SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 000-25003
ETRAVELSERVE.COM, INC. (f/k/a Revenge Marine, Inc.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 36-3051776
------------------------------ -----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
C/O EMO Corporate Services, Inc.
100 N.E. 3rd Ave., Ste.1100
Ft. Lauderdale, FL
(Address of principal executive offices, including zip code)
(561) 417-0688
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days.
YES [X] NO [ ]
----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, as of October 6, 2000 was $4,699,691.
The number of issued and outstanding shares of the Registrant's Common
Stock, $0.001 par value, as of October 6, 2000 was 87,191,530.
ETRAVELSERVE.COM, INC.
FORM 10-K
For the Fiscal Year Ended June 30, 2000
INDEX
Page
PART I
Item 1. Business....................................................................................3
Item 2. Description of Property.....................................................................5
Item 3. Legal Proceedings...........................................................................5
Item 4. Submission of Matters to a Vote of Security Holders.........................................5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ......................6
Item 6. Selected Financial Data.....................................................................8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................................9
Item 7A. Quantitative and Qualitative Disclosure About Market Risk..................................13
Item 8. Financial Statements and Supplementary Data.................................................14
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure........................................................................14
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation.....................................................................15
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................16
Item 13. Certain Relationships and Related Transactions 16
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8K 16
Appendix A - Consolidated Financial Statements.......................................................F-i
2
EXPLANATORY NOTE
We are filing this Amendment to our Annual Report on Form 10K for the
fiscal year ended June 30, 2000 to (i) include updated financial information
relating to the compensation of certain officers and directors of the Company;
(ii) to make disclosures of delinquencies in the filing of certain reports
required to be made by certain persons deemed statutory insiders under Section
16(a) of the Exchange Act of 1934; and (iii) to amend and restate our financial
statements for the fiscal year ended June 30, 2000 and to incorporate a
discussion of such financial results in the body of this report. We hereby amend
and restate our Form 10K for the fiscal year ended June 30, 2000 in its entirety
as set forth in this document.
PART I
Item 1. Business
Overview.
We are a start-up company whose objective is to become a leading
provider of online travel services for leisure and recreational enthusiasts and
technology-driven marketing and advertising solutions to advertisers,
advertising agencies, Web publishers and e-commerce merchants worldwide. Our
original business model of operating as a purely Internet based travel services
company has been modified to include planned acquisitions of existing bricks and
mortar travel agencies to augment our new media model. We believe that obtaining
existing store front travel agencies will help us hedge the market risks
currently facing pure-play Internet companies while at the same time providing
us with a source of positive cash flow as we develop and deploy our on-line
model.
We have launched our Web site, "etravelserve.com," as a multimedia,
interactive advertising site and full-service travel shopping mall. Our revenues
will be derived from commissions, fees, and direct merchant sales related to
transactions on our website and from sales of advertisements on our Web site,
licensing fees for certain value added content, and through the provision of
systems and database design and implementation services to third parties.
The Internet is dramatically changing the way that consumers and
businesses communicate, share information and buy and sell goods and services.
The Internet reduces inefficiencies characteristic in traditional market models
through the disintermediation of functions between the provider of the good or
service and the ultimate consumer. Characteristic of the leisure and
recreational travel industry is the presence of large numbers of geographically
dispersed buyers and sellers and purchase decisions involving large amounts of
information from multiple sources. We believe, therefore, that the leisure and
recreational industry is particularly well-positioned to benefit from the
evolution of the Internet platform and e-commerce model through the
reintermediation of value-added functions like those to be provided by our
Company.
4
The Internet has also emerged as an attractive new medium for
advertisers due to the rapid growth in the number of Web users, the amount of
time such users spend on the Web, the increase in electronic commerce, the
interactive nature of the Web, the Web's global reach and a variety of other
factors. We believe the number of U.S. online households will grow from
approximately 40 million in 1999 to over 60 million in 2004 and consumer
e-commerce will reach nearly $110 billion in 2003. Consequently, we believe that
U.S. online advertising spending will grow from approximately $3 billion in 1999
to over $20 billion in 2004. In addition, we believe that markets outside the
U.S. will become an increasingly important component of Internet advertising,
growing from approximately $500 million in 1999 to over $10 billion in 2004,
accounting for approximately 33% of worldwide Internet advertising. We believe
that we will be well positioned to capitalize on this large market opportunity
as well.
eTravelserve.com, Inc., formerly known as Revenge Marine, Inc.
