FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Mark One
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
[ ] SECURITIES EXCHANGE OF 1934
FOR THE QUARTERLY PERIOD ENDED: September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO N/A ________
COMMISSION FILE NUMBER: 33-21239
TRAVEL DYNAMICS, INC.
------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 0462569
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STATE OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
4150 North Drinkwater Boulevard, Fifth Floor
SCOTTSDALE, AZ 85251
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(480) 949-9500
Indicate by check mark whether the Registration (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
files such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X YES _ NO
As of September 30, 2000, approximately 5,911,080 shares of
common stock ($.001 par value) were outstanding.
<PAGE>
TRAVEL DYNAMICS, INC.
INDEX
Page
PART I. Financial Information 3
Item 1.Financial Statements. [Unaudited] 3
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of Operations. 3
PART II. Other Information 7
Item 2. Changes in Securities and Use of Proceeds 7
Item 5. Other information 7
Item 6. Exhibits and Reports on Form 8-K 7
[Inapplicable Items Have Been Omitted]
<PAGE>
PART I. Financial Information
Item 1. Financial Statements. [Unaudited]
The condensed Consolidated Financial Statements of Travel
Dynamics, Inc. for the three-month period ending September 30,
2000 are unaudited and are attached as an exhibit and
incorporated by this reference as Item 1.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Certain statements in this 10-QSB, including without
limitation information set forth under Item 2 entitled
`Management's Discussion and Analysis of Financial Condition and
Results of Operations" contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995 (the Act), including, without limitation, statements
regarding the Company's expectations, beliefs, estimates,
intentions, and strategies about the future. Words such as,
"anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates," or variations of such words and similar
expressions are intended to identify such forward-looking
statements, but their absence does not mean the statement is not
forward-looking. The Company desires to avail itself of certain
"safe harbor" provisions of the Act and is therefore including
this special note to enable the Company to do so. Forward-
looking statements in this 10-QSB or hereafter included in other
publicly available documents filed with the Securities and
Exchange Commission, reports to the Company's stockholders and
other publicly available statements issued or released by the
Company involve known and unknown risks, uncertainties and other
factors which could cause the Company's actual results,
performance (financial or operating) or achievements to differ
from the future results, performance (financial or operating) or
achievements expressed or implied by such forward-looking
statements and are not guarantees of future performance.
Similarly, statements that describe the Company's future
operating performance, financial results, plans, objectives or
goals are also forward-looking statements. Such future results
are based upon management's best estimates of current conditions
and the most recent results of operations. Such information
contained in such statements is difficult to predict; therefore
actual results may differ materially from those expressed or
forecasted. The forward-looking statements made herein are only
made as of September 30, 2000, unless otherwise expressly stated
and the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or
circumstances.
Travel Dynamics, Inc., as the parent company, and Tru
Dynamics, Inc., as the sole operating subsidiary, are
collectively referred to herein as "the Company." Both are
Nevada corporations.
This Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction
with the Company's accompanying unaudited condensed Consolidated
Financial Statements for the three-month period ending September
30, 2000 and 1999, respectively.
<PAGE>
Three Months Ended September 30, 2000 Compared to Three Months
Ended September 30, 1999
The Company is a marketing firm that wholesales and
distributes educational and lifestyle products and materials to
independent sales associates ("ISAs"), who resell the packages.
These products and materials are designed to educate and support
individuals in their development of income sources for home-based
businesses. The products include discount entertainment and
travel packages and tax planning and organization packages. The
Company also engages in the organization and hosting of various
marketing, training and motivational seminars. The Company has
gained increasing revenues through various direct marketing
activities, including the Internet.
During the first two quarters of this fiscal year, the Company
undertook the conversion of its entire marketing model into an e-
commerce business to take advantage of the explosive growth of
the Internet. Additionally, the development and maintenance of
certain Internet and other systems technology was taken in house
whereas such work was previously contracted with outside parties.
The timing of these critical changes and the unavoidable
disruption in sales were scheduled for the summer months because
they are typically weak for network marketing companies. During
the second quarter, the Company believes the sales recovery
process should be complete, thus allowing the Company to leverage
its new marketing model to support the Independent Sales
Associates (ISAs). The Company anticipates increasing revenues
significantly through this new Internet based marketing plan.
