UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2000
[] 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
(State or other jurisdiction of incorporation or organization)
11-2602120
(IRS Employer Identification Number)
560 Sylvan Avenue, Englewood Cliffs, New Jersey 07632
(Address of principal executive offices)
(201) 567-8500
(Registrant's telephone number, including area code)
N/A
(Former name,former address and former fiscal year, if changed since last
report)
Number of Shares Outstanding of Common Stock,
$.001 Par Value, June 30, 2000 5,525,042
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 90days. Yes[X]No[ ].
<PAGE>
ETRAVNET.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(UNAUDITED)
<PAGE>
<TABLE>
ETRAVNET.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
<S> <C> <C>
June 30, December 31,
2000 1999
----------------- -----------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 69,993 $ 19,813
Short-term investments 674,723 1,009,956
Accounts receivable, less allowance for doubtful
accounts of $74,955 380,255 418,461
Prepaid expenses and other current assets 196,857 171,497
------------- -------------
Total Current Assets 1,321,828 1,619,727
------------- -------------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation 58,085 73,085
------------- -------------
OTHER ASSETS
Goodwill, less accumulated amortization 210,510 227,848
Prepaid advertising 2,021,000 -
Notes receivable, less current portion 878,868 703,397
Software license and development costs 1,045,859 888,800
Security deposits and other 68,538 90,439
------------- -------------
Total Other Assets 4,224,775 1,910,484
------------- -------------
TOTAL ASSETS $ 5,604,688 $ 3,603,296
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 433,070 $ 270,986
Deferred revenue 100,000 74,640
------------- -------------
Total Current Liabilities 533,070 345,626
------------- -------------
OTHER LIABILITIES
Deferred revenue 893,521 703,397
Security deposits 139,358 139,358
------------- -------------
Total Other Liabilities 1,032,879 842,755
------------- -------------
Total Liabilities 1,565,949 1,188,381
------------- -------------
SHAREHOLDERS' AND MEMBERS' EQUITY
Preferred stock, par value $.001 per share; authorized
5,000,000 shares, none issued or outstanding - -
Common stock, par value $.001 per share; authorized
20,000,000 shares 5,525,042 and 5,317,753 shares
issued and outstanding at June 30, 2000 and
December 31, 1999, respectively 5,525 5,318
Additional paid-in capital 4,986,252 2,897,459
Accumulated deficit (953,038) (454,602)
Accumulated other comprehensive income (loss) - (33,260)
------------- -------------
Total Shareholders' Equity 4,038,739 2,414,915
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,604,688 $ 3,603,296
============= =============
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
ETRAVNET.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
2000 1999 2000 1999
--------------- --------------- ----------------- ---------------
Revenues
Franchise fees $ 79,316 $ 174,329 $ 120,216 $ 468,651
Service fees and other 334,617 289,238 596,802 496,709
Travel agency revenues 1,084,237 1,447,448 2,018,343 2,374,530
Advertising fees - 100,934 57,471 121,722
------------- ------------- -------------- -------------
Total Revenues 1,498,170 2,011,949 2,792,832 3,461,612
------------- ------------- -------------- -------------
Operating Expenses
Cost of travel agency revenues 943,496 1,008,786 1,792,451 1,892,164
Marketing and selling 273,462 385,340 506,561 595,554
General and administrative 373,451 277,488 969,368 630,112
------------- ------------- -------------- -------------
Total operating expenses 1,590,409 1,671,614 3,268,380 3,117,830
------------- ------------- -------------- -------------
Income (loss) from operations (92,239) 340,335 (475,548) 343,782
Other income (expense), net (37,037) 13,249 (22,888) 28,473
------------- ------------- -------------- -------------
Income (loss) before income
taxes (129,276) 353,584 (498,436) 372,255
Provision for income taxes - (2,312) - -
------------- ------------- -------------- -------------
Net income (loss) (129,276) 355,896 (498,436) 372,255
Other comprehensive income (loss) (2,603) - - -
------------- ------------- -------------- -------------
Comprehensive loss $ (131,879) $ 355,896 $ (498,436) $ 372,255
============= ============= =============== =============
Pro forma Information
Historical income (loss) before
income taxes $ 355,896 $ 372,255
Provision for Income Taxes
Adjustment to recognize income
taxes as if company had
been a "C" corporation 128,200 134,000
------------- -------------
Pro forma net income (loss) $ 5,525,042 $ 238,255
============= =============
Earnings (loss) Per Share:
Weighted average common
shares outstanding 5,525,042 4,413,417 5,490,493 4,413,417
============= ============= ============== =============
Basic and diluted earnings (loss)
per share $ (.02) $ .08 $ (.09) $ .08
============ ============= ============= =============
See accompanying notes to condensed consolidated
financial statements.
