As filed with the Securities and Exchange Commission on December 13, 2000
Registration No. 333-48438
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-3 ON FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ETRAVNET.COM, INC.
(Exact name of registrant as specified in its charter)
New York 4724 561510 11-2602120
------------------ -------------------- ------------------ -------------------
(State or other (Primary Standard (North American (IRS Employer
Incorporation or Industrial Industry Identification
Organization) Classification (SIC) Classification (EIN) Number)
Number Number System
("NAICS")
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560Sylvan Avenue, Englewood Cliffs, New Jersey 07632, (800) 872-8638
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
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Copy To:
Carl N. Duncan, Esq., Duncan, Blum & Associates, 5718 Tanglewood Drive,
Bethesda, Maryland 20817 (301) 263-0200
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of the
Registration Statement
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of
the earlier effective Registration Statement for the same offering. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of
the earlier effective Registration Statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
Registration Statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected
to be made pursuant to Rule 434, please
check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
=============================================================================================================
Title of Each Class Amount to be Proposed Maximum Proposed Maximum Amount of
of Securities to be Registered Offering Price per Aggregate Offering Registration Fee *
Registered Share * Price *
-------------------------------------------------------------------------------------------------------------
Shares of Common 1,382,780 Shares $4.25 $5,876,815 $1,551.47
Stock
=============================================================================================================
</TABLE>
* Based on the October 6, 2000 last reported sale price of ETRAVNET.COM, Inc.
common shares on the NASD Over-the-Counter Bulletin Board ("OCTBB").
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file an
amendment which specifically states that the Registration Statement shall
thereafter become effective in accordance with Section 8 (a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: From time to time after the
effective date of the Registration Statement and up to nine (9) months
thereafter or until such earlier time that all the shares registered hereunder
have been sold.
<PAGE>
================================================================================
PROSPECTUS
================================================================================
ETRAVNET.COM, INC.
560 Sylvan Avenue, Englewood Cliffs, New Jersey 07632
(800) 872-8638
Selling Shareholders May Sell Up to 1,382,780 Shares of Common Stock
Company Information
We engage in an active travel services business, both via franchise operations
and online. Our shares are quoted on the NASD Over-the-Counter Bulletin Board
("OTCBB") under the symbol ETVT.
Shares Which May Be Offered by Selling Shareholders
We will not receive any proceeds from the 1,382,780 shares of common stock
which may be offered by our selling shareholders. See "Selling Shareholders"
and "Plan of Distribution."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
No one is authorized to give any information not contained in this
prospectus in connection with this offering and, if given, you should not rely
on this information. This prospectus should not be considered an offer to any
person to whom such an offer would be unlawful.
You should note there is substantial doubt about our ability to continue
as a going concern. Carefully consider the risk factors beginning on page 6 of
this prospectus.
================================================================================
December _____, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
TITLE PAGE
PROSPECTUS SUMMARY.............................................................3
EXECUTIVE SUMMARY..............................................................3
SELLING SHAREHOLDERS...........................................................4
PLAN OF DISTRIBUTION...........................................................6
RISK FACTORS...................................................................6
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................14
FIDUCIARY RESPONSIBILITY OF MANAGEMENT........................................15
THE BUSINESS..................................................................15
MANAGEMENT....................................................................23
CAPITALIZATION................................................................26
DILUTION......................................................................26
DIVIDENDS AND DISTRIBUTIONS...................................................26
DESCRIPTION OF SECURITIES.....................................................27
LEGAL MATTERS.................................................................28
EXPERTS.......................................................................28
WHERE YOU CAN FIND MORE INFORMATION...........................................28
INCORPORATION BY REFERENCE....................................................29
APPENDIX I...................................................................I-1
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere or incorporated by
reference in this prospectus. All references in this prospectus to shares of
common stock are as of June 30, 2000, unless otherwise specified. prospective
investors should carefully consider the information set forth under the heading
"Risk Factors."
The Company
ETRAVNET.COM, Inc. engages in an active travel services business, both
via franchise operations and online. For a description of our current and
prospective business activities, see "Executive Summary" and " The Business."
The Secondary Offering
Selling Certain shareholders identified in this prospectus are
Shareholders offering and selling their common shares of ETRAVNET.
Selling shareholders may offer their shares through public
or private transactions, on or off OTCBB or NASDAQ, at
prevailing market prices, or at privately negotiated prices.
Market Price Our shares are traded on the NASD Over-the-Counter Bulletin
Board ("OTCBB") under the symbol "ETVT." On October 6, 2000,
the last reported sale price of our common shares on the
NASD Over-the-Counter Bulletin Board (the "OTCBB") was $4.25
per share.
Risks and An investment in the shares involves substantial risks due,
Conflicts of among other reasons, to the speculative nature of our
Interest contemplated business plan. Risks inherent in investing in
the shares are discussed under "Risk Factors."
EXECUTIVE SUMMARY
ETRAVNET.COM, Inc. is a publicly traded company (OTCBB: ETVT). We are in
our 18th year of operations. Incorporated in New York, our headquarters are in
Englewood Cliffs, New Jersey. Operating under the trade names "Travel Network"
and "Vacation Central", we are a leading franchiser of independently owned
travel agencies. We are leveraging our existing global base of franchises by
extending our business to the development and implementation of technology for
web commerce.
Through our franchise business, we have built an extensive network of
over 350 domestic agencies (including over 50 Wal-Mart store-within-a-store
agency sites) and over 50 international travel agencies with aggregate gross
retail volumes created by our franchise chain in excess of $1.5 billion in 1999.
We have forged a strategic alliance with GoGo Worldwide Vacations, the largest
wholesaler of travel packages. Separately, Liberty Travel, a major retail travel
agency chain affiliated with GoGo, owns an 8% interest in the Company.
We were named the number one franchiser in North America by Income
Opportunities Magazine in April 1999 and the number one travel agency franchise
globally by Entrepreneur International Magazine (February 2000). In addition,
because of the significant buying power channeled through our franchisees, we
have the ability to negotiate advantageous pricing and commissions from travel
providers.
Previously named Playorena Inc. ("Playorena"), we caused a subsidiary to
merge with Global Travel Network, L.L.C. on September 17, 1999. Playorena had,
prior to the merger, operated as a public shell since July 24, 1998. As part of
the merger, Playorena changed its name to ETRAVNET.COM, Inc. We changed our
symbol to ETVT on December 15, 1999.
<PAGE>
Based on the most recent data available, retail travel industry volume
has grown from $5 Billion (in 1970) to $130 Billion (in 1998). At the same time,
the number of retail travel agencies has grown from 6,600 in 1970 to over 36,000
agencies in 1999. The average sales for an agency has grown from $750,000 in
1970 to over $3.3 Million in 1999. Airline revenues constitute 61% of travel
agency sales; cruise sales account for 16%; and tour sales represent 17% of
total agency travel sales. Such dramatic growth is occurring at a time when the
travel agent continues to exercise considerable influence on travel decisions of
leisure and corporate clients. For example, more than 54% of leisure travelers
seek an agent's advice; over 68% of leisure clients book package tours through a
travel agent; over 66% of leisure clients choose hotels and cruises through
travel agencies; and more than 55% of business clients use travel agencies to
plan their itineraries.
Moreover, only 25% of travel agencies belong to a franchise chain. This
leaves 75% of travel agencies unaffiliated. As a consequence, we believe such
conditions provide a receptive environment to offer a reasonably priced
conversion-licensing program. Finally, as it relates to the Internet,
International Data Corporation ("IDC") estimates the number of worldwide users
will grow from 28 million in 1996 to 129 Million in 2000 and the value of
service and products purchased on the web will grow from $300 Million in 1996 to
$123 Billion in the Year 2000. We believe such dramatic potential provides a
receptive environment for offering an Internet-based travel service. (See "The
Business".)
This prospectus is being furnished by us solely for the use of possible
selling shareholders in connection with this secondary offering of shares.
THE CONTENTS OF THIS PROSPECTUS SHOULD NOT BE CONSTRUED AS INVESTMENT,
LEGAL OR TAX ADVICE. EACH PROSPECTIVE INVESTOR IS URGED TO SEEK INDEPENDENT
INVESTMENT, LEGAL AND TAX ADVICE CONCERNING THE CONSEQUENCES OF INVESTING IN THE
SHARES.
SELLING SHAREHOLDERS
The shareholders listed below are offering a total of 1,382,780 shares.
The shareholders (not the company) will receive the proceeds from the sale of
their individual shares.
The table below sets forth the name of the maximum number of common
shares beneficially owned by the selling shareholders as of October 10, 2000,
which may be offered for the account of the selling shareholders under the
prospectus, assuming no shares have been sold subsequent to that date. The only
selling shareholders who have held a position, office or had any other material
relationship with us during the previous three years are those employees listed
in Category I below as well as the asterisked persons in Category III. Each
selling shareholder may offer all, some or none of the common stock they own.
Very specifically, the selling shareholders are not under any obligation known
to us to sell any common shares.
