UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 1997
Commission File Number 33-4734-D
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GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION
(FORMERLY RILEY INVESTMENTS, INC.)
(Exact name of registrant as specified in charter)
Oregon 93-0950786
-------------- -----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1120 Capital of Texas Highway South, Bldg. 3, Suite 300, Austin, Texas 78746
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (512) 329-7250
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of September 30, 1997, the Company
had outstanding 9,522,024 shares of its common stock, par value $0.0001.
<PAGE>
PART I FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, September 30,
ASSETS 1997 1996
---- ----
CURRENT ASSETS
Cash and cash equivalents - restricted (Note 2) $ 190,870 $ 12,358
Accounts receivable, net of allowance
for doubtful accounts of $8,810
in 1997 (Note 2) 76,254 20,422
Due from affiliate (Note 6) 140,134 -
Prepaid expenses (Note 2) - -
Prepaid hotel cost (Note 2) 565,744 335,051
Prepaid cruise and tour cost (Note 2) 810,321 869,299
--------- ---------
Total Current Assets 1,783,323 1,237,130
--------- ---------
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation (Notes 2 and 3) 49,300 49,660
--------- ---------
OTHER ASSETS
Deferred charges and other assets
26,113 -
Intangible assets, net of accumulated
amortization (Notes 2 and 5) 380,838 628,379
--------- ---------
$2,239,574 $1,915,169
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 343,434 $ 4,878
Other current liabilities 482,964 103,259
Current portion of long-term debt (Note 7) 337,339 120,396
Due to affiliate (Note 6) - 568,540
Deferred hotel revenue (Note 2) 501,754 400,501
Deferred cruise and tour revenue (Note 2) 827,581 1,043,899
Deferred subscription revenue 118,994 97,162
--------- ---------
Total Current Liabilities $2,612,066 2,338,633
--------- ---------
OTHER LIABILITIES
Long-term debt (Note 7) 803,480 300,267
Deferred discount (Note 9) - -
Total Other Liabilities 803,480 300,267
--------- ---------
STOCKHOLDERS' (DEFICIT)
Preferred stock, no par value;
authorized 10,000,000 shares;
none issued and outstanding - -
Common stock $.0001 par value; authorized
30,000,000 shares; issued and
outstanding 9,522,024 and 9,100,000
shares in 1997 and 1996,
respectively (Note 11) 952 1,000
Additional paid-in capital (deficit) 598,208 54,000
Accumulated deficit (1,775,131) (778,731)
Total Stockholders' (Deficit) (1,175,971) (723,731)
$2,239,574 $1,915,169
===========================
<PAGE>
<TABLE>
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
=====================================================================================================================
Unaudited
Three Months Ended
September 30, September 30,
1997 1996
---- ----
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REVENUES
Hotel revenue $ 1,105,218 $ 1,206,751
Cruise and tour revenue 2,317,601 1,795,151
Magazine subscription and advertising revenue 178,771 43,122
Merchandise and other revenue 5,737 11,498
---------- ---------
Total Revenues 3,607,327 3,056,523
---------- ---------
COST OF SALES
Hotel cost 687,600 933,536
Cruise and tour cost 2,078,279 1,610,736
Magazine publishing cost 145,924 168,826
Merchandise cost - -
---------- ---------
-
Total Cost of Sales 2,911,803 2,713,097
---------- ---------
Gross Profit 695,524 343,426
OPERATING EXPENSES
Selling, general and administrative expenses 305,430 224,568
Wages 307,805 345,363
Depreciation and amortization 9,509 24,004
--------- ---------
Total Operating Expenses 622,744 593,935
--------- ---------
Net Income Before Income Taxes 72,779 (250,509)
Income Tax Expense - -
Net Income $ 72,779 $ (250,509)
========= =========
Net Income Per Common Share (Note 2) $ 0.01 $ (0.03)
========= =========
Weighted Average Common Shares Outstanding 11,422,869 9,100,000
========= ========
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
====================================================================================================================
Unaudited
Nine Months Ended
September 30, September 30,
1997 1996
---- ----
<S> <C> <C>
REVENUES
Hotel revenue $ 3,473,835 $ 3,386,886
Cruise and tour revenue 5,722,149 4,766,539
Magazine subscription and advertising revenue 340,276 273,741
Merchandise and other revenue 14,013 36,483
--------- ---------
Total Revenues 9,550,273 8,463,650
--------- ---------
COST OF SALES
Hotel cost 2,520,221 2,607,603
Cruise and tour cost 5,078,400 4,166,891
Magazine publishing cost 396,201 307,946
Merchandise cost - 1,556
Total Cost of Sales 7,994,822 7,083,995
---------- ---------
Gross Profit 1,555,451 1,379,655
OPERATING EXPENSES
Selling, general and administrative expenses 704,360 817,814
Wages 803,436 913,837
Depreciation and amortization 29,978 50,743
---------- ---------
Total Operating Expenses 1,537,774 1,782,394
---------- ---------
Net Loss Before Income Taxes 17,676 (402,739)
Income Tax Expense - -
Net (Loss) $ 17,676 $ (402,739)
=========== =========
Net (Loss) Per Common Share (Note 2) $ 0.00 $ (0.04)
=========== =========
Weighted Average Common Shares Outstanding 11,422,869 9,100,000
=========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Nine Months Ended
September 30, September 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ 17,676 $ (402,739)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and amortization 29,978 24,026
Provision for losses on accounts receivable 0 0
Changes in operating assets and liabilities:
Accounts receivable (56,343) (20,422)
Prepaid expenses 0 0
Prepaid hotel cost (313,400) (307,966)
Prepaid cruise and tour cost (231,406) (869,299)
Accounts payable (235,554) (1,909)
Accrued expenses 303,096 103,259
Receivable from affiliates and other (254,460) 92,928
Deferred hotel revenue 115,902 359,377
Deferred cruise and tour revenue 203,866 1,043,899
Deferred subscription revenue 13,934 97,162
Deferred discount (54,644) 0
--------------------------------
Net Cash Provided (Used) by Operating Activities (461,355) 118,316
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions 224,963 (575,128)
Purchase of property and equipment 0 (17,000)
Proceeds from sale of equipment 0 10,507
--------------------------------
Net Cash Provided (Used) by Investing Activities 224,963 (581,621)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 0 55,000
Proceeds from notes payable 786,892 459,769
Repayments of notes payable (402,869) (39,106)
--------------------------------
Net Cash Provided by Financing Activities 384,022 475,663
--------------------------------
Net Increase (Decrease) in Cash 147,630 12,358
Cash at Beginning of Period 43,240 0
Cash at End of Period $ 190,870 $ 12,358
===============================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 65,288 $ 28,732
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS ACTIVITIES
The Company serves a portion of the travel industry known as "interliners".
