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 DECEMBER 31, 2000
OR
[X] 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: 000-25003
ETRAVELSERVE.COM, INC. f/k/a REVENGE MARINE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 36-3051776
------------------------- ---------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
C/O EMO Corporate Services, Inc.
100 N.E. 3rd Ave., Ste.1100
Ft. Lauderdale, FL
(Address of principal executive offices, including zip code)
(305) 643-0334
(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
requirements for the past 90 days.
YES [X] NO [ ]
<PAGE>
The number of issued and outstanding shares of the Registrant's Common Stock,
$0.001 par value, as of December 31, 1999 as 17,949,112
ETRAVELSERVE.COM, INC.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1999.......................3
Consolidated Statements of Operations for the Three Months and Six Months
Ended December 31, 1999......................................................................4
Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1998 and 1999...................................................................5
Notes to Consolidated Financial Statements................................................6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................11-17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................................................18
Item 2. Changes in Securities................................................................................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.....................................................................20
Signatures....................................................................................................24
</TABLE>
<PAGE>
Revenge Marine, Inc. and Subsidiaries
-------------------------------------
A Development Stage Company
Consolidated Balance Sheets
---------------------------
<TABLE>
<CAPTION>
December 31, 1999
(Unaudited) June 30, 1999
----------- -------------
ASSETS
------
<S> <C> <C>
Current Assets
Cash $ 1,000 $ --
Proceeds receivable, discontinued operations -- 2,200,000
Prepaid expenses -- 60,000
----------- -----------
Total Current Assets 1,000 2,260,000
----------- -----------
Property and Equipment, Net 1,520 1,796
----------- -----------
Other Assets
Investment in First Chance Marine Finance, Inc. 1,000,000 1,000,000
Intangible assets, net 1,450 1,700
----------- -----------
Total Other Assets 1,001,450 1,001,700
----------- -----------
Total Assets $ 1,003,970 $ 3,263,496
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Cash overdraft 3,636
Accounts payable 825,368 933,557
Accounts payable-related parties 91,570 127,304
Accrued liabilities 0 198,744
Notes payable 0 2,116,500
----------- -----------
Total Liabilities 916,938 3,379,741
----------- -----------
Commitments and Contingencies 79,000 79,000
----------- -----------
Stockholder's Equity
Series A Convertible Preferred Stock, $0.001 par value,
5,000,000 shares authorized, no shares issued or outstanding -- --
Series B Convertible Preferred Stock, $40 par value,
75,000 shares authorized, 1,206 shares issued and outstanding,
liquidation preference $48,240 48,240 108,720
Series C Convertible Preferred Stock, $50 par value,
75,000 shares authorized, no shares issued or outstanding -- --
Series D Convertible Preferred Stock, $50 par value,
75,000 shares authorized, no shares issued and outstanding -- --
Common stock, $0.001 par value, 50,000,000 shares
authorized, 17,949,112 shares issued and outstanding 17,949 10,899
Additional paid-in capital 5,017,588 4,354,923
Retained earnings (5,075,745) (4,669,787)
Total Stockholder's Equity 8,032 (195,245)
----------- -----------
Total Liabilities and Stockholder's Equity $ 1,003,970 $ 3,263,496
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Revenge Marine, Inc. and Subsidiaries
-------------------------------------
A Development Stage Company
Consolidated Income Statements
------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income (Loss) from Discontinued Operations $ (596,377) $ 77,954 $ (405,958) $ 218,164
========== ========= ========== ==========
Weighted Average Number of Shares Outstanding 14,890,378 7,272,133 14,890,378 7,272,133
========== ========= ========== ==========
Basic and diluted loss per common share $ (0.04) $ (0.01) $ (0.03) $ 0.03
========== ========= ========== ==========
</TABLE>
Interim results are not indicative of the results expected for a full year. See
accompanying notes to consolidated financial statements.
