SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: September 17, 1999
(Date of earliest event reported)
ETRAVNET.COM, INC.
(Exact name of registrant as specified in its charter)
New York 0-18412 11-2602120
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
560 Sylvan Avenue, Englewood Cliffs, New Jersey 07632
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (201) 567-8500
--------------
Playorena, Inc. - 150 Vanderbilt Motor Parkway, Suite 311, Hauppauge,
New York 11788
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition or Disposition of Assets
(a) On September 17, 1999 Playorena, Inc. ("Playorena") acquired the
outstanding capital stock of Global Travel Network, LLC ("Global Travel") in
exchange for 5,225,781 shares of Playorena's common stock, representing 94.5% of
the issued and outstanding common stock of Playorena upon completion of the
merger. Prior to the acquisition, Playorena's shareholders approved a reverse
stock split in which each share of Playorena common stock was exchanged for
0.027533 of a share of Etravnet.com, Inc.'s common stock, effective September
29, 1999.
(b) Prior to the merger, Playorena operated as a public shell seeking the
acquisition of, or merger with, an existing company. In business since 1982,
Global Travel, through its Global Travel Network franchise business, now has
over 350 locations throughout the United States, including over 50 franchised
travel agencies located within Wal-Mart Supercenters nationwide and over 50
international franchised agencies and master franchisees representing 21
countries and the Caribbean.
Item 7: Financial Statements, Pro Forma Financial Information and Exhibits
(a) (i) Financial Statements of Businesses Acquired. The financial
statements of Global Travel Network, L.L.C. are attached hereto.
(ii) Pro Forma Financial Information. The required pro forma financial
information is attached hereto.
Signatures
-----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ETRAVNET.COM, INC.
/s/ Michael Y. Brent
------------------------------------
Michael Y. Brent, President
Dated: October 27, 1999
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
FINANCIAL STATEMENTS
AND
AUDITORS' REPORT
YEARS ENDED DECEMBER 31, 1998 AND 1997
<PAGE>
CONTENTS
Page
----
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Income 3
Statements of Shareholders' and Members' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Members of
Global Travel Network, L.L.C.
(A Majority-Owned Subsidiary of Travel Network, Ltd.)
We have audited the accompanying balance sheet of Global Travel Network, L.L.C.
(a majority-owned subsidiary of Travel Network, Ltd.) as of December 31, 1998,
and the related statements of income, shareholders' and members' equity, and
cash flows for the years then ended December 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Global Travel Network, L.L.C.
as of December 31, 1998, and the results of its operations and its cash flows
for the years ended December 31, 1998 and 1997, in conformity with generally
accepted accounting principles.
As more fully described in Note 8, subsequent to the issuance of the Company's
1998 and 1997 financial statements and our report thereon dated March 8, 1999,
we became aware that those financial statements erroneously reported certain
travel agency revenues and related costs. In our original report we expressed an
unqualified opinion on the 1998 and 1997 financial statements, and our opinion
on the revised statements, as expressed herein, remains unqualified.
Valley Stream, New York
March 8, 1999, except for Note 8,
as to which the date is October 7, 1999
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 109,557
Short-term investments (Note 1) 944,176
Notes receivable (Notes 1 and 8) 108,892
Accounts receivable, less allowance for doubtful
accounts of $17,955 in 1998 and $18,355
in 1997 433,498
Prepaid expenses and other current assets 3,731
---------
Total Current Assets $1,599,854
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $22,132 (Notes 1 and 2) 53,649
OTHER ASSETS
Notes receivable, less current portion (Notes 1 and 8) 569,592
Security deposits 56,750
Investment in and advances to affiliate (Note 4) 5,531
---------
Total Other Assets 631,873
----------
TOTAL ASSETS $2,285,376
==========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 137,682
Deferred revenue (Notes 1 and 8) 108,892
---------
Total Current Liabilities $ 246,574
OTHER LIABILITIES
Deferred revenue(Notes 1 and 8) 569,592
Security deposits 120,583
---------
Total Other Liabilities 690,175
---------
Total Liabilities 936,749
COMMITMENTS AND CONTINGENCIES (Note 5)
MEMBERS' EQUITY (Notes 1 and 6) 1,348,627
----------
TOTAL LIABILITIES AND MEMBERS' EQUITY $2,285,376
==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues (Note 1)
Franchise fees $ 955,319 $ 866,474
Franchisee service fees and other 1,260,542 1,028,704
Travel agency revenues (Note 8) 2,186,592 1,296,462