Interliners are the active employees and retirees of the airline industry, who
may fly on many carriers for free or at a very significantly reduced fare, along
with their families and the friends to whom they pass along their allotments of
no-cost or low-cost flying privileges. Interliners are generally able to procure
hotel or resort accommodations in destination locations, berths on cruise ships
and other travel products at rates representing a courtesy of up to 50% off of
established rates, primarily because interliners have a high propensity to
travel and tend to travel during off-peak periods when "stand-by" space is
available at hotels and resorts and on cruise ships. These factors have led the
travel industry to view interline bookings as incremental revenue that
supplements normal marketing revenue.
The Company serves both interline travelers and operators (hotels, resort,
cruise lines and others) segments of the interline industry through two distinct
business units: Interline Adventures, a publication formerly titled Airfair
Magazine and Interline TravelReps, which markets hotel-resort space to
interliners and specializes in Mexican and Caribbean locations: and cruise and
escorted tour packages.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
- -------------------
Travel revenue is recognized on a "booked, paid, traveled" basis. This means
that all client funds received and all funds paid to travel suppliers prior to
the travel date are deferred for income recognition until such time as the
client has traveled and the Company has completed its commitment to the client
and the travel suppliers. Subscription sales are deferred for income recognition
until magazines are delivered to subscribers. (See Note 8.)
The assets "Prepaid Hotel Cost" and "Prepaid Cruise and Tour Cost" represent
expenses paid for tours and cruises which have been booked but not yet taken by
the customer. The liabilities "Deferred Hotel Revenue" and "Deferred Cruise and
Tour Revenue" represent payments received for tours and cruises booked but not
recognized as revenue until the customer completes the tour or cruise.
Cash and Cash Equivalents
- -------------------------
Substantially all of the balance in the cash account consists of escrow deposits
required by Bank One (the previous processor) and Humboldt Bank (the current
processor) as a reserve for credit card processing. The Company agreed to
establish an escrow balance of 5% of Visa/Mastercard charges until a six month
rolling reserve is established with Humboldt Bank. The prior Bank One reserve
was partially released in October, 1997. The remaining $50,000 of that reserve
will be reviewed by the bank on a month to month basis and funds will be
returned to the Company on a gradual basis until fully released by March, 1998.
The new reserve with Humboldt Bank was approximately $78,000 at September 30,
1997.
The Company considers all highly liquid instruments purchased with a maturity at
the time of purchase of less than three months to be cash equivalents.
Allowance for Uncollectible Accounts
- ------------------------------------
The Company provides an allowance for accounts receivable which are doubtful of
collection. The allowance is based upon management's periodic analysis of
receivables, evaluation of current economic conditions, and other pertinent
factors. Ultimate losses may vary from the current estimates and, as additions
to the allowance become necessary, they are charged against earnings in the
period in which they become known. Losses are charged and recoveries are
credited to the allowance.
Income (Loss) Per Share
- -----------------------
The computation of primary income (loss) per share of common stock is based on
the weighted average number of common shares outstanding during the period plus
(in periods in which they have a dilutive effect) the effect of common shares
contingently issuable from stock options and exercise of warrants.
<PAGE>
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Depreciation and Amortization
- -----------------------------
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method for financial statement purposes. Estimated useful lives
range from 5 to 7 years. Intangibles, consisting of "excess of cost over net
assets acquired" and non-compete covenants are stated at cost and are being
amortized over 40- year and 3-year periods, respectively.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary Airfair Publishing Company, Inc. All intercompany
transactions have been eliminated.
Income Taxes
- ------------
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of certain assets and
liabilities for financial and tax reporting. The deferred taxes represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Stock-Based Compensation
- ------------------------
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No.123, Accounting for Stock-Based Compensation.
The Company currently accounts for its stock-based compensation plans using the
accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Since the Company is not required to adopt the
fair value based recognition provisions prescribed under SFAS No. 123, it has
elected to comply with the disclosure requirements set forth in the Statement,
which includes disclosing pro forma net income as if the fair value based method
of accounting had been applied. (See Note 14.)
Estimates and Assumptions
- -------------------------
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing the financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1997 and 1996 is as follows:
1997 1996
---- ----
Property and equipment $93,795 $75,795
Less accumulated depreciation (44,495) (26,135)
------- ------
Net property and equipment $49,300 $49,660
======= ======
Depreciation expense for the quarters ending September 30, 1997 and 1996 was
$4,590 and $4,590, respectively. Depreciation expense for the nine months ending
September 30, 1997 and 1996 was $13,770 and $12,190, respectively.
<PAGE>
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. ACQUISITIONS
On December 1, 1994, Inventory Merchandising Services, Inc. (IMS) (a wholly
owned subsidiary of Barter Exchange, Inc. (BEI)), acquired the net assets of a
business owned by Lou and Claudia Nackos (Nackos) for the assumption of certain
liabilities in the amount of $144,394. This resulted in a new operating division
called Interline Travel (Interline).
Assets acquired from Nackos consist of the following:
Cash $ 814
Excess of cost over net assets acquired 74,278
Furniture and fixtures 69,302
-------
Total assets acquired $144,394
=======
Airfair Publishing, Inc. (Airfair) is a Delaware corporation formed on January
6, 1996. Immediately subsequent to incorporation of Airfair, the assets and
liabilities of Interline were transferred by IMS into Airfair. Additionally,
existing shareholders of BEI received four shares of Airfair for each share held
in BEI, resulting in 8,500,000 shares issued. An additional 600,000 shares were
authorized by the Board of Directors and issued to two shareholders, resulting
in a total of 9,100,00 shares issued pursuant to the spin-off of the Interline
division in IMS to Airfair. Capital of $30,000 was contributed to Airfair by
BEI.
On January 13, 1996, (Closing Date) [effective December 31, 1995 (Effective
Date)] Airfair acquired certain assets and assumed certain liabilities of
Interline Representatives Ltd. and Airfair Publishing Corp. (IRL/APC) for
$593,791.
