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 September 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, September 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
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<PAGE>
ETRAVNET.COM, INC AND SUBSIDIARY
INDEX
September 30, 2000
PART I: FINANCIAL INFORMATION (unaudited)
Condensed Consolidated Balance Sheets,
September 30, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Operations
for the nine and three months ended September 30, 2000 2
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4
Management's Discussion and Analysis of Financial
Condition and Results of the Operations 6
PART II: OTHER INFORMATION
SIGNATURE PAGE
INDEX TO EXHIBITS
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<TABLE>
ETRAVNET.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
<S> <C> <C>
September 30, December 31,
2000 1999
--------------- --------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 72,523 $ 19,813
Short-term investments 1,193,475 1,009,956
Accounts receivable, less allowance for doubtful
accounts of $75,025 390,934 418,461
Prepaid expenses and other current assets 221,857 171,497
---------- ----------
Total Current Assets 1,878,789 1,619,727
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation 50,585 73,085
---------- ----------
OTHER ASSETS
Goodwill, less accumulated amortization 199,400 227,848
Prepaid advertising 1,996,000 -
Notes receivable, less current portion 857,186 703,397
Software license and development costs 1,177,301 888,800
Security deposits and other 68,538 90,439
---------- ----------
Total Other Assets 4,298,425 1,910,484
---------- ----------
TOTAL ASSETS $ 6,227,799 $ 3,603,296
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 382,102 $ 270,986
Deferred revenue 100,000 74,640
---------- ----------
Total Current Liabilities 482,102 345,626
---------- ----------
OTHER LIABILITIES
Deferred revenue 857,186 703,397
Security deposits 139,358 139,358
---------- ----------
Total Other Liabilities 996,544 842,755
---------- ----------
Total Liabilities 1,478,646 1,188,381
---------- ----------
SHAREHOLDERS' AND MEMBERS' EQUITY
Series A convertible preferred stock, par value
$.001 per share; authorized 5,000,000 shares,
143,497 shares issued and outstanding 143 -
Common stock, par value $.001 per share; authorized
20,000,000 shares 5,525,042 and 5,317,753 shares
issued and outstanding at September 30, 2000 and
December 31, 1999, respectively 5,525 5,318
Additional paid-in capital 5,916,287 2,897,459
Accumulated deficit (1,172,802) (454,602)
Accumulated other comprehensive income (loss) - (33,260)
---------- ----------
Total Shareholders' Equity 4,749,153 2,414,915
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,227,799 $ 3,603,296
========== ==========
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<S> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------- ------------- ------------
Revenues
Franchise fees $ 50,198 4,462 $ 170,414 473,113
Franchisee service fees and other 309,800 371,828 906,602 1,143,537
Travel agency revenues 714,994 818,444 2,733,337 2,917,974
Advertising fees 10,960 75,400 68,431 197,122
---------- ----------- ----------- ----------
Total Revenues 1,085,952 1,270,134 3,878,784 4,731,746
---------- ----------- ----------- ----------
Operating Expenses
Cost of travel agency revenues 662,884 835,540 2,455,335 2,885,763
Marketing and selling 211,647 277,303 718,208 929,207
General and administrative 462,272 537,521 1,431,640 958,343
---------- ----------- ----------- ----------
Total operating expenses 1,336,803 1,650,364 4,605,183 4,773,313
---------- ----------- ----------- ----------
Loss from operations (250,851) (380,230) (726,399) (41,567)
Other income, net 31,087 24,562 8,199 58,151
---------- ----------- ----------- ----------
Income (loss) before income
taxes (219,764) (355,668) (718,200) 16,584
Provision for income taxes - - - -
---------- ----------- ----------- ----------
Net income (loss) $ (219,764) $ (355,668) $ (718,200) $ 16,584
============ ========== ============ ==========
Pro forma Information
Historical income (loss) before
income taxes $ (219,764) $ (355,668) $ (718,200) $ 16,584
Provision for Income Taxes
Adjustment to recognize income
taxes as if company had
been a "C" corporation - - - 6,600
---------- ----------- ----------- ----------
Pro forma net income (loss) $ (219,764) $ (355,668) $ (718,200) $ 9,984
========== =========== =========== ==========
Earnings (loss) Per Share:
Weighted average common
shares outstanding 5,525,042 5,225,781 5,421,398 5,078,789
========== =========== =========== ==========
Basic loss per share $ (.03) $ (.07) $ (.13) $ -
========== ========== ========== ==========
Weighted average common shares
outstanding assuming exercise
of warrants 5,525,042 5,225,781 5,421,398 5,196,382
========== =========== =========== ==========
Diluted loss per share (.03) $ (.07) (.13) $ -
========= ========= ========== ==========
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<S> <C> <C>
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (718,200) $ 16,584
----------- ----------
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
Advertising expense paid in common stock 25,000 -
Depreciation and amortization 50,948 9,411
Loss on sale of marketable securities 34,716 -
Amortization of stock based compensation 102,000 -
