale of assets, AHAC was
obligated to pay to Apple $1,500,000 less the amount by which the cash and cash
equivalents of Apple transferred to AHAC in the transaction total less than
$800,000. The purchase price was reduced on the closing date by a cash shortfall
of $600,000. In addition, expenses and commissions, in connection with this
sale, were $300,000. As of September 30, 2000, a balance of $400,000 was
outstanding under this asset sale. The $400,000 was received in October and
November of 2000.
The above transactions were approved by a vote of the stockholders of Apple held
on August 21, 2000.
7
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
NOTE 2 - MERGER TRANSACTIONS (Continued)
Mergers - April and May of 2000
-------------------------------
Bravo Group:
The Bravo group consisted of The Calvander Corporation ("Calvander"),
NetworkArts, Inc. ("Network") and LetterPath, Inc. ("LetterPath").
On May 1, 2000, Calvander, Network and LetterPath entered into a merger
agreement with Bravo, whereby the shareholders of Calvander received 3,100,000
shares of Bravo in exchange for all 1,500 shares of Calvander and the
shareholders of Network received 1,000,000 shares of Bravo in exchange for all
1,000,000 shares of Network and the shareholders of LetterPath received
3,000,000 shares of Bravo in exchange for all 1,802,332 shares of LetterPath.
The founding shareholders of Bravo received 2,900,000 shares of the common stock
of Bravo upon its formation.
Calvander was incorporated in the state of Delaware on November 12, 1999.
Calvander, doing business as "Catalogue.com", is a full-service web development
and application service provider.
In November of 1999, the shareholders of Calvander contributed the assets of a
former corporation to Calvander. The net assets were valued at $155,000, which
was recorded as additional paid-in capital. The former corporation operated a
Web development business organized as Catalogue.com, Inc.
Historical and pro forma financial information has not been provided for the
eight months ended November 30, 1999 because the contributed operations were
co-mingled with other lines of business and separate financial information is
unavailable.
Network was incorporated in the state of North Carolina on July 6, 1998. Network
is an Internet Web Site development, management, and hosting firm. Network
acquired the assets of Signal Interactive, Inc. in July of 1998, thereby
creating the goodwill on the books of Network of $52,446.
On March 22, 2000, Network effected a 100-to-1 stock split, thereby increasing
the number of issued and outstanding shares to 1,000,000, and decreasing the par
value of each share to $0.0001.
8
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
NOTE 2 - MERGER TRANSACTIONS (Continued)
Mergers - April and May of 2000 (Continued)
-------------------------------
Bravo Group: (Continued)
LetterPath was incorporated on September 9, 1999 in the state of North Carolina.
LetterPath is a development-stage company, which has not generated any revenues
to date.
On February 8, 2000, the shareholders and directors of LetterPath declared a
dividend of 14.29982 shares of common stock on each share of common stock issued
and outstanding, thereby increasing the number of shares of common stock to
1,529,982 from 100,000.
On March 25, 2000, LetterPath entered into a stock purchase agreement with a
shareholder of Calvander, whereby the shareholder of Calvander agreed to pay the
shareholders of LetterPath an aggregate of $200,000 and to pay LetterPath the
sum of $300,000. Upon receipt of these payments, the shareholders of LetterPath
agreed to transfer an aggregate of 180,236 of their own common shares and
LetterPath agreed to issue 270,332 common shares to the shareholder of
Calvander.
During the quarter ended December 31, 2000, management decided to suspend the
funding of the LetterPath business.
PlayRadio Group:
PlayRadio is a New York corporation incorporated on April 3, 2000 as
"Motel.com". PlayRadio has two divisions, effective May 1, 2000: (1) PlayRadio,
and (2) MoneyLink.
PlayRadio is a development-stage web-based music broadcasting platform, which
has not generated any revenues to date. During the quarter ended December 31,
2000, management decided not to fund the development of this business.
On October 28, 1999, MoneyLink Capital.com, Inc. ("MoneyLink") was incorporated
in the state of Delaware with 1,500 authorized, unissued shares. On April 28,
2000, one share was issued with no par value for $1. On May 1, 2000, the sole
shareholder of MoneyLink entered into a merger agreement with PlayRadio, whereby
the shareholder of MoneyLink received 4,275,000 shares of PlayRadio in exchange
for one share of MoneyLink common stock and $427.50. MoneyLink thereby became a
division of PlayRadio. MoneyLink has the rights to a software program that
automates the process of applying for a home mortgage on the Internet. MoneyLink
is still in the start-up stage and does not have any commercial operations or
employees to date. During the quarter ended December 31, 2000, management
decided not to fund the development of this business.