Assets acquired from IRL/APC consist of the following:
Furniture and equipment $ 35,000
Covenant-not-to compete 30,000
Excess of cost over net assets acquired 528,791
-------
Total assets acquired $593,791
=======
Liabilities (unadjusted) assumed from IRL/APC consist of the following:
Subscription, prepaid advertising, and tour ledger $204,326
-------
Net assets acquired $389,465
=======
Payment for the net assets acquired from IRL/APC is as follows:
Cash $ 30,000
Note payable #1 (see below) 201,879
Note payable #2 (see below) 157,586
-------
Total payments (unadjusted) $389,465
=======
Both of the promissory notes described above, had identical terms (except as
specified) as follows: The annual interest rate on unpaid principal is 12% per
annum. Interest only will be due on the unpaid balance on January 31, 1996,
February 29, 1996, and March 31, 1996. Thereafter, principal and interest shall
be due and payable in monthly installments of $5,593 on Note #1 and $4,366 on
Note #2, each payable on the last day of each month, beginning April 30, 1996,
until December 31, 1999, when the entire principal and accrued interest
remaining unpaid, shall be due and payable in full. These notes were settled in
full with a cash payment of $75,000 in April, 1997, when the remaining unpaid
balance was $299,963. The difference between the unpaid balance and the
settlement of $224,963 was credited to Goodwill which was created at
acquisition.
The purchase method of accounting was used to account for the above
transactions.
Effective July 19, 1996, Riley Investments, Inc. (Riley) and Airfair executed an
Agreement that provided for the merger of MergerCo, a newly-created,
wholly-owned subsidiary of Riley, with and into Airfair, which became the
surviving corporation, and the conversion of the issued and outstanding Airfair
stock into shares of Riley stock on the basis of one share of Riley stock for
each share of Airfair stock outstanding on the Effective date. On October 7,
1996, articles of amendment were filed on behalf of Riley wherein the name was
changed to Grand Adventures Tour & Travel Publishing Corporation (the Company)
with authority to issue 10,000,000, no par, preferred shares and 30,000,000
common shares with a par value of $.0001. The transaction was accounted for as a
reverse acquisition.
<PAGE>
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INTANGIBLE ASSETS
Intangible assets at September 30, 1997 and 1996 are as follows:
As explained in Note 4 to the financial statements, on December 31, 1994, IMS
acquired the net assets of a business owned by Nackos (referred to herein as
Interline) and assumed certain liabilities. Of the $144,394 total purchase
price, $74,278 represented the excess of the cost over the fair value of net
assets acquired. The excess of cost over net assets acquired is amortized on a
straight-line basis over 40 years.
As explained in Note 4 to the financial statements, on January 13, 1996,
(Closing Date) [effective December 31, 1995 (Effective Date)] Airfair acquired
certain assets and assumed certain liabilities of Interline Representatives Ltd.
and Airfair Publishing Corp. (IRL/APC) . Of the $593,791 total purchase price,
$528,791 represented the excess of the cost over the fair value of net assets
acquired and $30,000 represented a covenant-not-to compete. Also amortizable are
$16,336 of additional legal and acquisition costs. The excess of cost over net
assets acquired is amortized on a straight-line basis over 40 years and the
covenant is amortized over 3 years. Also, as explained in Note 4, Goodwill was
reduced by $224,963 upon the reduced settlement of the debt incurred in the
acquisition.
At September 30, 1997 and 1996, the unamortized cost consists of the following:
1997 1996
---- ----
Cost $424,442 $649,405
Less accumulated amortization ( 43,604) (21,026)
------- --------
Net $380,838 $628,379
Amortization expense for the quarters ended September 30, 1997 and 1996,
was $4,919 and $6,370, respectively. Amortization expense for the nine months
ended September 30, 1997 and 1996, was $16,208 and $19,015, respectively.
6. DUE TO AFFILIATE
The Company entered into a Management Services Agreement with BEI and IMS
whereby BEI agreed to permit the Company to use office space and certain
computer and telephone equipment leased by the Company, BEI and IMS agreed to
provide to the Company certain services including accounting, payroll, services,
and the services of certain executive officers and personnel who perform
services for Airfair, BEI, and IMS. The Company agreed to pay to BEI and IMS,
collectively, a cash sum equal to 1/2% of the Company's gross cash receipts
during any month in which the Agreement remains in effect.
The Company and IMS have also entered into an Inventory Marketing Agreement
whereby the Company sells certain IMS inventories. The Company is required to
make monthly payments to IMS equaling (i) the cash value of the inventory sold
plus (ii) 25% of the collected revenue generated from such sales less such cash
value. At September 30, 1997, BEI/IMS owed the Company $140,134. At September
30, 1996, the Company owed BEI/IMS $568,540.
<PAGE>
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. LONG-TERM DEBT
<TABLE>
At September 30, 1997 and 1996 long-term debt consisted of the following:
1997 1996
---- ----
<S> <C> <C>
Notes payable to shareholders, due April 30, 2000 including accrued
interest at 12% per annum payable in, in monthly installments, convertible into
common stock
at a conversion price of $0.50 principal amount for each share $ 352,633 $ -
Note payable at $1,163 per month, including
interest at 14% per annum, convertible into common stock at the conversion price
of $1.00 principal amount for each share of common
stock, subordinated to senior indebtedness. 44,529 -
Note payable with a repayment schedule based on
on the release of bank credit card escrow funds, including interest
at 6% per annum, maturity date is April 16, 1998 116,354 -
Note payable (acquisition of IRL/APC - see Note
4) at $5,593 per month, including interest at
12% per annum, collateralized by assets acquired. 0 179,916
Note payable (acquisition of IRL/APC - see Note
4) at $4,366 per month, including interest at
12% per annum, collateralized by assets acquired. 0 140,747
Note payable with interest payments only for 12 months
with interest at 12% per annum. Maturity date of August, 1997 0 100,000
Convertible debentures due April, 2000
7% interest only due on each anniversary with principal due at maturity,
interest may be paid in shares of common stock at the option of the Company at
the rate one share for each $0.50 of interest due, unpaid principal is
convertible into common stock
at a conversion price of $0.25 per share 500,000 -
Note payable at $1,000 per month for six months beginning April 25,1997,
then $1,500 per month for six months, the $2,000
per month until paid in full, with interest at 8% per annum. 48,502 -
Note payable at $4,246 per month beginning April, 1997,
with interest at 6% per annum 23,021 -
Note payable at $1,154 per month beginning April, 1997, with interest at
10% per annum, maturity date of March, 1999,
unpaid balance can be converted into common stock at $0.50 per share 19,209 -
Note payable at $1,000 per month beginning May 15,1997
remaining unpaid balance due June 15, 1998, interest at 9% per annum 23,167 -
Note payable at $556 per month beginning August 5, 1997
with interest at 8% per annum, maturity date of August 5, 1998 5,368
Note payable at $300.00 per month beginning June 15, 1997
for 35 months at 10% interest per annum 8,035 -
----------- --------
1,140,818 420,663
Less current portion ( 337,339) (120,396)
---------- --------
Total $ 803,480 $300,267
=========== ========
</TABLE>
<PAGE>
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DEFERRED SUBSCRIPTION REVENUE
Subscription sales are deferred as unearned income at the time of sale. Magazine
customers normally pay for a one-year or two-year subscription in advance. As
magazines are delivered to subscribers, the proportionate share of the
subscription price is taken into revenue. Magazine subscription selling expenses
are deferred and charged to operations over the same period as the related
subscription income is earned.