<TABLE>
<S> <C> <C> <C>
Amount of
Shares % of Common on
Name of Owner Address of Owner Being Sold Fully Dilated Basis
------------- ---------------- ---------- -------------------
I. Employees
Derek Brent 201 Bridge Plaza N. - Apt. 10K, Ft. Lee, N.J. 07024 100,000 1.42589%
Michael Y. Brent 1530 Palisade Ave., Ft. Lee, N.J. 07024 200,000 2.85179%
Stephanie Abrams 297 Durie Ave, Closter, N.J. 07624 100,000 1.42589%
M. Brigitte Kiledjian 1429 Abbott Boulevard. - Apt. 3, Fort Lee, N.J. 07024 10,000 0.14258%
Sandra Martin 238 Wall Avenue, Paterson, N.J. 07514 3,000 0.04277%
Karen Giannaros 371 Bergen Boulevard. - Apt. 712, Fairview, N.J. 07022 5,000 0.07129%
<PAGE>
Name of Owner Address of Owner Being Sold Fully Dilated Basis
------------- ---------------- ---------- -------------------
I. Employees
Jody Wyman 7 Charles Street, Upper Saddle River, N.J. 07458 3,000 0.04277%
Debra Venedam 25 Harrison Avenue, Waldwick, N.J. 07463 1,000 0.01425%
Allyson J. Dimin 78 Lee Place, Bergenfield, N.J. 07621 5,000 0.07129%
Betty Krystyniak 569 Prospect Avenue, Dumont, N.J. 07628 5,000 0.07129%
James Brooks 109 Lamp Post Lane, Cherry Lane, N.J. 08003 1,000 0.01425%
Jay Massimi 1170 Main Street, River Edge, N.J. 07661-2522 10,000 0.14258%
Mercedes Fabian 15 Arcadia Road - Apt. H, Hackensack, N.J. 07601 2,000 0.02851%
-------
Subtotal 443,000 6.31672%
=======
II. Service Providers
Harold Kestenbaum 585 Stewart Avenue, Garden City, N.Y. 11530 20,000 0.28517%
Ciniva Marketing &
Media LLC 4601 Holly Road, Virginia Beach, VA 23451 13,000 0.18536%
Jay Haft 529 Fifth Avenue, New York, N.Y. 10017 50,000 0.71294%
Taurus telesys Inc. 804 Middle Ground Boulevard, Newport News, VA 23606 217,000 3.09419%
Ipex, Ltd. 6 Hammarlund Way, Tech Bldg 1, Middletown, R.I. 02842 207,289 2.95572%
-------
Subtotal 507,289 7.23342%
=======
III. Unitholders
Derek Brent 201 Bridge Plaza N. - Apt. 10K, Ft. Lee, N.J. 07024 21,429 0.30555%
Jerry Kaplan 350 Motor Parkway - Suite 404, Hauppauge, N.Y. 11788 6,000 0.08555%
Stanley A. Kaplan 4 Spinning Wheel Lane, Dix Hills, N.Y. 11746 30,000 0.42776%
David S. Kaplan 27 Hilltop Drive, Melville, N.Y. 11747 9,000 0.12833%
Andrew M. Kaplan 18 Wayside Lane, Lloyd Harbor, N.Y. 11743 9,000 0.12833%
Stephen B. Kaplan 3 Kalb Court, Dix Hills, N.Y. 11746 9,000 0.12833%
Nancy Barrick 5 Tony Drive, Kings Park, N.Y. 11754 9,000 0.12833%
Michelle Kaplan 17 Riverview Terrace, Smithtown, N.Y. 11787 9,000 0.12833%
Craig A. Newman 92 Brite Avenue, Scarsdale, N.Y. 10583 42,000 0.59887%
Edmond O'Donnell 23 Roundtree Drive, Melville, N.Y. 11747 12,000 0.17110%
Neil Ragin 180 West End Avenue - Apt 23F, New York, N.Y. 10023 6,000 0.08555%
Alfred Romano 4 Wagon Wheel Lane, Dix Hills, N.Y. 11746 24,000 0.34221%
Harold Sussman 2 Richmond Road, Lido Beach, N.Y. 11561 15,000 0.21388%
Charles S. Sobel 9 Goose Point Drive, Colts Neck, N.J. 07722 6,000 0.08555%
Peter Wolf 123 Lake Shore Drive, Ronkonoma, N.Y. 11779 24,000 0.34221%
Mark & Stephanie Abrams 297 Durie Avenue, Closter, N.J. 07624 9,000 0.12833%
Michael & Beth Brent 1530 Palisade Avenue, Ft. Lee, N.J. 07024 21,429 0.30555%
KKC Corporation 2000 S. Ocean Boulevard - Apt. 9C, Boca Raton, FL 33432 21,420 0.30555%
Lawrence & Helaine
Kaplan 17 Riverview Terrace, Smithtown, N.Y. 11787 42,000 0.59887%
Robert & Christy Kaplan 59 W. 10th Street - Apt. 3D, New York N.Y. 10011 9,000 0.12833%
Christian C.A. Lange
Living Trust
dated 11-07-96 168 Nelson Street, Happauge, N.Y. 11788 4,500 0.06916%
EARNCO Money Purchase
Pension Plan 26 West Dry Creek Circle #600, Littleton, CO 80120 6,000 0.08555%
Salomon Smith Barney 320 East 72nd Street, New York, N.Y. 10021 85,713 1.22217%
Custodian for the
IRA of Adi Raviv
Subtotal 430,491 6.13836%
=======
TOTAL OF CATEGORIES I, II AND III 1,382,780 19.71702%
</TABLE>
<PAGE>
PLAN OF DISTRIBUTION
The selling shareholder may sell any of his common shares offered under
this prospectus from time to time. Sales may be made directly or through brokers
or dealers in connection with trades by the selling shareholder through NASDAQ
or otherwise. To the extent required by applicable law, a prospectus supplement
with respect to the common shares being offered will set forth the terms of the
offering of the common shares, including the name or names of any underwriters,
dealers or agents, the purchase price of the common shares and the proceeds to
the selling shareholder from such sale, any delayed delivery arrangements, any
underwriting discounts and other items constituting underwriters' compensation,
the initial public offering price and any discounts or concessions allowed or
re-allowed or paid to dealers.
If dealers are used in the sale of common shares with respect to which
this prospectus is delivered or with respect to any block trades, the selling
shareholder will sell such common shares to the dealers as principals. The
dealers may then sell such common shares to the public at varying prices to be
determined by such dealers at the time of resale. The name of the dealers and
the terms of the transaction will be set forth in the prospectus supplement
relating to the extent required by law.
In connection with the sale of the common shares, agents may receive
compensation from the selling shareholder or from purchasers of common shares
for whom they may act as agents in the form of discounts, concessions or
commissions. Agents and dealers participating in the distribution of the common
shares may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, and any discounts or commissions received by them from the selling
shareholder and any profit on the resale of the common shares by them may be
deemed to be underwriting discounts or commissions under the Securities Act of
1933.
Upon our being notified by a selling shareholder of any change in the
identity of the selling shareholder or that any material arrangement has been
entered into with a broker or dealer for the sale of any common shares through a
secondary distribution, or a purchase by a broker or dealer, a prospectus
supplement will be filed, if required, pursuant to Rule 424(b) under the
Securities Act of 1933, disclosing: (i) the names of such brokers or dealers,
the number of common shares to be sold; (ii) the price at which such common
shares are being sold; (iii) the commissions paid or the discounts or
concessions allowed to such brokers or dealers; (iv) where applicable, that such
broker or dealer did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus, as supplemented or amended;
(v) any change in the identity of the selling shareholder; and other facts
material to the transaction.
Agents and dealers may be indemnified under agreements entered into with
the selling shareholder against civil liabilities, including liabilities under
the Securities Act of 1933, or to contribution with respect to payments that
such agents, dealers, or underwriters may be required to make with respect
thereto. Agents and dealers may be customers of, engage in transactions with, or
perform services for the selling shareholder in the ordinary course of business.
RISK FACTORS
An investment in our shares is speculative and involves a high degree of
risk and should be purchased only by investors who can afford the loss of their
entire investment. Set forth below are certain factors which should be taken
into consideration before making a decision to subscribe for any shares. While
we believe the following to be comprehensive, it is not intended to include all
of the possible factors relating to the risks which may be encountered.
Prospective investors are urged to perform their own due diligence and utilize
their own investment, legal and tax advisors to help them determine the merits
and risks associated with an investment in the shares.
<PAGE>
1. Internet Company Valuations. Over the past two years, valuations of initial
public offerings and publicly traded companies associated with the Internet
had been wildly popular with investors, leading to valuations that are not
likely to be sustainable as the market matures, as shown in part by the
market performance of Internet stocks since mid-April 2000. Valuations of
many Internet-related companies are subject to significant price
fluctuations. Our movement toward an Internet model, and its potential
perception as an Internet company, may negatively affect our future access
to capital if the financial community's view of Internet-related companies
becomes overly negative.
2. Timing Risk. The market in which we compete is characterized by: (a)
rapidly changing technology; (b) changing consumer demands; (c) frequent
introductions of new and/or enhanced products and services; and (d)
evolving industry standards and practices. Our future success depends upon
our ability to adapt quickly to changing technologies and industry
standards, to continually improve the performance, features and reliability
of our service in response to competitive service, product offerings and
changing consumer demands. In addition, we may be required to incur a
substantial cost to modify or adapt our services or infrastructure in
response to technological changes such as new Internet, networking or
telecommunications technologies.
3. Application Risk. We cannot guarantee that customers who receive our
services will use them optimally. The adoption of our services is largely
outside our control and primarily dependent upon our customers' efforts and
ability to promote the use of our services. Furthermore, failure to
increase the use of our services will detract from revenue generation and
detract from future operating results.
4. Possible Sale of Franchise Division. In December 1999, we were approached
by an unrelated third party who expressed an interest in the possible
acquisition of our Franchise Division for cash and an incremental "earn
out" pursuant to a proposed consulting agreement over the next 3 years. The
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 Online Division
relates to business opportunities growing out of our patent pending web
technology utilizing net-to-phone (telephony) reservation and servicing
capabilities. (See "The Business"). As of the date of this prospectus, an
asset purchase agreement has been drafted and negotiations continue. If the
asset purchase is effected, thereafter the "bricks and mortar" travel
agency activities of our Franchise Division would be carried out by the
prospective acquiror. The Online Division's travel agency activities would
thereafter become our principal emphasis. See "Use Of Proceeds" and
Internet-related "Risk Factors" following. If, in fact, the asset purchase
occurs, there will be no continuing responsibilities thereafter between the
prospective acquiror and us except for a three year consulting period and
the supplemental "earn-out" payment contemplated in the proposed consulting
agreement.
5. Possible Strategic Alliance. We have entered into a letter of intent
pursuant to which a major global distribution system ("GDS") intends to
purchase 857,000 shares of our common stock at a per share price of $3.50.
To compensate such GDS, based on its tactical and strategic contributions
to our business and growth, we will discuss and agree to additional stock
options and/or warrants before formal and final agreement. We also envision
defining the usage and potential exclusivity of acquired content. In
addition to the purchase, we have agreed to license, at no charge, our
ReZconnect/Haggle technology to this contemplated GDS purchaser for its use
in conjunction with its businesses and joint ventures. In addition, we have
agreed to offer one seat on our Board of Directors to a representative of
the GDS made to competitive global, bringing the total number of directors
to five. We have further agreed to provide the GDS first right of refusal
on offers of our securities. Because such letter serves merely as a
statement of intent of the parties and does not constitute a legally
binding agreement, we can give no assurances the purchase and associated
terms will be completed.
6. Capital Risk; Lack of Future Sources of Financing. In the future, we may
need to raise additional capital in order to remain competitive in the
online travel services industry. This capital may not be available on
acceptable terms, if it all. We will not be able to fund its growth if we
<PAGE>
lack adequate resources. If we raise additional funds by issuing equity or
convertible debt securities, the percentage ownership of existing
shareholders will be diluted. Any such additional securities could have
rights, preferences and privileges senior to those of our common shares.
Currently, we do not have any commitments for additional financing. We
cannot be certain that additional financing will be available in the future
or on reasonable terms.
We are reliant on additional funds to implement our plans for
expansion and development of our Online Division. There is no guarantee
that we will be able to achieve its objectives and that we will not need to
raise additional capital in order to achieve these objectives or that
circumstances may not change, which would make raising such additional
capital vital to our existence. Such additional capital may be sought from
a number of sources, including sales of additional shares (or other types
of securities), loans from banks or other financial institutions or from
other sources. The terms of any securities we may issue will be determined
at the time of issuance and may be senior in distribution, liquidation or
voting rights to, or different in other respects from, the shares. Any
issuance of equity securities could have a dilutive effect on the
purchasers in this offering. No assurance can be given that we will be able
to obtain any required additional funding from a satisfactory source, or at
all. In these circumstances, we would be required to significantly reduce
our sales and marketing efforts and may not be able to take advantage of
significant opportunities for growth and ultimately may lead to a drastic
or complete reduction of operations. If we were unable to raise such
additional capital, the business could dramatically decrease and/or fail
and the investors in the shares of the Company (and therefore us) would
likely lose all or most of their investment.
7. Technology Risk; Failure to Adapt to Technological Change. Our success
depends on maintaining the integrity of our systems and infrastructure. As
our operations grow in both size and scope, domestically and
internationally, we will need to improve and upgrade our systems and
infrastructure to offer an increasing number of customers and travel
suppliers enhanced products, services, features and functionality. During
the associated transitional period, we could be particularly vulnerable to
the "Risk Factors" discussed in this prospectus. The expansion of our
systems and infrastructure will require us to commit substantial financial,
operational and technical resources before the volume of business
increases, with no assurance that the volume of business will increase.
Consumers and suppliers will not tolerate a service hampered by slow
delivery times, unreliable service levels or insufficient capacity, any of
which could have a material adverse effect on our business, operating
results or financial condition. In this regard, our operations face the
risk of systems failure.
The Internet and online commerce markets are characterized by rapid
technological change, frequent introductions of new or enhanced hardware
and software products, evolving industry standards and changes in customer
preferences and requirements. We may not be able to keep up with any of
these or other rapid technological changes, which would materially affect
the travel business of us. These changes and the emergence of new industry
standards and practices could render our existing website and operational
infrastructure obsolete. Utilizing the latest technologies entails
significant business risks and there can be no assurance that we will
successfully incorporate new technologies effectively or adapt our website
and transaction processing systems to customer requirements or emerging
industry standards. The widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could
require us to incur substantial expenditures to modify or adapt our
operating practices or infrastructure. To be successful, we must enhance
website responsiveness, functionality and features, acquire and license
leading technologies and services, enhance existing service and product
offerings, and respond to technological advances and emerging industry
standards and practices in a timely and cost effective manner. If we are
unable to adapt in a timely manner to such trends and changes, its
business, prospects, financial condition and results of operations could be
materially adversely affected.