Net sales for the three months ended September 30, 2000 and
1999 were $2,013,825 and $1,417,485, respectively, which is an
increase of $596,340 or approximately 42%. The majority of this
revenue is attributable to conference sales in the quarter. The
Company is engaged in the development and implementation of a
massive new e-commerce marketing program designed to take
advantage of the Internet. During this conversion phase, the
Company's non-conference revenue decreased from the comparable
period of the prior year. The reason for this decrease was the
disruption in marketing and sales activities during the
technological implementation stage. The Company expects that with
this technology in place it will experience long term non-
conference revenue growth.
Gross margin for the three months ended September 30, 2000
was 15% and represents a decrease of 44% in the gross margin
percentage as compared to the three months ended September 30,
1999. This reduction is primarily attributable to a major
conference that occurred during the conversion to the e-commerce
format. Many potential participants did not attend so that they
could concentrate their efforts on keeping their distribution
network in focus during the change in the business model. The
adverse effect on attendance was significant because most of the
expenses were fixed. Another cause of the decrease relates
largely to a change in the way the Company collects the price of
its seminars and other higher priced products from its ISAs.
Beginning January 1, 2000, the Company collects full retail price
of these products directly from the ISAs' customers and then pays
the ISA the difference between the retail price and the wholesale
price. In contrast, for periods prior to January 1, 2000, the
Company simply collected the wholesale price from the ISAs. This
change in payments results in a reduction in gross margin but has
no effect on gross profit dollars generated on each sale.
<PAGE>
Selling and general and administrative expenses for the
three months ended September 30, 2000 and 1999 were $1,029,560
and $740,658, respectively, which represents an increase of
$288,902, or 39%. The increase primarily relates to the Company
adding personnel and systems to the infrastructure to keep up
with the rapid rate of growth the Company experienced during the
previous quarters.
The Company's interest expense for the three months ended
September 30, 2000 and 1999 was $21,234 and $81,206,
respectively. This decrease was primarily attributable to the
interest expense associated with the convertible debenture
offering during the three months ended September 30, 1999. The
Company was required to recognize as interest expense the
difference between the $1.00 per share conversion price for the
debentures to be converted into the Company's common stock and
the market value per share of the Company's stock on the day the
debentures were granted, which difference was $.27 per share. The
Company recognized $63,250 of interest expense due to the
beneficial conversion feature of the debentures for the three
months ended September 30, 1999. An additional $16,943 was
attributable to interest accrued on the debentures during the
three months ended September 30, 1999.
The net results of operations for the three months ended
September 30, 2000 and 1999 was $747,888 net loss and $14,888 net
income, respectively, which represents a decrease in
profitability of $762,776. This decrease is primarily
attributable to the reduced non-conference sales activity and
ramp up costs associated with the implementation of the new e-
commerce model as discussed above. As mentioned above, the
Company expects sales levels to recover along improving net
results over the next several quarters as compared to the
previous year's quarters.
Liquidity and Capital Resources
The Company's primary source of cash during the three months
ended September 30, 2000 has been provided by cash flow from
operations, $150,000 in short-term loans and $99,536 of
borrowings from line of credit.
Operating activities for the three months ended September
30, 2000 and 1999 used $553,650 and used $138,217, respectively.
The difference in cash generated from operations is mainly
attributable to changes in operating assets and liabilities
related to the significant increase in customers and customer
transactions.
Expenditures for property and equipment and other assets
totaled $33,095 and $84,292 for the three months ended September
30, 2000 and 1999, respectively. Expenditures for the three
months ended September 30, 2000 comprised of computer and
telephone components for web-site development. Expenditures for
the three months ended September 30, 1999 included $65,839 in
office equipment that relate the Company moving into new, larger
offices and increasing the number of personnel, and $18,453 in
software for internal use.
<PAGE>
Plan of Operations
Management estimates that the cash flows from operations
over the next 12 months, as well as the current line of credit
will be sufficient to continue the Company's operations and to
cover its operational expenses. Management reasonably believes
that anticipated sales increases will be sufficient to maintain
the Company's cash-flow requirements. Nevertheless, the Company
reserves the right to raise additional proceeds or incur debt or
take such other actions to expand or sustain its operations.