9. DEFERRED DISCOUNT
In April of 1996, the Company entered into an agreement with a telephone
long-distance service provider wherein the Company receives a discount (credit)
against its telephone charges provided that its annual volume of telephone usage
is equal to at least $240,000 for a period of three years. If the Company fails
to meet the minimum usage requirement, the discount will be forfeited. The
discount credit balance as of June 30, 1997 is $54,644. The Company renegotiated
this contract during the current quarter and as a result this discount became
earned and was recognized during this period.
10 . INCOME TAXES
The Company had no provision for income taxes at September 30, 1997 and 1996.
There are no reconciling items between the statutory U.S. federal rate and
effective rates for the quarters ended September 30, 1997 and 1996.
At September 30, 1997, Interline has a net operating loss carryforward totaling
approximately $880,000 that may be offset against future taxable income. If not
used, the carryforward will expire in 2011.
11. COMMON STOCK
Riley Investments, Inc. was incorporated as Pace Group International, Inc.,
("Pace") in October, 1987 under the laws of the State of Oregon. On September
20, 1995, the stockholders approved a name change of the Company to Riley
Investments, Inc. As of November 1, 1995, after the effects of the transaction
described below, the Company had no operating assets and was dormant.
On May 23, 1995, the Chairman of the Board, Edwin T. Cornelius, Jr.
("Cornelius"), the Secretary/Treasurer, Joanne Cornelius, and two sons of Mr.
and Mrs. Cornelius entered into an option agreement to sell 2,905,486 common
shares of Pace they owned to Bridgeworks Capital. The above shareholders,
together with another shareholder who was also the son of Mr. and Mrs.
Cornelius, owned an aggregate of 3,984,000 common shares of Pace. The option
agreement, among other provisions, was subject to shareholder approval of a
1-for-15 reverse stock split of the outstanding shares of Pace common stock and
an exchange of substantially all net assets of Pace, including its ownership of
100% of the outstanding common stock of Pace International Research, Inc., for
notes payable and unpaid accrued interest thereon owed to Cornelius which
approximated $422,000 as of October 31, 1995. The above transaction was approved
by the shareholders on September 20, 1995 and became effective November 1, 1995.
Prior to the consummation of the option agreement, Cornelius also transferred
450,000 shares of Pace common stock to two investors who had previously advanced
the Company $525,000 in 1987 pursuant to profit-sharing agreements. Under the
term of those profit-sharing agreements, the investors were to be paid in full
from certain Pace profits. As of October 31, 1995, those investors had not been
repaid for their advances.
The remaining Pace common stock owned by the Cornelius family, which aggregated
628,514 shares, were returned to the Company and 588,674 shares were canceled as
of December 31, 1996.
Airfair Publishing, Inc. (Airfair) is a Delaware corporation formed on January
6, 1996. Immediately Subsequent to incorporation of Airfair on January 6, 1996,
the existing shareholders of BEI received four shares of Airfair for each share
held in BEI, resulting in 8,500,000 shares issued. An additional 600,000 shares
were authorized by the Board of Directors and issued to two shareholders,
resulting in a total of 9,100,000 shares issued pursuant to the spin-off of the
Interline division in IMS to Airfair. (See Note 4.) Capital of $30,000 was
contributed to Airfair by BEI.
In September of 1996, 25,000 shares of common stock were issued for $25,000.
<PAGE>
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Effective July 19, 1996, Riley and Airfair executed an Agreement that provided
for the merger of MergerCo, a newly-created, wholly-owned subsidiary of Riley,
with and into Airfair, which became the surviving corporation, and the
conversion of the issued and outstanding Airfair stock into shares of Riley
stock on the basis of one share of Riley stock for each share of Airfair stock
outstanding on the Effective date. Airfair shares outstanding on the Effective
date totaled 9,125,000. On October 7, 1996, articles of amendment were filed on
behalf of Riley wherein the name was changed to Grand Adventures Tour & Travel
Publishing Corporation with authority to issue 10,000,000, no par, preferred
shares and 30,000,000 common shares with a par value of $.0001.
Existing shareholders in Riley at the date of conversion held 384,024 shares.
12. LEASING ARRANGEMENTS
As part of the Management Services Agreement with BEI (see Note 6), the Company
is allowed access and use of (i) approximately 8,000 square feet of space leased
by BEI and (ii) all common areas within the building to which BEI is permitted
access. The fees for usage are included in the management services fee
calculation under the Management Services Agreement.
13. SUBSEQUENT EVENTS
Subsequent to the end of the September 30,1997 quarter, the Company raised an
additional $100,000 through short-term borrowings from an existing
shareholder/noteholder. The prior credit card processor also released
approximately $50,000 from the escrow reserve being held as security. The
Company is also in negotiations with an Underwriter to provide for a $500,000
bridge loan pending a public offering to raise approximately $4,900,000 before
discounts and offering fees. The Company anticipates that the bridge loan will
be completed before the end of October, 1997 and the offering will be finalized
prior to the end of December, 1997. In connection with the bridge financing, the
Company is offering the noteholders the right to purchase up to 500,000 shares
of stock at a price of $0.0001 per share. If the bridge loan is consummated the
Company will have a charge against earnings for the difference in the fair
market value of the stock and the discounted value offered to the noteholders.