4
<PAGE>
Revenge Marine, Inc. and Subsidiaries
-------------------------------------
A Development Stage Company
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six months ended
December 31,
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Cash received from customers 274,826 1,612,582
Interest received -- 15,159
Cash paid for goods and services (198,826) (2,507,274)
Net Cash Used by Operating Activities 76,000 (879,533)
Net Cash Used by Investing Activities:
Fixed asset purchases and improvements -- (1,564,955)
Cash Flows From Financing Activities:
Proceeds from sale of assets 2,200,000 --
Paid-in capital withdrawn -- (27,214)
Proceeds from long-term debt -- 2,358,025
Short-term debt assumed in sale of assets (75,000) 100,000
Repayment of long-term debt (2,200,000) --
Net Cash Provided by Financing Activities (75,000) 2,430,811
Net Increase (Decrease) in Cash 1,000 (13,677)
Cash at Beginning of Period -- 102,793
---------- ----------
Cash at End of Period 1,000 89,116
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
etravelserve.com, Inc. and Subsidiaries
---------------------------------------
A Development Stage Company
(Formerly Revenge Marine, Inc.)
====================
Not Required for 10Q
====================
Consolidated Statement of Stockholders' Equity
----------------------------------------------
For the Seven Months Ended January 31, 2000
-------------------------------------------
<TABLE>
<CAPTION>
Series B Series C Series D
Preferred Preferred Preferred Common
Stock Stock Stock Stock
----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1999 $ 108,720 $ -- $ -- $ 10,899
5,086 shares of Series B Preferred Stock
issued in settlement of debt 203,437
6,365 shares of Series C Preferred Stock
issued in settlement of debt 318,298
8,810 shares of Series D Preferred Stock
issued in settlement of debt 440,498
6,598 shares of Series B Preferred converted
into 3,518,500 common shares (263,917) 3,519
6,365 shares of Series C Preferred converted
into 3,181,802 common shares (318,298) 3,182
492,857 common shares issued pursuant
to debt settlement agreements 493
2,580,645 common shares issued to exercise
stock options held by the Company 2,581
80,000,000 common shares issued
to acquire JR Solutions, Inc. 80,000
Net Loss though January 31, 2000
----------- ----------- ----------- -----------
Balance at January 31, 2000 $ 48,240 $ -- $ 440,498 $ 100,673
=========== =========== =========== ===========
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the Retained
Paid - in Development Earnings
Capital Stage (Deficit)
------- ----- ---------
<S> <C> <C> <C> <C>
Balance at June 30, 1999 $ 4,354,923 $ -- $(4,669,787)
5,086 shares of Series B Preferred Stock
issued in settlement of debt
6,365 shares of Series C Preferred Stock
issued in settlement of debt
8,810 shares of Series D Preferred Stock
issued in settlement of debt
6,598 shares of Series B Preferred converted
into 3,518,500 common shares 260,399
6,365 shares of Series C Preferred converted
into 3,181,802 common shares 315,116
492,857 common shares issued pursuant
to debt settlement agreements 337,007
2,580,645 common shares issued to exercise
stock options held by the Company 4,997,419
80,000,000 common shares issued
to acquire JR Solutions, Inc. 15,920,000
Net Loss though January 31, 2000 (405,958)
----------- ----------- -----------
Balance at January 31, 2000 $26,184,864 $ (405,958) $(4,669,787)
=========== =========== ===========
</TABLE>
See accountant's compilation report.
6
<PAGE>
Revenge Marine, Inc.
--------------------
Notes to Consolidated Financial Statements
------------------------------------------
(Unaudited)
-----------
Note 1 - The Company and Basis of Presentation
Revenge Marine, Inc. (hereinafter referred to as
"Revenge" or "the Company") was incorporated in Nevada on
December 28, 1979. The Company has operated under various
names since its incorporation, most recently operating as
Global Energy Organization Corporation ("Global") prior to
January 1998. The Company had no significant operations from
January 1995 through January 1998.
The Company reorganized in January 1998 and changed
its primary focus to acquiring yacht manufacturing and marine
technology companies. Principal operations commenced in July
1998. In June 1999, the Company discontinued its marine
operations and sold substantially all of its assets.
The Company re-entered the development stage in July
1999 after redirecting its business plan toward the internet
travel and communication industries. In January 2000, the
Company changed its name to etravelserve.com following a
merger disclosed further in Note 7.