However, as of the fiscal quarter ended September 30, 2000, the
Company did not specifically anticipate raising any additional
funds through debt or equity offerings of securities other than
those raised under the current private offering.
The Company is broadening its product and service line
through electronic commerce and including more on-line products
and services over the Internet. The Company has also increased
its telephone support for its current products and services.
A copy of the Company's other filings to date under the
Securities Act of 1934 by the Company will be made available by
the Company to any shareholder requesting the same, or to other
interested parties. All filed documents of the Company may
further be retrieved "on line" through the Internet at the SEC
homepage at: http://www.sec.gov.
Until the Company achieves a sustained level of
profitability, it must be considered a start-up entity.
Management considers the growth of revenues to be positive and
expects to achieve profitability in future quarters, however no
warranty of this projection can be made. The Company remains
dependent on continuing cash flows to meet certain operating
expenses and no assurance of financial success or economic
survival of the Company can be assured during this period. The
Company has and will continue to incur costs related to legal and
accounting fees, initial filing fees, and advertising and
marketing fees. These types of costs may not be incurred at the
same level or percentage of revenues as experienced in the past.
Management's general discussion of operations is limited by
and should be considered within the context of the actual
condensed Consolidated Financial Statements and notes attached
thereto and incorporated as part of Item 1 above.
<PAGE>
PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds.
On November 17, 2000 the Company completed the acquisition
of Columbus Companies. The terms of this acquisition provided for
the Company to acquire all the issued and outstanding shares of
Columbus Companies, as a wholly-owned subsidiary, held by the
Shareholders solely in exchange for 750,000 voting shares of the
common stock of the Company, par value $0.001 per share under
Section 4(2) of the Securities Act of 1933.
During the three months ending September, 2000, the Company
issued 70,000 shares of common stock, $.001 par value, upon
conversion of convertible debentures in reliance upon Section
3(a)(9) of the Securities Act. The convertible debentures were
originally issued in connection with an offering by the Company
conducted from April 1999 through June 30, 1999, described in
greater detail in Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition & Plan of Operations" in the
Company's amended and restated 10KSB/A Report (Amendment No. 1)
for the fiscal year ended June 30, 1999, filed December 1999 and
incorporated herein by reference.
The Company is currently engaged in another private
placement of units under Rule 506 of Regulation D of the
Securities Act. Each unit consists of one warrant for one share
of common stock and a commitment fee. This private placement is
for up to 3,000,000 units with a minimum subscription of 400,000
units. The subscriber provides an irrevocable letter of credit as
security for a line of credit that the Company has secured with a
local bank. The letter of credit must be in an amount equal to
$.50 per unit. In exchange for this, the subscriber has the
option to purchase shares of the Company stock at $.50 per share
anytime during the term that the letter of credit is provided as
security for the line of credit. This private offering commenced
August 21, 2000 and expires November 30, 2000, unless extended.
As of November 14, 2000, the Company had sold 1,600,000 units and
had received letters of credit for $800,000.
On August 25, 2000, the Company executed a promissory note with
a local bank. This note evidences a revolving line of credit with
a principal amount of $1,000,000. The interest is variable at one
percentage point over bank prime. Payment terms call for monthly
interest payments plus payment in full of any outstanding
advances on August 15, 2001. This note is secured by various
irrevocable letters of credit as provided from the private
placement described above.
The Company closed a private offering on May 31, 2000 made
under a Private Offering Memorandum dated February 17, 2000 for
Travel Dynamics, Inc. (the "February Offering"). The February
Offering was for a minimum of 200,000 and a maximum of 1,200,000
units (each unit consisting of 1 share of common stock, $.001 par
value and 1 warrant). The Private Offering Memorandum for the
February Offering misstated the potential dilution at 61% per
share. An error in the calculation was identified and the
properly stated dilution per share should have been at 87%. When
the February Offering closed, the Company had raised $735,000.
