10-Q 1 d92264e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-21343 MAII HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 73-1347577 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6000 LEGACY DRIVE, 4TH FLOOR PLANO, TEXAS 75024 (Address of principal executive offices) (Zip Code) (469) 241-9587 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of November 11, 2001, there were 3,879,391 shares outstanding of the registrant's common stock, $0.002 par value. INDEX PART I. FINANCIAL INFORMATION

MAII HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2001 AND DECEMBER 31, 2000

SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. 3 MAII HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4 MAII HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS SEPTEMBER 30, 2001 AND 2000

SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5 MAII HOLDINGS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001

SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6 MAII HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION OF AND FOR THE THREE AND NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2001 AND 2000 IS UNAUDITED) 1. UNAUDITED INTERIM FINANCIAL INFORMATION The consolidated balance sheet as of September 30, 2001, and the consolidated statements of operations, for the three and nine months ended September 30, 2001 and 2000 and the consolidated statements of cash flows for the nine months ended September 30, 2001 and 2000, and the consolidated statement of stockholders' equity for the nine months ended September 30, 2001, have been prepared by the Company without audit. The December 31, 2000 consolidated balance sheet is derived from the audited consolidated balance sheet as of that date. In the opinion of management, all adjustments (which include only normal, recurring adjustments) necessary to present fairly the financial position at September 30, 2001, and the results of operations and cash flows for all periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the operating results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, these financial statements should be read in conjunction with the audited financial statements and related notes of the Company for the fiscal year ended December 31, 2000 included in the Company's Form 10-K and the Company's Form 8-K filed on October 29, 2001 regarding the acquisition of Car Rental Direct.com, Inc. ("CRD") which includes audited financial statements and related notes of CRD for the fiscal year ended December 31, 2000. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets, particularly accounts receivable, 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 may, in some instances, differ from previously estimated amounts. 2. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. ("FAS") 141, "Business Combinations" ("FAS 141") and FAS 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 141 addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. FAS 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination, whether acquired individually or with a group of other assets, and the accounting and reporting for goodwill and other intangibles subsequent to their acquisition. These standards require all future business combinations to be accounted for using the purchase method of accounting. Goodwill will no longer be amortized but instead will be subject to impairment tests at least annually. The Company is required to adopt FAS 141 and FAS 142 on a prospective basis as of January 1, 2002; however, certain provisions of these new standards may also apply to any acquisitions concluded subsequent to June 30, 2001. As a result of implementing these new standards, the Company has not amortized any goodwill associated with the acquisition of Car Rental Direct.com, Inc. In July, 2001, the FASB issued FAS 143, "Accounting for Asset Retirement Obligations" ("FAS 143"). FAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and capitalized as part of the carrying amount of the long-lived asset. The statement will be effective for fiscal years beginning after June 15, 2002. The Company has not yet determined the effect on its consolidated financial statements of this standard when adopted. In October, 2001, the FASB issued FAS 144, "Accounting for the Impairment of Disposal of Long-Lived Assets" which supersedes FAS 121. "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The statement provides a single accounting model for long-lived assets to be disposed of. The Company has not yet determined the effect on its consolidated financial statements of implementing this state statement, which is effective for fiscal years beginning after December 15, 2001. 7 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Short-term investments consist of securities and certificates of deposit with a maturity date of greater than three months. Revenue consists primarily of fees from rentals and the sale of related rental products. The Company recognizes rental revenues over the period in which vehicles are rented. 4. REVENUE GENERATING EQUIPMENT Revenue generating equipment consists of rental vehicles that are stated at cost, less accumulated depreciation. The straight-line method is used to depreciate revenue generating equipment to estimated residual values over periods typically ranging from six to thirty-six months. In accordance with industry practice, depreciation expense includes gains and losses on revenue generating vehicle sales in the ordinary course of business and is included as a component of cost of revenues in the accompanying statements of operations. At September 30, 2001 and 2000 revenue generating equipment was $11,490,750 and $0 respectively, net of accumulated depreciation of $313,672 and $0, respectively. Depreciation expense for the period quarter and nine months ended September 30, 2001 was $313,672 and is included in cost of revenues. 5. PROPERTY AND EQUIPMENT Property and equipment consisted of the following:

Depreciation expense and accumulated amortization related to property and equipment was approximately $7,629 and $0 for the three months ended September 30, 2001 and 2000, respectively. 6. LINE OF CREDIT At September 30, 2001 and 2000, the Company had five and zero lines of credit, respectively, with financial institutions to finance the purchase of vehicles for the Company. The interest rates range from 1.5% to 2% over prime. The Company makes monthly principal payments of 2.25% to 2.75% of the original financed amount, plus interest. The lines of credit are collateralized by the vehicles and are guaranteed by CRD. Management expects vehicle obligations will generally be repaid within on year with proceeds received from either the repurchase of the vehicles by the manufacturers in accordance with the terms of the repurchase program or form the sale of the vehicles. 7. CAPITAL LEASE OBLIGATIONS The Company leases its office facilities and car rental lots under various operating lease agreements with third parties. In addition, the Company also leases certain computer equipment and software under capital leases. The leases have initial terms of between eighteen months and three and a half years and require fixed monthly payments. Rent expenses was $47,493 for the quarter and nine months ended September 20, 2001. 8. EARNINGS PER SHARE

Options excluded from the dilutive earnings per share computation because to do so would have been antidilutive totaled 167,985 for the three months ended September 30, 2001 and 178,127 for the nine months ended September 30, 2001. 9. ACQUISITION OR DISPOSITION OF ASSETS On August 16, 2001, the Company entered into an Agreement and Plan of Merger (the "Agreement"), by and among MAII Acquisition, Inc., a Nevada corporation and wholly-owned subsidiary of the Company ("Acquisition Corp."), Car Rental Direct.com, Inc., a Nevada 8 corporation ("CRD") and GenesisIntermedia, Inc., a Delaware corporation ("Genesis") and the parent of CRD. Under the terms of the Agreement, on August 23, 2001 CRD merged into Acquisition Corp. and became a wholly-owned subsidiary of the Company. CRD is a rental car company that specializes in renting cars to customers whose personal or corporate vehicle is out of service for an extended period of time. CRD currently has 19 locations in California, Arizona and Nevada and has a fleet of approximately 1,000 cars. CRD facilities are located within strip malls as well as in free-standing buildings. CRD also has rental offices in hotels and car dealerships. The Company intends to continue the operations of CRD as a wholly-owned subsidiary. The consideration paid by the Company for the acquisition of CRD was $12,259,054. The consideration was determined by arms-length negotiations between the parties to the Agreement and Plan of Merger and was funded from available cash contributed to Acquisition Corp. by the Company. The acquisition was accounted for as a purchase. The fair value of assets acquired and liabilities assumed is summarized as follows: Cash $ 366,649 Accounts receivable 900,032 Revenue earning equipment 11,709,148 Property and equipment 398,008 Other assets 581,608 Line of credit (10,363,378) Other liabilities (2,192,502) ------------ Net assets 1,399,565 Purchase price 12,259,054 ------------ Amount allocated to goodwill $ 10,859,489 ============

The purchase price allocation for this acquisition is preliminary and further refinements may be necessary based on final determination of the fair value of the assets and liabilities acquired. Below is pro forma revenue, net income, net income per share basic and net income per share diluted as if the acquisition would have been completed at the start of the period.

