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. 3 TO FORM S-3 ON FORM SB-2
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")
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 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>
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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
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</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").
Note: Specific details relating to the fee calculation shall be furnished in
notes to the table, including references to provisions of Rule 457 (Section
230.457 of this chapter) relied upon, if the basis of the calculated is not
otherwise evident from the information presented in the table. If the filing fee
is calculated pursuant to Rule 457(o) under the Securities Act, only the title
of class of securities registered, proposed maximum aggregate offering price for
that class of securities and the amount of registration fee need to appear in
the Calculation of Registration Fee table. Any difference between the dollar
amount of securities registered for such offerings and the dollar amount
securities sold may be carried forward on a future registration statement
pursuant to Rul429s under the Securities Act.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
the further amendment which specifically states that this registration statement
shall therefore 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 Commission, acting pursuant to said Section 8 (a),
may determine.
<PAGE>
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PROSPECTUS
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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.
================================================================================
January _____, 2001
================================================================================
<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 offering
Shareholders 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 Our shares are traded on the NASD Over-the-Counter Bulletin Board
Price ("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, among
Conflicts of other reasons, to the speculative nature of our contemplated
Interest 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.
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.
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.
<PAGE>
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 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
<PAGE>
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
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
<PAGE>
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. 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.
<PAGE>
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 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.
<PAGE>
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. 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
<PAGE>
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.
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
<PAGE>
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 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.
<PAGE>
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.
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%
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%
<PAGE>
Name of Owner Address of Owner Being Sold Fully Dilated Basis
------------- ---------------- ---------- -------------------
II. Service Providers (continued)
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>
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.
<PAGE>
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.
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:
<PAGE>
<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.
<PAGE>
Litigation Issues
-----------------
A franchisee, JCB Enterprises, is seeking damages for alleged
violations of the Indiana Franchise Act and Indiana Deceptive Franchise
Practices Act, for 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).
<PAGE>
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,
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.
<PAGE>
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 --
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We are a leading franchisor of traditional "brick and mortar" travel
agencies as well as Internet-based travel-related services. We are also a
full-service provider of discount travel products and services to the leisure
and small business traveler. We operate business under our trade names "Travel
Network," "Global Travel Network" and Travel Network Vacation Central" as well
as web sites Etravnet.com," "HaggleWithUs.com," and "Rezconnect.com." We offer
our customers a reliable source of travel products and services through our
agreements with selected travel providers, including major airlines, cruise
lines, hotels and car rental agencies, as well as wholesale travel providers. In
addition, we offer our customers the ability to make reservations on over 424
airlines, at more than 35,000 hotels and with most major car rental companies,
cruise lines and tour package operators.
OVERVIEW
Our revenues are predominately comprised of franchise fees and
franchise service fees, commissions paid by travel providers and the retail
value of travel agency related sales. In addition, certain travel suppliers pay
performance-based compensation known as "override commissions" or "overrides."
Commission revenues and gross retail sales net of allowances, for cancellations,
are recognized generally when the related service is booked and paid for.
Overrides are recognized on an accrual basis once the amount has been confirmed
with the travel supplier. Franchise fees are recognized when all material
services and conditions required of the Company have been performed and
collectibility of the franchise fee is relatively assured. We generally defer
recognition of franchise fees until such amounts have been collected from the
franchisee. Franchise service fees are recognized in the accrual basis as
earned.
<PAGE>
With respect to travel services, revenues are generated by transactions
with customers who make offers to purchase tickets supplied by participating
sellers. Because we are the merchant of record in these transactions, revenue
for these services includes the total amount billed to the customer.
The commission rates paid by travel suppliers, in addition to
overrides, are determined by individual travel suppliers and are subject to
change. Historically, typical standard base commission rates paid by travel
suppliers have been approximately 10% for hotel reservations, 5% to 10% for car
rentals and 10% to 15% for cruises and vacation packages. Based on the past
several years, leisure vendors (including tour operators, cruise lines and hotel
and car packagers) have not reduced their commission levels but, in fact, have
offered us incentive commissions above the standard compensation for our volume
business. We expect that our weighted average commission on online transactions
revenue will increase due to the fact that our leisure bookings are much greater
as a percentage of total sales than airline ticketing -- which offers us lower
commissions. There can be no assurance that travel suppliers will not reduce
commission rates paid to us or eliminate such commissions entirely, which could,
individually or in the aggregate, have a material adverse effect on our
business, operating results and financial condition.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage relationship of certain items from our consolidated statement of
operations to total revenues, except as indicated:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
REVENUES
Franchise fees 4.6% 0.4% 4.4% 10.0%
Franchise service
Fees and other 28.5 29.3 23.4 24.2
Travel products and services 65.9 64.4 70.4 61.7
Advertising and other 1.0 5.9 1.8 4.1
--- --- --- ---
TOTAL REVENUES 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
OPERATING EXPENSES
Cost of travel products and sales 61.0 65.8 63.3 61.0
Marketing and selling 19.5 21.8 18.5 19.6
General and administrative 42.6 42.3 36.9 20.3
---- ---- ---- ----
TOTAL OPERATING EXPENSES 123.1 129.9 118.7 100.9
----- ----- ----- -----
Income (loss) before other
Income and income taxes (23.1) (29.9) (18.7) (0.9)
Other 2.9 1.9 0.2 1.2
------- -------- ----- ------
Income (loss) before income taxes (20.2) (28.0) (18.5) .3
Net income (loss) (20.2))% 28.0% (18.5)% .3%
========= ====== ======= =====
Comparison of three and nine months ended September 30, 2000 ("2000") and 1999 ("1999")
</TABLE>
<PAGE>
REVENUES
Franchise Fees
--------------
Franchise fees declined in each 2000 period as compared to as related
1999 periods as a direct result of management's decision in 1999 to focus all of
our resources and funding on development and growth of our Internet presence. In
fiscal year 1999, we reduced our advertising and promotion of franchising
activities in the domestic and international market because of time and cost
considerations and devoted full attention to the development of Internet-based
travel services. Our Internet business has completed its beta testing and is
expected to begin operations in 2000. Management believes that it will have the
time and effort to resume an aggressive promotion for our domestic and
international franchising since we will no longer be preoccupied with the
development of the web based business.
Franchise Service Fees and Other
--------------------------------
Franchise service fees decreased by approximately $237,000 and $62,000
in the nine and three months ended September 30, 2000, respectively, as compared
to the nine and three months ended September 30, 1999. The decrease is
principally attributable to a number of franchisees going out of business.
Travel Products and Services
----------------------------
Travel products and services decreased by approximately $185,000 and
$103,000 in the nine and three months ended September 30, 2000 respectively as
compared to the nine and three months ended September 30, 1999. The decreases
are attributable to the effect of various incentives which we offered to
franchisees in 1999 to interest franchisees customers in travel packages,
partially offset by increased customer traffic as a result of our Internet
("online") presence.
OPERATING EXPENSES
Cost of travel products and services
------------------------------------
The cost of travel products and services decreased by approximately
$430,000 and $173,000 during the nine and three months ended September 30, 2000
respectively, as compared to the nine and three months ended September 30, 1999.
These costs decreased as a result of lower commissions and fees paid to
franchisees in connection with the earlier noted incentives offered to
customers. The cost of travel products and services --as a percentage of travel
products and services sales -- were approximately 89% and 93% for the nine and
three months ended September 30, 2000 and 102% and 99% for the 1999 periods.
Marketing and Selling
---------------------
Marketing and selling expenses decreased by approximately $211,000 and
$66,000 for the nine and three months ended September 30, 2000 respectively, as
compared to the related 1999 period. Decreases in payroll costs in the 2000
periods were partially offset by increases in incentives and online related
commissions.
General and Administrative
--------------------------
General and administrative expenses increased by approximately $473,000
and decreased by approximately $75,000 during the nine and three months ended
September 30, 2000, respectively, as compared to the related 1999 periods. As a
percentage of net revenues, these costs were 37% and 43% during the nine and
three months ended September 30, 2000 respectively, as compared to 20% and 42%
in the related 1999 periods. The changes in general and administrative expense
in the 2000 periods is attributable to increases in consulting expenses related
<PAGE>
to our expanding Internet activities, professional and other fees related to our
status as a public company and stock-based compensation related to the granting
of stock options to employees and consultants, as offset by a reduction in
expenses based on the decreased roster of franchised agencies.
Variability of Results
Our travel products and services gross bookings have decreased slightly
from year to year due to a decrease in the number of franchises as offset by
repeat purchases by existing customers and increased customer acceptance of
electronic commerce. Revenues from travel products and services decreased in
conjunction with the decrease in gross bookings. Operating expenses have
similarly decreased on a year to year basis, reflecting decreased spending on
developing our online operations and expanding strategic relationships.
