Software Company GenuTec Files for IPO

| About: Genuity, Inc. (GENU)
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Software company GenuTec Business Solutions filed for a Nasdaq IPO earlier this week. Below are highlights excerpted from the company's S-1:

Proposed Ticker: (GENU)

Ladenburg Thalmann & Co., Roth Capital Partners

Maximum Offering: $25 million

Business Overview:

We develop and offer internet-based, proprietary software solutions designed to enable our customers to use a number of fully automated in- and out-bound interactive voice response, or IVR, services to transmit automated outbound voice messages, political surveys and emergency notifications on a cost efficient basis. Our network, consisting of 47.5 dedicated DS-3’s, and approximately 100 servers, makes available to our customers over 31,000 telephone lines. Our customers are able to access our network through multiple communication channels, including the internet, and can transmit, on an automated basis, up to approximately three million 15-second voice messages per hour. More calls may be placed through our network in a given hour, depending on factors including the length of the transmitted message.

Historically, our revenues have been generated from voice messaging services provided to businesses, charities, and political organizations. These customers use our services to transmit voice messages to a large audience in a cost effective manner regarding product and event reminders, customer loyalty programs, political campaigns and fund-raising information. In 2003, we identified and began developing a software solution for the mass public emergency notification segment of the voice messaging industry. In September 2005, we acquired Smart Development Corp., or Smart, and its proprietary software which enabled us to fully automate the means by which our emergency notification customers are able to rapidly communicate with populations ranging in size from small select groups to millions of people. Through telephone and internet access, our customers can launch voice messaging services via our web portal, locally, nationally, or worldwide without any assistance from our employees. Also in September 2005, we acquired certain assets of Simtel Corporation, including contracts to provide emergency notification services to municipalities and government organizations. In January 2006, we acquired 151 contracts from Community Alert Network, Inc., or CAN, one of the first emergency notification companies in the United States. We continue to migrate these emergency notification accounts to our more automated emergency notification solution.

Financial Highlights: The company grew revenues from $2.6 million to $14.7 million between 2004 and 2005. Operating expenses more than tripled in the period, from $1.6 million to $5.9 million. For the first half of the year, revenues grew 43% from $6.8 million in H1 05 to $9.7 million in 2006. OPEX for the period grew marginally, from $2.4 million to $2.8 million. GenuTec recorded a net loss of $1.5 million for 2005 (note there was a $3 million interest expense in the period). At the end of March, the company had under $3 million of cash in its coffers, and $19 million of long term debt.

Use of Proceeds: At least $5 million will go towards repaying debt. The company noted that immediately following the IPO they plan to make a rescission offer that could cost the company up to $8 million. The rest is targeted for growth and corporate development.

Customer Base:
The company targets four segments: wholesale, corporate enterprises, political groups, and emergency notification. In 2003, one customer accounted for half of the company's net sales and 73% of accounts receivable; at the end of March 2006, however, no single customer accounted for more than 10% of net sales.

Competition: The company notes that there are 'hundreds' of small competitors to their emergency notification and commercial voice messaging businesses, and knows of three large competitors in the emergency notification market. For some reason, they neglect to mention them by name in the competition section of the S-1.

Employees: This is a small shop, with 19 full time employees.

Lee Danna is the company's CEO. He is under a four year contract from January 2003:

Mr. Danna has served as our chief executive officer, president, and director since September 1996 and as our chairman since July 2005. Mr. Danna has over 30 years experience as a chief executive officer running both private and public companies, including extensive experience in mergers, acquisitions, franchising and marketing. Prior to joining GenuTec, Mr. Danna founded Network Financial Services, Inc., a company with operations in real estate, mortgage banking, and insurance, for which Mr. Danna obtained a listing with Nasdaq in the early 1990s. Before founding Network Financial Services, Inc., Mr. Danna became chief executive officer of Whitehall Products, Inc., a division of Helme, Inc., a NYSE-listed company, at the age of 33.

Ownership: Only 50.2% of the company is held by listed entities with more than 5% each. Of these, Lee Danna has the largest share (15.4%)