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<TABLE>
ETRAVNET.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<S> <C> <C>
2000 1999
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (498,436) $ 372,255
------------- -------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in loss of affiliate - 5,119
Loss on sale of marketable securities 34,716 -
Amortization of stock-based compensation 68,000 -
Depreciation and amortization 32,338 6,274
Changes in assets and liabilities:
Accounts receivable 38,206 (57,613)
Notes receivable (200,831) 196,629
Prepaid expenses and other current assets - (36,426)
Security deposits and other assets 21,901 (5,836)
Accounts payable and accrued expenses 162,084 (46,568)
Deferred revenue 215,484 (202,676)
Other liabilities - 4,887
------------- -------------
Total adjustments 371,898 (136,210)
------------- -------------
Net cash provided (used) by operating activities (126,538) 236,045
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for software license and development costs (157,059) -
Redemption (acquisition) of short-term investments 333,777 (219,132)
------------- -------------
Net cash provided (used) by investing activities 176,718 (219,132)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholder - (194,833)
Net proceeds from private placements - 210,000
------------- -------------
Net cash provided by financing activities - 15,167
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 50,180 32,080
CASH AND CASH EQUIVALENTS - beginning 19,813 109,557
------------- -------------
CASH AND CASH EQUIVALENTS - end $ 69,993 $ 141,637
============= =============
See accompanying notes to condensed consolidated
financial statements.
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<PAGE>
ETRAVNET.COM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX AND THREE MONTHS ENDED JUNE 30, 2000 AND 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 June 30, 2000 and the results of its operations and cash
flows for each of the six and three month periods ended June 30, 2000 and
1999. 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 six and three months ended
June 30, 2000 and 1999 are not necessarily indicative of the results to be
expected for the full year.
2, PREPAID ADVERTISING
In February 2000, the Company purchased approximately $2,021,000 of
advertising time in various markets located through the United States
through the issuance of 207,289 shares of its common stock. These media
placement costs for each specific market are expensed when the
advertisement first appears in the related market. Management estimates
that it will utilize 25% of such advertising during the year ending
December 31, 2000 and the balance during 2001.
3. CONTINGENCIES
Legal Proceeds
In a lawsuit filed in Indiana, on June 21, 1999, JCB Enterprises ("JCB"), a
franchisee of the Company, is seeking money damages in excess of $80,000
for alleged violations of the Indiana Franchise Act and Indiana Deceptive
Franchise Practices Act, for common law fraud, rescission of the Franchise
Agreement between the Company and JCB, as well as a declaratory judgment on
whether a partnership existed between JCB and the Company. JCB recently
filed personal and corporate bankruptcy and JCB's interest in the lawsuit
has been transferred to JCB's bankruptcy trustees who has given a
indication of interest in settling the lawsuit out-of-court. The Company
made an offer to settle this lawsuit for $15,000. This offer was rejected
by JCB's bankruptcy trustee. Nevertheless, the Company intends to
vigorously defend the matter. In addition, the Company is involved in other
legal proceedings incurred in the normal course of business. At June 30,
2000, in the opinion of management, there are no proceedings that would
have a material effect on the financial position of the Company if
adversely decided.
Merger Related Items
In connection with the Company's merger with Playorena on September 17,
1999, Playorena's recorded liabilities amounted to $332,218. The details
are as set forth below:
Notes payable $ 35,000
Due to shareholder 41,300
Liabilities of discontinued operations 66,226
Accrued expenses 189,692
-------------
Total liabilities $ 332,218
=============
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<PAGE>
ETRAVNET.COM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
3. CONTINGENCIES (CONTINUED)
Merger Related Items (Continued)
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 with in three years
from the date of the Agreement.
For the reasons set forth above, the Company has given no accounting
recognition to these items in its financial statements.
Letter of Credit
The Company is contingently liable under a letter of credit in the amount
of $25,000, which expires in September 2000. The letter of credit was
obtained to facilitate processing airfare reservations via customers'
credit cards.