<PAGE>
Due to the misstatement of the dilution per share in the
Private Offering Memorandum for the February Offering, the
Company plans to conduct a recission offering to the investors
who purchased units under the February Offering. The proposed
recission offering would allow any and all investors to elect to
receive a refund for units purchased thereunder. The Company
cannot predict the probability of any or the number of potential
investor refunds. The Company estimates that any return of
investor funds will be made over a 90-day period under the terms
of the rescission.
Item 5. Other Information
During the quarter, three directors joined the Company and
were each granted 100,000 stock options. These options vest as
follows: 25,000 immediately and 25,000 vest each year on the
anniversary date of the director joining the Company. The
exercise price of these options was the average closing price of
the stock for the five days immediately prior to the grant date,
or $.875 per share.
There were also 45,000 options granted to an employee under
the Travel Dynamics Incentive Stock Option Plan pursuant to the
employee beginning employment with the Company. The options are
exercisable at $.813 per share, the fair market value of the
Company's common stock on the date of grant and vest over a three-
year period based on anniversary date.
During this quarter, the composition of the Board of
Directors changed as follows:
Brian Service resigned as a board member, Managing Director,
Secretary and Treasurer. James Solomon, Michael Nelson and Thomas
Murphy joined the board. The resulting composition of the board,
as of September 30, 2000, includes James Piccolo, Chairman; James
Solomon, Managing Director; Michael Nelson, Director; Thomas
Murphy, Director; Thomas Dennis, Director and Thomas Vergith,
Director.
Item 6. Exhibits and Reports on Form 8-k
I. Consolidated Financial Statements:
The Company's condensed Consolidated Financial Statements
for the quarter ending September 30, 2000 as attached and
incorporated.
II. List of Exhibits:
Exhibit Number Description
Exhibit 3(a) Restated Articles of Incorporation
of the Company incorporated by reference to the Company's Form 10-
KSB for the fiscal year ended June 30, 2000.
Exhibit 3(b) Certificate of Amendment to the
Company's Articles of Incorporation incorporated by reference to
the Company's Form 10-KSB/A for the fiscal year ended June 30,
1998 and filed October 23, 1998.
<PAGE>
Exhibit 3(c) Bylaws of the Company, incorporated
by reference to the Company's Form 10-KSB for the fiscal year
ended June 30, 1998.
Exhibit 10(a) Private Offering Memorandum for
Travel Dynamics, Inc. of up to 1,200,000 units (each unit
consisting of 1 share of common stock, $.001 par value and 1
warrant) incorporated by reference to the Company's Form 10-QSB
for the nine-months ended March 31, 2000.
Exhibit 10(b) Private Offering Memorandum for
Travel Dynamics, Inc. of up to 3,000,000 units (each unit
consisting of 1 warrant for one share of common stock and a
commitment fee) in exchange for irrevocable letters of credit.
Exhibit 10(c) Promissory Note by the Company in
favor of Community National Bank of Arizona dated August 25, 2000
for the principal amount of $1,000,000.
III. REPORTS ON FORM 8-K:
The Company has not filed any 8-K report forms during the three
months ended September 30, 2000.
<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.
TRAVEL DYNAMICS, INC.