The accompanying unaudited consolidated financial
statements reflect all adjustments which, in the opinion of
management, are necessary for a fair presentation of the
results of operations for the periods shown and include the
accounts and results of the Company's wholly-owned
subsidiaries Revenge Marine, Inc., (an Oklahoma corporation),
Egret Boat Company, Inc., (a Florida corporation), and
Consolidated Marine, Inc. (a Florida corporation). All
significant intercompany accounts have been eliminated in
consolidation. The results of operations for such periods are
not necessarily indicative of the results expected for the
full fiscal year of for any future period.
These financial statements should be read in
conjunction with the consolidated financial statements and
related notes included in the Company's Annual Report on Form
10-K for the year ended June 30, 1999. The financial
statements of the Company have been prepared on the basis that
it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal
course of business. However, because of the Company's
discontinuance of historical operations and new strategic
direction, such realization of assets and liquidation of
liabilities is subject to significant uncertainty. Further,
the Company's ability to continue as a going concern is highly
dependent near term on its ability to raise capital.
7
<PAGE>
Revenge Marine, Inc.
--------------------
Notes to Consolidated Financial Statements
------------------------------------------
(Unaudited)
-----------
Note 2 - Discontinued Operations
In June 1999, the Company resolved to discontinue its
marine operations and to sell substantially all of its assets.
The assets were disposed of through the rescission of a
previous asset acquisition agreement through two cash sales in
August 1999. Proceeds from the sales totaling $2,200,000 were
recognized in the fiscal year ended June 30, 1999 in the
calculation of the loss from the disposal of assets.
In accordance with Accounting Principles Board
("APB") Statement No. 30, "Reporting the Effects of the
Disposal of a Segment of a Business," the prior years'
financial statements have been restated to reflect such
discontinuation.
Operations from discontinued operations are as
follows:
<TABLE>
<CAPTION>
For the three months
Ended September 30,
1999 1998
---- ----
<S> <C> <C>
Operating Revenues $ 274,826 $ 945,677
Cost of Goods Sold -- (127,798)
--------- ---------
Gross Profit 274,826 817,879
Selling, General and Administrative Expenses 84,447 694,166
--------- ---------
Operating Income (Loss) 190,379 123,713
Other Income (Expenses) -- (45,759)
--------- ---------
Income (Loss) from Discontinued Operations $ 190,379 $ 77,954
For the six months
Ended December 31,
1999 1998
---- ----
Operating Revenues $ 274,826 $2,073,677
Cost of Goods Sold -- (487,202)
--------- ----------
Gross Profit 274,826 1,586,475
Selling, General and Administrative Expenses 680,784 1,383,470
--------- ----------
Operating Income (Loss) (405,958) 203,005
Other Income (Expenses) -- 15,159
--------- ----------
Income (Loss) from Discontinued Operations $(405,958) $ 218,164
</TABLE>
8
<PAGE>
Revenge Marine, Inc.
--------------------
Notes to Consolidated Financial Statements
------------------------------------------
(Unaudited)
-----------
Note 3 - Capitalization
The capital stock of the corporation at December 31,
1999 was as follows:
Series A 8% Non-cumulative Convertible Preferred
Stock, $0.001 par value; convertible into Common Stock based
on a ratio of 1:12.5; automatically converts into Common Stock
in the event of (i) the closing of a firmly underwritten
public offering of shares of the Company at a public offering
price of at least $1.50 per share and for a total offering of
more than $10,000,000 or (ii) a 66 2/3% vote of the Preferred
shareholders; authorized 5,000,000 shares; no issued or
outstanding at December 31, 1999; liquidation preference equal
to $10.00 per share of Preferred stock held plus any declared
but unpaid dividends.
Series B 10 % Cumulative Convertible Preferred Stock,
$40 par value; convertible into Common Stock based on a 40%
discount to the bid price as listed on the NASDAQ Bulletin
Board on the day of conversion; authorized 75,000 shares;
1,206 shares outstanding at December 31, 1999; liquidation
preference equal to the par value of any outstanding shares
plus accrued dividends, if any prior to any distributions to
Common Stock holders.
Series C 10% Cumulative Convertible Preferred Stock,
$50 par value, convertible into Common Stock 30% discount to
the bid price as listed on the day of conversion; authorized
75,000 shares; no shares issued or outstanding at December 31,
1999; liquidation preference equal to the stated value of the
preferred shares held.