("eTravelserve.com" or "the Company"), was incorporated in Nevada on December
28, 1979. eTravelserve.com has operated under various names since its
incorporation, most recently operating as Global Energy Organization Corporation
("Global") prior to January 1998. The Company had no significant operations from
January 1995 through January 1998.
We reorganized the Company in January 1998 and changed its primary
focus to acquiring yacht manufacturing and marine technology companies.
Principal operations commenced in July 1998. In June 1999, the Company
discontinued its marine operations and sold substantially all of its assets.
The Company re-entered the development stage in July 1999 after
redirecting its business plan toward the online travel and communications
industries. On January 11, 2000, the Company changed its name to
eTravelserve.com, Inc. from Revenge Marine following the acquisition of JR
Solutions, Inc. ("JR") through the exchange of 80,000,000 shares of newly issued
Company stock, in exchange for all of the outstanding shares of JR's common
stock.
On March 7, 2000, JR acquired 100% of the stock of Preferred Travel and
Tours, Inc., a Florida corporation ("Preferred"), for $185,000 in
cash. The acquisition of Preferred provided us with our first physical travel
agency presence to complement our Internet-based travel services platform,
thereby transforming us from a pure-play Internet company to what we believe is
a more viable "clicks and mortar" market platform.
On August 23, 2000, Preferred completed the acquisition of essentially
all of the assets of Journey=s Journey's Unlimited on the Concourse, a Florida
corporation ("Journeys Unlimited"), for total consideration of $60,000, $40,000
of which was immediately payable in cash, with the remaining $20,000 payable in
the form of Company common stock valued as of August 22, 2000. This acquisition
is representative of the types of acquisitions which we are currently pursuing,
wherein the recurring cash stream and existing customer base purchased will
provide certain fundamental elements (e.g. cash flow) necessary for us to
continue to deploy the Web-based aspect of our business model.
5
We anticipate making further strategic acquisitions in the travel,
communication and recreation businesses where such opportunities will provide
synergies complementary to our existing core competencies. We are currently
under contract for the purchase of three (3) additional store-front travel
agencies which we anticipate will close within the next 30 to 45 days.
We will leverage our international relationships to create a unique
global, interactive, destination and community site oriented to on-line
retailing, advertising, direct marketing and promotion, product and name
branding, travel promotions, and provision of value-added marketing services. We
intend to develop both business to business ("B2B") and business to
consumer ("B2C") market models.
With our current technological competencies and through the realization
of our plan to add additional superior technology personnel, either directly or
through strategic alliances, we intend to develop a full array of value-added,
B2B systems design and database architecture services, to market to the marine
and recreational business sub-market, which traditionally has been slow to adopt
market initiatives. The types of value-added services which we anticipate
offering in this niche will include site design and development, implementation,
integration and testing. Other fee-based engagements would include the design,
installation and testing of Web sites for marine industry and other recreational
businesses; the implementation of messaging and Internet/intranet technologies;
the provision of value-added customer fulfillment and affinity functions; and
the design and installation of network, intranet and extranet systems,
architecture and enterprise information technology solutions.
Our proposed B2C marketing approach will microtarget the
demographically and psychograpically appealing affluent, well-educated,
recreational and excursion consumer, through the creation and development of a
superior, one-stop content based, interactive vacation and travel on-line
destination. This model will provide compelling content for such recreational
travelers and vacationers through the provision of exciting vacation and travel
excursions involving sports fishing, boating, golfing, and athletic and
recreational event themes. As a part of this model, our site will provide
airline, cruise and other common carrier travel solutions as well as hotel and
other resort accommodations complementary of the theme chosen. Additionally, we
anticipate developing strategic relationships to provide a dynamic multi-media
portal for recreational sports travel-related consumer merchandise, apparel and
accessories, sports and boating travel news, information and travel tips,
interactive chat rooms, on-line auctions and a robust e-commerce marketplace for
marketing of travel related equipment and accessories. Through the development
of our brand awareness our superior target market, we hope to garner significant
portions of brick and mortar marketers' and merchants' advertising budgets
targeting our user profiles.
Once our anticipated site traffic is achieved, we anticipate being able
to deliver superior advertising return on investment, which will justify
advertising fee premiums yet yielding efficient CPMs (costs per thousand
impressions).
