UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _______________ to ______________
Commission File Number: 0-18412
ETRAVNET.COM, INC.
(Exact name of registrant as specified in its charter)
New York 11-2602120
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
560 Sylvan Avenue, Englewood Cliffs, New Jersey 07632
(Address of principal executive offices)
(201) 567-8500
(Registrant's telephone number, including area code)
Playorena, Inc., 150 Vanderbilt Motor Parkway,
Suite 311, Hauppauge, New York 11788
(Former name, former address and former fiscal year, if changed since last
report)
Number of Shares Outstanding of Common Stock,
$.001 Par Value, at November 12, 1999 5,225,781
---------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
SEPTEMBER 30, 1999
INDEX
Page
----
PART I FINANCIAL INFORMATION (unaudited)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet 1
Statements of Operations 2
Statement of Stockholders' Equity 3
Statements of Cash Flows 4
Notes to Financial Statements 5-6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 7-9
PART II OTHER INFORMATION 10
SIGNATURE PAGE 11
<PAGE>
PART I. Financial Information
ITEM 1. Financial Statements
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 44,252 $ 109,557
Short-term investments 1,246,297 944,176
Accounts receivable, less allowance for doubtful
accounts of $17,955 425,533 433,498
Prepaid expenses and other current assets 161,693 112,623
----------- ------------
Total Current Assets 1,877,775 1,599,854
----------- ------------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation 47,919 53,649
----------- ------------
OTHER ASSETS
Notes receivable, less current portion 634,751 569,592
Security deposits 57,207 56,750
Investment in and advances to affiliate 5,379 5,531
----------- ------------
Total Other Assets 697,337 631,873
----------- ------------
TOTAL ASSETS $ 2,623,031 $ 2,285,376
=========== ============
LIABILITIES AND SHAREHOLDERS' AND MEMBERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 152,898 $ 137,682
Deferred revenue 79,457 108,892
----------- ------------
Total Current Liabilities 232,355 246,574
----------- ------------
OTHER LIABILITIES
Deferred revenue 629,941 569,592
Security deposits 139,357 120,583
----------- ------------
Total Other Liabilities 769,298 690,175
----------- ------------
Total Liabilities 1,001,653 936,749
----------- ------------
SHAREHOLDERS' AND MEMBERS' EQUITY
Common stock, $.001 par value; 20,000,000 shares
authorized; 5,225,781 shares issued and outstanding 5,226 -
Additional paid-in capital 1,616,152 -
Retained earnings (deficit) - -
Members' equity - 1,348,627
----------- ------------
Total Shareholders' Equity 1,621,378 1,348,627
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' AND
MEMBERS' EQUITY $2,623,031 $2,285,376
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
-1-
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Franchise fees $ 4,462 $ 172,021 $ 473,113 $ 732,402
Franchisee service fees and other 371,828 389,477 1,143,537 1,060,325
Travel agency revenues 818,444 626,908 2,917,974 1,646,930
Advertising fees 75,400 26,200 197,122 77,834
---------- ------------ ------------ ------------
Total Revenues 1,270,134 1,214,606 4,731,746 3,517,491
---------- ------------ ------------ ------------
Operating Expenses
Cost of travel agency revenues 835,540 698,866 2,885,763 1,573,518
Marketing and selling 277,303 289,497 929,207 921,533
General and administrative 296,521 247,576 712,224 907,083
Equity in loss of affiliate - - 5,119 -
Merger related expenses 241,000 - 241,000 -
---------- ------------ ------------ ------------
Total operating expenses 1,650,364 1,235,939 4,773,313 3,402,134
---------- ------------ ------------ ------------
Income (loss) from operations (380,230) (21,333) (41,567) 115,357
Interest income 24,562 17,766 58,151 51,322
---------- ------------ ------------ ------------
Income (loss) before income
taxes (355,668) (3,567) 16,584 166,679
Provision for income taxes - - - -
---------- ------------ ------------ ------------
Net income (loss) $ (355,668) $ (3,567) $ 16,584 $ 166,679
========== ============ ============ ============
Pro forma Information
Historical income (loss) before
income taxes $ (355,668) $ (3,567) $ 16,584 $ 166,679
Provision for Income Taxes
Adjustment to recognize income
taxes as if company had
been a "C" corporation - - 6,600 66,700
---------- ------------ ------------ ------------
Pro forma net income (loss) $ (355,668) $ (3,567) $ 9,984 $ 99,979
========== ============ ============ ============
Earnings (loss) Per Share:
Weighted average common
shares outstanding 5,225,781 3,609,930 5,078,789 3,609,930
========== ============ ============ ============
Basic earning (loss) per share $ (.07) $ - $ - $ .03
========== ============ ============ ============
Weighted average common shares
outstanding assuming exercise
of warrants 5,225,781 3,609,930 5,196,382 3,609,930
========== ============ ============ ============
Diluted earnings (loss) per share $ (.07) $ - $ - $ .03
========== ============ ============ ============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
-2-
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Global Travel
Etravnet.Com, Inc. Network L.L.C.