Advertising fees 104,181 114,062
---------- ----------
Total Revenues 4,506,634 3,305,702
---------- ----------
Operating Expenses
Cost of travel agency revenues (Note 8) 2,023,218 1,187,529
Marketing and selling 1,331,294 1,245,135
General and administrative 1,049,250 752,340
---------- ----------
Total operating expenses 4,403,762 3,185,004
---------- ----------
Income before other income and income taxes 102,872 120,698
Other Income -Interest 72,191 61,637
---------- ----------
Income before state income taxes 175,063 182,335
State income taxes (Note 1) - 5,000
---------- ----------
Net income $ 175,063 $ 177,335
========== ==========
Pro forma Information (Unaudited) (Note 7)
Historical income before income taxes $ 175,063 $ 182,335
---------- ----------
Provision for Income Taxes
Historical - 5,000
Adjustment to recognize income taxes as
if company had been a "C" corporation 74,200 75,000
---------- ----------
Pro forma tax provision 74,200 80,000
---------- ----------
Pro forma net income $ 100,863 $ 102,335
========== ==========
Earnings Per Share:
Weighted average common shares outstanding 4,931,946 4,931,964
========== ==========
Basic earnings per share $ .02 $ .02
========== ==========
Weighed average common shares outstanding
assuming exercise of warrants 5,063,379 5,063,379
========== ==========
Diluted earnings per share $ .02 $ .02
========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
STATEMENTS OF SHAREHOLDERS' AND MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained Members'
Shares Amount Capital Earnings Equity Total
------ ------ ------------ -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 100 $ 1 $ 174,999 $ 670,012 $ - $ 845,012
Net income - - - 177,335 - 177,335
Distributions - - - (96,283) - (96,283)
---- ------- ----------- --------- ----------- ----------
Balance - December 31, 1997 100 1 174,999 751,064 - 926,064
Net loss for the three months
ended March 31, 1998 - - - (17,460) - (17,460)
Distributions - - - (608,000) - (608,000)
---- ------- ----------- --------- ---------- ----------
Balance - March 31, 1998 100 1 174,999 125,604 - 300,604
Recapitalization (Note 1) (100) (1) (174,999) (125,604) 300,604 -
Net proceeds from private
placement (Note 1) - - - - 855,500 855,500
Net income for nine months
ended December 31, 1998 - - - - 192,523 192,523
---- ------- ----------- --------- ----------- ----------
Balance - December 31, 1998 - $ - $ - $ - $1,348,627 $1,348,627
==== ======= =========== ========= =========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 175,063 $ 177,335
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of affiliate (793) -
Depreciation 8,263 2,660
Changes in assets and liabilities:
Accounts receivable (162,650) 55,965
Notes receivable (434,395) 212,299
Prepaid expenses and other
current assets 19,140 (20,495)
Security deposits (21,997) (18,539)
Accounts payable and accrued expenses (79,117) 120,829
Deferred revenue 434,395 (212,299)
Income taxes payable - (3,300)
Other liabilities 56,160 45,120
--------- ---------
Total adjustments (180,994) 182,240
--------- ---------
Net cash provided (used) by operating activities (5,931) 359,575
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net advances to affiliate (4,738) -
Purchase of furniture and fixtures (48,667) (14,073)
Acquisition of short-term investments (90,918) (556,774)
--------- ---------
Net cash used by investing activities (144,323) (570,847)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders (608,000) (96,283)
Net proceeds from private placement 855,500 -
--------- ---------
Net cash provided (used) by financing activities 247,500 (96,283)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 97,246 (307,555)
CASH AND CASH EQUIVALENTS - beginning 12,311 319,866
--------- ---------
CASH AND CASH EQUIVALENTS - end $ 109,557 $ 12,311
========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REORGANIZATION
In January, 1998, Global Travel Network, L.L.C. (the "Company") was formed
as a Delaware limited liability company. During January through March 1998,
the Company sold 998,000 membership units, approximating a 20% membership
interest, in a private placement for net proceeds of $855,000.
On April 1, 1998, the Company acquired the operating assets and assumed the
operating liabilities of Travel Network, Ltd. ("Travel Network") in
exchange for approximately an 80% membership interest in the Company.
Travel Network's equity accounts were recharacterized as members' equity.
Prior to its acquisition by the Company, during November and December 1997,
a one-third shareholder of Travel Network acquired the remaining two-thirds
shareholder interests for an amount slightly in excess of their book value
at December 31, 1997. For financial reporting purposes, the Company is
considered to be a continuation of Travel Network and the private placement
is considered a recapitalization of the Company.