8. Proprietary Technology and Intellectual Property. We regard our technology
and content created for our travel website as proprietary and will attempt
to protect such proprietary rights through, among other means, trademark
and copyright registration, trade secret protection and confidentiality and
<PAGE>
non-disclosure agreements with our employees and independent contractors.
We intend to pursue registration of certain trademarks and copyrights in
the United States and in any foreign countries in which such trademarks and
copyrights are used. In fact, we filed our patent in December 1998. The
patent relates to a system and method to offer virtual brokerage services.
Such patent is critical to our future success on the Internet. Such patent
application is pending as of the date of this prospectus.
Nonetheless, effective trademark, copyright and trade secret
protection may afford us only limited protection in the U.S. and may not be
available in every country in which our website, services and products are
made available. Despite our efforts to protect such proprietary rights, the
rapid pace of technological innovation on the Internet may make it possible
for third parties to copy or otherwise obtain and use our products or
technology without authorization, or to develop similar technology
independently. Policing unauthorized use of our technology and intellectual
property will be difficult. There can be no assurance that the precautions
we take will prevent misappropriation or infringement of our technology or
intellectual property. In addition, notwithstanding our best efforts to
obtain confidentiality agreements from all employees and independent
contractors providing services in connection with the development and
design of our website, no assurance can be given that others will not gain
access to our trade secrets, that such agreements will be honored by
employees and independent contractors, or enforced by the courts, or that
we will be able to effectively protect our rights to our proprietary
technology and intellectual property. In the event the patent application
is not granted, our business operations would likely be materially and
adversely affected.
9. Market Risk. We rely on the health and growth of the travel industry.
Travel is highly sensitive to business and personal discretionary spending
levels and thus tends to decline during general economic downturns or
off-peak seasons. In addition, other adverse trends or events that tend to
reduce travel are likely to hurt our business. These may include price
escalation or further commission decreases in the airline industry or other
travel-related industries, increased occurrence of travel-related
accidents, airline or other travel-related strikes, political instability,
regional hostilities and terrorism as well as bad weather.
10. Dependence on Franchisees. We were totally dependent on our franchise
system for all of our above revenue in 1999. Unless our Franchise Division
is sold, we expect, although there can be no assurance, our Online Division
will start to contribute revenues making us less dependent on franchise
sales and service fee income. Until Online Division revenue begins, we will
realize substantially all of our revenues from (i) the sale of Start-Up and
Conversion Franchises, U.S. Regional President Franchises and International
Master Rights as well as Franchisees and (ii) fixed monthly service
(royalty) fees which we receive from our operating franchisees. Should our
franchisees encounter business or operational difficulties in a significant
aggregate manner, our revenues would be adversely affected as well. Such
reduction in revenues may also negatively impact our ability to sell new
franchises. Consequently, our financial prospects are directly related to
the success of our operating franchisees and the efforts and success of our
regional presidents in promoting the Global Travel Network concept, over
which we have little or no control. There can be no assurance that we or
our regional presidents will be able to successfully develop and sell new
franchises or that our franchisees will be able to successfully develop and
operate Global Travel Network locations. By reason of our different pay-out
arrangements, the amount of potential net revenues that we may realize from
the sale of our franchises and the receipt of monthly franchisee service
fees will be less if future franchise sales were to be predominantly
effected through Regional President franchisees than if such sales are
effected directly by us. In the event the Franchise Division is sold, we
would have proceeds from such asset sale but would have no revenues unless
and until the Online Division starts to contribute revenues. During the
associated transitional period, therefore, we could be particularly
vulnerable to the "Risk Factors" discussed in this prospectus.
11. Master Leases and Associated Contingent Liability. Assuming no sale of the
Franchise Division, one of our target areas of growth is the expansion of
franchises inside Wal-Mart Super-centers and other store-within-a-store
locations. Pursuant to the contractual agreement with Wal-Mart, we have
entered into a lease agreement directly with Wal-Mart. It is intended that
the prospective franchisee then sub-lease the Wal-Mart space from us.
<PAGE>
Accordingly, we remain directly liable to Wal-Mart for the entire lease
obligation, and in the event that (a) the franchisee is unable to fulfill
his/her obligations or (b) we are unable to sell a franchise in any
Wal-Mart for which a lease has been entered into, we would still be liable
thereunder. We believe that such franchise locations should be highly
desirable locations for prospective franchisees and that any franchisee
purchasing a Wal-Mart location should have sufficient revenues to satisfy
their lease obligations. However, there can be no assurance that we will
receive all amounts due from existing and prospective franchises.
Furthermore, we may enter into similar master lease agreements with
landlords other than Wal-Mart. At this time, we have entered into a letter
of intent with K-Mart to lease space on similar terms and conditions as the
Wal-Mart agreement. In the event of the sale of the Franchise Division, the
associated contingent liability described above is expected to be assumed
by the acquiror.
12. Variability of Results. Our travel products and services gross bookings
have increased significantly year to year due to expansion of our
distribution 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 our 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 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
<PAGE>
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.
In the event the Franchise Division is sold (see above), we would have
proceeds from such asset sale but would have no revenues unless and until
the Online Division starts to contribute revenues.
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 could be materially and adversely affected.
13. Technology: Use of the Internet. The travel industry will be affected by
consumers and businesses using the Internet to research and book their
travel and entertainment arrangements. We intend to provide a sophisticated
Internet solution for our franchisees that addresses consumer booking needs
on the web, among other reasons, because if the Franchise Division is sold,
we will be, in effect, a start-up dependent on the Internet.
14. Changes to the Travel Industry; Competition; Ease of Entry Into Business.
The travel industry is highly competitive and is characterized by many
small travel agencies who are predominantly reliant upon a local customer
base and business generated by independent "outside agents." For example,
over the last several years, most airlines have lowered the compensation
paid to travel agencies (traditionally 10% or 5%-8%, depending on the
carrier). In addition, the compensation arrangement was capped at a maximum
of $50 on round-trip tickets of $500 or more, with a $25 cap on
compensation on one-way tickets causing travel agencies to now generally
charge a service fee of $10-$20 per ticket to compensate for the lost
commission. Moreover, in addition to the smaller independent agencies,
there are several corporate chains and franchise chains with whom we are
presently and in the future will compete. Such chains include UniGlobe
Travel, Carlson Travel, Rosenbluth Travel, U.S. Travel, American Express
and Empress Travel. Many of these chains, and many of the larger
independent agencies, have financial and other resources greater than those
available to us (or our franchisees) and can influence the pricing of
franchises. In addition, several of the companies with whom we and our
franchisees will compete have related wholesale tour operations through
which they procure, package and market travel packages through their own
retail outlets and/or have more advanced Internet sites.
15. Dependence on Management. All decisions regarding the policies and
directions of our Company are made by our executive officers. The loss of
certain of our key management or failure to attract and retain other
qualified management personnel could have a material adverse effect on our
results of operations. However, we have an employment contract through
February 2005 with Mr. Brent, our President, during which term he is the
subject of non-compete (and confidentiality) provisions. Because of such
dependence, we have a key man $1,000,000 life insurance policy on Mr.
Brent; we are the sole beneficiary on such policy. See "Management --
Agreement with Company's Chief Executive Officer."
16. Management of Growth. The rapid expansion necessary for us to fully exploit
the market window for our business operations requires an effective
planning and management process. The growth and expansion of our business
and our product offerings are expected to place a significant strain on our
management, operational and financial resources. To manage our growth, we
must implement and improve our operational and financial systems, make
sound decisions concerning our expansion and our operating divisions and
expand, train and manage our employee and franchisee base. There can be no
assurance that we will be able to implement these procedures on a timely
basis. Further, we will be required to manage multiple relationships with
various distributors, franchisees, regional presidents, wholesalers,
licensors and other third parties. There can be no assurance that our
systems, procedures or controls will be adequate to support our operations
or that our management will be able to fully exploit the market window for
our products and services. Our future results will also depend on our
ability to expand our sales and marketing organizations, as well as our
ability to implement and manage new distribution channels, to penetrate
different and broader markets. If we are unable to manage growth
effectively, our business, operating results and financial condition will
be materially adversely affected. In the event of the sale of the Franchise
Division, the challenges described above could be even more significant.
<PAGE>
This is because, while we would have received substantial cash payments for
the sale, we would be abandoning our current revenue source while
simultaneously embarking on an, as yet, unproven web-based variation on our
travel service business.
17. Failure to Maintain Current, and Establish Additional, Relationships With
Third Parties. We depend on, and intend to expand, relationships with third
parties to promote and direct traffic to our travel services website.
Although we currently have a few existing agreements with third parties,
our future success is largely dependent on our ability to enter into cross
promotional, networking, licensing and access agreements with third parties
to promote us and steer potential customers to our website. There can be no
guarantee that we will be able to enter into such arrangements or that, if
entered into, they will be on terms satisfactory to us. Some of these
agreements, which are common in e-commerce, call for a third party to be
paid a monthly fee, while others may require payment to the third party of
a percentage of revenue generated from customers who make a purchase after
linking through from the third party's website. The financial condition and
results of our operations will be largely dependent on maintaining its
existing relationships and developing new relationships which increase
traffic to its website. The termination of any of these existing
agreements, or the failure to enter into additional relationships, would
limit the growth in traffic to our website and could have a detrimental
impact on our financial condition and results of operations or impede our
ability to attract a large enough customer base to make its business
viable. Additionally, we may not be able to renew any or all of the current
or future agreements on acceptable terms. Even if we maintain existing
relationships, because most of them have been formed recently and several
of them have not yet been fully established, we do not have sufficient
historical data to assess accurately whether such arrangements will be
successful in drawing sufficient traffic to its website. Any unexpected
decline in traffic to the websites of the third parties with whom we have
relationships could have a negative impact on the traffic to our own
website.
18. Unproven Business Model; Dependence on Increased Use of the Internet. The
sale of services through the Internet may not achieve broad market
acceptance and, even if it does, we may not achieve significant sales of
services. Our business model is new, unproven and evolving, and may not
prove to be viable in the long run. In particular, the business model is
based on several assumptions, any one of which may not prove to be true,
including the following: a significant number of businesses and business
service providers will use our website to buy our travel services and
products; and a significant number of businesses or trade associations will
be willing to enter into, and actively promote or otherwise participate in,
partnership, promotional, travel services or licensing arrangements to
provide services to, or greater exposure of, our website. If any of these
assumptions prove not to be true, the business and results of operations
may be substantially impacted.
Because use of the Internet is still a relatively novel experience,
for our website to be successful, potential customers who have used
traditional means of commerce to conduct business must accept and utilize
novel ways of conducting business and exchanging confidential information.
We will not be able to grow our online business unless businesses generally
increase their use of the Internet to conduct commerce, and the Internet is
able to support the demands of this growth. Our online success depends on
the increasing use of the Internet by businesses of all kinds. If use of
the Internet as a medium for consumer and business communications and
commerce does not continue to increase, demand for our services and
products will be limited and our financial condition would be materially
adversely affected.
Even if businesses increase their use of the Internet, the Internet
infrastructure may not be able to support the demands of this growth. The
Internet infrastructure must be continually improved and expanded in order
to alleviate overloading and congestion. If the Internet's infrastructure
is not improved or expanded, the Internet's performance and reliability
will be degraded. Internet users may experience service interruptions as a
result of outages and other delays occurring throughout the Internet.