Series D Convertible Preferred Stock, $50 par value,
convertible into Common Stock at a 30% discount to the bid
price as listed on the NASDAQ Bulletin Board on the day of
conversion; authorized 75,000 shares; no shares issued or
outstanding at December 31, 1999; liquidation preference equal
to the stated value of the preferred shares held.
Common Stock, $0.001 par value, 50,000,000 shares
authorized; 17,949,112 shares issued and outstanding at
December 31, 1999. On January 22, 2000 the Company elected to
increase the number of authorized shares to 500,000,000 to
accommodate the stock exchange with JR Solutions, Inc.
9
<PAGE>
Revenge Marine, Inc.
--------------------
Notes to Consolidated Financial Statements
------------------------------------------
(Unaudited)
-----------
Note 4 - Income per Common Share
The computations of basic and dilutive income per
share were as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1999 1998
---- ----
<S> <C> <C>
Income (loss) attributable to common shares $ (596,337) $ 77,954
------------- =============
Weighted average common shares outstanding 14,890,378 7,272,133
------------- =============
Basic and dilutive income (loss) per share $ (0.04) $ 0.01
------------- =============
Six Months Ended
December 31,
1999 1998
---- ----
Income (loss) attributable to common shares $ (405,958) $ 218,164
------------- =============
Weighted average common shares outstanding 14,890,378 7,272,133
------------- =============
Basic and dilutive income (loss) per share $ (0.03) $ 0.03
------------------ =============
</TABLE>
Common stock equivalents were not included in the
computation of weighted average shares outstanding for the six
months ended December 31, 1999 and 1998 because such inclusion
would be antidilutive.
Note 5 - Commitments and Contingencies
Promissory Note
On July 14, 1999, the Company signed a promissory
note to pay a related party $100,000 in exchange for funds
advanced by the payee to complete the construction of various
boats. The note, which is collateralized by a Blackfin boat,
bears interest at a rate of 10% per annum and is due on
January 1, 2000.
10
<PAGE>
Revenge Marine, Inc.
--------------------
Notes to Consolidated Financial Statements
------------------------------------------
(Unaudited)
-----------
Legal Proceedings
The Company is engaged in legal proceedings arising
from normal business activities. In the opinion of legal
counsel, the maximum future liability arising from these
proceeding would not exceed $79,000.
Lease Obligations
The Company leases its Miami, Florida facility under
a month to month operating lease for $1,200 a month.
The Company is obligated under a non-cancelable lease
for computer equipment. Subsequent to June 30, 1999, the
Company entered into an agreement to sublease the computer
equipment to Consolidated Yacht Corporation. The Company's
future minimum obligation under the computer lease and the
amount to be received under the subleasing agreement is as
follows:
Fiscal Year Ended June 30,
---------------------------
2000 $ 5,283
2001 5,283
2002 5,283
2003 4,403
----------------
$20,252
================
Note 6 - Related Party Transactions
Allied Capital Corporation
Since inception, Allied Capital Corporation
("Allied") has periodically advanced cash to the Company and
has directly paid legal and other expenses on behalf of the
Company. Allied owns 2,792,000 shares of the Company's common
stock and is the owner of Capital Markets Alliance, Inc.,
which holds 1,954,431 of the 17,949,112 shares of common stock
outstanding at December 31, 1999. Allied is wholly owned by
the Desai Vol Robinson Trust. Desai Robinson is the former
president of Revenge Marine and is the wife of William C.
Robinson, former president and chief executive officer of the
Company, who resigned on December 12, 1999. Mr. Robinson is
also the president of Capital Markets Alliance, Inc. At
December 31, 1999, the Company's total debt to Allied was
$91,570.
11
<PAGE>
Revenge Marine, Inc.
--------------------
Notes to Consolidated Financial Statements
------------------------------------------
(Unaudited)
-----------
Allied Capital Corporation owns 34,450,000 shares of
JR Solutions, Inc., a company acquired by Revenge Marine, Inc.
on January 11, 2000. As a result of the merger, Allied's stock
ownership increased to 37,242,000 shares.