The total common shares of PlayRadio outstanding at the time of the merger with
Apple was 10,000,000.
9
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents.
Foreign Currency Exposure
-------------------------
The Corporation's current activities have all been denominated in dollars.
Consequently there has been no Foreign Currency Exposure.
Accounts Receivable
-------------------
Accounts receivable have been adjusted for all known uncollectible accounts. An
allowance for doubtful accounts has been provided aggregating $105,850 as of
December 31, 2000.
Property and Equipment
----------------------
Depreciation is provided for using the straight-line method over the estimated
useful lives of three to seven years.
Intangible Assets
-----------------
Intangible assets consist of goodwill, patents rights, domain name rights and
organization costs. Goodwill represents the excess of the cost of a company
acquired in July 1998 over the fair value of its net assets at the date of
acquisition. Goodwill is amortized on the straight-line method over 15 years.
Other intangible assets are being amortized on the straight-line method over
five years.
Stock-Based Compensation
------------------------
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", Bravo
and Radio account for stock-based compensation arrangements pursuant to APB
Opinion No. 25, "Accounting for Stock Issued to Employees". In accordance with
the provisions of SFAS No. 123, Bravo recorded compensation expense for options
granted to non-employees during the three months ended March 31, 2000 at the
fair value of services rendered.
10
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Per Share
--------------
Basic earnings per share ("basic EPS") is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share ("diluted EPS") gives
effect to all dilutive potential common shares outstanding during the period. In
computing diluted EPS, the treasury stock method is used in determining the
number of shares assumed to be purchased from the conversion of common stock
equivalents. See Note 9 for potentially dilutable securities.
Advertising
-----------
Advertising costs are charged to operations when incurred. Advertising expense
for the nine months ended December 31, 2000 and 1999 was $9,897 and $-0-,
respectively.
Revenue Recognition
-------------------
Fees for Web development, management, and hosting services are recognized when
earned.
Income Taxes
------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Prior to the merger date of May 1, 2000, each company's tax situation was as
follows:
- The Calvander Corporation
Calvander's tax loss for the year ended December 31, 1999 has been carried
forward was utilized during the four months ending April 30, 2000. No deferred
and current tax provision has been provided as it has been estimated to be
insignificant.
- NetworkArts, Inc.
NetworkArts elected to be an "S" corporation for Federal and State tax purposes.
In general, an "S" corporation does not pay a tax on its income since the
shareholders are responsible for paying income taxes on the taxable income
earned by the corporation. Accordingly, no Federal and State corporation taxes
were provided for NetworkArts prior to May 1, 2000. Pursuant to the May 1, 2000
merger discussed in Note 1, NetworkArts terminated its "S" corporation status.
No accumulated deficit existed on April 30, 2000. If NetworkArts had been a "C"
corporation, the tax provisions would have been insignificant for the periods
prior to May 1, 2000.
11
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
------------
- LetterPath, Inc.
LetterPath had no operations during the year ended December 31, 1999 and
incurred a loss during the four months ended April 30, 2000. A deferred tax
asset has not been recorded as it has been estimated to be insignificant.
PlayRadio.net Acquisition Corp. and MoneyLink Capital.com, Inc.
---------------------------------------------------------------
PlayRadio and MoneyLink have no revenues from operations to date. No tax benefit
has been provided for the period prior to the merger as it has been estimated to
be insignificant.
Effective with the Bravo and PlayRadio mergers on May 1, 2000, Calvander,
Network, LetterPath and MoneyLink ceased to exist. Bravo and PlayRadio reported
combined net income of approximately $4,000. No current tax provision has been
provided as it has been estimated to be insignificant.
There are no Federal or State tax credits that have been carried forward.
Use of Estimates
----------------
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
-----------------------------------
For certain financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable and other accrued liabilities, the carrying amounts
approximate fair value due to their short maturities. The carrying amounts of
long-term debt approximate fair value due to the length of maturities, as well
as borrowing rates currently available for bank loans with similar terms and
maturities.