As a result of our limited operating history in online commerce and the
variability that can be experienced by our franchising operations, we are unable
to accurately forecast our revenues. Our current and future expense levels are
based predominantly on our operating plans. We may be unable to adjust spending
in a timely manner to compensate for any unexpected revenue shortfall.
Accordingly, any significant shortfall in revenues would likely have an adverse
effect on our business, operating results and financial condition. Further, we
currently intend to substantially increase our operating plans. We may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues would likely have
a material adverse effect on our business, operating results and financial
condition. Further, we currently intend to substantially increase our operating
expenses to develop and offer new and expanded travel services, to fund
increased sales and marketing and customer service operations to develop our
technology and transaction processing systems. To the extent such expenses
precede or are not subsequently followed by increased revenues, our operating
results will fluctuate and anticipated net losses in a given period may be
greater than expected.
We expect to experience significant fluctuations in our future
quarterly operating results due to a variety of other factors, many of which are
outside our control. Factors that may adversely affect our quarterly operating
results include, but are not limited to (i) our ability to retain existing
customers, attract new customers at a steady rate and maintain customer
satisfaction, (ii) changes in inventory availability from third party suppliers
or commission rates paid by travel suppliers, (iii) the announcement or
introduction of new or enhanced sites, services and products by us or our
competitors, (iv) general economic conditions specific to the Internet, online
commerce or the travel industry, (v) the level of use of online services and
consumer acceptance of the Internet and commercial online services for the
purchase of consumer products and services such as those offered by us, (vi) our
ability to upgrade and develop our systems and infrastructure and to attract new
personnel in a timely and effective manner, (vii) the level of traffic on our
online sites, (viii) technical difficulties, system downtime or Internet
brownouts, (ix) the amount and timing of operating costs and capital
expenditures relating to expansion of the our business, operations and
infrastructure, (x) governmental regulation and (xi) unforeseen events affecting
the travel industry.
In addition, we expect to experience seasonality in our business,
reflecting seasonal fluctuations in the travel industry, Internet and commercial
online service usage and advertising expenditures. We anticipate that travel
bookings will typically increase during the first and second quarter in
anticipation of summer travel and will typically decline during the third
quarter. Internet and commercial online service usage and the rate of growth of
such usage may be expected typically to decline during the summer. Depending on
the extent to which the Internet and commercial online services are accepted as
an advertising medium, seasonality in the level of advertising expenditures
could become more pronounced for Internet-based advertising. Seasonality in the
travel industry, Internet and commercial online service usage and advertising
expenditures is likely to cause fluctuations in our operating results and could
have a material adverse effect on our business, operating results and financial
condition. Due to the foregoing factors, quarterly revenues and operating
results are difficult to forecast and we believe that period-to-period
comparisons of our operating results will not necessarily be meaningful and
should not be relied upon as an indication of future performance. It is likely
<PAGE>
that our future quarterly operating results from time to time will not meet the
expectations of security analysts or investors. In such event, the price of our
Common Stock would likely be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Although we were successful in becoming a public entity in September
1999, in September 2000 approximately $896,000 net was raised in a sale of
143,497 shares of our Series A convertible preferred stock. Previously, in March
1999, our wholly owned subsidiary, Global Travel Network, L.L.C., raised
$210,000 (net of $40,000 in syndication costs) in a private sale of membership
interests. Cash used in operations was approximately $126,000 in the nine months
ended September 30, 2000. Cash provided by operations was $236,0000 in the
related 1999 period. Cash used in operating activities in 2000 was primarily
attributable to our net loss, partially offset by increases in accounts payable.
On October 9, 2000, we signed a letter of intent to sell 857,000 shares
of common stock to a travel distribution company for $3.50 per share. The common
stock to be sold will be restricted and may not be sold for a period of one year
from the date of issue and will be subject to limitations on sale for two years
after the date of issue.
In exchange for the sale of the shares, we agreed to license certain of
our developed software technology to the purchaser and to waive the license fee.
We also agreed to offer one seat on our Board of Directors to the purchaser.
Cash used by investing activities in 2000 was approximately $473,000 as
compared to a use of approximately $306,000 in 1999. Cash used in investing
activities in 1999 was primarily for payments for short-term investments. Cash
used in investing activities in 2000 consisted of payments for short-term
investments as well as payments for software license and development costs.
Cash provided by financing activities was approximately $896,000 in
2000 and $15,000 in 1999. Cash provided by financing activities in 2000
consisted of proceeds from the sale of 143,497 shares of our series A
convertible preferred stock and in 1999 from the sale of equity interests of
$210,000 offset by approximately $195,000 of distributions to shareholders prior
to our merger with Playorena, Inc. As of September 30, 2000, we had
approximately $72,000 in cash and approximately $1,194,000 in short-term
investments. Our principal commitments consist of amounts due pursuant to our
master lease with Wal-Mart. These amounts, however, are substantially recovered
by our subleases with our Wal-Mart Supercenters franchisees. In addition, we are
obligated to make additional payments to the developer of our "Haggle" software
in 2000, which we believe could potentially aggregate $120,000.
We believe that results of operations, current cash, and short-term
investments will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures through the end of 2000.
YEAR 2000 CONSIDERATIONS
We conducted a program to bring our internal systems and products into
Year 2000 (Y2K) compliance. This program included upgrades to internal computer
systems and technical infrastructure, as well as a review of our product lines
to bring them into Y2K compliance. In addition, we surveyed our significant
suppliers to determine their ability to provide necessary products and services
that are critical to business continuation through Y2K.
<PAGE>
We have experienced no interruptions in our business because of Y2K and
are not aware of any significant problems being experienced by our customers or
suppliers that would have a negative impact on us. There can be no assurance,
however, that unexpected difficulties related to Y2K compliance by us, our
customers, or suppliers will not occur. Such unexpected difficulties could have
a material adverse effect on us. Through December 31, 1999, the Company's Y2K
compliance for software testing, modifications and upgrades were completed
without any significant expenditures.
Our funding for regular updates to computer systems, technical
infrastructure and other requirements were not a significant expense.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in
this quarterly report, including without limitation statements regarding our
financial position, business strategy, Year 2000 readiness and the plans and
objectives of the management for future operations, are forward-looking
statements. When used in this quarterly report, words such as "anticipate",
"believe", "estimate", "expect", "intend" and similar expressions, as they
relate to us or our management, identify forward-looking statements. Such
forward-looking statements are based on the beliefs of our management, as well
as assumptions made by and information currently available to our management.
Actual results could differ materially from those contemplated by the
forward-looking statements as a result of certain factors, including but not
limited to, business and economic conditions, competitive factors and pricing
pressures, capacity and supply constraints and the impact of any disruption or
failure in our normal business activities as well as our customers and suppliers
as a consequence of Year 2000 related problems. Such statements reflect our
views with respect to future events and are subject to these and other risks,
uncertainties and assumptions relating to the operations, results of operations,
growth strategy and liquidity. Readers are cautioned not to place undue reliance
on these forward-looking statements. We do not undertake any obligation to
release publicly any revisions to these forward-looking statements to reflect
future events or circumstances or to reflect the occurrence of unanticipated
events.
<PAGE>
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
========= =========
</TABLE>
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.
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
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)
See accompanying notes to condensed consolidated financial statements.
I-1
<PAGE>
<TABLE>
ETRAVNET.COM, INC. AND SUBSIDIARY
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
ASSETS
------
<S> <C> <C>
June 30, December 31,
2000 1999
----------------- -----------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 69,993 $ 19,813
Short-term investments 674,723 1,009,956
Accounts receivable, less allowance for doubtful
accounts of $74,955 380,255 418,461
Prepaid expenses and other current assets 196,857 171,497
------------- -------------
Total Current Assets 1,321,828 1,619,727
------------- -------------
PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation 58,085 73,085
------------- -------------
OTHER ASSETS
Goodwill, less accumulated amortization 210,510 227,848
Prepaid advertising 2,021,000 -
Notes receivable, less current portion 878,868 703,397
Software license and development costs 1,045,859 888,800
Security deposits and other 68,538 90,439
------------- -------------
Total Other Assets 4,224,775 1,910,484
------------- -------------
TOTAL ASSETS $ 5,604,688 $ 3,603,296
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 433,070 $ 270,986
Deferred revenue 100,000 74,640
------------- -------------
Total Current Liabilities 533,070 345,626
------------- -------------
OTHER LIABILITIES
Deferred revenue 893,521 703,397
Security deposits 139,358 139,358
------------- -------------
Total Other Liabilities 1,032,879 842,755
------------- -------------
Total Liabilities 1,565,949 1,188,381
------------- -------------
SHAREHOLDERS' AND MEMBERS' EQUITY
Preferred stock, par value $.001 per share; authorized
5,000,000 shares, none issued or outstanding - -
Common stock, par value $.001 per share; authorized
20,000,000 shares 5,525,042 and 5,317,753 shares
issued and outstanding at June 30, 2000 and
December 31, 1999, respectively 5,525 5,318
Additional paid-in capital 4,986,252 2,897,459
Accumulated deficit (953,038) (454,602)
Accumulated other comprehensive income (loss) - (33,260)
------------- -------------
Total shareholders' Equity 4,038,739 2,414,915
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,604,688 $3,603,296
============= =============
See accompanying notes to condensed consolidated financial statements.