Frequent outages or delays may cause consumers and businesses to slow or
stop their use of the Internet as a transaction-based medium.
<PAGE>
19. Expansion of Technology Infrastructure and Performance of Website and Third
Party Servers, Websites and Internet Capabilities. To by successful, we
must continue to increase substantially traffic to our website and convert
website visitors into customers. Accommodating this growth in traffic and
customer transactions will require us to continue to develop our technology
infrastructure. To maintain the necessary technological platform in the
future, we must continue to expand and stabilize the performance of our web
servers, improve our transaction processing system, optimize the
performance of our network servers and ensure the stable performance of our
entire network. We may not be successful in our efforts to upgrade our
systems and, even if successful, it may not be on time or within budget. If
we fail to achieve a stable technological platform in time to handle
increasing website traffic or customer order volume, potential customers
could be discouraged from using our travel services, our reputation could
be damaged and our business could be harmed. Particularly if the Franchise
division is sold, the performance of our website is critical to our
business and reputation. Any system failure that causes an interruption in
the service of our website or a decrease in our responsiveness could result
in reduced user traffic and reduced revenue. Further, prolonged or ongoing
performance problems on our website could damage our reputation and result
in the permanent loss of customers.
20. Internet Security and Privacy. As with any website, our network and
software are vulnerable to security breaches and similar threats which
could result in liability for damages and harm to our reputation. Our
network infrastructure is vulnerable to computer viruses, break-ins,
network attacks and similar disruptive problems which could deter current
and potential customers from conducting business on our website. Security
problems caused by third parties could lead to interruptions and delays or
to the cessation of service, which could ultimately result in a loss of
customers. Furthermore, inappropriate use of the network by third parties
could also jeopardize the security of confidential information stored in
our computer systems. Although we intend to continue to implement
industry-standard security measures, there can be no assurance that the
measures implemented will not be circumvented. The costs and resources
required to alleviate security problems may result in interruptions, delays
or cessation of service to customers or inadvertent disclosure of
confidential information, any of which could have a material impact on our
financial condition, business and results of operations.
21. Potential Internet Government Regulations. Future regulations could be
enacted that either directly restrict our business or indirectly impact our
business by limiting the growth of e-commerce. As e-commerce evolves,
federal, state and foreign agencies could adopt regulations covering issues
such as privacy, content and taxation of services and products. If enacted,
government regulations could limit the market for our travel services and
products. Although many regulations might not apply directly to us, it is
expected that laws regulating the collection, dissemination or processing
of personal, corporate or consumer information could directly affect our
business. It is also possible that legislation could expose companies
involved in e-commerce to liability, which could limit the growth of
e-commerce generally. Legislation could hinder the growth in Internet use
and decrease its acceptance as a medium for communication and commerce.
22. Liability for Information Downloaded from Internet; Insurance. Because
materials and information may be downloaded from our website and
distributed to others, there is the possibility that claims will be made
against us for defamation, libel, negligence, copyright or trademark
infringement or other claims based on the nature and content of the
material on our website. These types of claims have been brought, and
sometimes successfully argued, against online services. In addition, we
could be exposed to liability with respect to false or misleading
information obtained on the website or products that may be accessible
through our website. Although we carry general liability insurance which we
believe to be sufficient for our proposed business and consistent with
standard industry practices, the insurance may not cover potential claims
and may not be adequate to indemnify us from all liability that may be
imposed. Additionally, we will seek to be named as an additional insured on
the liability policies carried by any third-party suppliers of our content,
and will request to be included as an additional insured on the liability
policies of any additional companies with which we enter into cross
promotional or other arrangements. No assurance can be given that any of
these companies will agree to name us as an additional insured, or that if
<PAGE>
so named, that any such policies will adequately protect us against
potential claims. Any imposition of liability not covered by insurance or
in excess of insurance coverage could have a material adverse effect on our
business, results of operations and financial condition.
23. Concentration of Voting Control. Michael Y. Brent, our President and Chief
Executive Officer, owns a significant portion of our issued and outstanding
shares. Specifically, Mr. Brent controls shares representing not less than
___% (assuming that the maximum number of shares are sold) on a fully
diluted basis. As such, Mr. Brent is able to control or significantly
influence the approval of a merger, sale of assets or other fundamental
corporate transaction. Similarly, Mr. Brent is able to control or
significantly influence our direction and future operations, including
decisions regarding the issuance of additional shares and other securities.
24. Limited Liability of Management. Under pertinent statutory provisions, the
liability of management is limited. As a result, though it may be possible
to obtain injunctive or other equitable relief with respect to some
conduct, shareholders may be unable to recover monetary damages against any
persons for actions taken by them which constitute negligence or which
would violate any applicable fiduciary duties. Shareholders may not have
any effective remedy in cases where equitable relief is available. These
provisions could operate to reduce the likelihood of an action against
management or us. Nonetheless, management is subject to its duties outlined
in "Fiduciary Responsibility Of Management."
THE FOREGOING LIST OF RISK FACTORS DOES NOT PURPORT TO BE EITHER
EXHAUSTIVE OR A COMPLETE EXPLANATION OF ALL POSSIBLE RISKS INVOLVED IN THIS
OFFERING. CONSEQUENTLY, THERE IS NO GUARANTEE OR ASSURANCE THAT WE WILL ATTAIN
OUR BUSINESS OBJECTIVES OR THAT WE WILL REMAIN VIABLE. THERE IS NO GUARANTEE
THAT THE INVESTOR WILL RECEIVE BACK ALL OR PART OF HIS INITIAL INVESTMENT.
POTENTIAL INVESTORS SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS BEFORE DECIDING
TO INVEST IN SHARES OF THE COMPANY.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Because of certain statutory and case law relating to broad discretion
granted management of a company, typically directors and officers of a
corporation are indemnified by and have limited monetary liability to its
shareholders. Failure of management to satisfy its fiduciary responsibility to
shareholders could subject management to certain claims. The following inherent
or potential conflicts of interest should be considered by prospective investors
before subscribing for shares.
While we may enter into transactions with affiliates in the future, we
intend to continue to enter into such transactions only at prices and on terms
no less favorable to us than transactions with independent third parties. See
for example, the descriptions in "Management," including "-Director, Officer and
Contract Manager Compensation" and "-Agreement with Our Chief Executive
Officer." In that context, we will require any director or officer who has a
pecuniary interest in a matter being considered to recuse themselves from any
negotiations. In any event, any debt instruments in the future are expected
generally to prohibit us from entering into any such affiliate transaction on
other than arm's-length terms. In addition, a majority of the Board is, and must
continue to be, neither an officer nor may such person have a pecuniary
interest, other than as a shareholder or director, in any transactions with us.
In turn, commencing immediately, a majority of the independent Board of
Directors members, defined as having no pecuniary interest in the transaction
under consideration, will be required to approve all matters involving
interested parties. It is expected that additional independent director(s) will
be added to the Board. Moreover, an independent stock transfer agent has been
appointed to assure proper issuance of stock to shareholders.
<PAGE>
At the current time, we have no provision to issue any additional
securities to management, promoters or their respective affiliates or
associates. At such time as the Board of Directors adopts an employee stock
option or pension plan, any issuance would be in accordance with the terms
thereof and proper approval. Although we have a very large amount of authorized
but unissued common stock which may be issued without further shareholder
approval or notice, we intend to reserve such stock for certain offerings
contemplated for continued expansion, acquisitions and properly approved
employee compensation at such time as such plan is adopted.
FIDUCIARY RESPONSIBILITY OF MANAGEMENT
Generally, our management is accountable to our shareholders as a
fiduciary and, consequently, must exercise good faith and integrity in handling
company affairs. This is a rapidly developing and changing area of the law and
prospective investors who have questions concerning the duties of management
should consult with their own legal counsel. shareholders may have the right to
institute legal action (i) on behalf of the shareholder and all of our other
similarly situated shareholders of to recover damages for a breach by management
of its fiduciary duty or (ii) to recover damages from third parties on our
behalf. The burden and expense of any such litigation may have to be borne,
depending on the outcome, by the shareholders bringing such action.
Under pertinent New York law, management is not liable to us for any
loss or liability in connection with any act performed or omitted, or for
negligence or any other matter, except for any loss or liability incurred as a
result of management's willful misconduct, gross negligence or fraud. In
addition, we have agreed to indemnify management for any loss or damage we may
have incurred by reason of acts performed in good faith and reasonably believed
to be within the scope of the authority conferred upon management, except for
acts of willful misconduct, gross negligence or fraud.
IN THE OPINION OF THE SEC, INDEMNIFICATION FOR LIABILITIES ARISING UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, IS AGAINST PUBLIC POLICY AND, THEREFORE,
IS UNENFORCEABLE.
THE BUSINESS
Company History
We are a travel management company using technology and the Internet for
our franchise chain and the retail consumer online. Prior to changing our name,
we were incorporated in June 1982 as Travel Network, Ltd. in New York and did
business as Global Travel Network. On February 1, 1994, we re-incorporated in
New Jersey (at which time the New York corporation was merged into the New
Jersey corporation). In turn, Global Travel Network, L.L.C. ("GTN") was created
as a conduit to participate in the franchise Global Travel Network business of
Travel Network, Ltd. On September 17, 1999, Playorena, Inc. acquired the
outstanding equity of GTN in exchange for 5,063,379 shares (including 123,292
shares reserved for issuance upon the exercise of certain warrants previously
issued by GTN and 4,931,087 shares issued to equity holders of GTN) 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 merger,
Playorena operated as a public shell seeking the acquisition of, or merger with,
an existing company. Following the merger, we changed our name to ETRAVNET.COM,
Inc.
In business since 1982, we, through our Global Travel Network franchise
business, now have over 300 locations throughout the United States, including
over 50 franchised travel agencies located within Wal-Mart Super-centers
nationwide, and over 50 international franchised agencies and master franchises
representing 21 countries and the Caribbean.
<PAGE>
Moreover, we provide core services to franchisees, small office/home
office ("SOHO") agencies, independent travel agencies and high traffic websites.
We provide each agency with an interactive, real time travel-booking engine and
access to our preferred deals though our relationships with leading travel
industry suppliers. However, see "Risk Factors - Possible Sale of Franchise
Division." Specifically, management supervision has been delegated to specific
employees who have responsibility for overseeing the franchise system as
described above. In the event of a sale of the Franchise Division, certain
current employees would become employees of the acquiror and continue their
current travel franchise functions on the latter's behalf.
The Online Division was in development stages in 1999 and is currently
seeking to offer 3 unique services with a separate management team which has
strong expertise in marketing, technical support and web-based development. We
have established 3 brands that include:
o ETRAVNET.COM (SM) A travel and hospitality site that will be the focal
point of private label websites.
o HAGGLEWITHUS.com (SM) A real-time reverse auction booking system that
will utilize our exclusive patent pending technology for the travel
industry and the retail-shopping sector.
o REZCONNECT.COM (SM) An online reservations service specializing in
real time reservations for the hotels and restaurant industries.
Rezconnect.com SM will also use our patent-pending technology.
Promotion
We believe we have a unique and cost effective sales strategy. By
extending our franchise model to the Web, we are funneling the cost of customer
acquisition to our "Web agencies." These Web agencies, which will be websites
that are not in the travel industry, existing franchisees (if the Franchise
Division is not sold), newly recruited SOHO agencies and independent travel
agencies, is expected to augment our customer base, without having to incur the
sales and marketing expenses traditionally associated with reaching a critical
mass. We intend to advertise services offered through our own site via
traditional and online media buys.