Paul Johnson, who is president of JR Solutions and
who took over as president and chief executive officer of
Revenge after the January 11, 2000 merger, is also the
president of Link Worldwide, Inc ("Link"). January 2000, the
Company exercised options for Link stock valued at $5,000,000
(see Note 7).
Note 7 - Subsequent Events
Acquisition of JR Solutions, Inc.
In pursuit of its new strategy, on January 11, 2000,
the Company acquired JR Solutions, Inc. ("JR") through the
exchange of 80,000,000 shares of newly issued Company common
stock, in exchange for all of the outstanding shares of JR's
common stock.
The acquisition was structured as a tax-free
reorganization and was accounted for using the purchase method
of accounting. The purchase price, which was based on the
closing price of the Company's stock on November 30, 1999, the
date the letter of intent was signed, was allocated to the
tangible and intangible assets and liabilities of JR based on
their respective fair values as of the closing date as follows:
Working capital, net $ (15,450)
Intangible assets 16,015,450
-------------
Total $ 16,000,000
=============
Exercise of Stock Options
On January 24, 2000, the Company exercised options to
purchase 666,666 shares of Link Worldwide, Inc. at a purchase
price of $7.50 per share or $5,000,000, through the issuance
of 2,580,645 shares of the Company's common stock, valued at
$1.9375 per share, which was the closing bid price on the
NASDAQ Bulletin Board on the date the options were exercised.
Conversion of Debt
In January 2000, the Company issued 8,810 shares of
Series D Convertible Preferred Stock to various vendors in
exchange for cancellation of accounts payable totaling
$440,498. The shares were issued at their stated value of $50.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
THE FOLLOWING INFORMATION HAS BEEN DERIVED FROM OUR FINANCIAL
STATEMENTS AND SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND
RELATED NOTES THERETO INCLUDED IN PART 1-ITEM 1 OF THIS 10-Q. THE DISCUSSION
FOLLOWING CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
IMPLIED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS,
INCLUDING THOSE SET FORTH UNDER THE SECTION ENTITLED "RISK FACTORS" IN OUR
REGISTRATION STATEMENT ON FORM 10 FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON OCTOBER 28, 1998 (SEC FILE NO. 333-87623) AND THOSE ENUMERATED
UNDER MATERIAL CHANGES IN FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
LIQUIDITY HEREIN.
Overview.
We are a start-up company whose objective is to become a leading
provider of online travel services for leisure and recreational enthusiasts and
technology-driven marketing and advertising solutions to advertisers,
advertising agencies, Web publishers and e-commerce merchants worldwide. We
intend to launch our own website, "destinationgenie.com" to be a multimedia,
interactive advertising site and full-service travel shopping mall. Our revenues
will be derived from commissions, fees, and direct merchant sales related to
transactions on our website and from sales of advertisements on our website,
licensing fees for certain value added content, and through the provision of
systems and database design and implementation services to third parties.
The Internet is dramatically changing the way that consumers and
businesses communicate, share information and buy and sell goods and services.
The Internet reduces inefficiencies characteristic in traditional market models
through the disintermediation of functions between the provider of the good or
service and the ultimate consumer. Characteristic of the leisure and
recreational travel industry is the presence of large numbers of geographically
dispersed buyers and sellers and purchase decisions involving large amounts of
information from multiple sources. We believe, therefore, that the leisure and
recreational industry is particularly well-positioned to benefit from the
evolution of the Internet platform and e-commerce model through the
reintermediation of value-added functions like those to be provided by our
Company.
The Internet has also emerged as an attractive new medium for
advertisers due to the rapid growth in the number of Web users, the amount of
time such users spend on the Web, the increase in electronic commerce, the
interactive nature of the Web, the Web's global reach and a variety of other
factors. We believe the number of U.S. online households will grow from
approximately 40 million in 1999 to over 60 million in 2004 and consumer
e-commerce will reach nearly $110 billion in 2003. Consequently, we believe that
U.S. online advertising spending will grow from approximately $3 billion in 1999
to over $20 billion in 2004. In addition, we believe that markets outside the
U.S. will become an increasingly important component of Internet advertising,
growing from approximately $500 million in 1999 to over $10 billion in 2004,
accounting for approximately 33% of worldwide Internet advertising. We believe
that we will be well positioned to capitalize on this large market opportunity
as well.