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. [please put into table,
align and run by Ken!]
<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
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-6
</TABLE>
<PAGE>
ETRAVNET.COM, INC.
(Formerly Playorena, Inc.) and Subsidiary
CONSOLIDATED FINANCIAL STATEMENTS
AND
AUDITORS' REPORT
YEARS ENDED DECEMBER 31, 1999 AND 1998
I-7
<PAGE>
CONTENTS
Page
AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statements of Shareholders' and Members' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-15
I-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders'
Etravnet.Com, Inc.
We have audited the accompanying consolidated balance sheet of Etravnet.Com,
Inc. (formerly Playorena, Inc.) and Subsidiary as of December 31, 1999, and the
related consolidated statements of operations, shareholders' and members'
equity, and cash flows for the years ended December 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Etravnet.Com, Inc.
and Subsidiary as of December 31, 1999, and the results of their operations and
their cash flows for the years ended December 31, 1999 and 1998, in conformity
with generally accepted accounting principles.
Valley Stream, New York
February 9, 2000
See accompanying notes to condensed consolidated financial statements.
I-9
<PAGE>
<TABLE>
ETRAVNET.COM, INC.
(Formerly Playorena, Inc.) and Subsidiary
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 19,813
Short-term investments (Note 1) 1,009,956
Accounts receivable, less allowance for doubtful
accounts of $74,955 418,461
Current portion notes receivable (Note 1) 74,640
Prepaid expenses and other current assets 96,857
-------------
Total Current Assets $ 1,619,727
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $36,862 (Note 1) 73,085
OTHER ASSETS
Goodwill (Note 3) 227,848
Notes receivable, less current portion (Note 1) 703,397
Software license costs (Note 2) 888,800
Security deposits and other 90,439
-------------
Total Other Assets 1,910,484
-------------
TOTAL ASSETS $ 3,603,296
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 270,986
Deferred revenue (Note 1) 74,640
-----------
Total Current Liabilities $ 345,626
OTHER LIABILITIES
Deferred revenue (Note 1) 703,397
Security deposits 139,358
-----------
Total Other Liabilities 842,755
-------------
Total Liabilities 1,188,381
COMMITMENTS AND CONTINGENCIES (Notes 4 and 11)
SHAREHOLDERS' EQUITY (Notes 1, 5, 6 and 11) Preferred stock, par value $.001 per
share; authorized
5,000,000 shares, none issued or outstanding -
Common stock, par value $.001 par share; authorized
20,000,000 shares; issued and outstanding 5,317,753 shares 5,318
Additional paid-in capital 2,897,459
Accumulated deficit (454,602)
Accumulated other comprehensive income (loss) (33,260)
-----------
2,414,915
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,603,296
=============
See accompanying notes to condensed consolidated financial statements.
I-10
</TABLE>
<PAGE>
<TABLE>
ETRAVNET.COM, INC.
(Formerly Playorena, Inc.) and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<S> <C> <C>
1999 1998
---------- ----------
Revenues (Note 1)
Franchise fees $ 411,984 $ 955,319
Franchise service fees and other 1,553,696 1,260,542
Travel products and services (Note 1) 3,850,373 2,186,592
Advertising and other 106,723 104,181
------------- -------------
Total Revenues 5,922,776 4,506,634
------------- -------------
Operating Expenses
Cost of travel products and services 3,500,817 2,023,218
Marketing and selling 1,297,569 1,331,294
General and administrative, including $87,840 in 1999
in the form of common stock purchase warrants
issued and stock options granted 1,406,739 1,049,250
Merger related charge for issuance of common stock (Note 1) 241,000 -
------------- -------------
Total operating expenses 6,446,125 4,403,762
------------- -------------
Income (loss) before other income and income taxes (523,349) 102,872
Other Income -primarily interest 85,331 72,191
------------- -------------
Income (loss) before income taxes (438,018) 175,063
Income taxes (Notes 1 and 7) - -
------------- -------------
Net income (loss) (438,018) 175,063
Other comprehensive loss (Note 1) (33,260) -
------------- -------------
Comprehensive income (loss) $ (471,278) $ 175,063
============= =============
Unaudited Pro forma Information (Notes 1 and 9)
Historical income (loss) before income taxes $ (438,018) $ 175,063
Provision for Income Taxes
Adjustment to recognize income taxes as if company
had been a "C" corporation for the entire year - 74,200
------------- -------------
Pro forma net income (loss) $ (438,018) $ 100,863
============= =============
Earnings Per Share:
Weighted average common shares outstanding 4,854,791 4,490,113
============= =============
Basic earnings (loss) per share $ (.09) $ .02
============ -=============
Weighed average common shares outstanding
assuming exercise of warrants 4,854,791 4,578,308
============= =============
Diluted earnings (loss) per share $ (.09) $ 02
============ =============
See accompanying notes to condensed consolidated financial statements.
I-11
</TABLE>
<PAGE>
<TABLE>
ETRAVNET.COM, INC.
(Formerly Playorena, Inc.) and Subsidiary
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' AND MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Retained Accumulated
Additional Earnings Other
Common Stock Paid-In (Accumulated Members' Comprehensive
Shares Amount Capital Deficit) Equity Loss Total
------- ------ ----------- ----------- --------- ------------- ----------
Balance - January 1, 1998 100 $ 1 $ 174,999 $ 751,064 $ - - $ 926,064
Net loss of Travel Network, Ltd. for the three
months ended March 31, 1998 - - - (17,460) - - (17,460)
Distributions - - - (608,000) - - (608,000)
Acquisition of Travel Network, Ltd. (Note 1) (100) (1) (174,999) (125,604) 300,604 - -
Net proceeds from private placement (Note 1) - - - - 855,500 - 855,500
Net income of Global for nine months ended
December 31, 1998 - - - - 192,523 - 192,523
------- ------ ----------- ----------- ---------- ------------- ----------
Balance - December 31, 1998 - - - - 1,348,627 - 1,348,627
Capital contribution, net of related costs of $40,000 - - - - 210,000 - 210,000
Net earnings of Global through date of merger - - - - 16,584 - 16,584
Distributions to managing member - - - - (197,836) - (197,836)
Acquisition of Global and the Company on
September 17, 1999 5,145,410 5,146 1,372,229 - (1,377,375) - -
Acquisition of Travel Network On-line, LLC 47,250 47 332,715 - - - 332,762
Exercise of warrants 44,722 45 (45) - - - -
Issuance of common shares for investment
banking services 80,371 80 240,920 - - - 241,000
Warrants issued in connection with acquisition
of software license - - 863,800 - - - 863,800
Professional fees and marketing services paid
in the form of stock options - - 53,000 - - - 53,000
Other comprehensive loss - - - - - (33,260) (33,260)
Stock options granted to employees - - 34,840 - - - 34,840
Net loss for the period September 18, 1999
through December 31, 1999 - - - (454,602) - - (454,602)
----------- ------ ----------- ----------- --------- ------------- ----------
Balance - December 31, 1999 5,317,753 $5,318 $2,897,459 $ (454,602) $ - $ (33,260) $2,414,915
=========== ====== =========== =========== ========= ============= ==========
See accompanying notes to condensed consolidated financial statements.
I-12
</TABLE>
<PAGE>
<TABLE>
ETRAVNET.COM, INC.
(Formerly Playorena, Inc.) and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<S> <C> <C>
1999 1998
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (438,018) $ 175,063
------------- -------------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Equity in earnings of affiliate - (793)
Depreciation 14,730 8,263
Issuance of common shares for fees 241,000 -
Stock options granted to employees and consultants 87,840 -
Provision for doubtful accounts 57,000 -
Changes in assets and liabilities:
Accounts receivable (41,963) (162,650)
Notes receivable (99,553) (434,395)
Prepaid expenses and other
current assets (93,126) 19,140
Security deposits (33,689) (21,997)
Accounts payable and accrued expenses 133,301 (79,117)
Deferred revenue 99,553 434,395
Other liabilities 30,466 56,160
------------- -------------
Total adjustments 395,559 (180,994)
------------- -------------
Net cash used by operating activities (42,459) (5,931)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for software license fee (25,000) -
Net advances to affiliate - (4,738)
Payments for furniture and fixtures (34,166) (48,667)
Cash of acquired company 98,757 -
Payments for short-term investments (99,040) (90,918)
------------- -------------
Net cash used by investing activities (59,449) (144,323)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to LLC members (197,836) (608,000)
Net proceeds from private placement 210,000 855,500
------------- -------------
Net cash provided by financing activities 12,164 247,500
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (89,744) 97,246
CASH AND CASH EQUIVALENTS - beginning 109,557 12,311
------------- -------------
CASH AND CASH EQUIVALENTS - end $ 19,813 $ 109,557
============= =============
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of 217,000 common stock warrants
as partial payment for software license $ 863,800 $ -
============= =============
See accompanying notes to condensed consolidated financial statements.