Changes in assets and liabilities:
Accounts receivable 27,527 7,965
Notes receivable (179,149) (35,724)
Prepaid expenses and other
current assets (25,000) (78,505)
Security deposits 21,901 (457)
Accounts payable and accrued expenses 96,462 15,216
Deferred revenue 193,803 30,914
Other liabilities - 18,774
----------- ----------
Total adjustments 348,208 208,749
----------- ----------
Net cash provided (used) by operating activities (369,992) 225,333
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for software license and development costs (288,501) -
Purchase of furniture and fixtures - (3,681)
Acquisition of short-term investments (184,975) (302,121)
----------- ----------
Net cash used by investing activities (473,476) (305,802)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholder - (194,836)
Net proceeds from private placements - 210,000
Net proceeds from the issuance of preferred stock 896,178 -
----------- ----------
Net cash provided by financing activities 896,178 15,164
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 52,710 (65,305)
CASH AND CASH EQUIVALENTS - beginning 19,813 109,557
----------- ----------
CASH AND CASH EQUIVALENTS - end $ 72,523 $ 44,252
=========== ==========
Non cash investing and financing activity
Prepayment of advertising costs for common stock $ 2,021,000 $ -
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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ETRAVNET.COM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE AND THREE MONTHS ENDED SEPTEMBER 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 September 30, 2000 and the results of its operations and
cash flows for each of the nine and three month periods ended September 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, 1999 and for the year then ended previously filed with the Securities
and Exchange Commission. The results of operations for the nine and three
months ended September 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 50% of the advertising budget in the year 2001 and the
balance in the year 2002. Through September 30, 2000, the Company utilized
and expensed $25,000 of such costs.
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 trustee 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 September 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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ETRAVNET.COM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE AND THREE MONTHS ENDED SEPTEMBER 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 within three years from
the date of the Agreement. To date, no claims have been received by the
Company.
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 was contingently liable under a letter of credit in the amount
of $25,000, which will expire in September 2001. 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 nine months ended
September 30, 2000, no current income taxes are provided. Deferred tax
assets and the related valuation allowance were both increased by
approximately $251,000 during the nine months ended September 30, 2000. The
Company has net operating loss carryforwards of approximately $397,000 at
December 31, 1999.
5. STOCK ISSURANCE
During the third quarter, the Company issued 143,497 shares of their series
A convertible preferred stock at $7.00 per share. These shares with a par
value of $.001 can be converted into two shares of common stock, once the
price of the common shares equals or exceeds 200% of the then applicable
conversion price, (currently $3.50) for twenty consecutive days and the
stock is listed on the NASDAQ for 90 days. Also attached to each share of
the preferred stock is a warrant to purchase one share of common stock at
$10.00. The warrants are exercisable for a period of up to three years. The
total proceeds for this issuance, net of applicable costs, was $896,178.
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ETRAVNET.COM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
6. 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>
<S> <C> <C> <C> <C>
Travel &
Related Internet
Nine Months Ended Management Technology
September 30,2000 Services Programs Other Total
------------------------- ---------------- ---------------- -------------- --------------
Revenues $ 3,878,784 $ - $ - $ 3,878,784
Segment profit (loss) $ 695,312 $ - $ (22,888) $ (718,200)
Total assets $ 1,861,498 $ 3,173,301 $ 1,193,000 $ 6,227,799
Capital expenditures $ - $ 288,501 $ - $ 288,501
Depreciation and
amortization $ 50,948 $ - $ - $ 50,948
Interest income $ - $ - $ 11,828 $ 11,828
</TABLE>
During the nine months ended September 30, 1999, the Company operated in
the travel and related management services segment only.
7. SUBSEQUENT EVENT
On October 9, 2000, the Company signed a letter of intent to sell 857,000
shares of common stock to a global distribution system (airline reservation
system) for $3.50 per share. The common stock to be sold will be restricted
and may not be sold for a period of one year from the date of issue, and
will be subject to certain limitations on sale for two years after the date
of issue.
In exchange for the sale of the shares, the Company agreed to license
certain of its developed software technology to the purchaser, and to waive
the license fee. The Company also agreed to offer one seat on its Board of
Directors to the purchaser.