Date: November 20, 2000 By /S/ James Piccolo
-----------------------------------
James Piccolo
President, Chief Executive Officer
and Director
Date: November 20, 2000 By /S/ Richard Miller
------------------------------------
Richard Miller
Chief Financial Officer, Secretary,
Treasurer
<PAGE>
TRAVEL DYNAMICS, INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
Condensed Consolidated Balance Sheet - September 30, 2000 (Unaudited) F-1
Condensed Consolidated Statements of Operations for the Three
Months Ended September 30, 2000 and 1999 (Unaudited) F-2
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 2000 and 1999 (Unaudited) F-3
Notes to Condensed Consolidated Financial Statements F-4
<PAGE>
TRAVEL DYNAMICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, June 30,
2000 2000
---------- ----------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 39,934 $ 373,697
Other receivables 17,461 26,589
Inventory 236,093 284,584
Prepaid sales commissions and seminar costs 955,579 1,408,509
Other current assets 61,648 61,822
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Total Current Assets 1,310,715 2,155,201
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Property and Equipment
Leasehold improvements 265,704 265,704
Office equipment 395,728 387,883
Software for internal use 160,396 159,296
Website in process 347,800 323,650
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Total property and equipment 1,169,628 1,136,533
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Less accumulated depreciation (176,189) (137,296)
Net Property and Equipment 993,439 999,237
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Other Assets
Trademarks, net of $1,841 and $1,578
accumulated amortization 3,418 3,681
Marketing master database, net of $49,024
and $43,132 accumulated amortization 68,633 74,516
Video production costs, net of $19,115
and $9,330 accumulated amortization 59,229 69,014
Investments in certificates of deposit 82,554 80,000
Other long-term assets 88,588 88,988
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Total Other Assets 302,422 316,199
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Total Assets $2,606,576 $3,470,637
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Trade accounts payable $ 787,542 $ 755,794
Accrued liabilities 489,337 343,381
Deferred sales revenues 1,678,846 2,227,515
Notes payable - related party 250,000 100,000
Line of credit 99,536 -
Deferred lease incentive - current portion 40,454 40,454
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Total Current Liabilities 3,345,715 3,467,144
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Long Term Liabilities
Convertible notes payable 517,728 587,728
Deferred lease incentive - long-term portion 117,990 128,103
---------- ----------
Total Long Term Liabilities 635,718 715,831
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Stockholders' Deficit
Common stock -$0.001 par value; 50,000,000
shares authorized; 5,911,080 and 5,790,080
shares issued and outstanding 5,911 5,790
Additional paid-in capital 1,676,764 1,601,285
Unearned compensation - (9,769)
Accumulated deficit (3,057,532) (2,309,644)
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Total Stockholders' Deficit (1,374,857) (712,338)
---------- ----------
Total Liabilities and Stockholders' Deficit $2,606,576 $3,470,637
========== ==========
See the accompanying notes to condensed consolidated financial statements.
F-1
<PAGE>
TRAVEL DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months
Ended September 30,
2000 1999
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Sales $ 2,013,825 $ 1,417,485
Cost of Sales 1,710,919 580,733
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Gross Profit 302,906 836,752
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Expenses
Selling, general and administrative expense 1,029,560 740,658
Interest expense 21,234 81,206
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Total Expenses 1,050,794 821,864
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Net Income (Loss) $ (747,888) $ 14,888
=========== ===========
Basic Earnings (Loss) Per Common Share $ (0.13) $ 0.00
=========== ===========
Diluted Earnings (Loss) Per Common Share $ (0.13) $ 0.00
=========== ===========
See the accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
TRAVEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended September 30,
2000 1999
---------- ----------
Cash Flows From Operating Activities
Net income (loss) $ (747,888) $ 14,888
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization 44,710 17,616
Compensation relating to common stock,
options and debentures granted 9,769 13,911
Interest expense relating to beneficial
conversion feature - 63,250
Changes in operating assets and liabilities:
Other receivables 9,128 (131,560)
Prepaid sales commissions and seminar costs 452,930 (41,075)
Inventory 48,491 27,396
Other current assets 175 (116,350)
Accounts payable 31,748 (88,593)
Accrued liabilities 145,956 123,138
Deferred sales revenue (548,669) (20,838)
---------- ----------
Net Cash and Cash Equivalents Used In
Operating Activities (553,650) (138,217)
---------- ----------
Cash Flows From Investing Activities
Payments to purchase property and equipment
and intangible assets (33,095) (84,292)
Increase in other assets (2,154) -
---------- ----------
Net Cash and Cash Equivalents Used In
Investing Activities (35,249) (84,292)
---------- ----------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 5,600 -
Proceeds from issuance of notes payable - 250,000
Proceeds from related party note payable 150,000 -
Proceeds from line of credit 99,536 -
---------- ----------
Net Cash and Cash Equivalents Provided
By Financing Activities 255,136 250,000
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents (333,763) 27,491
Cash and Cash Equivalents at Beginning of Period 373,697 174,018
---------- ----------
Cash and Cash Equivalents at End of Period $ 39,934 $ 201,509
========== ==========
Supplemental Cash Flow Information
Interest paid $ 22,127 $ 2,721
Non-Cash Investing and Financing Activities
Conversion of notes payable into common stock $ 70,000 $ -
See the accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
TRAVEL DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1- INTERIM FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by Travel
Dynamics, Inc. (the Company) and are unaudited. In the opinion of
management, the accompanying unaudited financial statements contain
all necessary adjustments for fair presentation, consisting of normal
recurring adjustments except as disclosed herein.