I-13
</TABLE>
<PAGE>
ETRAVNET.COM, INC.
------------------
(Formerly Playorena, Inc.) and Subsidiary
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REORGANIZATION of PREDECESSOR ENTITY
In January, 1998, Global Travel Network, LLC ("Global") was formed as a
New Jersey limited liability company. During January through March 1998,
Global sold 998,000 membership units, approximating a 20% membership
interest, in a private placement for net proceeds of $855,500.
On April 1, 1998, Global acquired the operating assets and assumed the
operating liabilities of Travel Network, Ltd. ("Travel Network") from its
shareholder in exchange for a membership interest representing ownership
of approximately 80% of Global. For accounting purposes, Travel Network
was considered the acquiring entity. Prior to its acquisition by Global
during November and December 1997, a one-third shareholder of Travel
Network acquired the remaining two-thirds shareholder interests for
an amount slightly in excess of their book value at December 31, 1997. For
financial reporting purposes, Global was considered to be a continuation
of Travel Network.
Merger OF GLOBAL AND Playorena, Inc.
Global, Playorena, Inc. ("Playorena"), an inactive publicly traded
company, and Playorena Acquisition Corp. ("PAC"), a wholly owned
subsidiary of Playorena entered into an Agreement and Plan of
Reorganization dated July 27, 1999, as amended on September 17, 1999 (the
"Merger" or "reverse acquisition"). Immediately prior to the Merger, and
in connection therewith, the shareholders of Playorena approved a .027533
for 1 reverse stock split (the "reverse split"), which reduced
Playorena's outstanding common shares to 294,694. The merger agreements
provided for the conversion of Global's membership interest into a total
of 5,063,379 new Playorena common shares, including 132,292 and 88,195,
respectively, new common shares reserved for issuance upon exercise of
certain Global stock purchase warrants assumed in the reverse
acquisition, which are exercisable at $.01 and $4.00 per share,
respectively, and expire on March 31, 2003. In addition, pursuant to the
Merger agreements, PAC merged with and into Global. Shortly after the
completion of the transaction discussed above, Playorena changed its name
to Etravnet.Com, Inc. ("the Company"). For financial reporting purposes,
Global is considered the acquiring entity. In addition, financial
advisors to the transaction were issued approximately 80,000 common
shares as partial payment for their services provided to the combining
companies. The fair value of those shares, $241,000, as estimated by
management, is reflected as a merger related expense in 1999.
Consolidated results of operations include both Global and Playorena from
September 17, 1999.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions are eliminated in consolidation.
BUSINESS
The Company is engaged in the business of selling franchises to existing
and start-up travel agency operators to use the Company's systems,
methods and techniques for promoting and performing travel agency
services. Franchisees are charged an initial franchise fee upon the
signing of a franchise agreement. In addition to the initial fee,
franchisees are required to remit monthly service and advertising fees,
as defined in the franchise agreement, to the Company. Franchise
agreements are typically for fifteen-year terms and are renewable for
additional ten-year terms.
I-14
<PAGE>
ETRAVNET.COM, INC.
------------------
(Formerly Playorena, Inc.) and Subsidiary
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS (CONTINUED)
The Company also sells area franchise agreements. Area franchisees are
charged an initial fee upon the signing of a franchise agreement. In
consideration for soliciting, screening, evaluating and introducing
prospective franchisees to the Company, as well as undertaking certain
franchiser responsibilities, the area franchisee receives from 50% to
66-2/3% of any initial franchise fees, service fees and other revenues,
as defined, for new franchises granted in the defined area. Such area
franchise agreements are typically for a ten-year term and are renewable
for one additional ten-year term.
The Company is also engaged in the wholesale travel business, providing
product and services to its franchisees, which it obtains from tour
operators and cruise lines. The Company also operates a retail travel
agency.
Currently, the Company has 356 franchises operating in 37 U.S. states.
Additionally, there are franchises in 21 countries.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Franchise Fees
Payment of an initial franchise fee, which is due upon execution of a
franchise agreement, can be in the form of cash, notes or a combination
thereof. Revenue is recognized when all material services and conditions
required of the Company, prior to the opening of the franchised business,
have been performed and substantial doubts of collectibility have been
eliminated, usually upon receipt of payment.
Travel Products and Services
Commissions earned from the sales of travel products and services are
generally recognized upon receipt. Revenues earned from all other sales
of travel and related products, where the Company is the credit card
merchant of record, are recorded at their aggregate retail value.
Cancellations have historically not been material.
Other
Advertising, franchise service fees and other revenues are recognized as
they become payable by the franchisee. Other revenue consists primarily
of travel related income from the operation of a retail travel service,
and certain earned commissions.
I-15
<PAGE>
ETRAVNET.COM, INC.
------------------
(Formerly Playorena, Inc.) and Subsidiary
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk
The Company is subject to credit risk through its trade receivables and
short-term investments. Credit risk with respect to trade receivables is
minimized due to the Company's large customer base and geographic
dispersion of such customers. Short-term investments are placed in a
highly-rated mutual bond fund.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, trade receivables,
current maturities of notes receivable and payables for which carrying
amounts approximate fair value due to the relatively short maturity of
these instruments. The carrying value of the Company's short-term
investments approximates fair value based on quoted market prices.
Management has determined that it would not be practicable to estimate
the fair values of its long-term notes receivable.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with
original maturities, when purchased, of three months or less. Cash and
equivalents included $6,314 of uninsured money market funds at December
31, 1999.
SHORT-TERM INVESTMENTS
Short-term investments consist of mutual bond funds which are classified
as "available-for-sale" securities and, accordingly, are carried at fair
value. Realized gains and losses are included in earnings; unrealized
holding gains and losses are reported as a separate component of
stockholders' equity. At December 31, 1999, unrealized losses amounted to
$33,260. At December 31, 1998, cost approximated market value.
INVESTMENT IN AFFILIATE
The Company's 25% investment in an affiliate was accounted for under the
equity method; cost was increased or decreased by the Company's share of
earnings or losses, less distributions and advances. The Company acquired
the remaining 75% of this affiliate on December 8, 1999. This has been
accounted for as a purchase and, accordingly, results of operations of
the affiliate have been included in the Company's financial statements
since that date. Results of operations of the affiliate, however, were
not material for either 1999 or 1998 (Note 3).
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost, and consist of fixtures and
store equipment. Major expenditures for property and those which
substantially increase useful lives are capitalized. Maintenance,
repairs, and minor renewals are expensed as incurred. When assets are
retired or otherwise disposed of, their costs and related accumulated
depreciation are removed from the accounts and resulting gains or losses
are included in income. Depreciation is provided by the straight-line
method over the estimated useful lives of the assets, five to seven
years.
I-16
<PAGE>
ETRAVNET.COM, INC.
------------------
(Formerly Playorena, Inc.) and Subsidiary
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROFIT SHARING PLAN
In 1997, the Company adopted a defined contribution plan. All employees
who have completed 1,000 hours of service during the plan year may
participate. Contributions are accrued and paid out of the Company's
current profits at the discretion of the Company's Board of Directors.
Employees may make voluntary contributions, subject to statutory
limitations. The Board has elected not to make a contribution for 1999.
The Company's contribution for 1998 was $37,719.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising
expense was $82,200 and $89,926 for 1999 and 1998, respectively.
INCOME TAXES
Through March 31, 1998, Travel Network Ltd. (a predecessor to Global)
elected to be treated as a small business corporation ("S" Corporation)
for income tax purposes as provided in the Internal Revenue Code and the
applicable state statutes. Thereafter and through September 17, 1999,
Global was a nontaxable limited liability company. Accordingly, no
federal income taxes were provided in the accompanying financial
statements for that period. After September 17, 1999, the Company became
a taxable "C" Corporation (Note 9).
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes new
rules for reporting and display of comprehensive income and its
components. At December 31, 1999, the only item of comprehensive loss was
the unrealized loss on marketable securities in the amount of $33,260.
SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131
superseded SFAS No. 14, "Financial Reporting of Segments of a Business
Enterprise. SFAS No. 131 establishes standards for the way that business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. SFAS
No. 131 also establishes standards for related disclosure about products
and services, geographic areas, and major customers. Based on the
Company's evaluation of the requirements of SFAS No. 131, management
believes that the Company operates in two business segments providing and
selling (1) management services within the travel industry, including
franchising activities and (2) beginning in 1999, Internet based
technology programs.