4. INCOME TAXES
As a result of the Company's operating loss during the six months ended
June 30, 2000, no current income taxes are provided. Deferred tax assets
and the related valuation allowance were both increased by approximately
$169,000 during the six months ended June 30, 2000. The Company has net
operating loss carryforwards of approximately $397,000 at December 31,
1999.
5. SEGMENT INFORMATION
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "other" column includes the
merger related charge for issuance of common stock and other corporate
items not specifically allocated to the segments.
<TABLE>
Travel &
Related Internet
Six Months Ended Management Technology
June 30, 2000 Services Programs Other Total
------------------------------- -------------------- -------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 2,792,832 $ - $ - $ 2,792,832
Segment profit (loss) $ (475,548) $ - $ (22,888) $ (498,436)
Total assets $ 1,862,688 $ 3,067,000 $ 675,000 $ -
Capital expenditures $ - $ 157,059 $ - $ 157,059
Depreciation and
amortization $ 32,338 $ - $ - $ 32,338
Interest income $ - $ - $ 11,828 $ 11,828
During the six months ended June 30, 1999, the Company operated in the
travel and related management services segment only.
</TABLE>
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<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Etravnet.com, Inc. (the "Company") is a leading franchisor of traditional
"brick and mortar" travel agencies as well as Internet-based travel-related
services. We are also a full-service provider of discount travel products and
services to the leisure and small business traveler. We operate business under
our trade names "Travel Network," "Global Travel Network" and Travel Network
Vacation Central" as well as web sites Etravnet.com," "HaggleWithUs.com," and
"Rezconnect.com." We offer our customers a reliable source of travel products
and services through our agreements with selected travel providers, including
major airlines, cruise lines, hotels and car rental agencies, as well as
wholesale travel providers. In addition, we offer our customers the ability to
make reservations on over 424 airlines, at more than 35,000 hotels and with most
major car rental companies, cruise lines and tour package operators.
OVERVIEW
Our revenues are predominately comprised of franchise fees and franchise
service fees, commissions paid by travel providers and the retail value of
travel agency related sales. In addition, certain travel suppliers pay
performance-based compensation known as "override commissions" or "overrides."
Commission revenues and gross retail sales net of allowances, for cancellations,
are recognized generally when the related service is booked and paid for.
Overrides are recognized on an accrual basis once the amount has been confirmed
with the travel supplier. Franchise fees are recognized when all material
services and conditions required of the Company have been performed and
collectibility of the franchise fee is relatively assured. We generally defer
recognition of franchise fees until such amounts have been collected from the
franchisee. Franchise service fees are recognized in the accrual basis as
earned.
With respect to travel services, revenues are generated by transactions
with customers who make offers to purchase tickets supplied by participating
sellers. Because we are the merchant record in these transactions, revenue for
these services includes the total amount billed to the customer.
The commission rates paid by travel suppliers, in addition to overrides,
are determined by individual travel suppliers and are subject to change.
Historically, typical standard base commission rates paid by travel suppliers
have been approximately 10% for hotel reservations, 5% to 10% for car rentals
and 10% to 15% for cruises and vacation packages. Based on the past several
years, leisure vendors (including tour operators, cruise lines and hotel and car
packagers) have not reduced their commission levels but, in fact, have offered
us incentive commissions above the standard compensation for our volume
business. We expect that our weighted average commission on online transactions
revenue will increase due to the fact that our leisure bookings are much greater
as a percentage of total sales than airline ticketing -- which offers us lower
commissions. There can be no assurance that travel suppliers will not reduce
commission rates paid to us or eliminate such commissions entirely, which could,
individually or in the aggregate, have a material adverse effect on our
business, operating results and financial condition.