10. STOCK PURCHASE AGREEMENT The Company and Mr. Tyler entered into a Stock Purchase Agreement, dated as of February 1, 2001 (the "Tyler Purchase Agreement"), pursuant to which Mr. Tyler purchased 680,000 shares of the Company's common stock (the "Tyler Shares"), at a purchase price of $4.03 per share, or $2,740,400 in the aggregate; $1,360 of which is payable in cash and the remaining $2,739,040 of which is payable in the form of a promissory note made payable to the Company (the "Tyler Note"). The Tyler Purchase Agreement allows Mr. Tyler to sell shares of the Company's common stock back to the Company on or prior to April 12, 2001, at a price of $4.03 per share, if Mr. Tyler purchases shares of the Company's common stock from other shareholders of the Company on or prior to such date. The Tyler Note has an interest rate of 6.33% per annum, and the principal of and accrued but unpaid interest on, the Tyler Note is due and payable on April 12, 2001 which was subsequently extended to July 12, 2001. On July 11, 2001, the Company and Mr. Tyler entered into an agreement which, among other items, provided for the Tyler Purchase Agreement, including the Tyler Note and the Tyler Shares, to be cancelled if certain events do not occur. Additionally, if the events do not occur, the agreement provides for the forfeiture of all termination payments to Mr. Tyler and all vesting of stock options granted to Mr. Tyler to be suspended from July 11, 2001 until all events have occurred. As of the date of this filing, the Tyler Note has not been paid. In October, 2001, the Company entered into agreements with several of its significant shareholders to acquire 2,923,838 of its 9 outstanding shares of common stock or approximately 43% of its outstanding shares. Prices for the common stock were between $1.31 and $2.00 per share for an aggregate purchase price of $5,192,676. The Company paid the purchase price from available cash. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS: Forward-looking statements in this Form 10-Q are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. ("FAS") 141, "Business Combinations" ("FAS 141") and FAS 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 141 addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. FAS 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination, whether acquired individually or with a group of other assets, and the accounting and reporting for goodwill and other intangibles subsequent to their acquisition. These standards require all future business combinations to be accounted for using the purchase method of accounting. Goodwill will no longer be amortized but instead will be subject to impairment tests at least annually. The Company is required to adopt FAS 141 and FAS 142 on a prospective basis as of January 1, 2002; however, certain provisions of these new standards may also apply to any acquisitions concluded subsequent to June 30, 2001. As a result of implementing these new standards, the Company has not amortized any goodwill associated with the acquisition of Car Rental Direct.com, Inc. In July, 2001, the FASB issued FAS 143, "Accounting for Asset Retirement Obligations" ("FAS 143"). FAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and capitalized as part of the carrying amount of the long-lived asset. The statement will be effective for fiscal years beginning after June 15, 2002. The Company has not yet determined the effect on its consolidated financial statements of this standard when adopted. In October, 2001, the FASB issued FAS 144, "Accounting for the Impairment of Disposal of Long-Lived Assets" which supersedes FAS 121. "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The statement provides a single accounting model for long-lived assets to be disposed of. The Company has not yet determined the effect on its consolidated financial statements of implementing this state statement, which is effective for fiscal years beginning after December 15, 2001. RECENT ACQUISITIONS: As discussed in the notes to the consolidated financial statements, effective December 31, 2000 the Company consummated the Asset Sale with ICN. Therefore, the results of operations for the three months and nine months ended September 30, 2001 are not comparable to those for the three months and nine months ended September 30, 2000. On August 16, 2001, the Company entered into an Agreement and Plan of Merger (the "Agreement"), by and among MAII Acquisition, Inc., a Nevada corporation and wholly-owned subsidiary of the Company ("Acquisition Corp."), Car Rental Direct.com, Inc., a Nevada corporation ("CRD") and GenesisIntermedia, Inc., a Delaware corporation ("Genesis") and parent of CRD. Under the terms of the Agreement, on August 23, 2001 CRD merged into Acquisition Corp. and became a wholly-owned subsidiary of the Company. STATEMENT OF OPERATIONS: THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 NET REVENUES. Net revenues were $1,184,000 for the three months ended September 30, 2001. SALARIES AND BENEFITS EXPENSE. Salaries and benefits expense was $577,000 for the three months ended September 30, 2001. 