EARNINGS PER SHARE
For the period January 1, 1999 through September 17, 1999 and for all of
1998, the pro forma weighted average number of shares was based on the
number of common shares obtained by Global's members in connection with
the reverse acquisition. Thereafter, basic earnings per share are based
on the weighted average number of common shares outstanding. Diluted
earnings per common share assume that outstanding common shares are
increased by shares issuable upon exercise of those stock options for
which market price exceeds exercise price where their exercise would be
dilutive.
I-17
<PAGE>
ETRAVNET.COM, INC.
------------------
(Formerly Playorena, Inc.) and Subsidiary
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) requires that companies with
stock-based compensation plans recognize compensation expense based on
the "fair value" accounting method, or to apply the "intrinsic value"
method provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and disclose pro
forma net income assuming the fair value method had been applied.
The Company has elected to adopt the disclosure-only provisions of SFAS
123 and, accordingly, computes compensation expense for employees as
prescribed by APB 25. Under APB 25, compensation cost, if any, is
measured as the excess of the quoted market price of the Company's stock
at the date of grant over the amount an employee must pay to acquire the
stock. For stock options granted to non-employees, expense is measured
based on the fair value method prescribed by SFAS 123.
2. SOFTWARE LICENSE AGREEMENT
In 1999, the Company entered into a four-year agreement to license
software designed for and expected to be utilized by the Company in its
e-commerce activities. In connection therewith, the Company agreed to pay
the licensor $50,000 and to issue to the licensor warrants to acquire an
aggregate of 217,000 shares of the Company's common stock. The first
$25,000 was payable on the date of the agreement. The balance is payable
in two installments of $12,500 due in the year 2000. In addition, during
the second year of the license, the Company is required to pay $75,000 in
four equal installments. If the Company elects to do so, it may renew its
license subsequent to the fourth year for $50,000 per year. The warrants
issued in connection with transactions are summarized in the table below.
<TABLE>
<S> <C> <C> <C>
Number
of Shares Exercise
Date Issuable Price Expiration
-------------------------- ---------------------- --------------------- --------------------------
December 27, 1999 117,000 $5.00 Per Share December 27, 2000
December 27, 1999 100,000 $5.00 Per Share December 27, 2004
</TABLE>
The warrants were valued at between $3.49 and $4.40 per share for the
warrants expiring in 2000 and 2004, respectively, and together with the
first-year cash portion of the agreement, such amounts were utilized to
determine the initial cost of the license arrangement. Commencing upon
delivery of the software, expected in 2000, the costs, which amount to
$888,800 at December 31, 1999, will be amortized over the four years of
the agreement's initial term.
In addition to the payments noted above, the Company must pay the
licensor royalties aggregating 3.75% of any revenues received by the
Company as a result of any transaction processed using the software, and
support fees. Support fees represent the licensor's direct costs of
"development support" and "maintenance support", as those terms are
defined.
3. ACQUISITION OF TRAVEL NETWORK ON-LINE, LLC.
Effective December 8, 1999, the Company issued 47,250 shares of its
common stock to acquire the portion of Travel Network On-Line, LLC that
it did not already own. The excess (approximately $227,000) of the fair
value of the shares issued over the book value of the acquired assets has
been reflected as goodwill in the accompanying consolidated balance
sheet.
I-18
<PAGE>
ETRAVNET.COM, INC.
------------------
(Formerly Playorena, Inc.) and Subsidiary
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
4. COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under two office leases expiring April 30, 2002,
for minimum annual rentals, currently at $47,470, plus increases based
upon real estate taxes and operating costs.
In addition, the Company has entered into various lease agreements with
Wal-Mart Stores, Inc. for 55 locations pursuant to a master lease
arrangement. The Company is obligated to pay approximately $71,000 per
month in the aggregate. The Company has also entered into sub-lease
agreements with franchisees at certain of these Wal-Mart locations with
payment terms approximating the Company's obligation under its master
lease arrangement. The Company has an option to renew the leases for a
three-year period and, additionally, a five-year period.
The following is a summary of net rental expense, included in general and
administrative expenses, under all operating leases:
1999 1998
---------- ----------
Minimum rentals $ 721,000 $ 664,000
Less: Sublease rentals 674,000 535,164
---------- ----------
$ 47,000 $ 128,836
=========== ==========
Minimum future rental payments under noncancelable operating leases
having remaining terms in excess of one year as of December 31, 1999, are
as follows:
2000 $ 474,900
2001 217,000
2002 74,000
2003 58,000
2004 5,000
------------
Total $ 828,900
==========
The minimum future rentals have not been reduced by approximately
$753,000 of sublease rentals to be received in the future under
noncancelable subleases.
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 the Company and JCB, as well as a declaratory
judgment on whether a partnership existed between JCB and the Company.
JCB recently filed personal and corporate bankruptcy and JCB's interest
in the lawsuit has been transferred to JCB's bankruptcy trustee who has
given an indication of interest in settling the lawsuit out-of-court. The
Company made an offer to settle this lawsuit for $15,000. This offer was
rejected by JCB's bankruptcy trustee. Nevertheless, the Company intends
to vigorously defend the matter. In addition, the Company is involved in
other legal proceedings incurred in the normal course of business. At
December 31, 1999, 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.
I-19
<PAGE>
ETRAVNET.COM, INC.
------------------
(Formerly Playorena, Inc.) and Subsidiary
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Merger Related Items
As of the date of the reverse acquisition (Note 1), Playorena's recorded
liabilities amounted to $332,218 and consisted of notes payable of
$35,000 and other accrued expenses of $297,718. In connection therewith,
certain Playorena shareholders agreed to indemnify the Company with
respect to "losses" incurred with regard to any of these "payables", as
these terms are defined in the related Indemnification Agreement. The
indemnification relates to any claims made by a potential creditor within
three years from the date of the Agreement. For the reasons set forth
above, the Company has not included these liabilities in the financial
statements.
Letter of Credit
The Company is contingently liable under a letter of credit in the amount
of $25,000, which expires in September 2000. The letter of credit was
obtained to facilitate processing airfare reservations via customers
credit cards.
5. STOCKHOLDERS' EQUITY
Sale of Equity Interest
In March 1999, Global, with the approval of its members, sold 500,000
equity units of the Company to Liberty Travel, a major travel agency
chain, for $250,000. In connection therewith, Global received an option
from the investor to reacquire the units for $250,000 plus a premium
designed to return to the buyer a 10% per annum return. The option
expires 30 months from March 1999. In July 1999 the option was assigned
to all of Global's members other than Liberty Travel. In connection with
the reverse acquisition (Note 1), the units were converted into shares of
the Company's stock.
Shares Reserved for Issuance
Common shares are reserved for issuance as follows:
<TABLE>
<S> <C>
Warrants
Exercisable at $.01 per share 132,292
Exercisable at $4.00 per share 88,195
Exercisable at $5.00 per share 217,000
Options
Exercisable at various prices with a weighted average of $4.02 503,000
-------------
Total 940,487
=============
</TABLE>
I-20
<PAGE>
ETRAVNET.COM, INC.
------------------
(Formerly Playorena, Inc.) and Subsidiary
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
6. STOCK OPTIONS
During 1999, the Company granted stock options (non-qualified) to various
employees and certain consultants to the Company. Generally, the options
granted are exercisable for up to seven years, subject to a vesting
schedule in the case of employees' options. Options granted to the
consultants in 1999 are immediately exercisable. The options were granted
with exercise prices ranging from $3.00 per share to $8.00 per share. The
earliest date that the employees' options will vest is September 17,
2000.
A summary of stock option activity and weighted average exercise prices
follows:
Year Ended
December 31, 1999
---------------------------------------
Options Exercise Price
----------------- -----------------
Outstanding, beginning of year - $ -
Granted (a) 503,000 4.02
Exercised - -
Forfeited/Cancelled - -
------------- -------------
Outstanding, end of year 503,000 $ 4.02
============= =============
Exercisable 10,000 $ 5.00
============= =============
(a) 400,000 options were granted at an exercise price of $3.00 per
share when the market price of the underlying common stock was
$3.39 per share.
A summary of stock options outstanding and exercisable as of December 31,
1999 follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
------------------------------------- -------------------------------------
Weighted Weighted Weighted
Exercise Number Average Average Number Average
Prices Outstanding Remaining Life Exercise Exercisable Exercise Price
------------- ----------------- -------------------- --------------- --------------- --------------------
$3.00 400,000 3 Years $3.00 - -
$5.00 10,000 1 Year $5.00 10,000 $5.00
$8.00 93,000 3 Years $8.00 - -
</TABLE>
The fair value of the options granted was estimated using the
Black-Scholes option pricing model based on weighted average assumptions
of; risk free interest rate of 5.75%, volatility 143%, expected lives of
1 to 3 years and a dividend yield of zero.