The accompanying unaudited interim financial statements have been
condensed pursuant to the rules and regulations of the Securities and
Exchange Commission; therefore, certain information and disclosures
generally included in financial statements have been omitted. These
financial statements should be read in connection with the Company's
annual financial statements included in the Company's annual report on
Form 10-KSB as of June 30, 2000. The financial position and results of
operations of the interim periods presented are not necessarily
indicative of the results to be expected for the year ended June 30,
2001.
NOTE 2 - BUSINESS CONDITION
As of September 30, 2000, the Company has negative working capital of
$2,035,000 and a stockholders' deficit of $1,374,857. The Company also
experienced a net loss of $747,888 for the three months ended
September 30, 2000. As a result of these conditions, the Company may
be unable to sustain operations or meet its obligations. The Company
needs to obtain additional financing to fund payment of its
obligations and to provide working capital. Management has been able
to raise additional financing through a line of credit loan from a
bank to the extent that collateral is deposited by potential investors
as explained further in Note 7. As of September 30, 2000, the Company
received collateral deposits from investors of $100,000 and additional
subscriptions from investors for $150,000. Subsequent to September
30, 2000, the Company received additional deposits from investors of
$550,000. In addition, Management plans to obtain subscriptions for an
additional $200,000 from investors. As a result of collateral deposits
received, the Company borrowed $99,536 under the line of credit loan,
as of September 30, 2000. Management's plans also include improving
the profitability of its operations. The improvement of the Company's
financial condition is ultimately based upon obtaining profitable
operations. There is no assurance the additional financing or
profitable operations will be realized.
NOTE 3 - COMMON STOCK
During the three months ended September 30, 2000 and 1999,
respectively, $70,000 and $20,000 of convertible debentures were
converted into 70,000 and 20,000 shares of common stock respectively,
at the exercise price of $1.00 per share for a total of $70,000 and
$20,000, respectively. During the three months ended September 30,
2000, 41,000 shares of common stock were issued from the exercise of
stock options at $0.10 per share. Total proceeds received was $4,100.
NOTE 4 - BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
The following data shows the amounts used in computing earnings per
share for the three months ended September 30, 2000 and 1999 and the
effect on income and weighted average number of shares of dilutive
potential common stock:
F-4
<PAGE>
For the Three Months Ended
September 30,
----------------------
2000 1999
---------- ----------
Net income (loss) used in basic earnings per $ 747,888 $ 14,888
========== ==========
Weighted average number of common shares
used in basic earnings per shares 5,866,884 4,342,080
Incremental shares from assumed conversion
of stock options - 1,034,256
---------- ----------
Weighted average number of common shares and
dilutive potential common shares used in
dilutive earnings per share 5,866,884 5,376,336
========== ==========
The weighted average number of common shares used in the computation
for basic and diluted loss per share for the three months ended
September 30, 2000 does not include options of 2,040,000, assumed
conversion 517,728 convertible debentures, and warrants of 1,003,500
shares of common stock because their effects would be antidilutive.
The incremental shares from assumed conversion of 10% convertible
debentures into 677,722 common shares have not been included in the
weighted average number of common shares and dilutive potential
common shares for the three months ended September 30, 1999 as they
were antidilutive.
NOTE 5 - STOCK OPTIONS
In August 2000, the Company granted options to purchase 45,000 shares
of common stock to an employee. These options had an exercise price of
$0.813, which was equal to the fair value of the Company's common
stock on the date of issuance. These options vest through August 2003.
In August 2000, the Company granted options to purchase 300,000 shares
of common stock to three directors. These options had an exercise
price of $0.875, which was equal to the fair value of the Company's
common stock on the date of issuance. These options vest through
August 2003.
During the three months ended September 30, 2000, 51,000 in stock
options were exercised (10,000 from an employee, 25,000 from a board
member, and 16,000 from a consulting firm). Total proceeds received
was $5,600. The weighted average exercise price of the options
exercised was $0.11.