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
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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 of 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.
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
REVENUES
Franchise fees 4.6% 0.4% 4.4% 10.0%
Franchise service
Fees and other 28.5 29.3 23.4 24.2
Travel products and services 65.9 64.4 70.4 61.7
Advertising and other 1.0 5.9 1.8 4.1
------ ------ ------ ------
TOTAL REVENUES 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
OPERATING EXPENSES
Cost of travel products and 61.0 65.8 63.3 61.0
sales
Marketing and selling 19.5 21.8 18.5 19.6
General and administrative 42.6 42.3 36.9 20.3
------ ------ ------ ------
TOTAL OPERATING EXPENSES 123.1 129.9 118.7 100.9
------ ------ ------ ------
Income (loss) before other
Income and income taxes (23.1) (29.9) (18.7) (0.9)
Other 2.9 1.9 0.2 1.2
------ ------ ------ ------
Income (loss) before income taxes (20.2) (28.0) (18.5) .3
Net income (loss) (20.2)% 28.0% (18.5)% .3%
========= ====== ======= =====
Comparison of three and nine months ended September 30, 2000 ("2000") and 1999
("1999")
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REVENUES
Franchise Fees
Franchise fees declined in each 2000 period as compared to as 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 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 decreased by approximately $237,000 and $62,000 in
the nine and three months ended September 30, 2000, respectively, as compared to
the nine and three months ended September 30, 1999. The decrease is principally
attributable to a number of franchisees going out of business.
Travel Products and Services
Travel products and services decreased by approximately $185,000 and
$103,000 in the nine and three months ended September 30, 2000 respectively as
compared to the nine and three months ended September 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
$430,000 and $173,000 during the nine and three months ended September 30, 2000
respectively, as compared to the nine and three months ended September 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 89% and 93% for the nine and
three months ended September 30, 2000 and 102% and 99% for the 1999 periods.
Marketing and Selling
Marketing and selling expenses decreased by approximately $211,000 and
$66,000 for the nine and three months ended September 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 $473,000 and
decreased by approximately $75,000 during the nine and three months ended
September 30, 2000, respectively, as compared to the related 1999 periods. As a
percentage of net revenues, these costs were 37% and 43% during the nine and
three months ended September 30, 2000 respectively, as compared to 20% and 42%
in the related 1999 periods. The changes in general and administrative expense
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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, as offset by a reduction in
expenses based on the decreased roster of franchised agencies.
Variability of Results
Our travel products and services gross bookings have decreased slightly
from year to year due to a decrease in the number of franchises as offset by
repeat purchases by existing customers and increased customer acceptance of
electronic commerce. Revenues from travel products and services decreased in
conjunction with the decrease in gross bookings. Operating expenses have
similarly decreased on a year to year basis, reflecting decreased 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. 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 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. 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
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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,
in September 2000 approximately $896,000 net was raised in a sale of 143,497
shares of our Series A convertible preferred stock. 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 nine months ended September
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.
On October 9, 2000, we signed a letter of intent to sell 857,000 shares of
common stock to a travel distribution company for $3.50 per share. The common
stock to be sold will be restricted and may not be sold for a period of one year
from the date of issue and will be subject to limitations on sale for two years
after the date of issue.
In exchange for the sale of the shares, we agreed to license certain of our
developed software technology to the purchaser and to waive the license fee. We
also agreed to offer one seat on our Board of Directors to the purchaser.
Cash used by investing activities in 2000 was approximately $473,000 as
compared to a use of approximately $306,000 in 1999. Cash used in investing
activities in 1999 was primarily for payments for short-term investments. Cash
used in investing activities in 2000 consisted of payments for short-term
investments as well as payments for software license and development costs.
Cash provided by financing activities was approximately $896,000 in 2000
and $15,000 in 1999. Cash provided by financing activities in 2000 consisted of
proceeds from the sale of 143,497 shares of our series A convertible preferred
stock and in 1999 from the sale of equity interests of $210,000 offset by
approximately $195,000 of distributions to shareholders prior to our merger with
Playorena, Inc. As of September 30, 2000, we had approximately $72,000 in cash
and approximately $1,194,000 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.
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 it franchise
system, to this entity. As of the date of filing this 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
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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, a Form 8-K has been 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.
We have experienced no interruptions in our business because of Y2K and are
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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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
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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
-----------------------------
Michael Y. Brent, President
Dated: November 8, 2000
This Form 10-QSB contains summary financial information extracted from the
financial statements for the quarterly period ending September 30, 2000 and is
qualified in its entirety by reference to such financial statements.