Franchise Division
We currently generate revenues from several sources: franchise start-up
fees, service fees, computer system usage (segment) and commission fees. The
table below lists the breakdown of our pricing policy per agency type:
<TABLE>
<S> <C> <C> <C>
Transactional
Agency Type Franchise/Sign-up Fees Service Fees (1) Commission %
----------- ---------------------- ------------ -----------
Conversion Agency ("Power Partners") $42 $50 2.00%
SOHO $4,000 $50 - $70 3.75%
Start-up Agency $30,000 $350 - $770 N/A
Wal-Mart Supercenter $29,000 - $35,000 $320 - $660 N/A
Regional President $80,000 $250 - $570 N/A
International President $125,000+ $250 - $570 N/A
(1) Fees charged monthly and increase annually according to the length of the agency's affiliation with
our network.
(2) Historical figures for 1997-1999 showing the results of operations are in Appendix I.
</TABLE>
<PAGE>
Online Division
We also expect to garner web advertising revenues based on an average
number of unique visitors per website, an average number of monthly visits per
visitor, an average number of page views per visit and an average number of
banners per page view in order to get a total number of page views. The price
charged per 1000 page views ("CPM") is estimated to start at $20 and fall over
time, reaching a CPM of $5. In addition, we expect to earn email revenues from
agencies that will subscribe to email service. We will charge the agencies a set
price per email we sends to visitors on their sites. The price charged varies by
agency type and ranges from $0.10 to $0.20 per email.
HAGGLEWITHUS.COM(SM) is a reverse, real time, one-on-one multiple bid
virtual auction system. This means the bid price goes lower (not higher), is
interactive in character and involves one bidder at a time. Because the system
is web-based (not email-based) and real time in character, multiple elements
(brand and other specifics) can simultaneously be considered as part of a bid.
(This is in contrast to Priceline.Com which is price-based only where, if the
price is met, one must accept the associated conditions of a sale). With
HAGGLEWITHUS.COM (SM), a user's bid is not accepted unless all elements of the
bid are met. In fact, the technology permits simultaneous, multiple bids as well
as back and forth bidding more akin to a live auction environment.
HAGGLEWITHUS.COM (SM) is owned and operated by us and allows a consumer
to negotiate directly with any travel supplier chosen by the consumer. The
consumer makes a bid for the purchase of the travel services, which bid is
transmitted to the travel supplier through the HAGGLEWITHUS.COM (SM) website.
The bid is converted to an automated phone call which is received by the travel
supplier at which point the bargaining process begins. Assuming the travel
provider is able to offer a price which is acceptable to the consumer and the
consumer is willing to accept the price of the travel supplier, a confirmation
will be issued by the travel provider within minutes of the initial consumer
inquiry. The HAGGLEWITHUS.COM (SM) process enables a consumer to maintain
control over his transactions by allowing the consumer to pick the travel
supplier, bid directly with the travel supplier for the lowest price and confirm
the travel arrangements, all within minutes. During our current pilot operating
state, the HAGGLEWITHUS.COM (SM) system is initially limited to hotel
reservations. (we already secured relationships with approximately 2,500 hotels
who have agreed to utilize the HAGGLEWITHUS.COM (SM) website.) We plan to expand
the use of HAGGLEWITHUS.COM (SM) to sell products, resorts, tours, cruises and
airline tickets during the second half of 2000. Because of such flexibility, we
believe HAGGLEWITHUS.COM (SM) will attract people and entities who will be
willing to pay our revenues through listing as well as transactional fees. The
following table enumerates the listing fees charged and commission arrangements
on HAGGLEWITHUS.COM (SM) transactional sales for each type of related product:
Product Listing Fees (*) Commission %
------- ---------------- ------------
Hotel $12.50 - $18.00 10%
Tours $5.00 - $8.00 10%
Cruises $5.00 - $10.75 10%
Airline Tickets $2.00 - $3.50 10%
Car Rentals $10.00 - $15.00 10%
(*) Fees charged monthly and increase annually according to the length of the
travel suppliers' usage of the application.
<PAGE>
Distribution
------------
The platform we have developed will expand our distribution channels
online utilizing the efficiencies available through the Internet, effectively
complementing our existing offline distribution channels. Agencies participating
in our web distribution will be able to work closely with their customers as
they shop for deals offered on our platform (which will consist of our
inventory, our preferred suppliers and the agent's own offerings). The agencies
will have the ability to offer these products on their website, served by our
Internet platform.
We intend to attract agencies into our network by advertising in trade
shows, telemarketing, sending broadcast faxes and emailing potential agencies
for the Power Partners program. For SOHO agencies, we plan to advertise in
newspapers and magazines that cater to home-based and small office businesses.
We will also advertise in newspapers and domestic and international franchise
trade shows to attract more Wal-Mart and international agencies. In addition, we
will be contacting all websites that do not already offer travel and have
attractive demographics through telemarketing and email.
In the event the Franchise Division is sold, we would have proceeds from
such asset sale but would have no revenues unless and until the Online Division
starts to contribute revenues.
The Strategy
------------
In the event the Franchise Division is not sold, we will utilize our
power base of 400 agencies which books an estimated $1.5 billion in sales in
cumulative store volume, to advance our web based business of travel sales
through various channels of distribution. Because we believe that our
patent-pending technology products offer the client unique opportunities to save
money in all segments of the travel industry, we believe we have a distinct
advantage over our competition.
We have classified the online agencies we will contact under three
general categories:
Our strategy is to develop a B2B ("business to business") component. The
B2B activities include an interactive, real-time travel booking engine we
provide to our franchisees, SOHO agencies, independent travel agencies and
private-label websites for high demographic web commerce companies in industries
outside travel, all of whom gain cost-effective means of offering the travel
benefits negotiated by our purchasing power, while realizing added revenues.
These avenues will also provide us with access to additional travel
customers with little acquisition costs since the aforementioned are marketing
their sites to attract such web shoppers.
1. Our current online, interactive sites (which are designed to generate
visitors, purchases and create revenue) are the following:
ETRAVNET.COM (SM)
HAGGLEWITHUS.com (SM)
REZCONNECT.com (SM)
In the B2C (" business to consumer") component, we will directly offer
travel-related products to consumers through our own website. We will also
expand our offline distribution channels by developing our network of
domestic and international agencies as well our store-within-a-store
Wal-Mart agencies. Additionally, we have established innovative programs
that we will offer directly to both travel agencies and consumers alike,
the first of which is an online, real-time, reverse auction application. In
this sector, our goals are to provide:
<PAGE>
o Competitive travel products;
o Online capability to provide travel-related services in real-time; o A
customized and easy-to-use website that preserves each agency's
corporate identity;
o Access to our online system that interfaces with one of the leading
centralized reservation systems, offering agencies an efficient
mechanism to electronically book air travel, hotel rooms, car rentals,
cruises and tours;
o Enticing commission and override arrangements; and
o Quality assistance to improve the execution of each agency's travel
option.
2. Private labeled travel agency site: high traffic or large e-commerce
websites with outstanding demographics which offer our travel products
within their existing sites under their own brand;
3. Conversion Agencies or "Power Partners" -- full-service travel agencies who
will join our network or participate in some of our travel products and
promotions; and
4. SOHO Agencies-comprised of individuals who operate as satellite agencies
from their own homes or work locations.
Our strategy is clearly focused on propelling our B2B and B2C e-commerce
business through using our proprietary technology for our own websites and
applications for revenue producing from other websites that attract web visitors
primarily for their content, products, and services outside of the travel
industry. Since research firms like Jupiter and Forrester Research have
projected that travel purchases will dominate web commerce in the next five
years, we believe that this approach will provide for low cost of acquisition of
customers to buy travel on sites with which they have familiarity which result
in sales for us.
While we see our future growth coming heavily from the e-commerce side,
particularly if we successfully consummate the contemplated sale of our
Franchise Division, today is a leading travel agency franchiser offering
assistance to qualified entrepreneurs to enter the travel agency business as
well as assisting existing agencies to benefit from using a global brand name
and the accompanying benefits. In fact, we is entering our 18th year of
operation and is one of the largest travel agency chains in the world. It has
received international recognition for the quality of our programs, services and
relationships with our franchisees. Currently, we have over 300 domestic travel
agencies (broken into classes, including start-up and conversions) and over 50
international travel agencies. In recognition of our stature, we were honored as
a leading franchiser by Income Opportunity Magazine, Entrepreneur Magazine,
Travel Weekly and Tour & Travel News.
Our franchise fees range from $3,000 to $29,900 depending upon the
particular franchise program purchased for the creation and start-up of a newly
created retail travel agency (a "start-up franchise") or the conversion of an
existing and established retail travel agency to that of a "Travel Network",
"Vacation Central" or "Global Travel Network" travel agency (a "conversion
franchise"). We also offer, at a fee ranging from $40,000 to $80,000, depending
upon the territory granted, an area sales representative program ("regional
president franchise") in which the franchisee is given the exclusive right, for
a designated area, to solicit, screen and propose prospective franchisees to us
within such designated area. A similar Regional President franchise program is
offered with respect to franchisees for designated territories located outside
of the United States. All of our operating franchisees pay to us, in addition to
the initial franchise fee, a monthly service fee which ranges from $350 per
month for the first 12 months following the opening date of the franchise
location to $750 per month commencing 37 months following the opening of the
franchise location.
Through our retail franchise system, we feature a frequent flyer Miles
Program as a value added benefit to promote consumer loyalty. Under our Miles
Program, the first time a Travel Network customer travels, he or she receives an
introductory certificate for 1,000 miles which may be utilized in conjunction
<PAGE>
with any one of six major United States air carriers. Thereafter, the consumer,
through subsequent travel, may earn additional miles in addition to that earned
under the airline's frequent traveler program. This enables Travel Network
retail customers to earn additional frequent traveler benefits (one from the
airline's frequent traveler program and a separate Miles Program benefit from
Travel Network), thereby enhancing consumer loyalty.
We are currently in the process of launching a satellite office
franchise program (the "satellites") pursuant to which a franchisee will be
given the ability to join and affiliate with a full service Travel Network
franchisee (a "home office") as a satellite office while working from a home or
other work location. A Satellite will have complete ability, via computer, to
research and book reservations as if physically located in a travel agency.
Itineraries, ticketing and boarding passes are processed at the agency with whom
the satellite franchise is associated, and all travel documents will be obtained
by the Home Office for direct delivery to the customer or delivery to the
Satellite franchise for delivery to the customer. Satellite franchises are
intended to be offered at a franchise fee of $4,995. We believe that the
satellite concept offers maximum flexibility to individuals desiring to enter
the travel industry and who do not want to open an independent office. Existing
agencies with which satellites are affiliated will have the ability of expanding
their outside sales agent network and revenue base without capital costs for
additional office space and compute equipment. We have not sold any satellite
franchises to date.
Each of our franchisees are independently owned and operated at their
own respective leased locations. We provide our franchisees with training and
instruction in the Global Travel Network methods of operation, including
promotional assistance, agency development and expansion, computer usage,
operating procedure, travel product, advertising and related travel agency
management concepts. Throughout our franchise relationship, we provide continual
training and assistance, conferences, seminars, meetings and workshops to add to
the franchisees' skills and enhance the operation of each Global Travel Network
travel unit.
In the event the Franchise Division is sold (see "Possible Sale of
Franchise Division"), we would have proceeds from such asset sale but would have
no revenues unless and until the Online Division starts to contribute revenues.
Competition
-----------
We have the characteristics of both an online travel provider and a
brick and mortar travel agency. We rely on selling our travel-related products
through traditional brick and mortar travel agencies and online sites. We
differentiate ourselves through our buying power and low acquisition costs. This
unique positioning results in us having few direct competitors. Our competition
can be classified into three separate types of companies: the online travel
providers, the retail travel providers and electronic distributors of travel
information and services.