14. STOCK OPTION PLAN
The Company has a long-term stock incentive plan (LTSIP) that authorizes an
aggregate of 1,000,000 shares of common stock for future grants. Options to
purchase shares of Airfair common stock granted under the previous Airfair stock
option plan were exchanged for comparable options granted under the LTSIP for an
equivalent number of shares pursuant to the terms of the Merger as explained in
Note 4 to the financial statements. Under the plan, the exercise price of each
employee option is $1.00 and the exercise price of options granted to
shareholders range from $.50 to $1.00. An option's maximum term is five years.
Employee options were granted on August 1, 1996, and February 1, 1997, and vest
in three years. Other options are fully vested. The fair value of each option
grant is estimated on the grant date using an option-pricing model with the
following weighted-average assumptions used for grants in 1996: risk-free
interest rate of 6%, and expected lives of 5 years for the options.
A summary of the status of the Company's outstanding stock options as of
September 30, 1997 is presented below:
Outstanding Options Exercisable Options
------------------- -------------------
Weighted-
Average
Range of Number Remaining Weighted- Number Weighted-
Exercise Outstanding Contractual Average Exercisable Average
Prices 9/30/97 Life Exercise Price at 9/30/97 Exercise Price
------ ------------ ------------ --------------- ----------- --------------
$1.00 1,014,466 4 years $ .94 1,014,466 $ .94
1.00 361,000 4 years 1.00 101,667 1.00
1.00 449,000 4 years 1.00 110,000 1.00
-------
1,824,466 1,226,133
========= =========
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
The financial information set forth in the following discussion should be read
in conjunction with, and qualified in its entirety by, the financial statements
of the Company included elsewhere herein.
On December 1, 1994, IMS, a subsidiary of BEI, acquired from an unrelated third
party the net assets that resulted in the IT division in consideration of the
assumption of $144,394 in liabilities. BEI formed Airfair as a subsidiary on
January 5, 1996, in which to consolidate its interline industry activities. On
January 13, 1996, Airfair acquired certain assets and assumed certain
liabilities that became the IRL and Magazine divisions of Airfair in
consideration of the assumption of $593,791 in liabilities, effective December
31, 1995. Following the organization of Airfair, IMS transferred the IT division
to Airfair, effective January 1, 1996. Effective October 10, 1996, Airfair
merged into a newly created, wholly-owned subsidiary of Grand Adventures Tour &
Travel Publishing Corporation (formerly Riley Investments, Inc.). Airfair became
the surviving operating corporation following the merger . In view of the
foregoing acquisitions and merger and its new management team, operating
strategies, expansion plans, resources, and other factors, management does not
believe that a discussion of the operations of the prior operating entity
(Riley) would be meaningful.
Financial Condition and Changes in Financial Condition
The Company had a negative working capital of $828,743 as of September 30,1997,
as compared to a negative working capital of $1,101,503 at September 30, 1996.
The primary causes for this large deficit in working capital was the loss from
operations of $452,240 for the twelve month interim period from September 1996
to September 1997 and monthly debt service that has reached approximately
$20,000 per month. The Company ended the third quarter with $2,612,066 in
current liabilities as compared to $2,338,633 for the prior year comparable
quarter. This was a result of not being able to generate enough cash funds
during the year to adequately sustain the acquisitions and management's intent
to grow sales through increasing the number of publications, size, distribution
and quality of the magazine. The largest components of current liabilities are
accounts payable of $343,434 (of which $277,171 are greater than 90 days past
due); accrued expenses and negative cash balances of $482,964; current portion
of notes payable of $337,339, and deferred revenues relating to hotels, cruises
and tours and magazine subscriptions of $1,448,329. A large portion of accounts
payable are made up of amounts due for telephone services and the publication of
the magazine. The Company has been diligently working with its primary vendors
to work out payment schedules. During the quarter ended September, 30, 1997, one
of the Company's vendors agreed to convert to notes payable. Accrued expenses of
$482,964 are comprised mainly of payroll, vacation, commissions, note interest ,
negative cash balances, and general administrative expenses. Deferred revenues
for hotels and cruises represent the moneys received from passengers that are
deferred for revenue recognition purposes until the passenger has completed
travel. These deferred liabilities are very short-term in nature due to the
short time frame between booking the reservation and the travel date. Amounts
deferred for hotels were $501,754 and for cruises $827,581 at September 30,
1997. Deferred subscription revenue of $118,994 represents subscription moneys
received but not earned at quarter end. Magazine subscriptions are normally paid
in full in advance for the one- or two-year subscription period. Revenue is
earned on a prorata basis as the magazines are printed and shipped to the
subscribers.
Total notes payable of $1,140,818 are detailed in Note 7 of the financial
statements. The holder of the acquisition notes agreed to a substantially
discounted payoff on these notes in April, 1997. The Company completely
extinguished this debt through the payment of $75,000 in cash in April, 1997.
The discount amounted to a reduction of $224,792 in the debt balance with the
offset being a reduction in the amount of goodwill created in the acquisition.
The Company obtained an additional $500,000 in financing during the prior
quarter through the issuance of convertible debentures due April, 2000. These
debentures bear a 7% annual interest rate due on each anniversary. The Company
may pay the interest due with shares of the Company's common stock at the rate
of one share for each $0.50 of interest due. The holders of the debentures may
convert the unpaid principal into shares of the Company's common stock at a
conversion price of $0.25 per share. These debentures also carry warrants which
allows for the purchase of 1,000,000 of the Company's common stock at a exercise
price of $1.00 per share. During the quarter, the Company also negotiated with
one printing vendor that allowed for the conversion of an accounts payable into
notes payable of over the next 12 months. The Company also renegotiated one of
the existing notes whereby the holder loaned an additional $80,000 to the
Company to use for publishing one issue of the magazine. Of the total of
$1,140,818 in notes, the current portion amounts to $337,339 and the long term
portion equals $803,480. Included in other liabilities of the previous quarter
besides the long term debt was a deferred discount of $54,644 that was received
as a service discount from the Company's long distance telephone carrier in 1996
upon the execution of a long term agreement. The agreement required the Company
to use a minimum of $240,000 in annual long distance services for a period of
three years. If the Company failed to utilize the required minimum usage, the
discount will be forfeited. The Company renegotiated this agreement during the
current quarter and the deferred discount was forgiven and became fully earned.