----------------------------------------- --------------
Additional
Common Stock Paid-In Retained Members'
Shares Amount Capital Earnings Equity Total
------ ------ ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 - $ - $ - $ - $1,348,630 $1,348,630
Capital contribution by member net of related
costs of $40,000 - - - - 210,000 210,000
Net earnings of Global Travel Network, L.L.C.
through September 17, 1999 - - - - 16,584 16,584
Distributions to managing member - - - - (194,836) (194,836)
Merger of Global Travel Network, L.L.C. with
Etravnet.Com, Inc. on September 17, 1999 5,225,781 5,226 1,375,152 - (1,380,378) -
Issuance of finders shares in connection with merger - - 241,000 - - 241,000
Net earnings of Etravnet.Com, Inc. from
September 18, 1999 through
September 30, 1999
---------- ------ ---------- ---------- -------- ----------
$5,225,781 $5,226 $1,616,152 $ - $ - $1,621,378
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
-3-
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,584 $ 166,679
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in loss of affiliate 155 -
Merger expenses paid in shares of common stock 241,000 -
Depreciation 9,411 2,343
Changes in assets and liabilities:
Accounts receivable 7,965 (220,196)
Notes receivable (35,724) 173,751
Prepaid expenses and other
current assets (78,505) 17,913
Security deposits (457) (17,429)
Accounts payable and accrued expenses 15,216 (29,609)
Deferred revenue 30,914 (172,202)
Other liabilities 18,774 40,694
---------- ----------
Total adjustments 208,749 (204,735)
---------- ----------
Net cash provided (used) by operating activities 225,333 (38,056)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and fixtures (3,681) (25,361)
Acquisition of short-term investments (302,121) (174,806)
---------- ----------
Net cash provided (used) by investing activities (305,802) (200,167)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholder (194,836) (608,000)
Net proceeds from private placements 210,000 855,500
---------- ----------
Net cash provided by financing activities 15,164 247,500
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (65,305) 9,277
CASH AND CASH EQUIVALENTS - beginning 109,557 12,311
---------- ----------
CASH AND CASH EQUIVALENTS - end $ 44,252 $ 21,588
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
-4-
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the Company's financial
position as of September 30, 1999 and the results of its operations and
cash flows for the nine months ended September 30, 1999 and 1998. These
statements are condensed and therefore do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The statements should be read
in conjunction with financial statements and footnotes included in the
Company's financial statements and footnotes as of December 31, 1998 and
for the year then ended previously filed with the Securities and Exchange
Commission. The results of operations for the nine months ended September
30, 1999 are not necessarily indicative of the results to be expected for
the full year.
The financial statements included in this filing are those of Global Travel
Network, L.L.C. ("Global") and do not include the results of Playorena's
operations for the nine months ended August 31, 1999. During that nine
month period, Playorena reported no revenues and a net loss of
approximately $70,000. Through September 17, 1999, Plaoyorena conducted no
significant operations.
2. MERGER WITH GLOBAL TRAVEL NETWORK, L.L.C.
The Company has completed its Agreement and Plan of Reorganization dated
July 27, 1999, which was amended on September 17, 1999 (the "Merger") with
Global. The Agreement provided for the conversion of the Global's
membership interests into a total of 5,063,379 of the Company's common
shares, including 132,292 common shares reserved for issuance upon exercise
of certain Company stock purchase warrants for $.01 per share assumed by
the Company and 88,195 common stock per share warrants exercisable at $4.00
per share. In connection with the Merger, Global's financial advisor
received 80,371 common shares. The estimated fair value of such shares,
$241,000, is reflected as a charge to operations in the quarter ended
September 30, 1999. The stock purchase warrants expire in March 31, 2003.
Shortly after the com-pletion of the transaction discussed above, the
Company changed its name from Playorena, Inc. ("Playorena") to
Etravnet.Com, Inc. References to Playorena in this document are to the
company in existence and as it was constituted before the merger.