1. Online Travel Providers
-------------------------------
The numerous competitors in this category offer travel bookings solely
through the use of the Internet. The main online competitors include Expedia,
Preview Travel, Inc., Cheap Tickets, Inc., GetThere.com, Travelscape.com,
Lowestfare.com, Travelocity.com and Priceline.com.
Expedia, Preview Travel, Inc. and GetThere.com offer branded online
travel services such as airlines, hotels and car rental for leisure and small
business travelers.
Cheap Tickets, Inc. offers discount tickets for leisure travel. Cheap
Tickets purchases non-published fares from airlines and resells those tickets to
customers at a discount to the published fares. Cheap Tickets also offers
regularly published fares for auto rentals and hotel reservations.
Priceline.com offers similar travel booking capabilities to the other
online providers, but in a uniquely different fashion. Priceline.com allows
<PAGE>
customers to bid their own price for domestic and international airlines and
hotel chain reservations. Priceline.com in turn searches its database to
determine whether the request can be met at the user's bid price. However, if
the bid price is met, the user has no flexibility to change any of the
arrangements made by Priceline.com or to meet his/her request.
Lowestfare.com provides reservation on over 400 airlines worldwide and
finds customers last-minute specials, with savings off the published fare. It
also offers reservations at more than 39,000 hotels at select discounts and
discounted vacation packages and tours. Lowestfare.com is working with
Thestreet.com to offer private-label Web travel.
2. Retail Travel Providers
-------------------------------
The retail travel providers offer various services to online travel
providers and through brick and mortar agencies such as the distribution of
vacation packages, designing and marketing travel programs, corporate travel
management, vacation products and travel related information. Companies such as
800 Travel Systems, Inc., Intrav, Inc., Global Vacation Group, Grand Adventures
Tour and Travel Publishing Corp., Navigant International, Uniglobe.com, Travel
Dynamics, Inc. and Travel Services International are included in this category.
The retail travel provider most comparable to us is Uniglobe.com.
Uniglobe.com provides products and services through the Internet to leisure and
business travelers and also operates a travel fulfillment center for home-based
agents and online companies.
Generally
The following table summarizes our services in comparison to other online
agencies.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
24/7 Real time
Brick & Customer Ability to Booking
Mortar Provides Customer Service Chose for Full
Agencies Additional Service in Via User Destimation Range of
Available Content Person Telephone Friendly Time Products
--------- ------- ------ --------- -------- ---- --------
Global Travel
Network* |X| |X| |X| |X| |X| |X| |X|
Preview Travel |X| |X|
Internet Travel
Network |X| |X| |X|
Travelocity |X| |X| |X|
TheTrip.com |X| |X| |X| |X|
Itravel.com |X| |X| |X|
Biztravel |X| |X| |X| |X|
Expedia |X| |X| |X| |X|
Uniglobe Travel |X|
Online |X| |X| |X| |X| |X| |X|
Traveler's Net |X| |X| |X|
Airlines of the
Web |X| |X| |X|
Yahoo Travel |X| |X| |X|
Atevo |X| |X| |X| |X|
Travel ResDirect |X| |X| |X| |X|
UAL.com |X| |X| |X|
Priceline.com |X|
</TABLE>
_______________________
* In the event the Franchise Division is sold (see "Possible Sale of Franchise
Division"), the checkmark in the "Bricks and Mortar" column would no longer be
applicable.
Litigation Issues
A franchisee, JCB Enterprises, is seeking damages for alleged violations
of the Indiana Franchise Act and Indiana Deceptive Franchise Practices Act, for
<PAGE>
common law fraud, rescission of the Franchise Agreement and money damages of
$80,000 or more for a declaratory judgment on whether a partnership existed
between the franchisee and us. The franchisee recently filed personal and
corporate bankruptcy and the lawsuit has been transferred to the trustee who is
expected to pursue the case. We will aggressively defend our actions and believe
we will be successful in proving our case and obtaining dismissal, although
there can be no assurance thereof.
Bankruptcy
None of our officers or directors has been involved as a debtor in any
proceedings under the U.S. Bankruptcy Code (or comparable foreign law).
MANAGEMENT
Directors, Director-elect and Executive Officers
Set forth below is certain information concerning the directors and
executive officers:
Name Age Position/Title
---- ------------------
Michael Y. Brent..............58 President, Chief Executive Officer,
Secretary and Director
Stephanie Abrams..............56 Executive Vice President
Derek J. Brent................29 Treasurer, Vice President/Sales and Director
Harold L. Kestenbaum..........50 Director
Jay M. Haft...................64 Director-elect
Mr. Michael Y. Brent, President, Chief Executive Officer, Secretary and
a Director, graduated from the University of Miami in June 1965 with a Bachelor
of Arts in administration and accounting. From July 1965 through 1974, he was a
Director of Convention Sales for his family hotel business. From 1974 - 1981,
Mr. Brent owned and operated his own travel company. In 1982, he helped start
Travel Network, Ltd. ( one of our predecessors) and served as Vice President
until June 1989 when he became its Chief Operating Office and a part owner. In
1994, Mr. Brent became our President and Chief Executive Officer. As of December
1997, he became our sole owner.
Ms. Stephanie Abrams, Executive Vice President, joined our predecessor
in 1986 with four years of experience in retail, wholesale, tour operations and
travel sales. Ms. Abrams earned a Bachelor of Arts with a major in education in
1965 and a Master of Science with a double major in social sciences and
education from Queens College of the City University of New York in 1967. Ms.
Abrams has developed and implemented Company marketing programs and has been
responsible for the sale of individual unit franchises, conversion of existing
agencies and the sales of U.S. Regional Master Rights. She has held the
positions of Director of Field Services (1986), National Director of Marketing
(1988), Vice President of Global Marketing (1992) and assumed the position of
Executive Vice President in 1995. Ms. Abrams has served on advisory boards of
ASTA, the ASTA Council of Travel Marketing Organizations, Dollar Rent-A-Car,
Hong Kong Tourism, System One and AMADEUS Travel Industry Reservations Systems,
as well as the International Affairs Committee of the International Franchise
Association. She has also been named on the list of the Most Powerful Women in
Travel (Travel Agent Magazine).
Mr. Derek J. Brent, a Director as well as Treasurer and Vice
President/Sales, joined our predecessor in May 1993 as sales consultant. In
1996, he became Director of Sales. Mr. Brent, the son of Michael Y. Brent,
<PAGE>
graduated from the University of Maryland in June 1993 with a Bachelor of
Business Administration and Accounting, majoring in accounting. He has passed
all necessary CPA examinations and is applying for certification as a CPA by the
Certified Public Accountants Board of New Jersey.
Mr. Harold Kestenbaum, an independent Director of our predecessor since
1995, is also our franchise and general counsel. Mr. Kestenbaum has been engaged
primarily in the private practice of law, specializing in franchise law from his
Garden City, New York offices.
Mr. Jay Haft, a consultant since August 9, 2000 and a Director-elect, is
the developer of ReZconnect, our patent- pending net-to-phone-to-net technology.
Mr. Haft, who will become a director concurrent with finalization of our
directors and officers liability insurance, is a strategic and financial
consultant for growth stage companies. He is active in international corporate
finance, mergers and acquisitions as well as in the representation of emerging
growth companies. Mr. Haft has actively participated in strategic planning and
fund raising for many internet and high-tech companies as well as technical
product, service and marketing companies. A graduate of Yale and Yale Law
School, he is currently counsel to Parkey Dury Rosoff & Haft, New York. Mr. Haft
also has served as a member of the Florida Commission of Government
Accountability to the People and is Treasurer of the Miami City Ballet as well
as a Trustee of Florida International University. He is also a Managing General
Partner of GenAm "1" Venture Fund, an international venture capital fund, and
director of numerous public and private corporations.
Contract Managers
Mr. Ori Klein, Chief Technology Officer, a key independent contractor,
has 5 years of experience in the conception, design and development of Internet
solutions and 10 years of MIS experience. During the last two (2) years, Mr.
Klein worked for a major web development company of which Travel Network was a
significant client. Mr. Klein supervised and worked on our website during the
same period of time in the development of web pages, infrastructure and
menu-driven systems for us.
Mr. Ronald Greenspan, Web Product Manager, a key independent contractor,
has 15 years experience in tour operation and sales travel industry operations.
Mr. Greenspan has extensive experience in tour operations, vendor relationships,
tourism and convention boards, hotel and airline product negotiations as well as
travel agency relations. This experience also includes travel industry marketing
through agencies and agency groups.
Director, Officer and Contract Manager Compensation
All employees are paid a salary commensurate with their responsibility
and position. Certain officers and contract managers are paid a bonus (see chart
below) based on our net income and such employee's contribution thereto. The
following table sets forth certain information regarding compensation for the
fiscal year ended December 31, 1999, and the two prior years, earned by or paid
to our current Chief Executive Officer, other executive officers and directors
(collectively the "Directors and Officers") and two independent contractor
managers (with information prior to September 17, 1999 relative to our
predecessor, Global Travel Network, L.L.C.):
<PAGE>
Fiscal Salary/ Bonus/ Stock
Directors and Officers Year Consulting Fee Commission Options(1)(2)
---------------------- ---- -------------- ---------- -------------
Michael Y.Brent(2) (3) 1999 $175,000 $54,000 200,000
1998 175,000 48,000
1997 139,000 39,000
Stephanie Abrams 1999 102,000 10,000 100,000
1998 74,000 7,000
1997 65,000 5,000
Derek J. Brent (2) 1999 43,000 3,000 100,000
1998 28,000 2,500
1997 23,000 2,000
Harold L. Kestenbaum(4) 1999 15,000 N/A 21,000
1998 N/A N/A
1997 N/A N/A
Jay Haft (2)(5) N/A N/A N/A 50,000
Contract Managers
-----------------
Ori Klein 1999 90,000 N/A N/A
1998 N/A N/A
1997 N/A N/A
Ronald Greenspan 1999 30,000 N/A 10,000
1998 N/A N/A
1997 N/A N/A
_______________________
(1) Specific information concerning the exercise price and expiration dates of
the stock options is available in our Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1999.
(2) Messrs. M. Brent, Kestenbaum and D. Brent, our three current Directors, are
not paid separately for such services, whether because the individual is an
employee (in the case of Messrs. M. Brent and D. Brent) or Mr. Kestenbaum
(whose monthly retainer, described in (3) below, includes Board
participation). Directors' out-of-pocket expenses are reimbursed upon
presentation of appropriate documentation. Once we have in place directors
and officers insurance, Mr. Haft will become our fourth Director; but will
not be paid separately for his services, he will be reimbursed for
out-of-pocket expenses and will receive certain options in his capacity as
our consultant as described in (5) below.
(3) See "Agreement with our Chief Executive Officer" with regard to Michael Y.
Brent's long-term compensation agreement with us.
(4) In the case of our franchise counsel, Mr. Kestenbaum is paid an annual
retainer, payable in monthly installments, and does not participate in a
bonus or commission arrangement.
(5) Mr. Haft has served as our consultant since August 9, 2000 and was
designated as a director-elect in September 2000. Whether in his capacity
as a consultant and/or director, so long as he serves in at least one of
those capacities, we will issue 12,5000 stock options every six months for
two years, an aggregate 50,000 shares. Such options are exercisable at
$3.50 for up to three years from their date of issuance.
Under our Employee Stock Option Plan, 300,000 shares of common stock
have been reserved for issuance in 2000 and approximately 500,000 options have
been granted to date to employees. Under such Plan, each employee is annually
granted a minimum of 500 shares to a maximum of 10,000 shares (based upon
tenure, position and job performance). Each option is exercisable over a 3 year
period. So long as the employee continues in such capacity with us, options vest
1/3 annually on the anniversary of their original grant. The plan is
administered by our Board of Directors acting as a Compensation Committee.
Agreement with Our Chief Executive Officer
We have entered into a long term employment agreement with Michael Y.