As a limited liability company, its members have limited personal liability
for the obligations or debts of the Company. Only one class of membership
interest exists and Travel Network is the Managing Member. The Company will
terminate December 31, 2028, unless sooner terminated or otherwise
extended. Generally, with the exception of certain "special allocations",
as defined in the L.L.C. Operating Agreement, and subject to partnership
tax regulations, profits and losses of the Company are allocated, and
distributions made, among the members in proportion to the number of units
held by each respective member. The Agreement also requires the Company to
distribute to its members an amount equal to 40% of the previous year's net
operating profits, if any.
The Company is engaged in the business of selling franchises to existing
and start-up travel agency operators to use its systems, methods and
techniques for promoting and performing travel agency services. Franchisees
are charged an initial franchise fee upon the signing of a franchise
agreement. In addition to the initial fee, franchisees are required to
remit monthly service and advertising fees, as defined in the franchise
agreement, to the Company. Franchise agreements are typically for
fifteen-year terms and are renewable for additional ten-year terms.
The Company offers a "Regional President" (area franchise), as defined.
Franchisees are charged an initial fee upon the signing of a franchise
agreement. In consideration for soliciting, screening, evaluating and
introducing prospective franchisees to the Company, as well as undertaking
certain franchisor responsibilities, the area franchisee receives from 50%
to 66-2/3% of the initial franchise fee, service fees and other revenues,
as defined, for new franchises granted. Such franchise agreements are
typically for a ten-year term and are renewable for one additional ten-year
term.
The Company is also engaged in the wholesale business, providing product
and services to its franchisees which it obtains from tour operators and
cruise lines.
Currently, the Company has 419 franchises operating in 41 U.S. states.
Additionally, there are franchises in 21 countries.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION OF INCOME
Franchise Fees
Initial franchise fees due upon execution of a franchise agreement are
recorded as notes receivable and deferred revenue. Deferred revenue is
recognized as income when all material services and conditions required of
the Company, prior to the opening of the franchised business, have been
performed and substantial doubts of collectibility have been eliminated,
usually upon receipt of payment (See Note 8).
Travel Agency Revenue
Revenues earned from the sales of travel products and services, where the
travel provider is the credit card merchant of record, are recognized
generally upon receipt and are recorded at the commission amount (See Note
8). Revenues earned from all other sales of travel and related products are
recorded at their aggregate retail value when the sale takes place.
Cancellations have historically not been material.
Other
Advertising, franchise service fees and other revenues are recognized as
they become payable by the franchisee. Other revenue consists primarily of
travel related income from the operation of a retail travel service, and
certain earned commissions.
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through trade receivables and
short-term investments. Credit risk with respect to trade receivables is
minimized due to the Company's large customer base. Short-term investments
are placed in a highly-rated mutual bond fund.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, trade receivables and
payables for which carrying amounts approximate fair value due to the
relatively short maturity of these instruments. The carrying value of the
Company's short-term investments approximates fair value based on quoted
market prices. Management has determined that it would not be practicable
to estimate the fair values of its long-term notes receivable.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with
original maturities, when purchased, of three months or less. Cash and
equivalents included $6,032 of uninsured money market funds at December 31,
1998.
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHORT-TERM INVESTMENTS
Short-term investments consist of a mutual bond fund which is classified as
an "available-for- sale" security. At both December 31, 1998 and 1997, the
carrying values approximated fair value.
INVESTMENT IN AFFILIATE
The Company's 25% investment in an affiliate is accounted for under the
equity method; cost is increased or decreased by the Company's share of
earnings or losses, less distributions and advances.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost. Major expenditures for property
and those which substantially increase useful lives are capitalized.
Maintenance, repairs, and minor renewals are expensed as incurred. When
assets are retired or otherwise disposed of, their costs and related
accumulated depreciation are removed from the accounts and resulting gains
or losses are included in income. Depreciation is provided by the
straight-line method over the estimated useful lives of the assets.
PROFIT SHARING PLAN
In 1997, the Company adopted a defined contribution plan. All employees who
have completed 1,000 hours of service during the plan year may participate.
Contributions are accrued and paid out of the Company's current profits at
the discretion of the Board of Directors of Travel Network. Employees may
make voluntary contributions, subject to statutory limitations. The
Company's contributions for 1998 and 1997 amounted to $37,719 and $26,134,
respectively. A member of the Company is also the trustee of the plan.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising expense
was $89,926 and $151,687 for the years 1998 and 1997, respectively.
INCOME TAXES
Through March 31, 1998, the shareholders of Travel Network Ltd. elected to
treat the Company as a small business corporation ("S" Corporation) for
income tax purposes as provided in the Internal Revenue Code and the
applicable state statutes. As such, the Company's income or loss and
credits are passed through to the shareholders and combined with their
other personal income and deductions to determine taxable income on their
individual tax returns. Accordingly, no federal income taxes were provided.