The Company had $2,239,574 in total assets at September 30, 1997 compared to
assets of $1,915,169 at the end of September 30, 1996. Substantially all of the
balance in the cash account of $190,870 consist of a escrow deposits required by
the Company's previous and current banks as a reserve for Visa/Mastercard credit
card processing. The Company has ceased processing Visa/Mastercard charges
through this processor. The previous processor will return all unused escrow
funds to the Company by May, 1998. The Company has had a history of minimal
chargebacks. The Company has contracted with a another credit card processor as
of July 1, 1997, to continue credit card processing. The new processor is
requiring a six month rolling reserve of 5% of monthly credit card receipts.
Approximately 70% of the Company's hotel and resort sales are generated through
credit cards. The accounts receivable of $76,254 is comprised primarily of
advertising revenue from vendors that advertised in the magazine and updates.
Prepaid tour cost and prepaid cruise cost of $575,744 and $810,321,
respectfully, represent funds paid to hotels and cruise lines as of September,
1997, for travel dates that occur after that date. These prepaid items relate
directly to the previously discussed deferred revenues and are also very
short-term in nature. Goodwill consist of the excess of purchase price over net
assets acquired during the aforementioned acquisitions. However, goodwill
associated with the cruise and magazine divisions was reduced by $224,963 during
the quarter due to a reduced lump sum settlement of the notes due the prior
owner of these entities.
Results of Operations
Overall Operating Results
The Company had net income for the quarter ended September 30, 1997 of $72,779
as compared to a loss of $55,103 for the previous six months of 1997. The
primary cause for the third quarter gain was an increase in sales of $224,069
over the previous quarter as well as recognizing the deferred discount from the
long distance carrier. The Company also repriced the hotel rooms it purchases
from IMS in accordance with the Inventory Marketing Agreement ( See Note 7 Due
to Affiliate of the financial statements). The Company had previously estimated
the cost of these room purchases until adequate data was available in order to
properly cost out this contractual agreement. The result of the recalculation
was that the Company had overpaid IMS approximately $159,000 for the purchase of
these utilized hotel rooms and therefore had overstated cost of good sold. The
Company has changed the room cost in the reservation system for future
purchases. The following schedule reflects the effects of this repricing applied
to the periods in which incurred:
Quarterly Adjustment Allocation of Quarterly
Net Income for Reduction cost Reduction Net Income
(Loss) of cost on to Period (Loss)
as Reported Repriced Rooms Incurred as Adjusted
-------------------------------------------------------------
March 31, 1996 ($163,546) 18,353 $145,193)
June 30, 1996 $11,316 15,383 26,699
September 30, 1996 (250,509) 17,439 (233,070)
December 31, 1996 (469,916) 8,418 (461,498)
-------------------------------------------------------------
Total 1996 $872,655) $0 $59,593 ($813,062)
=============================================================
March 31, 1997 ($75,323) 26,933 ($48,390)
June 30, 1997 20,220 34,148 54,368
September 30, 1997 72,779 (159,835) 39,161 (47,895)
-------------------------------------------------------------
Total 9 Months 1997 $17,676 ($159,835) $100,242 ($41,917)
=============================================================
Total Adjustment (159,835) 159,835
For the nine months ended September 30, 1997 the Company had a net loss of
$41,917 as adjusted for the above repricing as compared to a net loss $351,564
for the comparable period of 1996. The decreased loss in 1997 is the result of
an increase in sales of approximately $1,100,000 over the 1996 period as well a
reduction in operating expenses of approximately $245,000 over the same period.
The increase in sales is primarily attributed to repeat customer sales, a larger
property portfolio and an additional year of experience in the cruise market..
The funding of the magazine publications has come primarily from funding
provided by the debt instruments mentioned previously. Management also set a
goal in the latter part of 1996 of increasing sales through increasing the size,
quality and distribution of the magazine. The magazine's production schedule was
increased to every two months as opposed to every three months before the
Company's acquisition. The magazine also produces an update brochure promoting
hotel and cruise specials in the months in which the magazine is not produced.
Management believes that increased circulation will increase the value of the
publications to both advertisers and subscribers. The Company intends for the
magazine division to increase both advertising and subscription revenue to the
point where this division will at least break even in 1998.
Revenue
Gross revenue for the quarter ended September 30, 1997, was $3,607,327 an
increase of $224,069 over the June, 1997 quarter revenues of $3,383,258. Hotel
sales decreased 16% for the September, 1997 quarter from $1,324,238 for the June
quarter to $1,105,218 for the current quarter. This decrease in hotel sales was
primarily caused by the unavailability of rooms during the quarter at one of the
Company's primary resort locations (Cancun). However, the marketing department
has substantially increased the number of available properties to sell to the
interline market during the year. Gross cruise and tour revenue equaled
$2,317,601 for the 1997 September quarter, an increase of $364,983 over the
second quarter. The Company recognizes hotel and cruise revenues on a "booked,
paid, traveled" basis, (i.e. revenue is not earned until the passenger has
completed travel).
Gross revenue for the nine months ended September 30, 1997 increased $1,086,623
over the comparable nine months of 1996. Cruise and tour revenues accounted for
$955,610 of this increase while hotels increased $86,949 over this time frame.
These increases are also attributable to an increased presence in the
marketplace.
Cost of Goods Sold
Hotel cost has been restated in the following schedule to reflect the effects of
repricing of the IMS rooms aforementioned:
Adjustment
for
Hotel Reduction Allocation
Revenue Hotel of cost of cost Adjusted
As Cost as on Repriced Reduction to Room
Reported Reported Rooms Period Incurred Cost
------------------------------------------------------------
March 31, 1996 $915,177 710,827 (18,353) $692,474
June 30, 1996 1,264,958 963,240 (15,383) 947,857
September 30, 1996 1,206,751 933,536 (17,439) 916,097
December 31, 1996 862,568 665,949 (8,418) 657,531
------------------------------------------------------------
Total 1996 $4,249,454 3,273,552 $0 ($59,593) $3,213,959
============================================================
March 31, 1997 $1,044,379 813,848 (26,933) $786,915
June 30, 1997 1,324,238 1,018,773 (34,148) 984,625
September 30, 1997 1,105,218 687,600 159,835 (39,161) 808,274
------------------------------------------------------------
Total 9 Months 1997 $3,473,835 2,520,221 $159,835 ($100,242) $2,579,814
============================================================
Total Adjustment 159,835 (159,835)
The hotel division had adjusted cost of sales of $808,274 on sales of $1,105,218
for the current quarter producing a gross margin of $296,944, or 26.8% of sales.