Brent (our President and Chief Executive Officer). See "Risk Factors --
<PAGE>
Dependence on Management." Under such agreement (which expires April 9, 2005 and
subjects him to confidentiality, non-raid and non-compete provisions), Mr. Brent
is paid, directly or indirectly, a combination of (i) a $200,000 salary and/or
consulting fee and (ii) options and/or warrants, determined by the Board acting
as a Compensation Committee, based on our financial performance. Mr. Brent will
continue to be subject to his confidentiality covenant and, for 3 years, his
non-compete covenants. Mr. Brent's estate also receives a death benefit in the
amount of one year's salary.
Our counsel has advised us that we have a fiduciary responsibility for the
safekeeping and use of all company assets. Management is accountable to each
shareholder and required to exercise good faith and integrity with respect to
our affairs. (For example, management cannot commingle our property of any other
person, including that of any current or future member of management.)
The SEC has stated that, to the extent any exculpatory or indemnification
provision includes indemnification for liabilities arising under the Securities
Act of 1933,it is the opinion of the SEC that this indemnification is contrary
to public policy and, therefore, unenforceable. shareholders who believe that
our management may have violated applicable law regarding fiduciary duties
should consult with their own counsel as to their evaluation of the status of
the law at that time.
According to federal and state statutes, including the Florida General
Corporation Law, shareholders in a corporation have the right to bring class
action suites in federal court to enforce their rights under federal securities
laws. shareholders who have management where the losses result from a violation
of SEC rules. It should be noted, however, that it would be difficult to
establish a basis for liability that we have not met these SEC standards. This
is due to the broad discretion given the directors and officers of a corporation
to act in our best interest.
CAPITALIZATION
The table below sets forth the capitalization as of June 30, 2000. The
pro-forma information in the second column includes the sale of Units made after
June 30, 2000. In that offering, we sold 143,497 Units at a cost of $7.00 per
Unit. Each Unit consists of two shares of common stock together with one warrant
to purchase one share of common stock at $10.00 within three years of issuance.
The net proceeds on the sale of the Units was $899,902. Since any shares sold
will be those of the designated selling shareholder and outstanding shares will
be unaffected by this registered secondary offering, no pro forma adjustment has
been made.
<TABLE>
<S> <C> <C>
As Adjusted for the
Actual Issuance of 143,497 Units
------ -------------------------
Shareholders' Equity:
Preferred stock, par value $0.001 per share; authorized
5,000,000 shares issued and outstanding, actual - none, minimum
offering -- 142,858, maximum offering -- 428,572 shares -- --
Common stock par value $0.001 per share; 20,000,000 authorized
shares; 5,525,042 issued and outstanding shares (actual);
5,812,036 as adjusted and converted 5,525 5,5812
Additional paid in capital 4,986,252 5,885,867
Accumulated deficit (953,038) (953,038)
Accumulated other comprehensive income (loss) -- --
--------- ---------
Total stockholders' equity and capitalization 4,039,739 4,938,641
========= =========
<PAGE>
DILUTION
No dilution table has been presented since any shares sold will be those
of the designated selling shareholders. Consequently, no dilution will occur as
a result of this registered secondary offering.
DIVIDENDS AND DISTRIBUTIONS
The payment of dividends and/or distributions, if any, to shareholders
is at our sole and absolute discretion. Shareholders will be entitled to receive
dividends, if and when declared by us out of funds legally available for such
purpose. Since we intend to continue to retain all of our earnings, if any, to
fund the development and growth of our business, we have no current plans to pay
any cash dividends on our common stock, but will pay a cumulative 7% annualized
dividend (payable quarterly) on our preferred shares.
Our dividend policy will depend upon our debt and equity structure,
earnings needed for capital in connection with our operations or in connection
with possible future acquisitions and other factors, including economic
conditions. No assurance can be given that dividends in future periods will, in
fact, be paid to shareholders or shareholders or, if paid, that such dividends
will not later be reduced or eliminated.
DESCRIPTION OF SECURITIES
General
Our authorized securities consist of 20,000,000 shares of common stock
and 5,000,000 shares of preferred stock. There are also 1,603,267 warrants
outstanding. The warrants have no voting rights; the preferred shares have
voting rights on an as-converted basis. The preferred shareholders are entitled
to receive annualized 7% cumulative dividends (payable quarterly) out of funds
legally available. In the event of the liquidation, dissolution or winding-up of
the company, the preferred shareholders are entitled to a liquidation preference
(up to $7.00) in all assets remaining after payment of liabilities. The shares
have no preemptive, redemption or subscription rights. The shares, when issued,
will be fully paid and non-assessable.
Common Stock
Our common stock entitles shareholders to one vote per share on all
matters to be voted upon by shareholders and, upon issuance in consideration of
full payment, are non-assessable. In the event of our liquidation, dissolution
or winding up, the shareholders are entitled to share ratably in all assets
remaining after payment of liabilities. Each share is entitled to dividends if,
and when dividends are declared by our Board of Directors; it is not our current
expectation to pay dividends. Shares do not have cumulative voting rights with
respect to the election of directors and, accordingly, the holders of more than
50% of the shares could elect all our directors. (See "Risk Factors --
Concentration of Voting Control.") There are no redemption or sinking fund
provisions or preemptive rights with respect to the shares, and shareholders
have no right to require us to redeem or purchase shares.
In February 2000, we purchased approximately $2,000,000 of cable
television advertising time in various television markets located throughout the
U.S. In return, we issued 207,289 shares of our common stock to Ipex, Ltd. in
exchange for our arranging and scheduling the placement of company ads in a
forthcoming media campaign.
<PAGE>
Preferred Stock
Our Certificate of Incorporation also authorizes 5,000,000 shares of
preferred stock. The rights of any preferred stock issue are determined by the
Board of Directors at the time a preferred series is authorized. To date, the
Board authorized the offer and sale of from 142,858 to 428,572 Series A
convertible preferred stock (plus 10% for Placement Agent Warrants and possible
penalty for failing to file a registration statement within 60 days of the
Initial Closing with respect to the conversion shares). These preferred shares
have voting rights on an as-converted basis, are entitled to receive a 7%
cumulative annual dividend (payable quarterly) and have standard anti-dilution
rights, including additional shares to be issued in the event that we issue
additional securities at prices below the then applicable conversion price.
These preferred shares will be converted, subject to adjustment, into two (2) of
our common shares once (i) the price of our common stock equals or exceeds 200%
of the then-applicable conversion price (currently $3.50) for twenty (20)
consecutive trading days; (ii) our common stock is listed for trading on the
NASDAQ National Market System or SmallCap Market for at least 90 days; and (iii)
the conversion shares are registered for resale with the SEC. To facilitate that
process, we have filed this registration statement for filing with the SEC to
qualify the underlying conversion shares for freely tradable status. The
preferred shares, until they are converted into the underlying conversion
shares, have standard anti-dilution rights and have a liquidation preference
$7.00 (subject to adjustment, plus accrued but unpaid dividends) in all assets
remaining after payment of liabilities.
Three Year Warrants
Purchasers of the units described above will have Warrants for one (1)
underlying share of common stock exercisable at $10.00 per share. Upon exercise
at any time before three (3) years following their respective closing, the
underlying shares of common stock will be restricted but voting in character.
Such Warrants have "piggy-back" registration rights to include the Warrant
shares underlying such Warrants in certain later Company registration
statement(s) and have cashless exercise provisions until such time as the shares
underlying the Warrants are registered for resale under the Securities Act. The
Warrants, until the earlier of their exercise or termination, have standard
anti-dilution rights.
Warrants
We have granted to Crescent Consulting Group, Ltd., an outside
consulting firm warrants to acquire certain of our securities. The terms and
conditions of these warrants are the subject of a Warrant Agreement (and
warrants) executed by and between us and the consulting firm. As of the date of
this prospectus, the warrants exercisable at $0.01 per share have been
exercised and, following the recent merger with Playorena, Inc. (see "THE
COMPANY"), warrants exercisable at $4.00 into 88,195 shares remain outstanding.
We have entered into a software license agreement with Taurus TeleSYS,
Inc. and issued two sets of warrants totaling 217,000 shares at $5.00 per share
expiring on December 27, 2004. No warrants have been exercised to date.
LEGAL MATTERS
The validity of the issuance of the shares offered have been passed upon
for us by the law firm of Duncan, Blum & Associates, of Bethesda, Maryland and
Washington, D.C.
EXPERTS
The financial statements for the year ended December 31, 1999,
incorporated by reference in the registration statement associated with this
prospectus has been audited by Israeloff, Trattner & Company, independent
certified public accountants. Their report contains information regarding our
ability to continue as a going concern.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and, as a consequence, file reports, proxy statements and
other information with the SEC. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549;
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Room of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the SEC
at 1-800-SEC-0330. Such material can also be obtained from the SEC's world wide
web site at http://www.sec.gov. our outstanding common shares, You can also
obtain information about us at our web site, www.etravnet.com.
This prospectus constitutes part of a registration statement on this
Pre-Effective Amendment No. 1 to Form S-3 filed by us with the SEC under the
Securities Act of 1933. This prospectus does not contain all of the information
set forth in the registration statement, parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information,
reference is made to the registration statement.
INCORPORATION BY REFERENCE
We have incorporated by reference in this prospectus the following
documents previously filed with the SEC.
1. Our Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999;
2. Our Quarterly Reports (unaudited) on Form 10-QSB for the fiscal quarters
ended March 31 and June 30, 2000; and
3. The description of the common shares contained in our registration
statement on Form 10.
The Securities and Exchange Commission has assigned file number 0-18412
to reports and other information that we file with the SEC pursuant to the
Securities Exchange Act of 1934. All documents subsequently filed by us pursuant
to Sections 13(a), 13(c), 14 or 15(d) of such Act prior to the termination of
any registered secondary offerings will be deemed to be incorporated by
reference in this prospectus and to be a part of this prospectus from the date
of filing of such documents. Any statement contained in this prospectus or in a
document incorporated or deemed to be incorporated by reference in this
prospectus shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus, or in
any subsequently filed document which is incorporated or deemed to be
incorporated by reference in this prospectus, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus and
information incorporated by reference.
We will provide without charge to each person, including any beneficial
owner, to whom a copy of this prospectus is delivered, upon the written or oral
request of such person, a copy of any or all of the documents incorporated by
reference in this prospectus, other than exhibits to such documents unless such
exhibits are specifically incorporated by reference into such documents.
Requests should be addressed to:
ETRAVNET.COM, Inc.
Attn: Stephanie Abrams, E.V.P.
560 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
<PAGE>
APPENDIX I
ETRAVNET.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(UNAUDITED)
<PAGE>
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.
I-2
</TABLE>
<PAGE>
<TABLE>
ETRAVNET.COM, INC. AND SUBSIDIARY
---------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2000
-----------------------------------------------
(UNAUDITED)
-----------
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
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.
I-3
</TABLE>
<PAGE>
<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.
I-4
</TABLE>
<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 our 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 our 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, we 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 25% of such advertising
during the year ending December 31, 2000 and the balance during 2001.
3. CONTINGENCIES
Legal Proceedings
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 us and JCB, as well as a declaratory judgment on whether a
partnership existed between JCB and us. 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. We 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
=======
See accompanying notes to condensed consolidated financial statements.
I-5
<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 We
are 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. we have 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.
See accompanying notes to condensed consolidated financial statements.
I-6
<TABLE>
<S> <C> <C> <C> <C>
Travel & Related Internet
Six Months Ended Management Technology
June 30, 2000 Services Programs Other Total
-------------------------------------- ------------------ ----------------- ---------------- -----------------
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 $ 5,604,688
Capital expenditures $ - $ 157,059 $ - $ 157,059
Depreciation and amortization $ 32,338 $ - $ - $ 32,338
Interest income $ - $ - $ 11,828 $ 11,828
</TABLE>
During the six months ended June 30, 1999, the Company operated in the travel
and related management services segment only.