State income taxes were provided at lower "S" corporate rates.
Federal and state income taxes, for the nine months ended December 31,
1998, have not been provided because the Company's income or loss and
credits are passed through to the members and combined with their other
personal income and deductions to determine taxable income on their
individual income tax returns.
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS
No. 130 establishes new rules for reporting and display of comprehensive
income and its components. Comprehensive income is the same as net income
for 1998. The financial statements for 1997 are not effected by the
adoption of SFAS No. 130.
SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
No. 131). SFAS No. 131 superseded FASB No. 14, "Financial Reporting of
Segments of a Business Enterprise. "SFAS No. 131" establishes standards for
the way that business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. SFAS No. 131 also establishes standards for related disclosure
about products and services, geographic areas, and major customers.
Based on the Company's evaluation of the requirements of SFAS No. 131,
management believes that the Company operates in one business segment, the
franchising of travel products and services agencies.
2. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
estimated useful
life - years
----------------
<S> <C> <C>
Fixtures and store equipment 5-7 $ 75,781
Less: Accumulated depreciation 22,132
---------
Net property and equipment $ 53,649
=========
</TABLE>
The depreciation and amortization expense for 1998 and 1997 was $8,263 and
$2,660, respectively.
3. RELATED PARTY TRANSACTIONS
The Company pays commissions to a company owned by the principal
shareholder of Travel Network, Ltd. The expense totaled approximately
$42,000 and $73,000 for the years ended December 31, 1998 and 1997,
respectively.
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
4. INVESTMENT IN AND ADVANCES TO AFFILIATE
During 1998, the Company acquired a 25% interest in Travel Network On-Line
L.L.C. Summarized financial information (unaudited) for the Company's
investment at December 31, 1998, is set forth below:
<TABLE>
<CAPTION>
Condensed Balance Sheet
<S> <C> <C>
Current Assets $ 135,711
Current Liabilities 4,738
-----------
Members' Equity $ 130,973
===========
Condensed Income Statement
Revenues and Investment Income 305,094
General and Administrative Expenses 301,921
-----------
Net income $ 3,173
===========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under two office leases expiring April 30, 2002,
for minimum annual rentals, currently at $47,470, plus increases based upon
real estate taxes and operating costs.
In addition, the Company has entered into two-year lease agreements with
Wal-Mart Stores, Inc. for forty-one locations. The Company is obligated to
pay approximately $50,200 per month in the aggregate. The Company has also
entered into sub-lease agreements with some of its franchisees at certain
of these Wal-Mart locations with payment terms approximating the Company's
obligation under its lease. The Company may renew the leases for one
three-year and one five-year period.
The following is a summary of rental expense (included in general and
administrative expenses) under all operating leases:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Minimum rentals $ 664,000 $ 272,000
Less: Sublease rentals 535,164 258,023
--------- ---------
$ 128,836 $ 13,977
========= =========
</TABLE>
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Leases (Continued)
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999 $ 618,000
2000 374,000
2001 74,400
2002 9,430
-----------
$ 1,075,830
===========
</TABLE>
The minimum future rentals have not been reduced by approximately
$1,040,000 of sublease rentals to be received in the future under
non-cancelable subleases.
Legal Proceedings
From time to time, the Company may be involved in legal proceedings
incurred in the normal course of business. At December 31, 1998 there were
no proceedings that, in the opinion of management and its counsel, 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 operational 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.
6. SUBSEQUENT EVENTS
Sale of Membership Interest
In March 1999, the Company, with the approval of its members, sold 500,000
units of the Company to Liberty Travel, a major travel agency chain, for
$250,000.
Merger with Playorena, Inc.
The Company, Playorena, Inc. ("Playorena"), an inactive publicly traded
company, and Playorena Acquisition Corp. ("PAC"), a wholly owned subsidiary
of Playorena entered into an Agreement and Plan of Reorganization dated
July 27, 1999, which was amended on September 17, 1999 (the "Merger").
Immediately prior to the Merger, and in connection therewith, the
shareholders of Playorena approved a .027533 for 1 reverse stock split (the
"reverse split"), which resulted in there being 294,694 Playorena common
shares outstanding. The Agreement provided for the conversion of the
Company's membership interest into a total of 5,063,379 Playorena common
shares, including 131,433 common shares reserved for issuance upon exercise
of certain Company stock purchase warrants assumed by Playorena. The stock
purchase warrants are exercisable at $.01 per share and expire in March 31,
2003. In addition, pursuant to the Merger agreements, PAC merged with and
into the Company, with the Company the surviving corporation and a wholly
owned subsidiary of Playorena. Shortly after the completion of the
transaction discussed above, Playorena changed its name to Etravnet.Com,
Inc.