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<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from our consolidated statement of operations to
total revenues, except as indicated:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
REVENUES
Franchise fees 5.3% 8.7% 4.3% 13.5%
Franchise service
Fees and other 22.3 14.4 21.4 14.4
Travel products and services 72.4 71.9 72.3 68.6
Advertising and other - 5.0 2.0 3.5
----- ----- ----- -----
TOTAL REVENUES 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
OPERATING EXPENSES
Cost of travel products and sales 63.0 50.1 64.2 54.7
Marketing and selling 18.3 19.2 18.1 17.2
General and administrative 24.9 13.8 34.7 18.3
---- ---- ---- ----
TOTAL OPERATING EXPENSES 106.2 83.1 117.0 90.1
----- ---- ----- ----
Income (loss) before other
Income and income taxes (6.2) 16.9 (17.0) 9.9
Other (2.5) .7 (.1) .1
----- ----- ------ -----
Income (loss) before income taxes (8.7) 17.6 (17.1) 10.0
Income Taxes - .1 - -
----- ------- ----- -----
Net income (loss) (8.7)% 17.5% (17.1)% 10.0%
====== ===== ======= =====
Comparison of three and six months ended June 30, 2000 ("2000") and 1999
("1999")
REVENUES
Franchise Fees
Franchise fees declined in each 2000 period as compared to the related 1999
periods as a direct result of management's decision in 1999 to focus all of our
resources and funding on development and growth of our Internet presence. In
fiscal year 1999, we reduced our advertising and promotion of franchising
activities in the domestic and international market because of time and cost
considerations and devoted full attention to the development of Internet- based
travel services. Our Internet business has completed its beta testing and is
expected to begin operations in the fourth quarter of 2000. Management believes
that it will have the time and effort to resume an aggressive promotion for our
domestic and international franchising since we will no longer be preoccupied
with the development of the web based business.
Franchise Service Fees and Other
Franchise service fees increased by approximately $100,000 and $45,000 in
the six and three months ended June 30, 2000, respectively, as compared to the
six and three months ended June 30, 1999. The increase is principally
attributable to the effect of scheduled increases in franchisees service fees.
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<PAGE>
Travel Products and Services
Travel products and services decreased by approximately $356,000 and
$363,000 in the six and three months ended June 30, 2000 respectively as
compared to the six and three months ended June 30, 1999. The decreases are
attributable to the effect of various incentives which we offered to franchisees
in 1999 to interest franchisees customers in travel packages, partially offset
by increased customer traffic as a result of our Internet ("online") presence.
OPERATING EXPENSES
Cost of travel products and services
The cost of travel products and services decreased by approximately
$100,000 and $63,000 during the six and three months ended June 30, 2000
respectively, as compared to the six and three months ended June 30, 1999. These
costs decreased as a result of lower commissions and fees paid to franchisees in
connection with the earlier noted incentives offered to customers. The cost of
travel products and services --as a percentage of travel products and services
sales -- were approximately 87% and 89% for the six and three months ended June
30, 2000 and 86% and 90% for the 1999 periods.
Marketing and Selling
Marketing and selling expenses decreased by approximately $89,000 and
$112,000 for the six and three months ended June 30, 2000 respectively as
compared to the related 1999 period. Decreases in payroll costs in the 2000
periods were partially offset by increases in incentives and online related
commissions.
General and Administrative
General and administrative expenses increased by approximately $339,000 and
$96,000 during the six and three months ended June 30, 2000, respectively, as
compared to the related 1999 periods. As a percentage of net revenues, these
costs were 35% and 25% during the six and three months ended June 30, 2000,
respectively, as compared to 18.7% and 14% in the related 1999 periods. The
increase in general and administrative expense in the 2000 periods is
attributable to increases in consulting expenses related to our expanding
Internet activities, professional and other fees related to our status as a
public company and stock-based compensation related to the granting of stock
options to employees and consultants.
Variability of Results
Our travel products and services gross bookings have increased
significantly from year to year due to expansion of our distributions channels,
travel services and customer base, repeat purchases by existing customers and
increased customer acceptance of electronic commerce. Revenues from travel
products and services grew in conjunction with the growth in gross bookings.
Operating expenses have similarly increased on a year to year basis, reflecting
increased spending on developing our online operations and expanding strategic
relationships.
As a result of our limited operating history in online commerce and the
variability that can be experienced by our franchising operations, we are unable
to accurately forecast our revenues. Our current and future expense levels are
based predominantly on our operating plans. Accordingly, any significant
shortfall in revenues would likely have an adverse effect on our business,
operating results and financial condition. Further, we currently intend to
substantially increase our operating plans. We may be unable to adjust spending
in a timely manner to compensate for any unexpected revenue shortfall.
Accordingly, any significant shortfall in revenues would likely have a material
adverse effect on our business, operating results and financial condition.