Etravelserve.com, Inc., formerly known as Revenge Marine, Inc.
("etravelserve.com" or "the Company"), was incorporated in Nevada on December
28, 1979. Etravelserve.com has operated
13
<PAGE>
under various names since its incorporation, most recently operating as Global
Energy Organization Corporation ("Global") prior to January 1998. The Company
has no significant operations from January 1995 through January 1998.
We reorganized the Company in January 1998 and changed its primary
focus to acquiring yacht manufacturing and marine technology companies.
Principal operations commenced in July 1998. In June 1999, the Company
discontinued its marine operations and sold substantially all of its assets.
The Company re-entered the development stage in July 1999 after
redirecting its business plan toward the online travel and communications
industries. On January 11, 2000, the Company changed its name to
etravelserve.com, Inc. following the acquisition of JR Solutions, Inc. ("JR")
through the exchange of 80,000,000 shares of newly issued Company stock, in
exchange for all of the outstanding shares of JR's common stock.
We anticipate making strategic acquisitions in the travel,
communication and recreation businesses where such opportunities will provide
synergies complementary to our existing core competencies. We will leverage our
international relationships to create a unique global, interactive, destination
and community site oriented to on-line retailing, advertising, direct marketing
and promotion, product and name branding, travel promotions, and provision of
value-added marketing services. We intend to develop both business to business
("B2B") and business to consumer ("B2C") market models.
With our current technological competencies and through the realization
of our plan to add additional superior technology personnel, either directly or
through strategic alliances, we intend to develop a full array of value-added,
B2B systems design and database architecture services, to market to the marine
and recreational business submarket, which has traditionally trailed in such
initiatives. The types of value-added services which we anticipate offering in
this niche will include site design and development, implementation, integration
and testing. Other fee-based engagements would include the design, installation
and testing of Web sites for marine industry and other recreational businesses;
the implementation of messaging and internet/intranet technologies; the
provision of value-added customer fulfillment and affinity functions; and the
design and installation of network, intranet and extranet systems, architecture
and enterprise information technology solutions.
Our proposed B2C marketing approach will microtarget the
demographically and psychograpically appealing affluent, well-educated,
recreational and excursion consumer, through the creation and development of a
superior, one-stop content based, interactive vacation and travel on-line
destination. This model will provide compelling content for such recreational
travelers and vacationers through the provision of exciting vacation and travel
excursions involving sports fishing, boating, golfing, and athletic and
recreational event themes. As a part of this model, our site will provide
airline, cruise and other common carrier travel solutions as well as hotel and
other resort accommodations complementary of the theme chosen. Additionally, we
anticipate developing strategic relationships to provide a dynamic multi-media
portal for recreational sports travel-related consumer merchandise, apparel and
accessories, sports and boating travel news, information and travel tips,
interactive chat rooms, on-line auctions and a robust e-commerce marketplace for
marketing of travel related equipment and accessories. Through the development
of our brand awareness our superior target market, we hope to garner significant
portions of brick and mortar marketers' and merchants' advertising budgets
targeting our user profiles.
14
<PAGE>
Once our anticipated site traffic is achieved, we anticipate being able
to deliver superior advertising return on investment, which will justify
advertising fee premiums yet yielding efficient CPMs (costs per thousand
impressions).
Material Changes in Financial Condition, Results of Operations and
Liquidity.
In June 1999, we resolved to discontinue our marine operations and to
sell substantially all of our assets used in the marine business line. We
disposed of these assets through the recission of the asset acquisition
agreement in which such assets were previously acquired, through two cash
settlements occurring in August 1999. Sales of these assets in the amount of
$2,200,000 were recognized on the accrual basis of accounting as of the end of
our previous fiscal year ended June 30, 1999 as part of the calculation of the
loss from the disposal of assets. The income statements for prior year
comparative periods were restated in accordance with applicable accounting
pronouncements to show the effects on operations in connection with our
discontinued business line then and now. Though our marine operations were
formally discontinued in the prior year, operating losses reflected as of the
most recent quarter and for the six months ended December 31, 1999 reflect costs
incurred in connection with the final winding down of this segment.