3. REVERSE STOCK SPLIT
Prior to the transaction described in Note 2, the Company's shareholders
approved a reverse stock split in which each share of the Company's common
stock was exchanged for 2.7533 percent of a share of common stock.
-5-
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
4. CONTINGENCIES
Merger Related Items
As of the date of the Merger, Playorena's recorded liabilities amounted to
$332,218. As of that date, the details of such payables were as set forth
as follows:
<TABLE>
<S> <C>
Notes payable $ 35,000
Due to shareholder 41,300
Liabilities of discontinued operations 66,226
Accrued expenses 189,692
--------
Total liabilities $332,218
========
</TABLE>
In connection with the Merger, certain Playorena shareholders agreed to
indemnify the Company with respect to "losses" incurred with regard to any
of these "payables" (as the term is used in the Indemnification Agreement
dated September 1999) which are "Reflected on the Playorena financial
statements as of May 31, 1999 or incurred subsequently prior to the date of
closing."
The indemnification relates to any claims or other legal actions commenced
to collect any amounts included in the balances set forth above, to the
extent that claim is made by the potential creditor within three years from
the date of the Indemnification Agreement.
For the reasons set forth above, the Company has given no accounting
recognition to these items in its September 30, 1999 financial statements.
Legal Proceedings
The Company is involved in legal proceedings incurred in the normal course
of business. At September 30, 1999, there were no proceedings that, in the
opinion of management would have a material effect on the financial
position of the Company if adversely decided.
Year 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 computer system failures. The Company is
still in the process of identifying and evaluating the risks associated
with its financial and operation systems. The Company is also in the
process of obtaining information from its customers, suppliers and others
as to the status of their exposure to year 2000 problems. The total cost of
compliance and its effect on the Company's future results of operations has
not yet been determined.
5. COMMITMENT.
During September 1999, the Company entered into an consulting agreement
with respect to the development of the Company's website. In connection
therewith the Company will be obligated to pay the consultant in excess of
$1,000,000 over the next twenty-four months for services to be provided.
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
The following discussion is based on an analysis of the Company's results
of operations for the nine and three months ended September 30, 1999 as
compared to the equivalent periods in 1998. The operating results for the
three and nine month periods ended September 30, 1999 are not necessarily
indicative of the results that may be expected for any future period, nor
can they be expected to be indicative of results to be obtained for the
year ending December 31, 1999.
Results of Operations
Three months and nine months ended September 30, 1999 compared to the three
months and nine months ended September 30, 1998
Net revenues
Franchise fees
Franchise fees declined from $172,021 and $732,402 for the three and nine
months ended September 30, 1998 to $4,462 and $473,113 for the three and
nine months ended September 30, 1999. Franchise fees are determined in
large part by the timing of cash receipts on certain area franchise
arrangements. In addition, the Company achieved higher sales of individual
franchises in the 1998 periods.
Franchise service fees
Franchise service and other fees declined from $389,477 for the three
months ended September 30, 1998 to $371,828 for the three months ended
September 30, 1999.
Franchise service and other fees increased from $1,060,325 in the nine
months ended September 30, 1998 to $1,143,537 for the nine months ended
September 30, 1999. The increase in franchise service and other fees
between these periods is attributable to increase in the number of
franchisees.
Travel Agency Revenues
Travel agency revenues increased from $626,908 and $1,646,930 for the three
and nine months ended September 30, 1998, respectively, to $818,444 and
$2,917,974 in the three and nine-month periods ended September 30, 1999,
respectively. The increases in both the three and nine month period ended
September 30, 1999 is primarily attributable to increases of franchisees in
the system.
-7-
<PAGE>
Adverting revenues
Advertising revenues increased from $26,200 and $77,834 for the three and
nine months ended September 30, 1998, respectively, to $75,400 and $197,122
for the three and nine months ended September 30, 1999, respectively. The
increases in such comparisons are attributable to increases of franchisees
in the system.
As a result of the above, total net revenues increased from $1,214,606 and
$3,517,491 for the three and nine month periods ended September 30, 1998,
respectively to $1,270,134 and $4,731,746 for the three and nine month
periods ended September 30, 1999, respectively.