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<PAGE>
Further, we currently intend to substantially increase our operating expenses to
develop and offer new and expanded travel services, to fund increased sales and
marketing and customer service operations to develop our technology and
transaction processing systems. To the extent such expenses precede or are not
subsequently followed by increased revenues, our operating results will
fluctuate and anticipated net losses in a given period may be greater than
expected.
We expect to experience significant fluctuations in our future quarterly
operating results due to a variety of other factors, many of which are outside
our control. Factors that may adversely affect our quarterly operating results
include, but are not limited to (i) our ability to retain existing customers,
attract new customers at a steady rate and maintain customer satisfaction, (ii)
changes in inventory availability from third party suppliers or commission rates
paid by travel suppliers, (iii) the announcement or introduction of new or
enhanced sites, services and products by us or our competitors, (iv) general
economic conditions specific to the Internet, online commerce or the travel
industry, (v) the level of use of online services and consumer acceptance of the
Internet and commercial online services for the purchase of consumer products
and services such as those offered by us, (vi) our ability to upgrade and
develop our systems and infrastructure and to attract new personnel in a timely
and effective manner, (vii) the level of traffic on our online sites, (viii)
technical difficulties, system downtime or Internet brownouts, (ix) the amount
and timing of operating costs and capital expenditures relating to expansion of
the our business, operations and infrastructure, (x) governmental regulation and
(xi) unforeseen events affecting the travel industry.
In addition, we expect to experience seasonality in our business,
reflecting seasonal fluctuations in the travel industry, Internet and commercial
online service usage and advertising expenditures. We anticipate that travel
bookings will typically increase during the first and second quarter in
anticipation of summer travel and will typically decline during the third
quarter. Internet and commercial online service usage and the rate of growth of
such usage may be expected typically to decline during the summer. Depending on
the extent to which the Internet and commercial online services are accepted as
an advertising medium, seasonality in the level of advertising expenditures
could become more pronounced for Internet-based advertising. Seasonality in the
travel industry, Internet and commercial online service usage and advertising
expenditures is likely to cause fluctuations in our operating results and could
have a material adverse effect on our business, operating results and financial
condition. Due to the foregoing factors, quarterly revenues and operating
results are difficult to forecast and we believe that period-to-period
comparisons of our operating results will not necessarily be meaningful and
should not be relied upon as an indication of future performance. It is likely
that our future quarterly operating results from time to time will not meet the
expectations of security analysts or investors. In such event, the price of our
Common Stock would likely be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Although we were successful in becoming a public entity in September 1999,
no capital was raised in connection therewith. Previously, in March 1999, our
wholly-owned subsidiary, Global Travel Network, L.L.C., raised $210,000 (net of
$40,000 in syndication costs) in a private sale of membership interests. Cash
used in operations was approximately $126,000 in the six months ended June 30,
2000. Cash provided by operations was $236,0000 in the related 1999 period. Cash
used in operating activities in 2000 was primarily attributable to our net loss,
partially offset by increases in accounts payable.
Cash provided by investing activities in 2000 was approximately $177,000 as
compared to a use of approximately $219,000 in 1999. Cash used in investing
activities in 1999 was primarily for payments for short-term investments. Cash
provided from investing activities in 2000 consisted of the sale of marketable
securities.
-9-
<PAGE>
Cash provided by financing activities was nil in 2000 and $15,000 in 1999.
Cash provided by financing activities consisted of proceeds form the sale of
equity interests of $210,000 in 1999 offset by approximately $195,000 of
distributions to shareholders prior to our merger with Playorena, Inc. As of
June 30, 2000, we had approximately $70,000 in cash and approximately $670,000
in short-term investments. Our principal commitments consist of amounts due
pursuant to our master lease with Wal-Mart. These amounts, however, are
substantially recovered by our subleases with our Wal-Mart Supercenters
franchisees. In addition, we are obligated to make additional payments to the
developer of our "Haggle" software in 2000, which we believe could potentially
aggregate $120,000.
We believe that results of operations, current cash, and short-term
investments will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures through the end of 2000. We have had
discussions with an investment banker for the sale, through a private placement,
of shares of our preferred stock.
POSSIBLE SALE OF FRANCHISE SYSTEM
We have been approached by an unrelated entity with respect to the possible
sale of our Travel Products and Services Division, including its franchise
system, to this entity. As of the date of filing on Form 10-QSB, a preliminary
asset purchase agreement has been drafted. If the transaction is effected,
thereafter the "bricks and mortar" travel agency activities of our Travel
Products and Services Division, including the franchise system, would be carried
out by the purchaser, and our online travel agency activities would thereafter
become our principal activity.