We have incurred operating losses and negative cash flow since
inception, and we expect this trend to continue in the foreseeable future as we
invest in marketing and promotional activities to launch our web site. Since our
web site has not yet been launched, there are no operating results to report for
the six months ended December 31, 1999 respective to our prospective on-line
commerce model. We do expect that our operating results will be volatile as we
build our technology infrastructure and deploy our site due to a variety of
factors, many of which are out of our control. During the initial phases of
implementing our business plan, we will be heavily reliant on external sources
of equity and debt financing.
Factors That May Affect Future Results and Market Price of Stock.
Etravelserve.com, Inc. is engaged in the pursuit of commerce on the
Internet platform. This form of commerce involves many opportunities, as well as
significant threats, many of which are out of our control. Some of the risks
which we face are as follows:
Consumers, travel suppliers and advertisers may not accept our website
as a valuable commercial tool, which would impair the growth of our business.
For us to achieve the level of growth that we have projected,
consumers, travel suppliers, merchants and advertisers must accept our website
model as a valuable commercial tool. Consumers who have historically purchased
travel products using traditional commercial channels must change that paradigm
and purchase instead through our site. Consumers frequently "surf" sites like
our prospective site in search of route and rate information and then ultimately
revert to the traditional purchase channel. If this paradigm is not shifted, we
may never achieve our anticipated growth.
Similarly, travel suppliers, advertisers and merchants will also need
to accept and use our website. In order for this to occur, travel suppliers,
advertisers and merchants will need to perceive our site as efficient and
profitable channels of distribution for their travel products, for expenditure
of their advertising budgets and for their merchandise.
In order to achieve the acceptance of consumers, travel suppliers,
advertisers and merchants contemplated by our business plan, we will need to
make substantial investments in technology and
15
<PAGE>
brand. We can not, however, assure you that these investments will be
successful. Our failure to make succeed in these areas will hamper the
opportunities to achieve our business plan.
We expect there to be operating losses and negative cash flows.
We expect to incur net losses and negative cash flows for the
foreseeable future and there can be no assurance that we will ever achieve
profitability or generate positive cash flows. As we launch our site and deploy
our business plan, we expect to incur significant operating expenses
particularly in the sales, marketing and operations. These types of expenses
will grow as we expand the scope and reach of our operations. If our revenues do
not grow as expected, or if our actual expenses exceed our budgeted expenses,
there could be a material adverse effect on our business, operating results and
financial condition. We will need to raise additional funds through the issuance
of equity, equity-related or debt securities. If we are unable to obtain
additional financing on reasonable terms to enable the development of our
business plan, we may never be able implement our on-line strategy.
The success of our business will depend on continued growth of online
commerce and the Internet.
Because we do not intend to provide our service through any commercial
medium other than the Internet, our future revenues and profits depend upon the
widespread acceptance and use of the Internet and online services as a medium
for commerce. Rapid growth in the use of the Internet and online services is a
recent phenomenon. This growth may not continue. A sufficiently broad base of
consumers may not accept, or continue to use, the Internet as a medium of
commerce. Demand for and market acceptance of recently introduced products and
services over the Internet involve a high level of uncertainty.
The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of traffic. Our
success will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a reliable
network backbone with the necessary speed, data capacity and security and the
timely development of complementary products for providing reliable Internet
access and services . Major online service providers and the Internet itself
have experienced outages and other delays as a result of software and hardware
failures and could face such outages and delays in the future. Outages and
delays are likely to affect the level of Internet usage and the processing of
transactions on our websites. In addition, the Internet could lose its viability
because of delays in the development or adoption of new standards to handle
increased levels of activity or of increased government regulation. The adoption
of new standards or government regulation may require us to incur substantial
compliance costs.
Interruptions in service from third parties could impair the quality of
our service.
We will rely upon third-party computer systems and third party service
providers, including the computerized central reservations systems of the
airline, hotel and car rental industries to make airline ticket, hotel room and
car rental reservations and credit card verifications and confirmations. Any
interruption in these third-party services or a deterioration in their
performance could impair the quality of our service. If our arrangement with any
of these third party were to be terminated, we may not be able to find an
alternative source of systems support on a timely basis or on commercially
reasonable terms.