Had compensation cost for employee stock options been determined
consistent with SFAS 123, the Company's net loss and loss per share would
have been as follows for 1999:
Net loss as reported $ (438,018)
Pro forma net loss $ (633,736)
Loss per share as reported $ (.09)
Pro forma loss per share $ (.13)
I-21
<PAGE>
ETRAVNET.COM, INC.
------------------
(Formerly Playorena, Inc.) and Subsidiary
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
7. INCOME TAXES
The components of deferred tax assets and liabilities is as follows at
December 31, 1999:
Net operating loss carryforward $ 143,000
Allowance for doubtful accounts 19,000
Less: Valuation allowance (162,000)
-------------
Net deferred asset $ -
=============
As a result of the company's operating loss in 1999 no current income
taxes are provided. The following is a reconciliation of the Company's
income tax expense (benefit) reflected in the financial statements and
the amounts calculated at the federal statutory income tax rate.
Income tax benefit at statutory rate $ 162,000
Increase in valuation allowance (162,000)
-------------
Total provision for (benefit from) income taxes $ -
=============
As of December 31, 1999, the Company has a net operating loss
carryforward of $397,000 that expires in 2014.
8. RELATED PARTY TRANSACTIONS
The Company pays commissions to another company owned by a significant
shareholder who is also the Company's Chief Executive Officer. Such
payments totalled approximately $118,000 and $42,000 for the years ended
December 31, 1999 and 1998, respectively.
9. PRO FORMA INFORMATION (UNAUDITED)
As discussed in Note 1, the Company was a nontaxable entity prior to
September 17, 1999. As a result of the merger with Playorena on that
date, Global's LLC status was terminated. Therefore, the Company's tax
status changed to that of a regular "C" corporation. The pro forma effect
of the change in the Company's income tax status on the historical
results of operations is presented in the accompanying statements of
operations. The pro forma provision for income taxes reflects federal,
state and local income taxes, which would have been required if the
Company had operated as a taxpaying entity in each of the respective
periods.
10. SEGMENT INFORMATION
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "other" column includes the
merger related charge for issuance of common stock and other corporate
items not specifically allocated to the segments.
<TABLE>
<S> <C> <C> <C> <C>
Travel &
Related Internet
Management Technology
1999 Services Programs Other Total
------------------------------------- ----------------- ------------------ ------------------ -----------------
Revenues $ 5,922,776 $ - $ - $ 5,922,776
Segment profit (loss) $ (106,566) $ (90,873) $ (240,579) $ (438,018)
Total assets $ 1,704,540 $ 888,800 $ 1,009,956 $ 3,603,296
Capital expenditures $ 34,166 $ 888,800 $ - $ 922,966
Depreciation and amortization $ 14,730 $ - $ - $ 14,730
Interest income $ - $ - $ 85,331 $ 85,331
During 1998, the Company operated only in the travel and related management services segment.
I-22
</TABLE>
<PAGE>
ETRAVNET.COM, INC.
------------------
(Formerly Playorena, Inc.) and Subsidiary
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
11. SUBSEQUENT EVENTS
In February 2000, the Company purchased approximately $2,000,000 of cable
television advertising time in various television markets located
throughout the United States. In return, the Company issued 207,289
shares of its common stock to the company that will arrange and handle
the schedule and placement of the ads in a media campaign.
The Company intends to enter into a five-year employment agreement with
its Chief Executive Officer ("CEO"). Pursuant to the intended agreement,
the CEO will be paid an annual base salary of $192,500 per year with
annual 10% increases, and a bonus incentive of 10% of all initial
franchise fees earned by the Company. Additionally, the agreement is
intended to provide the CEO certain rights in the event of a change in
control of the Company.
I-23
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
FINANCIAL STATEMENTS
AND
AUDITORS' REPORT
YEARS ENDED DECEMBER 31, 1998 AND 1997
I-24
<PAGE>
CONTENTS
Page
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Income 3
Statements of Shareholders' and Members' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-12
I-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Members of
Global Travel Network, L.L.C.
(A Majority-Owned Subsidiary of Travel Network, Ltd.)
We have audited the accompanying balance sheet of Global Travel Network, L.L.C.
(a majority-owned subsidiary of Travel Network, Ltd.) as of December 31, 1998,
and the related statements of income, shareholders' and members' equity, and
cash flows for the years then ended December 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Global Travel Network, L.L.C.
as of December 31, 1998, and the results of its operations and its cash flows
for the years ended December 31, 1998 and 1997, in conformity with generally
accepted accounting principles.
As more fully described in Note 8, subsequent to the issuance of the Company's
1998 and 1997 financial statements and our report thereon dated March 8, 1999,
we became aware that those financial statements erroneously reported certain
travel agency revenues and related costs. In our original report we expressed an
unqualified opinion on the 1998 and 1997 financial statements, and our opinion
on the revised statements, as expressed herein, remains unqualified.
Valley Stream, New York Israeloff, Trattner & Co., CPAs, P.C.
March 8, 1999, except for Note 6(b),
as to which the date is September 17, 1999 and
Note 8, as to which the date is October 7, 1999
I-26
<PAGE>
<TABLE>
GLOBAL TRAVEL NETWORK, L.L.C.
-----------------------------
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
-----------------------------------------------------
BALANCE SHEET
-------------
DECEMBER 31, 1998
-----------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 109,557
Short-term investments (Note 1) 944,176
Notes receivable (Notes 1 and 8) 108,892
Accounts receivable, less allowance for doubtful
accounts of $17,955 in 1998 and $18,355 in 1997 433,498
Prepaid expenses and other current assets 3,731
----------
Total Current Assets $1,599,854
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $22,132 (Notes 1 and 2) 53,649
OTHER ASSETS
Notes receivable, less current portion (Notes 1 and 8) 569,592
Security deposits 56,750
Investment in and advances to affiliate (Note 4) 5,531
----------
Total Other Assets 631,873
----------
TOTAL ASSETS $2,285,376
==========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 137,682
Deferred revenue (Notes 1 and 8) 108,892
----------
Total Current Liabilities $ 246,574
OTHER LIABILITIES
Deferred revenue(Notes 1 and 8) 569,592
Security deposits 120,583
----------
Total Other Liabilities 690,175
----------
Total Liabilities 936,749
COMMITMENTS AND CONTINGENCIES (Note 5)
MEMBERS' EQUITY (Notes 1 and 6) 1,348,627
---------
TOTAL LIABILITIES AND MEMBERS' EQUITY $2,285,376
=========
See accompanying notes to condensed consolidated financial statements.
I-27
</TABLE>
<PAGE>
<TABLE>
GLOBAL TRAVEL NETWORK, L.L.C.
-----------------------------
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
-----------------------------------------------------
STATEMENTS OF INCOME
--------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
<S> <C> <C>
1998 1997
---------- ----------
Revenues (Note 1)
Franchise fees $ 955,319 $ 866,474
Franchisee service fees and other 1,260,542 1,028,704
Travel agency revenues (Note 8) 2,186,592 1,296,462
Advertising fees 104,181 114,062
---------- ----------
Total Revenues 4,506,634 3,305,702
--------- ---------
Operating Expenses
Cost of travel agency revenues (Note 8) 2,023,218 1,187,529
Marketing and selling 1,331,294 1,245,135
General and administrative 1,049,250 752,340
--------- ----------
Total operating expenses 4,403,762 3,185,004
--------- ---------
Income before other income and income taxes 102,872 120,698
Other Income -Interest 72,191 61,637
----------- -----------
Income before state income taxes 175,063 182,335
State income taxes (Note 1) - 5,000
----------- -----------
Net income $ 175,063 $ 177,335
========== ==========
Pro forma Information (Unaudited) (Note 7)
Historical income before income taxes $ 175,063 $ 182,335
---------- ----------
Provision for Income Taxes
Historical - 5,000
Adjustment to recognize income taxes as if company
had been a "C" corporation 74,200 75,000
----------- -----------
Pro forma tax provision 74,200 80,000
----------- -----------
Pro forma net income $ 100,863 $ 102,335
========== ==========
Earnings Per Share:
Weighted average common shares outstanding 4,490,113 3,609,970
========= =========
Basic earnings per share $ .02 $ .03
============= =============
Weighed average common shares outstanding
assuming exercise of warrants 4,578,308 3,609,970
========= =========
Diluted earnings per share $ .02 $ .03
============= =============
See accompanying notes to condensed consolidated financial statements.
I-28
</TABLE>
<PAGE>
<TABLE>
GLOBAL TRAVEL NETWORK, L.L.C.