Impairment of Assets
--------------------
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result from the
use of the asset and its eventual disposition is less than its carrying amount.
Management has not identified any such impairment losses.
12
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Office and computer equipment $ 286,372
Office furniture and fixtures 26,933
----------
313,305
Accumulated depreciation 227,996
----------
$ 85,309
==========
During the quarter ended December 31, 2000, severance obligations to various
employees were satisfied by the transfer of computer equipment with a carrying
value of approximately $150,000.
Depreciation expense for the nine months ended December 31, 2000 and 1999 was
$86,071 and $12,763, respectively.
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consisted of the following:
Goodwill $ 52,446
Other 14,506
---------
66,952
Accumulated amortization 32,949
---------
$ 34,003
=========
Amortization expense for the nine months ended December 31, 2000 and 1999 was
$26,426 and $3,267, respectively.
13
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
NOTE 6 - RELATED PARTY TRANSACTIONS
Amounts due to related parties consist of the following:
Advances from principal stockholder $ 90,000
Advances from shareholders and relative
of shareholders 96,125
Two-year note payable to certain
shareholders at 9% interest and equal
monthly installments of $1,000
beginning April of 2000; secured by
certain computer equipment 12,000
---------
Total $ 198,125
=========
The two-year note payable to shareholders described above included an option to
purchase common shares representing 4.5% of issued and outstanding stock of
Network at an exercise price equal to one month's principal payment. The option
was exercised during March of 2000.
A leasing company, controlled by a Director at the date of the Merger
Transaction, had executed a lease with Calvander for certain computing equipment
on a 24 month operating lease. Payments for this lease are:
2000 $22,387.64 (calendar year)
2001 $24,422.88
2002 $2,035.24
NOTE 7 - CONVERTIBLE DEBENTURES
As part of the merger transaction completed on September 30, 2000 (Note 2), the
liabilities under various convertible debentures remained as obligations of
Genfinity. During the year ended March 31, 1994, Apple completed a private
placement of seventeen debentures in the principal amount of $300,000. The
debentures are due in 2003, pay interest semi-annually at 10.0% and are
convertible by the holders after two years into shares of the Company's common
stock at a conversion ratio of $1.25 per share subject to anti-dilution rights.
As a result of the merger with Bravo and PlayRadio, the conversion price was
reduced to $.1198 on November 29, 2000. As of September 30, 2000, $115,000 of
the original debentures have been converted to stock, leaving a remaining
balance of $185,000. The remaining $185,000 is convertible into 1,543,327 shares
of common stock.
In December 1998, Apple offered convertible subordinated debentures as a private
placement, pursuant to Rule 504 of Regulation D of the 1933 Securities Act. As
of March 31, 2000, Apple completed the placement of $202,500 of debentures to
eight investors. The debentures are due five years from their date of issue.
They bear interest, payable semi-annually, at a rate of 10.0% per annum. They
are convertible into common stock of the Company at the conversion price of
$5.00 per share subject to anti-dilution rights. As a result of the merger with
Bravo and PlayRadio, the conversion price was reduced to $.4795 on November 29,
2000. There were no conversions into common stock as of December 31, 2000. The
$202,500 is convertible into 422,329 shares of common stock.
14
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
NOTE 8 - COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
Leases and Contractual Commitments
----------------------------------
On September 15, 1998, Calvander entered into a three-year lease agreement with
a third party for dedicated Internet access. The lease provides for a minimum
monthly billing of $3,594.
On May 24, 2000, Bravo entered into a 50-month lease agreement for a new
furnished facility in Chapel Hill, North Carolina. The lease requires monthly
rent payments of $13,287, with escalation clauses of 4% over the previous year's
rent for years two, three, and four. The lease expires on July 14, 2004.
Genfinity Corporation leases space where connectivity to customers and the
Internet provider is maintained. Payments are made on a month-to-month basis at
a cost of $2,400 per month.
In April 2000, LetterPath entered into a 12-month lease agreement for an
unfurnished facility in Chapel Hill, North Carolina. The lease requires minimum
payments in the Year Ending December 2000 of $23,600, and in the Year Ending
December 2001 of $8,600. The facility has never been actively used and the
Corporation is actively seeking to release the space.