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<PAGE>
Our success depends upon the development and maintenance of superior
technology systems and infrastructure.
In order to be successful, we must provide reliable, real-time access
to our systems for our customers and suppliers. As our operations grow in both
size and scope, domestically and internationally, we will need to continually
upgrade our systems and infrastructure to offer our customers and travel
suppliers enhanced products, services, features, and functionality. The
expansion of our systems will require additional financial, operational and
technical resource expenditures before business volume may reach levels
sufficient to yield profitability, with no assurance that the volume of business
will increase or that profitability will be achieved. Consumers and suppliers
will not tolerate a service hampered by slow delivery times, unreliable service
levels or insufficient capacity, any of which could have a material adverse
effect on our business, operating results and financial condition.
The success of our business will depend upon the continued growth of
online commerce and the Internet.
Since we do not intend to provide our service in any other medium than
the Internet, our future revenues and profits depend on the widespread
acceptance and use of the Internet and online services as a medium for commerce.
Rapid growth in the use of the Internet and online services is a recent
phenomenon. Such growth may not continue and a sufficiently broad base of
consumers may not accept, or continue to use, the Intenet as a medium of
commerce. Demand for and market acceptance of recently introduced products
involve a high level of uncertainty.
The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of traffic. Our
success will depend upon the development and maintenance of the Internet
infrastructure and other technological advances which may evolve to accommodate
this increased traffic. This will require a reliable network backbone with the
necessary speed, data capacity and security and the timely development of
complementary products for providing reliable Internet access services.
Our business is exposed to risks associated with online commerce
security and credit card fraud.
Consumer concerns over the security of transactions conducted on the
Internet or the privacy of users may inhibit the growth of the Internet and
online commerce. To transmit confidential information such as customer credit
card numbers securely, we will rely upon encryption and authentication
technology. Unanticipated events or developments could result in a compromise or
breach of integrity of our consumer transaction data. Our servers could also be
vulnerable to viruses transmitted over the Internet, which if not detected,
could create a service interruption.
Our success depends in large part upon the efforts of a few individuals
and our ability to attract, retain and motivate highly skilled employees.
We depend substantially on the services and performance of our senior
management, particularly Paul R. Johnson our Chief Executive Officer, Kaz Chary,
our Chief Information Officer and John Moschella our Director of Security. These
individuals may not be able to fulfill their responsibilities adequately and may
not remain with us. The loss of the services any executive officer or other key
employees could hurt our business.
17
<PAGE>
We are controlled by our principal shareholders. The directors and
executive officers of the Company own a majority of the outstanding Common Stock
in the Company. In particular, Paul R. Johnson and Allied Capital Corporation,
and entity controlled by former officer and director William C. Robinson,
constitute the largest shareholders of the Company's Common Stock. As a result,
Mssrs. Johnson and Robinson may be able to control the election of members of
the Company's Board of Directors and generally exercise control over the
Company's corporate actions. Such concentration of ownership may also have the
effect of delaying or preventing a change in control of the Company.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
See Item 5 below.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On January 21, 2000 the Company elected to increase the number of
authorized $.001 par value common stock from 50,000,000 to 500,000,000 shares in
order to accommodate the January 21, 2000 acquisition of J.R. Solutions, Inc.
The Company filed a Report on Form 8-K reporting this acquisition on January 21,
2000. The Report on Form 8-K contained information required under Item 1 -
Change in Control of Registrant, Item 2 Acquisition and Disposition of Assets
and Item 5 - Financial Statements, Pro Forma Financial Information and Exhibits.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits
27.1 Financial Data Schedule
B. Reports on Form 8-K
None
19
<PAGE>
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.
Date: February 16, 2000 ETRAVELSERVE.COM, INC.
By /s/ Paul R. Johnson
----------------------
Paul R. Johnson
President and Chief Executive Officer
20
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<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
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<SECURITIES> 1,000,000
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<TOTAL-ASSETS> 1,003,970
<CURRENT-LIABILITIES> 3,636
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0
48,240
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<OTHER-SE> (5,075,745)
<TOTAL-LIABILITY-AND-EQUITY> 1,003,970
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