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
7. PRO FORMA INFORMATION (UNAUDITED)
In connection with the transactions discussed in Note 6, the Company will
be subject to federal, state and local income taxes with respect to taxable
income (if any) subsequent to the merger. The pro forma effect of the
change in the Company's income tax status on the historical results of
operations is disclosed in the accompanying statements of income.
The pro forma provision for income taxes reflects federal, state and local
income taxes which would have been required if the Company had operated as
a taxpaying entity in the respective periods.
Additionally, as a result of the transactions discussed in Note 6, the
Company's members will be issued 4,931,946 shares of Playorena common stock
in exchange for their membership interests. After the issuance, these
shareholders will control approximately 94.5% of Playorena's issued and
outstanding common shares. In connection with the merger, certain warrants
enabling the holders to acquire membership interests in the Company that
were originally granted in connection with the Company's capital raising
activities in 1998 and 1999, were exchanged for stock purchase warrants
which provide for the acquisition of an aggregate of 131,433 Playorena
common shares for $.01 per share. The warrants are exercisable until March
31, 2003. For purposes of the proforma information provided in the
accompanying statements of income, these shares and stock purchase warrant
were considered outstanding from January 1, 1997.
8. REVISIONS TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's financial statements,
management became aware that certain revenues earned from the sales of
travel products and services, where the travel provider was the credit card
merchant of record, were erroneously recorded at their aggregate retail
value upon booking and the related aggregate wholesale costs of such sales
and services were charged to income. Such transactions should have been
recorded at the commission amount as travel agency revenues. Accordingly,
both travel agency revenues and operating expenses were reduced by
$2,900,780 for 1998 and $1,062,847 for 1997. In addition, notes receivable
and deferred revenue, recorded in connection with franchise agreements,
were each reduced by $456,670 as of December 31, 1998. The above revisions
had no effect on the previously reported net income for 1998 or 1997.
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1999 1998
---------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 141,637 $ 109,557
Short-term investments 1,163,308 944,176
Notes receivable 79,457 108,892
Accounts receivable, less allowance for doubtful
accounts of $17,955 in 1998 and 1999 491,111 433,498
Prepaid expenses and other current assets 35,190 3,731
---------- ----------
Total Current Assets 1,910,703 1,599,854
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation 47,375 53,649
---------- ----------
OTHER ASSETS
Notes receivable, less current portion 693,341 569,592
Security deposits 62,586 56,750
Investment in and advances to affiliate 5,379 5,531
---------- ----------
Total Other Assets 761,306 631,873
---------- ----------
TOTAL ASSETS $2,719,384 $2,285,376
========== ==========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 91,114 $ 137,682
Deferred revenue 73,410 108,892
---------- ----------
Total Current Liabilities 164,524 246,574
---------- ----------
OTHER LIABILITIES
Deferred revenue 693,341 569,592
Security deposits 125,470 120,583
---------- ----------
Total Other Liabilities 818,811 690,175
---------- ----------
Total Liabilities 983,335 936,749
MEMBERS' EQUITY 1,736,049 1,348,627
---------- ----------
TOTAL LIABILITIES AND MEMBERS' EQUITY $2,719,384 $2,285,376
========== ==========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Operating Revenues
Franchise fees $ 468,651 $ 560,381
Franchisee service fees and other 771,709 670,848
Travel agency revenues 2,099,530 1,020,022
Advertising fees 121,722 51,634
---------- ----------
Total operating revenues 3,461,612 2,302,885
---------- ----------
Operating Expenses:
Cost of travel agency revenues 2,050,223 874,652
Marketing and selling 651,904 632,036
General and administrative 415,703 659,507
Equity in loss of affiliate 5,119 --
---------- ----------
Total operating expenses 3,122,949 2,166,195
---------- ----------
Income before other income and income taxes 338,663 136,690
Other Income
Interest income 33,592 33,556
---------- ----------
Income before income taxes 372,255 170,246
State income taxes -- --
---------- ----------
Net income $ 372,255 $ 170,246
========== ==========
Pro forma Financial Information
Income before income taxes $ 372,255 $ 170,246
Pro forma provision for income taxes 145,000 67,000
---------- ----------
Pro forma net income $ 227,255 $ 103,246
========== ==========
Earnings Per Share:
Weighted average common shares outstanding 4,931,946 4,931,964
========== ==========
Basic earnings per common share $ .05 $ .02
========== ==========
Weighed average common shares outstanding
assuming exercise of warrants 5,063,379 5,063,379
========== ==========
Diluted earnings per share $ .04 $ .02
========== ==========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
STATEMENTS OF SHAREHOLDERS' AND MEMBERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,1999
<TABLE>
<CAPTION>
<S> <C>
Balance - December 31, 1998 $1,348,627
Proceeds from sale of members' interests
net of related costs of $40,000 210,000
Net Income 372,255
Members' Drawings (194,833)
----------
Balance - June 30, 1999 $1,736,049
==========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 372,255 $ 170,246
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in (earnings) loss of affiliate 5,119 --
Depreciation 6,274 2,343
Changes in assets and liabilities:
Accounts receivable (57,613) (181,726)
Notes receivable 196,629 191,300
Advances from affiliate (4,967) --
Prepaid expenses and other
current assets (31,459) 19,551
Security deposits (5,836) 17,710
Accounts payable and accrued expenses (46,568) 133,000
Deferred revenue (202,676) (191,300)
Other liabilities 4,887 --
--------- ---------
Total adjustments (136,210) (9,122)
--------- ---------
Net cash provided by operating activities 236,045 161,124
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and fixtures -- (17,381)
Acquisition of short-term investments (219,132) (213,354)
--------- ---------
Net cash used by investing activities (219,132) (230,735)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders/members (194,833) (608,000)
Net proceeds from private placement/sale of
membership interests 210,000 855,500
--------- ---------
Net cash provided by financing activities 15,167 247,500
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 32,080 177,889
CASH AND CASH EQUIVALENTS - beginning 109,557 12,311
--------- ---------
CASH AND CASH EQUIVALENTS - end $141,637 $190,200
========= =========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(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 Global Travel Network,
L.L.C.'s (the "Company") financial position as of June 30, 1999 and the
results of its operations and cash flows for the six months ended June 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 included elsewhere in this Form 8-K
filing. The results of operations for the six months ended June 30, 1999
are not necessarily indicative of the results to be expected for the full
year.
2. MERGER AGREEMENT
The Company, Playorena, Inc. ("Playorena"), an inactive publicly traded
company, and Playorena Acquisition Corp. ("PAC"), a wholly owned subsidiary
of Playorena entered into an Agreement and Plan of Reorganization dated
July 27, 1999, which was amended on September 17, 1999 (the "Merger").
Immediately prior to the Merger, and in connection therewith, the
shareholders of Playorena approved a .027533 for 1 reverse stock split (the
"reverse split"), which resulted in there being 294,694 Playorena common
shares outstanding. The Agreement provided for the conversion of the
Company's membership interest into a total of 5,063,379 Playorena common
shares, including 131,433 common shares reserved for issuance upon exercise
of certain Company stock purchase warrants assumed by Playorena. The stock
purchase warrants are exercisable at $.01 per share and expire in March 31,
2003. In addition, pursuant to the Merger agreements, PAC merged with and
into the Company, with the Company the surviving corporation and a wholly
owned subsidiary of Playorena. Shortly after the completion of the
transaction discussed above, Playorena changed its name to Etravnet.Com,
Inc.
3. PRO FORMA PROVISION FOR INCOME TAXES
As a result of the merger referred to in Note 2, the Company's operations
will be consolidated with its parent, a "C" corporation. Accordingly,
federal and state income taxes will be due with respect to the Company's
future taxable income. The pro forma provision for income taxes is to
reflect such income taxes as if the Company had been a tax paying entity in
the periods presented.
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The unaudited pro forma combined statement of operations of Etravnet.Com, Inc.
(formerly Playorena, Inc.) ("the Company") for the fiscal year ended December
31, 1998 and the six month period ended June 30, 1999 ("the pro forma statements
of operations") and the unaudited pro forma combined balance sheet of the
Company as of June 30, 1999 (the "pro forma balance sheet" and together with the
pro forma statements of operations, the "pro forma financial statements"), have
been prepared to illustrate the estimated effect of the merger of Playorena,
Inc. with Global Travel Network, L.L.C. ("Global") the recapitalization of the
Company and the issuance of its common shares to effect the transaction.