Future minimum lease payments under all operating leases are as follows:
Year Ending December 31
-----------------------
2001 $ 202,578
2002 176,142
2003 171,508
2004 177,902
---------
$ 728,130
=========
Rent expense for the nine months ended December 31, 2000 and 1999 was $148,289
and $15,100, respectively.
In July 2000, LetterPath entered into a secured finance transaction for certain
equipment and services to be provided by an outside vendor. Installation of the
equipment was not accepted and the Corporation anticipates that the funds
advanced to execute the transaction, shown as Prepaid Expenses, will be
returned.
Genfinity Corporation entered into a services agreement in September 2000 that
has a total value of $100,000 with payments on a quarterly basis commencing in
the 4th calendar quarter of 2000 through calendar 3rd quarter 2002.
Genfinity Corporation does not currently have any short term borrowing lines.
15
GENFINITY CORPORATION
(Formerly Apple Homes Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
NOTE 8 - COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS (Continued)
Leases and Contractual Commitments (Continued)
----------------------------------
Concentration of Credit Risk
----------------------------
Financial instruments, which potentially subject the Company to concentrations
of credit risk, are primarily trade accounts receivable. Ongoing credit
evaluations of customers' financial condition are performed and generally no
collateral is required. The Company has not experienced any material losses in
these transactions and maintains a reserve for potential credit losses and such
losses, in the aggregate, have not exceeded management's expectations. One
customer accounted for approximately 80% of the accounts receivable balance at
December 31, 2000, contributing approximately 50% of nine-month revenues, and
95% of sales for the continuing accounts.
NOTE 9 - STOCKHOLDERS' EQUITY
As of December 31, 2000, the Company had outstanding Class A warrants allowing
holders to purchase 2,913,872 shares of the Corporation's common stock at $.66
per share. The warrants expire on December 31, 2001. The holders of the warrants
have certain anti-dilution rights.
On August 21, 2000, the shareholders approved an amendment to the Corporation's
article of incorporation increasing the number of authorized common shares from
10,000,000 to 60,000,000, as part of the approval of the Merger Transaction. The
total number of shares authorized for Genfinity Corporation is 60,000,000.
As of September 30, 2000, at the completion of the Merger Agreement, the number
of shares was 22,121,367.
In addition to shares outstanding, Convertible Debenture Holders have certain
rights of conversion as well as anti-dilution rights that are continued from the
original issue by Apple Homes Corporation to Genfinity Corporation.
Securities that could potentially dilute basic earnings per share (`EPS') in the
future that were not included in the computation of diluted EPS because to do so
would have been anti-dilutive for the periods presented consist of the
following:
Warrants to purchase common stock 2,913,872
Convertible Debentures (assumed conversion at
December 31, 2000 1,965,656
---------
Total as of December 31, 2000 4,879,528
=========
16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
a. Background Information
On September 30, 2000 control of the Apple Homes Corporation was effectuated by
the merger of Bravo.com Acquisition Corporation ("Bravo") and PlayRadio.net
Acquisition Corporation (PlayRadio) into Apple Homes, Inc.
As part of the mergers, Apple Homes Corporation's name has been changed to
Genfinity Corporation.
In the mergers, 20 million shares of common stock of the Apple Homes Corporation
representing approximately 90.5% of our outstanding stock, was issued to the
former stockholders of the Bravo and PlayRadio.
On September 30, 2000, as part of the merger agreement, the Genfinity
Corporation sold to Apple Homes Acquisition Corporation, a Georgia corporation
controlled by Thomas Kontogiannis, Genfinity"s principal shareholder, all of the
assets and business of the home related business (as it existed as Apple Homes
Corporation, immediately prior to the Merger Transaction), and Apple Homes
Acquisition Corporation assumed all of the liabilities of the Apple Homes
Corporation other than our obligations to then existing debenture holders and
warrant holders. Please see other Notes for additional information and
explanation.
b. Management Discussion of Operations
The financial statements and background information provided in this document
reflect a period of extensive transitions for Genfinity Corporation. Changes
since the last reporting period for Apple Homes, Inc. include:
o A Merger Transaction, September 30, 2000, wherein Bravo.com Acquisition
Corporation and PlayRadio.net Acquisition Corporation were merged into
the Corporation. An Apple Home, Inc. stockholder vote to approve the
merger was finalized on August 21, 2000 at a special meeting of
stockholders of record as of June 30, 2000, with 99.85% of the votes
received approving the merger and sale of assets. The stockholder vote
was held on the material in the Definitive Proxy dated July 19, 2000.
o Concurrent sale of the operating businesses that have been Apple Homes,
Inc. to Apple Homes Acquisition Corporation on September 30, 2000.
o Integration of operations for Bravo.com Acquisition Corporation
operating groups.
o Introduction of a substantially new management team to operations
combined from Bravo.com Acquisition Corporation, PlayRadio Acquisition
Corporation, and new business and markets.