The comparable second quarter hotel cost of sales were $984,625 generating a
gross margin of $339,613, or 25.6% on sales of $1,324,238. The cruise division
generated a gross margin of $239,322 or 10.3% on sales of $2,317,601 for the
quarter ended September 30, 1997. This compares to the prior quarterly margin of
$232,362 or 11.9% on sales of $1,952,618. Average margins on cruises can range
from 10% to 18% depending on cruise line space availability.
The adjusted margin for hotel sales for the nine months ended September 30,
1997, was $894,021 or 25.7% of sales. Cruise and tour gross margin for the same
period was $643,749 or 11.3% of sales. The comparable 1996 margin for hotels was
$830,458 or 24.5% of hotel sales. Cruises in 1996 produced a $599,648 margin or
12.5% of sales. The larger 1996 cruise margin percentage was the result of one
unusual underbooked cruise in June 1996 that the Company contracted with that
was able to produce a margin of approximately $84,000 on sales of approximately
$110,000.
Operating Expenses
Operating expenses for the quarter ended September 30, 1997 were $622,744 as
compared to $436,573 for the second quarter. The increase was caused by of
increased computer programming cost for modifications to the reservation system,
commissions incurred for the relatively new Germany and Canada operations which
receive 60% of the margins on their production ( but they bear all of their own
operating costs), an increase of 1% in the discount fee charged by the new
credit card processor , increased travel to industry trade and vendor meetings ,
and increased expenses associated with disseminating advertising material to the
airline employees such as the weekly fax outs, the one time printing of the
Germany Guide and the Suntrust brochure. The Suntrust brochure was a concept
where the Company agreed with Suntrust bank to market selected Company
properties to the credit card holders of the bank. The project was abandoned
after a poor response rate. Contracts were negotiated during the year with
separate travel operators in Germany and Canada where they are able to sell the
Company's properties to their respective markets. These operations are expected
to significantly increase Company sales over time. The Company is in the process
of negotiating with similar operators in Mexico and Japan for similar
agreements. The largest expense item for the Company is wages which equaled
$803,436 for the nine months ended September 30, 1997 as compared to $913,837
for the previous year a decrease of $110,401. The Company reduced salary
expenses as of January 1, 1997 through the reduction of personnel and attrition.
Another major expense area is management fees. Airfair entered into a management
agreement with BEI and IMS effective March 1, 1996. Under this agreement, BEI
permits Airfair to use office space and certain equipment leased by BEI, and BEI
and IMS provide Airfair insurance, payroll services, office supplies and other
minor office services. IMS and BEI charge Airfair a management fee equal to 0.5%
of Airfair's gross revenue per month for these services. In addition, pursuant
to the terms of the management agreement, IMS, BEI, and Airfair agreed that
Airfair would reimburse BEI for a portion of the direct payroll expenses of
certain members of management who serve BEI, IMS, and Airfair (the "Shared
Management Members"). The proportion is intended to correspond with the amount
of time expended by the Shared Management Members on the business matters of
Airfair. These management fees and the payroll reimbursements for Shared
Management Members totaled $168,419 for the nine months ended September 30,
1997, as compared to a $15,975 for the nine months of 1996.. Prior to the
management agreement, all general and administrative expenses of BEI were
allocated to Airfair and IMS on a ratio basis. In February 1996, BEI incurred a
large one-time gain which exceeded its expenses. As such, both Airfair and IMS
were the beneficiaries of an expense credit for that month. Airfair's portion of
that allocation was a credit of approximately $142,000.
Liquidity and Capital Resources
The Company has a significant accumulated deficit and the Company's auditors for
fiscal year 1996 included in their audit opinions a qualification regarding the
Company's ability to continue as a going concern. Historically, the Company has
had insufficient cash reserves to satisfactorily implement its business strategy
and otherwise operate effectively. This has forced the Company to publish and
distribute its information on an inconsistent basis, defer payment of certain
expenses and otherwise limit its efforts to promote sales growth. As most travel
by interliners takes place when there are empty seats on airlines, travel volume
tends to decrease when the retail travel industry experiences high traffic
volume. Accordingly, generally high retail travel volumes from the middle of
November through January usually results in low interline travel volume. As a
result the Company normally sees much lower travel sales during the fourth
quarter of the year and their can be no assurances that the Company will be able
to generate an operating profit for the quarter.
Since Airfair's inception, it has financed its business growth through
internally generated revenue, borrowings from its former sole stockholder, BEI,
and borrowings from new stockholders subsequent to its spin-off from BEI. In
September, 1996, the Company borrowed $400,000 from seven shareholders ("bridge
loans") that were collateralized with 130,868 shares of equity securities that
are owned by BEI. BEI executed a Security Pledge Agreement in favor of the
lenders. In November, 1996, the Company initiated a private placement to
qualified investors and offered up to 2,000,000 shares of its common stock at a
price of $1.00 per share. The Company has not raised any funds through this
offering as of this filing. Thereafter, management has taken a different
strategy in raising and conserving funds needed for operations in 1997 and
thereafter. Since January 1, 1997, management has reduced expenses by
approximately $27,000 per month through a reduction in nonessential personnel,
changing to a lower priced package delivery service, obtaining more services
such as small printing jobs on a trade basis and reducing any other expenses
that are not considered absolutely necessary to the ongoing needs of the
operation.