10 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general, and administrative expense was $524,000 for the three months ended September 30, 2001. These expenses were primarily legal expenses and costs associated with the evaluations of various potential acquisitions. DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $7,600 for the three months ended September 30, 2001. PROVISION FOR UNCOLLECTIBLE ACCOUNTS. Provision for uncollectible accounts was $54,000 for the three months ended September 30, 2001. OPERATING INCOME (LOSS). Operating loss was $903,000 for the three months ended September 30, 2001. INTEREST INCOME & OTHER, NET. Interest income and other, net was $245,000 for the three months ended September 30, 2001. PROVISION (BENEFIT) FOR INCOME TAXES. For the three months ended September 30, 2001, the Company did not recorded a tax provision due to the loss incurred during the quarter. NET INCOME (LOSS). As a result of the items discussed above, the Company's net loss was $484,000 for the three months ended September 30, 2001 compared to income of $75,000 for the three months ended September 30,2000, a decrease of $559,000. NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 NET REVENUES. Net revenues were $1,184,000 for the nine months ended September 30, 2001. SALARIES AND BENEFITS EXPENSE. Salaries and benefits expense was $817,000 for the nine months ended September 30, 2001. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general, and administrative expense was $1,225,000 for the nine months ended September 30, 2001. DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $7,600 for the nine months ended September 30, 2001. PROVISION FOR UNCOLLECTIBLE ACCOUNTS. Provision for uncollectible accounts was $54,000 for the nine months ended September 30, 2001. OPERATING INCOME (LOSS). Operating loss was $1,845,000 for the nine months ended September 30, 2001. INTEREST INCOME AND OTHER, NET. Interest income and other, net was $1,031,000 for the nine months ended September 30, 2001. PROVISION (BENEFIT) FOR INCOME TAXES. For the nine months ended September 30, 2001, the Company did not record a tax provision due to the loss incurred during the quarter. NET INCOME (LOSS). As a result of the items discussed above, the Company's net loss was $581,000 for the nine months ended September 30, 2001, compared to income of $712,000 for the nine months ended September 30, 2000, an decrease of $1,293,000. LIQUIDITY AND CAPITAL RESOURCES We have financed our operations to date through the proceeds received from the Asset Sale with ICN. As of September 30, 2001, cash and cash equivalents on hand totaled $14,000,000. We estimate that cash on hand of $14,000,000 at September 30, 2001 along with cash provided by operations will be sufficient for meeting our working capital needs over the next twelve month period with regard to continuing operations in existing markets. Additional financing may be required to fund acquisitions or expansion into new markets. We have arranged capital financing to fund a portion of car rental fleet purchases during the next twelve months. We are currently in discussions with various lenders concerning additional possible credit facilities, but there can be no assurance that we will enter into any facility and, if so, on what terms. 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. In its normal operations, the Company has market risk exposure to interest rates due to its interest bearing debt obligations, which were entered into for purposes other than trading purposes. The Company has estimated its market risk exposure using sensitivity analyses assuming a 10% change in market rates. The Company's earnings are impacted by changes in short-term interest rates as a result of borrowings under its Credit Facility bearing interest based on floating rates. At September 30, 2001, the Company's Credit Facility debt balance totaled approximately $10,167,000 with a weighted average interest rate of 9.14%. A hypothetical change of 10% in the interest rate for these borrowings, assuming debt levels at September 30, 2001, would change interest expense by approximately $93,000 annually. PART II ITEM 1. LEGAL PROCEEDINGS. As of the date hereof, there are no legal proceedings pending against or involving the Company that in the opinion of management, could have a material adverse effect on the business, financial condition or results of operations of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Exhibit Description 2.1 Agreement and Plan of Merger dated as of August 16, 2001, by and among GenesisIntermedia, Inc., Car Rental Direct.com., Inc., MAII Holdings, Inc. and MAII Acquisition, Inc. (Previously filed as an exhibit to the Company's Form 8-K filed on August 28, 2001). 10.1 Stock Purchase Agreement dated October 5, 2001, by and between Schneider Securities, Inc. and MAII Holdings, Inc.* 10.2 Business Separation and Settlement Agreement dated as of October 30, 2001, by and among MAII Holdings, Inc., Robert M. Bennett and Satana Corporation.* 10.3 Business Separation and Settlement Agreement dated as of October 30, 2001, by and among MAII Holdings, Inc., Patrick A. Rivelli, Jim Silcock, Sunwestern Investment Fund III Limited Partnership and Sunwestern Cayman (1988) Partners.* 10.4 Stock Purchase and Partial Business Separation Agreement dated as of November 2, 2001 by and between MAII Holdings, Inc., GenesisIntermedia, Inc., and Car Rental Direct, Inc.* * Filed herewith (b) Form 8-K The Company filed a Form 8-K on August 28, 2001 in connection with the acquisition of Car Rental Direct.com. This Form 8-K was amended by the Form 8-K/A filed on October 26, 2001 and by the Form 8-K/A filed on October 29, 2001. The Company filed a Form 8-K on October 12, 2001 in connection with a letter to its shareholders. 12 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. MAII Holdings, Inc. DATE: August 14, 2001 Signature Title --------- ----- /s/ CHRISTIE S. TYLER Chief Executive Officer ------------------------------------ (duly authorized officer) Christie S. Tyler /s/ THOMAS A. MONTGOMERY Acting Chief Financial Officer ------------------------------------ (acting chief accounting officer) Thomas A. Montgomery 13 INDEX TO EXHIBITS

MAII HOLDINGS INC 10-Q