Operating expenses
Cost of travel agency revenues increased from $698,866 and $1,573,518 for
the three and nine month periods ended September 30, 1998, respectively to
$835,540 and $2,885,763 for the three and nine month periods ended
September 30, 1999, respectively. As a percentage of travel agency
revenues, costs for the three and nine month periods ended September 30,
1998 were 111% and 96%, respectively, as compared to 102% and 99% for the
three and nine month periods ended September 30, 1999, respectively. The
travel agency business services the franchisees of the Company, from which
the Company derives substantial revenues.
Marketing and selling expenses declined slightly ($12,194, or 4%) during
the three months ended September 30, 1999 as compared to the three months
ended September 30, 1998, and increased slightly ($7,674, or less than 1%)
for the nine months ended September 30, 1999 as compared to the nine months
ended September 30, 1998.
General and administrative expenses increased from $247,576 in the three
months ended September 30, 1998 to $296,521 for the three months ended
September 30, 1999. The increase is primarily attributable to servicing
more agencies. General and administrative expenses declined from $907,083
for the nine months ended September 30, 1998 to $712,224 for the nine
months ended September 30, 1999, a decline of $$194,859, or approximately
21%.
In connection with the Company's merger into with Global Travel Network,
L.L.C., 80,371 common shares (valued at $3.00 per share) were given to the
Company's financial advisors as partial consideration for their advisory
services. The estimated fair value of the shares, $241,000, is reflected as
a charge to operations in the three months and nine months ended September
30, 1999.
Liquidity and Capital Resources
The Company has updated its accounting software programs to be in
compliance with Y2K specifications.
The Company believes that its main third party vendor providing the company
with e-mail, bulletin boards, and communications with Company's franchisees
and vendors is in compliance with Y2K specifications. The Company does not
expect to incur any additional costs to be in compliance.
-8-
<PAGE>
During September 1999, the Company acquired the rights to certain pending
patents regarding technology that the Company intends to utilize in the
development of a new website. Pursuant to the agreement to acquire the
technology, the Company paid the developer $20,000 and is committed to
payments based on services rendered during the next 24 months that will be
over One Million Dollars.
As of September 30, 1999, the Company cash and short-term investments
totaled approximately $1,290,000. For the nine months ended September 30,
1999, the Company's operations generated cash flow of $225,333. In
addition, in March 1999 the Company completed the sale of 500,000 units
(approximately 444,000 common shares) from which it raised $210,000, net of
$40,000 in related costs. Distributions to the Company's managing member
prior to the merger were approximately $195,000. Purchases of short-term
investments were approximately $302,000 during the nine months ended
September 30, 1999.
Forward Looking Information
Certain statements in this section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect
the Company's future financial position and operating results. The words
"expect," "anticipate," "intend," and "project," and similar words or
expressions are intended to identify forward-looking statements. These
statements speak only as of the date of this report. The statements are
based on current expectations, are inherently uncertain, are subject to
risks, and should be viewed with caution. Actual results and experiences
may differ materially from the forward-looking statements as a result of
many factors, including: changes in economic conditions in the various
markets served by the Company's operations, increased competitive activity,
fluctuation in demand for travel services and other unanticipated events
and conditions. It is not possible to foresee or identify all such factors.
The company makes no commitment to update any forward-looking statement or
to disclose any facts, events, or circumstances after the date hereof that
may affect the accuracy of any forward-looking statement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Management does not believe that there are any material market risk
exposures with respect to derivative or other financial instruments that
are required to be disclosed.
-9-
<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule (for electronic
submission only)
(b) Reports on Form 8-K
(i) Report on Form 8-K dated September 17, 1999, as amended
-10-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ETRAVNET.COM, INC.
By: /s/ Michael Brent
--------------------------
Michael Brent, President
Dated: November 12, 1999
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the quarterly period ending September 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 44,252
<SECURITIES> 1,246,297
<RECEIVABLES> 425,533
<ALLOWANCES> 17,955
<INVENTORY> 0
<CURRENT-ASSETS> 1,877,775
<PP&E> 47,919
<DEPRECIATION> 9,411
<TOTAL-ASSETS> 2,623,031
<CURRENT-LIABILITIES> 232,355
<BONDS> 0
0
0
<COMMON> 5,226
<OTHER-SE> 1,616,152
<TOTAL-LIABILITY-AND-EQUITY> 2,623,031
<SALES> 4,731,746
<TOTAL-REVENUES> 4,731,746
<CGS> 2,885,763
<TOTAL-COSTS> 4,773,313
<OTHER-EXPENSES> (58,151)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,584
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,584
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