-----------------------------
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
-----------------------------------------------------
STATEMENTS OF SHAREHOLDERS' AND MEMBERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Additional
Common Stock Paid-In Retained Members'
Shares Amount Capital Earnings Equity Total
------- ------ ----------- ----------- --------- ----------
Balance - January 1, 1997 100 $ 1 $ 174,999 $ 670,012 $ - $ 845,012
Net income - - - 177,335 - 177,335
Distributions - - - (96,283) - (96,283)
----- ------ ---------- ----------- -------- ----------
Balance - December 31, 1997 100 1 174,999 751,064 - 926,064
Net loss for the three months
ended March 31, 1998 - - - (17,460) - (17,460)
Distributions - - - (608,000) - (608,000)
------- ------ ---------- ---------- ------- ---------
Balance - March 31, 1998 100 1 174,999 125,604 - 300,604
Recapitalization (Note 1) (100) (1) (174,999) (125,604) 300,604 -
Net proceeds from private placement
(Note 1) - - - - 855,500 855,500
Net income for nine months ended
December 31, 1998 - - - - 192,523 192,523
------ ------ ---------- ---------- -------- --------
Balance - December 31, 1998 - $ - $ - $ - $1,348,627 $1,348,627
====== ====== ========== ========== ========= =========
See accompanying notes to condensed consolidated financial statements.
I-29
</TABLE>
<PAGE>
<TABLE>
GLOBAL TRAVEL NETWORK, L.L.C.
-----------------------------
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
-----------------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
<S> <C> <C>
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 175,063 $ 177,335
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of affiliate (793) -
Depreciation 8,263 2,660
Changes in assets and liabilities:
Accounts receivable (162,650) 55,965
Notes receivable (434,395) 212,299
Prepaid expenses and other
current assets 19,140 (20,495)
Security deposits (21,997) (18,539)
Accounts payable and accrued expenses (79,117) 120,829
Deferred revenue 434,395 (212,299)
Income taxes payable - (3,300)
Other liabilities 56,160 45,120
----------- -----------
Total adjustments (180,994) 182,240
---------- ----------
Net cash provided (used) by operating activities (5,931) 359,575
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net advances to affiliate (4,738) -
Purchase of furniture and fixtures (48,667) (14,073)
Acquisition of short-term investments (90,918) (556,774)
----------- ----------
Net cash used by investing activities (144,323) (570,847)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders (608,000) (96,283)
Net proceeds from private placement 855,500 -
---------- ----------
Net cash provided (used) by financing activities 247,500 (96,283)
---------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 97,246 (307,555)
CASH AND CASH EQUIVALENTS - beginning 12,311 319,866
----------- ----------
CASH AND CASH EQUIVALENTS - end $ 109,557 $ 12,311
========== ===========
See accompanying notes to condensed consolidated financial statements.
I-30
</TABLE>
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
-----------------------------
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REORGANIZATION
In January, 1998, Global Travel Network, L.L.C. (the "Company") was
formed as a Delaware limited liability company. During January through
March 1998, the Company sold 998,000 membership units, approximating a
20% membership interest, in a private placement for net proceeds of
$855,500.
On April 1, 1998, the Company acquired the operating assets and assumed
the operating liabilities of Travel Network, Ltd. ("Travel Network") in
exchange for approximately an 80% membership interest in the Company.
Travel Network's equity accounts were recharacterized as members' equity.
Prior to its acquisition by the Company, during November and December
1997, a one-third shareholder of Travel Network acquired the remaining
two-thirds shareholder interests for an amount slightly in excess of
their book value at December 31, 1997. For financial reporting purposes,
the Company is considered to be a continuation of Travel Network and the
private placement is considered a recapitalization of the Company.
As a limited liability company, its members have limited personal
liability for the obligations or debts of the Company. Only one class of
membership interest exists and Travel Network is the Managing Member. The
Company will terminate December 31, 2028, unless sooner terminated or
otherwise extended. Generally, with the exception of certain "special
allocations", as defined in the L.L.C. Operating Agreement, and subject
to partnership tax regulations, profits and losses of the Company are
allocated, and distributions made, among the members in proportion to the
number of units held by each respective member. The Agreement also
requires the Company to distribute to its members an amount equal to 40%
of the previous year's net operating profits, if any.
The Company is engaged in the business of selling franchises to existing
and start-up travel agency operators to use its systems, methods and
techniques for promoting and performing travel agency services.
Franchisees are charged an initial franchise fee upon the signing of a
franchise agreement. In addition to the initial fee, franchisees are
required to remit monthly service and advertising fees, as defined in the
franchise agreement, to the Company. Franchise agreements are typically
for fifteen-year terms and are renewable for additional ten-year terms.
The Company offers a "Regional President" (area franchise), as defined.
Franchisees are charged an initial fee upon the signing of a franchise
agreement. In consideration for soliciting, screening, evaluating and
introducing prospective franchisees to the Company, as well as
undertaking certain franchisor responsibilities, the area franchisee
receives from 50% to 66-2/3% of the initial franchise fee, service fees
and other revenues, as defined, for new franchises granted. Such
franchise agreements are typically for a ten-year term and are renewable
for one additional ten-year term.
The Company is also engaged in the wholesale business, providing product
and services to its franchisees which it obtains from tour operators and
cruise lines.
Currently, the Company has 419 franchises operating in 41 U.S. states.
Additionally, there are franchises in 21 countries.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
I-31
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
-----------------------------
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION OF INCOME
Franchise Fees
Initial franchise fees due upon execution of a franchise agreement are
recorded as notes receivable and deferred revenue. Deferred revenue is
recognized as income when all material services and conditions required
of the Company, prior to the opening of the franchised business, have
been performed and substantial doubts of collectibility have been
eliminated, usually upon receipt of payment (See Note 8).
Travel Agency Revenue
Revenues earned from the sales of travel products and services, where the
travel provider is the credit card merchant of record, are recognized
generally upon receipt and are recorded at the commission amount (See
Note 8). Revenues earned from all other sales of travel and related
products are recorded at their aggregate retail value when the sale takes
place. Cancellations have historically not been material.
Other
Advertising, franchise service fees and other revenues are recognized as
they become payable by the franchisee. Other revenue consists primarily
of travel related income from the operation of a retail travel service,
and certain earned commissions.
Concentration of Credit Risk
The Company is subject to credit risk through trade receivables and
short-term investments. Credit risk with respect to trade receivables is
minimized due to the Company's large customer base. Short-term
investments are placed in a highly-rated mutual bond fund.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, trade receivables and
payables for which carrying amounts approximate fair value due to the
relatively short maturity of these instruments. The carrying value of the
Company's short-term investments approximates fair value based on quoted
market prices. Management has determined that it would not be practicable
to estimate the fair values of its long-term notes receivable.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with
original maturities, when purchased, of three months or less. Cash and
equivalents included $6,032 of uninsured money market funds at December
31, 1998.
I-32
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
-----------------------------
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHORT-TERM INVESTMENTS
Short-term investments consist of a mutual bond fund which is classified
as an "available-for-sale" security. At both December 31, 1998 and 1997,
the carrying values approximated fair value.
INVESTMENT IN AFFILIATE
The Company's 25% investment in an affiliate is accounted for under the
equity method; cost is increased or decreased by the Company's share of
earnings or losses, less distributions and advances.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost. Major expenditures for property
and those which substantially increase useful lives are capitalized.
Maintenance, repairs, and minor renewals are expensed as incurred. When
assets are retired or otherwise disposed of, their costs and related
accumulated depreciation are removed from the accounts and resulting
gains or losses are included in income. Depreciation is provided by the
straight-line method over the estimated useful lives of the assets.
PROFIT SHARING PLAN
In 1997, the Company adopted a defined contribution plan. All employees
who have completed 1,000 hours of service during the plan year may
participate. Contributions are accrued and paid out of the Company's
current profits at the discretion of the Board of Directors of Travel
Network. Employees may make voluntary contributions, subject to statutory
limitations. The Company's contributions for 1998 and 1997 amounted to
$37,719 and $26,134, respectively. A member of the Company is also the
trustee of the plan.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising
expense was $89,926 and $151,687 for the years 1998 and 1997,
respectively.
INCOME TAXES
Through March 31, 1998, the shareholders of Travel Network Ltd. elected
to treat the Company as a small business corporation ("S" Corporation)
for income tax purposes as provided in the Internal Revenue Code and the
applicable state statutes. As such, the Company's income or loss and
credits are passed through to the shareholders and combined with their
other personal income and deductions to determine taxable income on their
individual tax returns. Accordingly, no federal income taxes were
provided. State income taxes were provided at lower "S" corporate rates.
Federal and state income taxes, for the nine months ended December 31,
1998, have not been provided because the Company's income or loss and
credits are passed through to the members and combined with their other
personal income and deductions to determine taxable income on their
individual income tax returns.
I-33
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
-----------------------------
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 establishes new rules for reporting and display of
comprehensive income and its components. Comprehensive income is the same
as net income for 1998. The financial statements for 1997 are not
effected by the adoption of SFAS No. 130.
SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
(SFAS No. 131). SFAS No. 131 superseded FASB No. 14, "Financial Reporting
of Segments of a Business Enterprise. "SFAS No. 131" establishes
standards for the way that business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports. SFAS No. 131 also establishes standards for
related disclosure about products and services, geographic areas, and
major customers.
Based on the Company's evaluation of the requirements of SFAS No. 131,
management believes that the Company operates in one business segment,
the franchising of travel products and services agencies.
2. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<S> <C> <C>
estimated useful
life - years
------------------
Fixtures and store equipment 5-7 $ 75,781
Less: Accumulated depreciation 22,132
-----------
Net property and equipment $ 53,649
===========
</TABLE>
The depreciation and amortization expense for 1998 and 1997 was $8,263
and $2,660, respectively.
3. RELATED PARTY TRANSACTIONS
The Company pays commissions to a company owned by the principal
shareholder of Travel Network, Ltd. The expense totaled approximately
$42,000 and $73,000 for the years ended December 31, 1998 and 1997,
respectively.
I-34
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
-----------------------------
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
4. INVESTMENT IN AND ADVANCES TO AFFILIATE
During 1998, the Company acquired a 25% interest in Travel Network
On-Line L.L.C. Summariz-ed financial information (unaudited) for the
Company's investment at December 31, 1998, is set forth below:
<TABLE>
Condensed Balance Sheet
<S> <C> <C>
Current Assets $ 135,711
Current Liabilities 4,738
------------
Members' Equity $ 130,973
==========
Condensed Income Statement
Revenues and Investment Income 305,094
General and Administrative Expenses 301,921
----------
Net income $ 3,173
==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under two office leases expiring April 30, 2002,
for minimum annual rentals, currently at $47,470, plus increases based
upon real estate taxes and operating costs.
In addition, the Company has entered into two-year lease agreements with
Wal-Mart Stores, Inc. for forty-one locations. The Company is obligated
to pay approximately $50,200 per month in the aggregate. The Company has
also entered into sub-lease agreements with some of its franchisees at
certain of these Wal-Mart locations with payment terms approximating the
Company's obligation under its lease. The Company may renew the leases
for one three-year and one five-year period.
The following is a summary of rental expense (included in general and
administrative expenses) under all operating leases:
1998 1997
---------- ----------
Minimum rentals $ 664,000 $ 272,000
Less: Sublease rentals 535,164 258,023
---------- ----------
$ 128,836 $ 13,977
========== ===========
I-35
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
-----------------------------
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Leases (Continued)
Minimum future rental payments under non-cancelable operating leases
having remaining terms in excess of one year as of December 31, 1998 are
as follows:
1999 $ 618,000
2000 374,000
2001 74,400
2002 9,430
------------
$1,075,830
The minimum future rentals have not been reduced by approximately
$1,040,000 of sublease rentals to be received in the future under
non-cancelable subleases.
Legal Proceedings
The Company is involved in legal proceedings incurred in the normal
course of business. At December 31, 1998 there were no proceedings that,
in the opinion of management would have a material effect on the
financial position of the Company if adversely decided.
Year 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 computer system failures. The Company is
still in the process of identifying and evaluating the risks associated
with its financial and operational systems. The Company is also in the
process of obtaining information from its customers, suppliers and others
as to the status of their exposure to year 2000 problems. The total cost
of compliance and its effect on the Company's future results of
operations has not yet been determined.
6. SUBSEQUENT EVENTS
(a) Sale of Membership Interest
In March 1999, the Company, with the approval of its members, sold
500,000 units of the Company to Liberty Travel, a major travel agency
chain, for $250,000. In connection therewith, the Company received an
option from the buyer to reacquire the units for $250,000 plus a premium
designed to return to the investor a 10% per annum return. The option
expires 30 months from March 1999. Subsequently, in July 1999 the option
was assigned to all of the Company's shareholders, except for Liberty
Travel.
(b) Merger with Playorena, Inc.
The Company, Playorena, Inc. ("Playorena"), an inactive publicly traded
company, and Playorena Acquisition Corp. ("PAC"), a wholly owned
subsidiary of Playorena entered into an Agreement and Plan of
Reorganization dated July 27, 1999, which was amended on September 17,
1999 (the "Merger"). Immediately prior to the Merger, and in connection
therewith, the shareholders of Playorena approved a .027533 for 1 reverse
stock split (the "reverse split"), which resulted in there being 294,694
Playorena common shares outstanding. The Agreement provided for the
conversion of the Company's membership interest into a total of 5,063,379
Playorena common shares, including 132,292 common shares reserved for
issuance upon exercise of certain Company stock purchase warrants assumed
by Playorena. The stock purchase warrants are exercisable at $.01 per
share and expire in March 31, 2003. In addition, pursuant to the Merger
agreements, PAC merged with and into the Company, with the Company the
surviving corporation and a wholly owned subsidiary of Playorena. Shortly
after the completion of the transaction discussed above, Playorena
changed its name to Etravnet.Com, Inc.
I-36
<PAGE>
GLOBAL TRAVEL NETWORK, L.L.C.
-----------------------------
(A MAJORITY-OWNED SUBSIDIARY OF TRAVEL NETWORK, LTD.)
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
7. PRO FORMA INFORMATION (UNAUDITED)
In connection with the transactions discussed in Note 6, the Company will
be subject to federal, state and local income taxes with respect to
taxable income (if any) subsequent to the merger. The pro forma effect of
the change in the Company's income tax status on the historical results
of operations is disclosed in the accompanying statements of income.
The pro forma provision for income taxes reflects federal, state and
local income taxes which would have been required if the Company had
operated as a taxpaying entity in the respective periods.
Additionally, as a result of the transactions discussed in Note 6, the
Company's members will be issued 4,931,087 shares of Playorena common
stock in exchange for their membership interests. After the issuance,
these shareholders will control approximately 94.4% of Playorena's issued
and outstanding common shares. In connection with the merger, certain
warrants enabling the holders to acquire membership interests in the
Company that were originally granted in connection with the Company's
capital raising activities in 1998 and 1999, were exchanged for stock
purchase warrants which provide for the acquisition of 132,292 Playorena
common shares for $.01 per share and 88,195 common shares for $4.00 per
share. The warrants are exercisable until March 31, 2003. Net earnings
are divided by the weighted average number of common shares outstanding
during the years to calculate basic earnings per share. Diluted net
earnings per share are calculated to give effect to dilutive common stock
warrants outstanding.
8. REVISIONS TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's financial statements,
management became aware that certain revenues earned from the sales of
travel products and services, where the travel provider was the credit
card merchant of record, were erroneously recorded at their aggregate
retail value upon booking and the related aggregate wholesale costs of
such sales and services were charged to income. Such transactions should
have been recorded at the commission amount as travel agency revenues.
Accordingly, both travel agency revenues and operating expenses were
reduced by $2,900,780 for 1998 and $1,062,847 for 1997. In addition,
notes receivable and deferred revenue, recorded in connection with
franchise agreements, were each reduced by $456,670 as of December 31,
1998. The above revisions had no effect on the previously reported net
income for 1998 or 1997.
I-37
<PAGE>
<TABLE>
<S> <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 January ____, 2001
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 Until January ___, 2001 (25 days after the date hereof),
Dilution.......................................26 all dealers effecting transactions in the registered
Dividends and Distributions...................26 securities, whether or not participating in this
Description of Securities......................27 distribution, may be required to deliver a current copy of
Legal Matters..................................28 this prospectus. This delivery requirement is in addition
Where You Can Find More Information............28 to the obligation of dealers to deliver a prospectus when
Incorporation by Reference.....................29 acting as underwriters and with respect to their unsold
Appendix I (Financial Statements).............I-1 allotments or subscriptions.
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. 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.
Item 25. 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.
SB-2-1
<PAGE>
Item 26. 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 thought its initial closing October 18, 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 27. Exhibits And Financial Statement Schedules.
(a)(1) Financial Statements -- Included in Prospectus:
Condensed Consolidated Balance Sheet as of September 30, 2000
(unaudited) and 1999
Condensed Consolidated Statements of Operations for the nine and three
months ended September 30, 2000 and 1999 (unaudited).
SB-2-2
<PAGE>
Condensed Consolidated Statement of Cash flows for the nine months
ended September 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 28. 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.
SB-2-3
<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.
SB-2-4
<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. 2 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 3rd day of January 2001.
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 January 3, 2001
-------------------
Michael Y. Brent, Chairman, Chief Executive Officer
and Secretary
/s/ Stephanie Abrams January 3, 2001
--------------------
Stephanie Abrams, Executive Vice President
/s/ Derek J. Brent January 3, 2001
------------------
Derek J. Brent, Director, Treasurer and Vice President/Sales
/s/ Harold Kestenbaum January 3, 2001
---------------------
Harold Kestenbaum, Director
SB-2-5