See accompanying notes to condensed consolidated financial statements.
I-7
<PAGE>
<TABLE>
<S> <C> <C>
No dealer, salesperson or other individual has been authorized
to give any information or to make any representations not Selling Shareholders May
contained in this prospectus in connection with the Offering Be Selling Up to 1,382,780 Shares
covered by this prospectus. If given or made, such Of Common Stock
information or representation must not be relied upon as
having been authorized by the Company. This prospectus does
not constitute as an offer to sell, or a solicitation of an
offer to buy, the common stock in any jurisdiction where, or
to any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this prospectus nor any
sale made hereunder shall, under any circumstances, create an
implication that there has not been any change in the facts
set forth in this prospectus or in the affairs of the Company
since the date hereof.
ETRAVNET.COM, INC.
PROSPECTUS
TABLE OF CONTENTS
Descriptive Title Page
Prospectus Summary..............................3
Executive Summary...............................3 DECEMBER____, 2000
Selling Shareholders............................4
Plan of Distribution............................6
Risk Factors....................................6
Certain Relationships and Related
Transactions..............................14
Fiduciary Responsibility of Management.........15
The Business...................................15
Management.....................................23
Capitalization.................................26
Dilution.......................................26 Until December ___, 2000 (25 days after the date hereof), all
Dividends and Distributions....................26 dealers effecting transactions in the registered securities,
Description of Securities......................27 whether or not participating in this distribution, may be
Legal Matters..................................28 required to deliver a current copy of this prospectus. This
Experts........................................28 delivery requirement is in addition to the obligation of
Where You Can Find More Information............28 dealers to deliver a prospectus when acting as underwriters and
Incorporation by Reference.....................29 with respect to their unsold allotments or subscriptions.
Appendix I (Financial Statements).............I-1
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution. *
The following table sets forth an itemized statement of all cash
expenses in connection with the issuance and distribution of the securities
being registered:
SEC registration fee $ 1,551.47
Blue sky fees and expenses* 3,500.00
Printing and related costs* 750.00
Legal fees 25,000.00
Accounting fees and expenses* 3,000.00
Transfer Agent's fees -0-
Miscellaneous* $1,198.53
---------
TOTAL $35,000.00**
==========
* Estimated.
** Expenses will be the same irrespective of the number of shares actually sold
by selling shareholders.
Item 14. Indemnification of Directors and Officers
Reference is made to "Fiduciary Responsibility of our Management" and
"Description of Capital Stock" contained in the prospectus relating to the
indemnification of our officers, directors, stockholders, employees and
affiliates. We are prohibited from indemnifying its affiliates for liabilities
resulting from violations or alleged violations of the Securities Act of 1933 or
any state securities laws in connection with the issuance or sale of the shares
of common stock, except in the case of successful defense of an action in which
such violations are alleged, and then only if a court approves such
indemnification after being appraised of relevant regulatory positions on
indemnification.
Specifically, each of our directors or officers will be indemnified
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the director or officer in
connection with the defense or settlement of any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, in which he is involved by reason of the fact that he is or was
on of our directors or officers; such indemnification, of course, is conditioned
upon such officer or director having acted in good faith and in a manner that he
reasonably believed to be in or not opposed to our best interest and, with
respect to any criminal action or proceeding, if he had no reasonable cause to
believe that his conduct was unlawful. If, however, any threatened, pending or
completed action, suit or proceeding is by or for us, our director or officer
shall not be indemnified in respect to any claim, issue or matter as to which he
is adjudged to be liable to us unless a court determines otherwise.
Moreover, our Certificate of Incorporation provides that none of our
directors shall be personally liable to us or any of our shareholders for
monetary damages for any breach of fiduciary duty as a director, except with
respect to: (i) any breach of the director's duty of loyalty to us or its
shareholders; (ii) for acts or omissions that are not in good faith or involve
intentional misconduct or a knowing violation of the law; (iii) violation of the
Uniform Securities Act; or (iv) for any transaction from which the director
derived an improper personal benefit. In addition, such Certificate of
Incorporation authorizes us to indemnify any person to the fullest extent
permitted by The Code.
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
In February 2000, we purchased approximately $2,000,000 of cable
television advertising time in various television markets located throughout the
U.S. In return, we issued 207,289 shares of our common stock to Ipex, Ltd. in
exchange for our arranging and scheduling the placement of company ads in a
forthcoming media campaign. We claimed the exemption from registration in
connection with the private placement offering provided under Section 4(2) of
the Securities Act of 1933 and Rule 505 thereunder.
Beginning July 11, through our initial closing November 24, 2000, we sold
143,497 units which consist of two shares and one warrant. These preferred
shares have voting rights on an as-converted basis, are entitled to receive a 7%
cumulative annual dividend (payable quarterly) and have standard anti-dilution
rights, including additional shares to be issued in the event that we issue
additional securities at prices below the then applicable conversion price.
These preferred shares will be converted, subject to adjustment, into two (2) of
our common shares once (i) the price of our common stock equals or exceeds 200%
of the then-applicable conversion price (currently $3.50) for twenty (20)
consecutive trading days; (ii) our common stock is listed for trading on the
NASDAQ National Market System or SmallCap Market for at least 90 days; and (iii)
the conversion shares are registered for resale with the SEC. To facilitate that
process, we have filed this registration statement for filing with the SEC to
qualify the underlying conversion shares for freely tradable status. The
preferred shares, until they are converted into the underlying conversion
shares, have standard anti-dilution rights and have a liquidation preference
$7.00 (subject to adjustment, plus accrued but unpaid dividends) in all assets
remaining after payment of liabilities. We claimed the exemption from
registration in connection with the private placement offering provided under
Section 4(2) of the Securities Act of 1933 and Rule 505 thereunder.
Purchasers of the preferred shares described above will have Warrants
for one (1) underlying share of common stock exercisable at $10.00 per share.
Upon exercise at any time before three (3) years following their respective
closing, the underlying shares of common stock will be restricted but voting in
character. Such Warrants have "piggy-back" registration rights to include the
Warrant shares underlying such Warrants in certain later Company registration
statement(s) and have cashless exercise provisions until such time as the shares
underlying the Warrants are registered for resale under the Securities Act. The
Warrants, until the earlier of their exercise or termination, have standard
anti-dilution rights. We claimed the exemption from registration in connection
with the private placement offering provided under Section 4(2) of the
Securities Act of 1933 and Rule 505 thereunder.
We have granted to Crescent Consulting Group, Ltd., an outside
consulting firm, warrants to acquire certain of our securities. The terms and
conditions of these warrants are the subject of a Warrant Agreement (and
warrants) executed by and between us and the consulting firm. As of the date of
this prospectus, warrants exercisable at $4.00 into 88,195 shares remain
outstanding. We claimed the exemption from registration in connection with the
private placement offering provided under Section 4(2) of the Securities Act of
1933 and Rule 505 thereunder.
We have entered into a software license agreement with Taurus TeleSYS, Inc.
and issued two sets of warrants totaling 217,000 shares at $5.00 per share
expiring on December 27, 2004. No warrants have been exercised to date. We
claimed the exemption from registration in connection with the private placement
offering provided under Section 4(2) of the Securities Act of 1933 and Rule 505
thereunder.
Item 16. Exhibits And Financial Statement Schedules.
(a)(1) Financial Statements -- Included in Prospectus:
Condensed Consolidated Balance Sheet as of June 30, 2000 (unaudited)
and 1999.
Condensed Consolidated Statements of Operations for the six and three
months ended June 30,2000 and 1999 (unaudited).
<PAGE>
Condensed Consolidated Statement of Cash flows for the six months ended
June 30, 2000 and 1999 (unaudited).
Notes to Financial Statements.
(a)(2) Included Separately from Prospectus: Consent of Independent Public
Accountants. (See Exhibit 23.2 below.)
Other than the Financial Data Schedule, no schedules are included for
the reason that all required information is contained in the financial
statements included in the Prospectus.
(b) Exhibits:
* 3.1.1 Certificate of Incorporation.
* 3.1.2 Certificates of Amendment to the Certificate of Incorporation.
3.2 Bylaws.
3.3 Form of Common Stock Certificate.
3.4 Form of Preferred Stock Certificate.
* 5.1 Opinion of Counsel as to the legality of the Shares.
* 10.1 Employment Agreement between us and Michael J. Brent.
10.2 Combination Uniform Franchise Offering Circular (and associated
exhibits)published March 1999 pursuant to U.S. Federal Trade
Commission Rules.
* 10.3 Form 10-KSB Annual Report for the fiscal year ended
December 31, 1999.
* 10.4 Form 10-QSB Quarterly Reports for the fiscal quarters ended
March 31 and June 30, 2000
* 10.5 Form 10.
10.6 Form of Stock Option Agreement between us and certain employees
and service providers.
10.7 Form of Stock Option Agreement between us and Jay Haft.
10.8 Warrant Agreements between us and Taurus Telesys, Inc. for the
purchase of 100,000 shares.
10.9 Warrant Agreements between us and Taurus Telesys, Inc. for the
purchase of 117,000 shares.
23.1 Consent of Counsel (Duncan, Blum & Associates).
* 23.2 Consent of Auditors (Israeloff, Trattner & Co., CPAs, P.C.).
* These exhibits were included in the October 24, 2000 Form S-3 Registration
Statement filed pursuant to the Securities Act of 1933, are not filed herewith
and are hereby incorporated by reference.
** These exhibits have previously been filed pursuant to Section 12(g) of the
Securities Exchange Act of 1934, are not filed herewith, and are hereby
incorporated by reference.
Item 17. Undertakings
A. Certificates: Inapplicable
B. Rule 415 Offering
We, the undersigned hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement
to: (i) include any prospectus required by Section 10(a) (3) of
the Securities Act of 1933 (the "1933 Act"); (ii) reflect in the
Prospectus any facts or events which, together, represent a
fundamental change in the information in the Registration
Statement; and (iii) include any additional or changed material
information on the plan of distribution.
<PAGE>
(2) For determining liability under the 1933 Act, treat each
post-effective amendment as a new Registration Statement of the
securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
C. Request for Acceleration of Effective Date
We may elect to request acceleration of the effective date of the
Registration Statement under Rule 461 of the 1933 Act.
D. Indemnification
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by one of our
directors, officers or controlling persons in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
E. Rule 430A
We will, for determining any liability under the Act, treat the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of a
Prospectus filed by us under Rule 424(b) (1) or (4) or 497(h) under the Act as
part of this Registration Statement as of the time the Commission declared it
effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we certifiy
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this Pre-Effective Amendment No. 1 to
the Form S-3 Registration Statement to be signed on its behalf by the
Undersigned, thereunto duly authorized, in the City of Englewood Cliffs, State
of New Jersey, on the 11th day of December 2000.
ETRAVNET.COM, Inc.
By: /s/ Michael Y. Brent
Michael Y. Brent, Chairman, Chief Executive
Officer and Secretary
Pursuant to the requirements of the of the Securities Act of 1933, this
Pre-Effective Amendment to the Form S-3 Registration Statement has been signed
below by the following persons in their respective capacity as our officer
and/or director on the date indicated.
Signatures/Title Date
---------------- ----
/s/ Michael Y. Brent December 13, 2000
Michael Y. Brent, Chairman, Chief Executive Officer
and Secretary
/s/ Stephanie Abrams December 13, 2000
--------------------
Stephanie Abrams, Executive Vice President
/s/ Derek J. Brent December 13, 2000
------------------
Derek J. Brent, Director, Treasurer and Vice President/Sales
/s/ Harold Kestenbaum December 13, 2000
---------------------
Harold Kestenbaum, Director