During the prior quarter, the Company raised funds through additional long-term
borrowings. The bridge loans were restructured in a transaction whereby the
loanholders agreed to the release of the pledged equity securities in exchange
for the following: (1) payment of all accrued interest through April 10, 1997,
which was paid in the amount of approximately $29,000, (2) the loan broker
received a fee of $20,000, (3) 40,000 Company common stock warrants were issued
to the loan broker and 20,000 stock warrants were issued to a principal of the
loan broker, all exercisable at $1.00 per share, (4) the bridge loans were
converted to 3-year notes bearing 12% annual interest , with principal and
interest payable monthly, beginning in May, 1997, the outstanding principal
balance is convertible (at note holders' option) into Company common stock at
$.50 per share, and no prepayment penalties. Also in April and May, 1997, the
Company raised an additional $500,000 from ten investors through the issuance of
three-year convertible debentures. The debentures carry an annual interest rate
of 7%. Interest and principal are due and payable in annual installments on each
anniversary. At the option of the Company, interest payments due prior to the
maturity date may be made in shares of common stock of the Company at the rate
one share for each $0.50 of interest accrued and payable. The debenture holder
has the right at any time prior to maturity to convert all or any portion of the
then outstanding principal balance into fully paid and non-assessable shares of
common stock of the Company at a conversion price of $0.25 per share of such
outstanding principal amount, subject to adjustment from time to time as
provided for in the debenture.
The Company also extinguished (in April, 1997) the $299,963 of notes payable
that were incurred in connection with the acquisition of the cruise and magazine
division for a cash settlement of $75,000 (See Financial Condition and Changes
in Financial Condition above). During the previous quarter, the Company also
negotiated the conversion of five accounts payable vendors into notes payable
with various terms and conditions ( see Note 7 to the financial statements ).
The remaining unpaid balance of these vendor notes was $121,933 at September
30,1997. During the current quarter, the Company borrowed an additional $80,000
from one of its existing noteholders. This note was repaid subsequent to the end
of the quarter. Management has and is continuing to negotiate with its accounts
payable vendors in order to work out acceptable payment schedules for all
parties.
As a result of the transactions described in the preceding paragraph, management
believes that its existing working capital levels, supplemented by cash expected
to be generated by existing operations and cash generated through stock sales or
other financing arrangements, will be sufficient to fund the Company's needs
over the foreseeable future. The Company is the process of securing a $500,000
bridge loan with an anticipated October 1997 closing date. These funds will be
utilized for publications, operating expenses and some offering expenses in
anticipation of a public offering prior to the end of 1997. In conjunction with
this bridge loan ( Private Placement ) the noteholders will be granted the right
to purchase up to 500,000 shares of common stock of the Company at a purchase
price if $0.0001 per share. Upon consummation of the purchase of these shares,
the Company will be required to take a charge against earnings for the
difference between the estimated fair market value of the shares and the price
charged the noteholders. The Company currently anticipates that the charge will
be approximately $250,000 based on the difference between the option price
offered recent convertible noteholders and the purchase price offered the bridge
noteholders. Such charge will also reduce net income applicable to Common Stock
and, accordingly, reduce earnings per share in the period the purchase is
consummated. Management's belief is based on a number of assumptions including,
without limitation, that increased gross sales will result from increased
distribution (both in terms of frequency and number of issues) of the Company's
publications and that the Company can continue to operate effectively at reduced
levels of operating expenses. There can be no assurance that the foregoing
assumptions and the other assumptions relied upon by management will prove
accurate and any such inaccuracy may cause the Company to need working capital.
Moreover, there are no assurances that the Company will be able to procure any
such capital should it be needed and any such inability may have an adverse
effect on the Company's business, financial condition and future operating
results.
Inflation
The Company's results of operations have not been affected by inflation and
management does not expect inflation to have a significant effect on its
operations in the future because of the short time frame between reservation
bookings and the dates of travel.
Forward -Looking Information
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange Commission.
Words or phases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project or projected", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 ("the Reform Act"). The Company
wishes to ensure that such statements are accompanied by meaningful cautionary
statements, so as to maximize to the fullest extent possible the protections of
the safe harbor established in the Reform Act. Accordingly, such statements are
qualified in their entirety by reference to and are accompanied by the following
discussion of certain important factors that could cause actual results to
differ materially from such forward-looking statements.
Management is currently unaware of any trends or conditions other than those
previously mentioned in this management's discussion and analysis that could
have a material adverse effect on the Company's consolidated financial position,
future results of operations, or liquidity.
However, investors should also be aware of factors that could have a negative
impact on the Company's prospects and the consistency of progress in the areas
of revenue generation, liquidity, and generation of capital resources. These
include: (i) variations in the mix of hotel, cruise, and magazine revenues, (ii)
possible inability to attract investors for its equity securities or otherwise
raise adequate funds from any source should the Company seek to do so, (iii)
increased governmental regulation, (iv) increased competition, (v) unfavorable
outcomes to litigation involving the Company or to which the Company may become
a party in the future and, (vi) a very competitive and rapidly changing
operating environment. Furthermore, reference is also made to other sections of
this report that include factors that could adversely impact the Company's
business and financial performance.
The risks identified here are not all inclusive. New risk factors emerge from
time to time and it is not possible for Management to predict all of such risk
factors, nor can it assess the impact of all such risk factors on the Company's
business or the extent to which any factor or combination of factors may cause
actual results to differ materially from those contained in any forward-looking
statements. Accordingly, forward-looking statements should not be relied upon as
a prediction of actual results.
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
b. Reports on Form 8-K
None
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
(Registrant) Grand Adventures Tour & Travel Publishing Corporation
Date November 3,1997 By /s/ Joseph S. Juba
---------------
Joseph S. Juba, President/ Chief Operating Officer
Date November 3, 1997 By /s/ Darrell W. Barker
----------------
Darrell W. Barker, Chief Financial Officer
Date November 3, 1997 By /s/ Matthew O'Hayer
----------------
Matthew O'Hayer, Chairman of the Board and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This text contains summary informatin extracted from Balance Sheet at
9/30/97, Statement of Income and Accumulated Deficit at 9/30/97 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 190,870
<SECURITIES> 0
<RECEIVABLES> 85,064
<ALLOWANCES> (8,810)
<INVENTORY> 0
<CURRENT-ASSETS> 1,783,323
<PP&E> 93,795
<DEPRECIATION> (44,495)
<TOTAL-ASSETS> 2,239,574
<CURRENT-LIABILITIES> 2,612,066
<BONDS> 0
0
0
<COMMON> 952
<OTHER-SE> (1,176,923)
<TOTAL-LIABILITY-AND-EQUITY> 2,239,574
<SALES> 9,536,260
<TOTAL-REVENUES> 9,550,273
<CGS> 7,994,822
<TOTAL-COSTS> 7,994,822
<OTHER-EXPENSES> 1,537,774
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,199
<INCOME-PRETAX> 17,676
<INCOME-TAX> 0
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<NET-INCOME> 17,676
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</TABLE>