The pro forma statements of operations give pro forma effect to the merger of
Global and Playorena, and reflect the issuance of 4,850,716 post reverse split
shares of the Company's common shares to the former members of Global and 80,371
shares to the consultant in the transaction. The pro forma statements also give
pro forma effect to Playorena's .027533 for 1 reverse split which had the effect
of reducing the pre-transaction Playorena issued and outstanding shares to
294,694 (the "Recapitalization"), as if such transactions took place on January
1, 1998. Additionally, certain Global warrants enabling the holders thereof to
acquire 150,000 membership units in Global for $.01 per unit were exchanged for
warrants enabling the holders to acquire thereof 132,292 shares of the Company's
common stock for $.01 per share. The pro forma balance sheet gives pro forma
effect to the recapitalization as if it occurred on June 30, 1999. The pro forma
financial statements do not purport to be indicative of the results of
operations or financial position of the Company that would have actually been
obtained had such transactions been completed as of the assumed dates and for
the period presented, or which may be obtained in the future.
The pro forma adjustments are described in the accompanying notes and are based
upon available information and certain assumptions that the Company believes are
reasonable. The pro forma financial statements should be read in conjunction
with the separate historical financial statements of Global Travel Network, Inc.
and Playorena, Inc. and the notes thereto.
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
UNAUDITED PRO FORMA COMBINED
BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
ASSETS
Pro forma
Pro forma Combined
Playorena Global Adjustments Company
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 529 $ 141,637 $ (529) (a) $ 141,637
Short-term investments -- 1,163,308 -- 1,163,308
Notes receivable -- 79,457 -- 79,457
Accounts receivable, net -- 491,111 -- 491,111
Other -- 35,190 -- 35,190
----------- ----------- ----------- -----------
Total Current Assets 529 1,910,703 -- 1,910,703
PROPERTY AND EQUIPMENT, net -- 47,375 -- 47,375
OTHER -- 761,306 -- 761,306
----------- ----------- ----------- -----------
TOTAL ASSETS $ 529 $ 2,719,384 $ (529) $ 2,719,384
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' AND MEMBERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued
expenses $ 236,126 $ 91,114 $ (236,126) (a) $ 91,114
Notes payable 85,000 -- (85,000) (a) --
Due to shareholder 22,400 -- (22,400) (a) --
Liabilities of discontinued operations 66,226 -- (66,226) (a) --
Deferred revenue -- 73,410 73,410
----------- ----------- ----------- -----------
Total Current Liabilities 409,752 164,524 (409,752) 164,524
----------- ----------- ----------- -----------
OTHER LIABILITIES -- 818,811 -- 818,811
----------- ----------- ----------- -----------
SHAREHOLDERS' AND MEMBERS' EQUITY
(DEFICIENCY)
Members' equity -- 1,736,049 (1,736,049) (b) --
Common stock, $.001 par value;
15,000,000 authorized, 9,198,679
shares issued and outstanding 9,199 -- (9,199) (b) --
Additional paid-in capital 5,273,780 -- 409,223 (a) --
(5,683,003) (b)
Accumulated deficit (5,692,202) -- 5,692,202 (b) --
Pro forma common stock, $.001 par
value; 20,000,000 shares authorized;
5,358,073 shares issued and
outstanding for pro forma
combined company -- -- 5,358 (b) 5,358
Additional paid-in capital,
pro forma combined -- -- 1,730,691 (b) 1,730,691
----------- ----------- ----------- -----------
Total Shareholders' and
Members' Equity (Deficiency) (409,223) 1,736,049 409,223 1,736,049
----------- ----------- ----------- -----------
TOTAL LIABILITIES, SHARE-
HOLDERS' AND MEMBERS'
EQUITY (DEFICIENCY) $ 529 $ 2,719,384 $ (529) $ 2,719,384
=========== =========== ===========
<FN>
See notes to unaudited pro forma combined balance sheet.
</FN>
</TABLE>
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Pro forma
Pro forma Combined
Playorena(1) Global Adjustments Company
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $ - $3,461,612 $ - $3,461,612
Operating expenses 26,049 3,117,830 - 3,143,879
Equity in loss of affiliate - 5,119 - 5,119
-------- ---------- ------- ----------
Operating income (loss) (26,049) 338,663 - 312,614
Interest income - (33,592) - (33,592)
Interest expense (4,250) - 4,250 -
-------- ---------- ------- ----------
Income (loss) from continuing
operations before income taxes (30,299) 372,255 4,250 346,206
Pro forma provision for income taxes - (145,000) - (145,000)
-------- ---------- ------- ----------
Income from continuing operations $(30,299) $ 227,255 $ 4,250 $ 201,206
======== ========== ======= ==========
Earnings per share from continuing
operations (c):
Weighted average common shares
outstanding 294,694 4,931,946 - 5,226,640
======== ========== ======= ==========
Basic earnings per share from continuing
operations $ (.10) $ .05 $ - $ .04
======== ========== ======= ==========
Weighted average common shares
outstanding after assumed exercise
of warrants 294,694 5,063,379 - 5,358,073
======== ========== ======= ==========
Adjusted weighted average shares
outstanding diluted earnings per
share from continuing operations $ (.10) $ .04 $ $ .04
======== ========== ======= ==========
<FN>
(1) Playorena's results are for the six months ended May 31, 1999.