After taking into effect the above option issuances, the Company has
2,040,000 options outstanding.
NOTE 6 - LINE OF CREDIT AND PRIVATE PLACEMENT
Line of Credit Loan - In August 2000, the Company entered into a
$1,000,000 line of credit loan from a bank. Under the terms of the
line of credit facility, the Company may borrow amounts equal to the
amount of collateral provided through either letters of credit or
deposits made by third party investors with the bank. The collateral
is being provided through a private placement offering of warrants as
explained below. The line of credit bears interest at the bank's prime
interest rate plus 1%. The outstanding balance under the line of
credit loan is due on August 15, 2001. Upon exercise of the warrants
by the investors, the line of credit loan is reduced by the amount
received from the exercise of the warrants. Upon exercise of the
warrants, the letter of credit will be released as collateral on the
loan. The outstanding balance of the line of credit loan may not
exceed the aggregate amount of the collateral held by the bank. In
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the event of default by the Company, the bank has the right to apply
the amount of the collateral against the loan. As of September 30,
2000, $99,536 had been borrowed under the line of credit facility.
Private Placement Offering -- In August 2000, the Company started a
private placement offering of warrants to purchase common stock to
investors. Under the terms of the offering, the Company will issue up
to 3,000,000 warrants in units of 100,000 warrants to purchase 100,000
shares of common stock at $0.50 per share for a period through August
15, 2001, in exchange for the investor providing either a letter of
credit or a deposit for $50,000 to a bank under the line of credit
facility explained above. In the event of default by the Company, the
bank has the right to apply the collateral against the loan as
explained above. In the event of default, the investor's only
recourse against the Company will be to exercise the warrants in the
amount of the letter of credit according to the terms of the warrants.
The investor may exercise its warrants by either a cash payment to the
Company for the exercise price or in exchange for the amounts drawn on
and paid by the investor under its letter of credit. The offering
expires November 30, 2000. As of September 30, 2000, the Company had
sold 200,000 units and had received letters of credit for $100,000
with $99,536 applied to the line of credit at the bank.
NOTE 7 - SUBSEQUENT EVENTS
Issuance of Stock - During the quarter ended September 30, 2000, the
Company entered into an agreement with an outside third party for the
development of graphics and animation portions of website development.
The terms of this agreement provide compensation comprising of an
initial deposit of $24,500, the issuance of 60,000 shares of
restricted common stock valued at $0.50 per share, and the balance
payable in cash based upon project completion deadlines. The shares
of restricted stock were issued subsequent to September 30, 2000.
Stock Options Issued - Subsequent to September 30, 2000, a director
joined the Company and was granted 100,000 stock options. These
options vest as follows: 25,000 vest immediately and 25,000 vest each
year on the anniversary date of the director joining the Company. The
options are exercisable at $1.00 per share, the fair market value of
the Company's common stock on the date of grant.
Related Party Notes Payable - Subsequent to September 30, 2000,
$50,000 of related party notes payable were converted to the private
placement offering associated with the line of credit loan discussed
in Note 7.
Anticipated Acquisition - The Company's acquisition of Columbus
Companies, Inc. is anticipated to be completed on November 2000. The
terms of this acquisition provide for the Company to acquire all the
issued and outstanding shares of Columbus Companies, Inc., as a wholly-
owned subsidiary, currently held by the shareholders, solely in
exchange for 750,000 voting shares of the common stock of the Company,
par value $0.001 per share.
Line of Credit Loan and Private Placement Offering - Subsequent to
September 30, 2000, an additional 1,400,000 units had been sold in
connection with the private placement offering started in August 2000,
resulting in $700,000 in additional letters of credit. As of November
14, 2000, the Company had sold 1,600,000 units and had received
letters of credit for $800,000 for collateral on the line of credit.
As of November 14, 2000, the Company had borrowed $275,000 under the
line of credit facility.
Note Payable - In October 2000, the Company entered into a promissory
note with an unrelated third party. The note is for $150,000 with
annual interest at 18% with principal and interest payable at the end
of the twenty-four month term.
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