Genfinity Corporation operates in a single line of business for segment
reporting under The NetworkArts brand which provides web-hosting, Internet World
Wide Web site development, web marketing programs, e-commerce B2B (business to
business) and B2C (business to consumer) solutions to both "clicks" and "mortar"
companies.
During the quarter ended December 31, 2000, we downsized our operations through
substantial reductions in our personnel and facilities. Further, we have ceased
active sales of the web design and development and have refocused our
web-hosting operations.
In addition, we have decided not to fund any of the development-stage business
acquired as a result of the merger with Bravo and PlayRadio, including the
LetterPath business, PlayRadio business and MoneyLink business.
17
Business methods and processes are changing very frequently in response to both
new organizational and customer driven issues. As a result, reliance on
period-to-period comparisons of revenue and operating results, including costs
of sale and other operating expenses as a percentage of total revenue, are not
meaningful and should not be relied upon as indicators of future performance.
Genfinity is currently a small business where growth in one or more operating
lines will substantially change both the allocations of resources and the
financial characterization of the business.
Nine Months Ended December 31, 2000 Compared with Nine Months Ended December 31,
1999
-----------------------------------------------------------------------------
Revenue for the nine months ended December 31, 2000 increased from $456,000 in
the 1999 period to $1,135,000 in the 2000 period. The revenue for the 2000
period includes nine months of revenues related to the Calvander operation,
while the 1999 period included only one month of revenues from the Calvander
operation.
Substantially, all of our revenues were from shared and dedicated web
hosting/e-commerce services. Most of our hosting revenues are generated from
recurring monthly fees and bandwidth charges. Many existing customers have under
short-term (12 months of less) setup and operating agreements. Material amounts
of existing customer revenue operates on a month-to-month contractual basis that
may be cancelled on thirty days notice. In addition, our revenue from a
significant customer agreement represented over 50% of our 2000 period revenues
and 95% of our current revenues, and this agreement is expected to be concluded
in June of 2001. We expect revenues for our March 2001 quarter to decline to
$250,000.
Cost of revenue, which is mainly comprised of compensation and related expenses
for technical operations, Internet connectivity and other related
telecommunications expense, lease expense in particular related to our leased
property, and depreciation of equipment. Cost of revenues increased to $592,000,
or 52% of revenues for the 2000 period, from $208,000, or 46% of revenues for
the 1999 period.
The increase was attributed to our increase in technical personnel and lower
average margins in new projects. Commencing January of 2001, we eliminated most
of our salaried personnel and entered into an agreement to outsource our
existing revenue contracts.
Selling, general and administrative, which is mainly comprised of compensation
costs and costs associated with marketing our products and services.
Compensation costs include salaries and related benefits, commissions and
bonuses. Our marketing expenses include the costs of direct mail, advertising
and other marketing programs. Our general and administrative, which is mainly
comprised of compensation and related expenses, occupancy costs, and other
operating expenses. Selling, general and administrative costs increased from
$351,000 in the 1999 period to $1,278,000 in the 2000 period. The increase was
related to the increase in corporate overhead (personnel, facilities)
implemented during the quarters ended September 30, 2000 and December 31, 2000.
Commencing in January of 2001, we substantially reduced our corporate overhead
and are using outside contractors for our administrative requirements.
Our net loss increased from $108,000 in the 1999 period to $5,481,000 in the
2000 period. The increase was attributable to our increase in selling, general
and administrative costs of $927,000, provision for severance pay of $150,000
and a principally non-cash charge to earnings of $4,580,000, representing the
excess of the acquisition costs over the fair value of the net assets acquired
in the September 30, 2000 merger with Apple Homes, Inc.