See notes to unaudited pro forma combined statement of operations.
</FN>
</TABLE>
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro forma
Pro forma Combined
Playorena(1) Global Adjustments Company
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $ - $4,506,634 $ - $4,506,634
Operating expenses 66,246 4,403,762 - 4,470,008
--------- ---------- -------- ----------
Operating income (loss) (66,246) 102,872 - 36,626
Interest income - 72,191 - 72,191
Interest expense (55,573) - 55,573 (b) -
--------- ---------- -------- ----------
Income from continuing operations
before income taxes (121,819) 175,063 55,573 108,817
Pro forma provision for income taxes - 74,200 (a) - (74,200)
--------- ---------- -------- ----------
Income (loss) from continuing
operations $(121,819) $ 100,863 $ 55,573 $ 34,617
========= ========== ======== =========
Earnings per share from continuing
operations (c):
Weighted average common shares
outstanding 294,694 4,931,946 - 5,226,640
========= ========== ======== =========
Basic earnings per share from continuing
operations $ (.41) $ .02 $ - $ .01
========= ========== ======== =========
Weighted average common shares
outstanding after assumed exercise
of warrants 294,694 5,063,379 - 5,358,073
========= ========== ======== =========
Diluted earnings per share from
continuing operations $ (.41) $ .02 $ $ .01
========= ========== ======== =========
<FN>
(1) Playorena's results are for the year ended November 30, 1998.
See notes to unaudited pro forma combined statement of operations.
</FN>
</TABLE>
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
NOTES TO THE UNAUDITED PRO FORMA COMBINED
STATEMENTS OF OPERATIONS
(a) Global has since April 1, 1998 operated as a limited liability company. As
such, its income or loss and tax credits are passed through to the
shareholders of the Company and any income tax obligations related thereto
are the responsibility of such shareholders. From its inception through
March 31, 1998, Travel (predecessor to Global) was treated as a small
business corporation ("S" Corporation) for federal income tax purposes.
Accordingly, for each of the periods presented in the pro forma statements
of operations, the historical amounts do not reflect any income tax
provision for federal income tax purposes with respect to Global's (or its
predecessor's) results of operations. For pro forma purposes, the provision
for income taxes represents the estimated federal and local income taxes
which would have been payable had the companies operated as tax paying
entities in the periods presented.
(b) Playorena's historical financial statements reflect interest expense. The
interest was incurred with respect to both (i) debt which was outstanding
for a portion of the year ended November 30, 1998 and which was forgiven
during that year and (ii) debt outstanding during the year and still
outstanding as of period end which is the subject of an indemnity agreement
by and between certain shareholders and the Company. For pro forma
purposes, all of such interest expense has been eliminated as it is not
expected to be a continuing expense of the Company.
(c) Basic earnings per share have been calculated based on the number of pro
forma shares issued and outstanding as a result of the merger and
recapitalization transactions if such shares had been issued and
outstanding for all periods presented. Diluted per share amounts reflect
the effect of all dilutive securities as if they had been outstanding for
all periods presented.
(d) The pro forma statement of operations does not reflect a charge to
operations representing the fair value of the common shares issued to the
consultant to the Merger. Based upon the estimated agreed-upon fair value
of the Merged entities as of the transaction date, it is estimated that the
charge will be approximately $245,000.
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
NOTES TO THE UNAUDITED PRO FORMA COMBINED
BALANCE SHEET
JUNE 30, 1999
(a) In connection with the merger of Global Travel Network, L.L.C. and
Playorena, certain significant Playorena shareholders have agreed to assume
all remaining liabilities of Playorena existing prior to the merger.
Accordingly, for pro forma purposes, the historical balance sheet has been
adjusted to remove all remaining Playorena liabilities and cash with a
corresponding credit to paid-in capital.
(b) The adjustments to the historical capitalization of the companies as a
result of the agreement and plan of reorganization is as follows:
<TABLE>
<S> <C>
Common Stock
Playorena $ (9,199)
Etravnet 5,358
Paid-In Capital
Playorena (5,273,780)
Etravnet 1,730,691
Members' Equity
Etravnet (1,736,049)
Retained Earnings
Playorena 5,692,202
</TABLE>