Currently, we can give no assurance that an agreement to sell substantially
all of the assets of our Travel Products and Services division will be effected.
The registrant's Franchise Division consists of three (3) brands: Travel
Network (the U.S. division); Vacation Central (locations within Mid-West
Super-centers); and Global Travel Network (locations outside the U.S.) The
registrant separately maintains an Online Division relating to business
opportunities growing out of our patent pending web technology utilizing
net-to-phone (telephony) reservation and servicing capabilities. In December
1999, the registrant was approached by an unrelated third party who expressed an
interest in the possible acquisition of the Franchise Division for cash and an
incremental "earn out" pursuant to a proposed consulting agreement over the next
three (3) years with the registrant. No letter of intent has been executed with
respect to the proposed acquisition, but as of the date of this filing, an Asset
Purchase Agreement has been drafted and negotiations continue. Since such
possible sale could be material in character, this Form 8-K is being filed in an
abundance of caution at this time and because the registrant separately has
disclosed the possible sale to proposed future investors in the registrant. If
the asset purchase is effected, thereafter the "bricks and mortar" travel agency
activities of the registrant's Franchise Division would be carried out by the
prospective acquiror. The Online Division's travel agency activities would
thereafter become the Company's principal emphasis. If, in fact, the asset
purchase occurs, there will be no continuing responsibilities thereafter between
the Company and the prospective acquiror except for a three year consulting
period and the supplemental "earn-out" payment contemplated in the proposed
consulting agreement, but there can be no assurance that this will be the final
structure of any proposed sale.
YEAR 2000 CONSIDERATIONS
We conducted a program to bring our internal systems and products into Year
2000 (Y2K) compliance. This program included upgrades to internal computer
systems and technical infrastructure, as well as a review of our product lines
to bring them into Y2K compliance. In addition, we surveyed our significant
suppliers to determine their ability to provide necessary products and services
that are critical to business continuation through Y2K.
-10-
<PAGE>
We have experienced no interruptions in our business because of Y2K and is
not aware of any significant problems being experienced by our customers or
suppliers that would have a negative impact on us. There can be no assurance,
however, that unexpected difficulties related to Y2K compliance by us, our
customers, or suppliers will not occur. Such unexpected difficulties could have
a material adverse effect on us. Through December 31, 1999, the Company's Y2K
compliance for software testing, modifications and upgrades were completed
without any significant expenditures.
Our funding for regular updates to computer systems, technical
infrastructure and other requirements were not a significant expense.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this
quarterly report, including without limitation statements regarding our
financial position, business strategy, Year 2000 readiness and the plans and
objectives of the management for future operations, are forward-looking
statements. When used in this quarterly report, words such as "anticipate",
"believe", "estimate", "expect", "intend" and similar expressions, as they
relate to us or our management, identify forward-looking statements. Such
forward-looking statements are based on the beliefs of our management, as well
as assumptions made by and information currently available to our management.
Actual results could differ materially from those contemplated by the
forward-looking statements as a result of certain factors, including but not
limited to, business and economic conditions, competitive factors and pricing
pressures, capacity and supply constraints and the impact of any disruption or
failure in our normal business activities as well as our customers and suppliers
as a consequence of Year 2000 related problems. Such statements reflect our
views with respect to future events and are subject to these and other risks,
uncertainties and assumptions relating to the operations, results of operations,
growth strategy and liquidity. Readers are cautioned not to place undue reliance
on these forward-looking statements. We do not undertake any obligation to
release publicly any revisions to these forward-looking statements to reflect
future events or circumstances or to reflect the occurrence of unanticipated
events.
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-11-
<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
See Management's Discussion and Analysis or Plan of
Operation -- Possible Sale of Franchise system
Item 6. Report on Form 8-K
None
Signature
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, President
-------------------------------
Michael Y. Brent, President
Dated: August _____, 2000
<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 Y. Brent
------------------------
Michael Y. Brent, President
Dated: August ____, 2000
This Form 10-QSB contains summary financial information extracted from the
financial statements for the quarterly period ending June 30, 2000 and is
qualified in its entirety by reference to such financial statements.