18
Three Months Ended December 31, 2000 Compared with Three Months Ended December
31, 1999
-----------------------------------------------------------------------------
Revenue for the three months ended December 31, 2000 increased from $211,000 in
the 1999 period to $274,000 in the 2000 period. The principal reason for the
increase was due to the 2000 period included three months of revenues related to
the Calvander operation, while the 1999 period included only one month of
revenues from the Calvander operation.
Substantially, all of our revenues were from shared and dedicated web
hosting/e-commerce services. Most of our hosting revenues are generated from
recurring monthly fees and bandwidth charges. Many existing customers have under
short-term (12 months of less) setup and operating agreements. Material amounts
of existing customer revenue operates on a month-to-month contractual basis that
may be cancelled on thirty days notice. In addition, our revenue from a
significant customer agreement represented over 75% of our three-month revenues
and 95% of our current revenues, and this agreement is expected to be concluded
in June of 2001. We expect revenues for our March 2001 quarter to decline to
$250,000.
Cost of revenues increased to $211,000, or 77% of revenues for the 2000 period,
from $42,000, or 20% of revenues for the 1999 period. The increase was
attributed to our increase in technical personnel and lower average margins in
new projects. Commencing January of 2001, we eliminated most of our salaried
personnel and entered into an agreement to outsource our existing revenue
contracts.
Selling, general and administrative costs increased from $295,000 in the 1999
period to $495,000 in the 2000 period. The increase was related to the increase
in corporate overhead (personnel, facilities) implemented during the quarters
ended September 30, 2000 and December 31, 2000. Commencing in January of 2001,
we have substantially reduced our corporate overhead and are using outside
contractors for our administrative requirements.
Our net loss increased from $128,000 in the 1999 period to $594,000 in the 2000
period. The increase was attributable to our increase in cost of revenues and
selling, general and administrative costs and a provision for severance pay of
$150,000.
Liquidity and Capital Resources
-------------------------------
We have financed our operations during the nine months ended December 31, 2000
through shareholder loans of $90,000, asset sales of $600,000 and proceeds from
stock sale of $300,000.
We have incurred significant losses in the period covered by the financial
statements. Further investment in capital equipment, staff, marketing, and
product development will require additional financing in both near term and
long-term expectations. Failure to obtain timely investment capital will also
place continued operations in doubt.
Our ability to achieve profitability and positive cash flow from these
operations will be dependent upon our ability to grow our revenues substantially
and achieve longer-term commitments from our customers.
19
Substantial changes in the market for web site design and implementation are
occurring as the technology matures and many new firms and individuals enter the
marketplace. Large-scale projects are becoming increasingly complex and
requiring high-risk time schedules. Small projects are becoming a commodity
product that is often used as a promotional leader by organizations seeking to
expand marketplace awareness and service/product market share. In this climate
the development of human resources, expending appropriate capital to maintain a
competitive infrastructure, and continuing efforts to improve services and
quality will be difficult for Genfinity to meet without a stable financing
commitment.
Part II. Other Information
Item 1. Legal Proceedings
Genfinity Corporation is a party to routine litigation incidental to our
business, however, management believes that none of which is likely to have a
material effect on the Corporation's financial position or capabilities.
Item 2. Changes in Securities and Use of Proceeds
Please see Notes to financial statements for additional information. Interested
parties are also encouraged to view the Form D, Form 3, and Form 13 on the
Securities and Exchange Commission web site (http://www.sec.gov) for additional
information.
Item 3. Defaults on Senior Securities
As noted in the Notes to Financial Statements Genfinity Corporation has
continued the rights and privileges of continuing holders of Convertible
Debentures and Warrants for Apple Homes Corporation.
Senior debt related to the historical business conducted by Apple Homes
Corporation was assumed by Apple Homes Acquisition Corporation in the asset sale
transaction on September 30, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Additional Press Release Information is available on the Corporation Web Site
(http://www.genfinity.com) or on public news services.
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K
The Corporation filed the following information on Form 8-K with the SEC during
the period ending December 31, 2000:
Form 8-K, Merger Transaction, dated October 13, 2000 Form 8-K, Change in
Auditors, dated November 16, 2000
Form 8-K, Change in Terms of Convertible Debentures and Warrants, dated
November 29, 2000
Form 8-K, Merger Transaction, dated November 29, 2000
20
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.
GENFINITY CORPORATION
Dated: March 23, 2001
By /s/ Nick Tsismenakis
------------------------------
21