Item 2. Description of Property
Our headquarters is located at 22191 Powerline Road, Bay 22C, Boca
Raton, Florida 33433. We currently lease approximately 2,800 square feet of
space pursuant to a five year lease which expires April 30, 2004. Our monthly
rent for the first year of the lease is $5,133. We share this space with our
affiliate Preferred Travel & Tours, Inc.
6
Item 3. Legal Proceedings
There are no current legal proceedings pending against the Company or
are we pursuing any litigation.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the shareholders during
the current fiscal year to the date of this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of June 30, 2000, the Company had outstanding common stock,
$0.001 par value, 500,000,000 shares authorized, 111,018,907 and 10,898,810
shares issued and outstanding at June 30, 2000 and 1999, respectively.
Market Price of Common Equity.
The Company's $.001 par value common stock ("Common Stock") is listed
on the National Association of Securities Dealers Over the Counter Bulletin
Board Quotation System ("OTC") under the trading symbol "TSER." As of October 6,
2000 there were approximately 2,170 holders of record of the Company's
outstanding shares of Common Stock. The following table sets forth the high and
low closing sale prices of Common Stock, as reported by the OTC, for the periods
indicated:
Common Stock
1999 High Low
---- ---
First quarter 1.75 .50
Second quarter .75 .125
Third quarter 1.375 .531
Fourth quarter 1.062 .437
2000
First quarter .875 .125
Second quarter .52 .15
Third quarter 2.1875 .5937
Fourth quarter 1.125 .19
7
The Company has never paid dividends on its Common Stock. The Company
has no present plans to pay cash dividends in the foreseeable future and intends
to retain earnings for the future operation and expansion of the business. Any
determination to declare or pay dividends in the future will be at the
discretion of the Company's Board of Directors and will depend on the Company's
results of operations, financial condition, any contractual restrictions,
considerations imposed by applicable law and other factors deemed relevant by
the Board of Directors. The following list describes all sales of securities by
the Company during the fiscal year ended June 30, 2000 that were not registered
under the Securities Act of 1933, as amended (the "Securities Act"). In
connection with the issuance of these securities, the Company relied on the
exemption from registration under the Securities Act set forth in Section 4(2)
thereof, based on established criteria for effecting a private offering,
including the number of offerees for each transaction, access to information
regarding the Company, disclosure of information by the Company, restrictions on
resale of the securities offered, investment representations by the purchasers,
and the qualification of offerees as "accredited investors."
On October 26, 1999, the Company issued 350,000 shares of Common Stock
in settlement of obligations amounting to $87,500 for consulting services.
On October 26, 1999, the Company issued 5,086 shares of Series B 10%
cumulative convertible preferred stock, $40 stated value ("Series B Preferred")
to Allied Capital Corporation ("Allied"), an affiliate of then director, William
C. Robinson, in satisfaction of Allied loans to the Company aggregating
$203,437. The Series B Preferred shares are convertible into Common Stock at a
40% discount to the bid price as listed on the NASDAQ Bulletin Board on the date
of conversion. On the same date, Allied exercised the conversion option and
converted the 5,086 Series B Preferred shares into 2,712,500 shares of Common
Stock. On the same date, an affiliate of Roy Meadows converted 1,512 shares of
Series B Preferred into 806,000 shares of Common Stock in settlement of
consulting services aggregating $60,480.
On October 26, 1999, the Company issued 5,729 shares of Series C 10%
cumulative convertible preferred stock, $50 stated value ("Series C Preferred"),
to four different professional and other Company vendors in satisfaction of
amounts the Company owed such parties for services rendered aggregating
$286,486. The Series C Preferred shares are convertible into Common Stock at a
30% discount to the bid price as listed on the NASDAQ Bulletin Board on the date
of conversion. On the same date, two of those Series C Preferred holders
converted all 4,606 of their Series C Preferred shares into 2,221,568 shares of
Common Stock. The remaining two of the original four holders of Series C
Preferred converted all 1,123 of their Series C Preferred shares into 619,444
shares of Common Stock on December 14, 1999.
On January 12, 2000 the Company issued 3,595 shares of Series D 10%
cumulative preferred stock, $50 stated value ("Series D Preferred") to various
parties in satisfaction of amounts due them for the performance of various
services to the Company aggregating $179,750.
8
On January 24, 2000 the company issued 2,580,645 shares of Common Stock
in in exercise of an option granted to it by Paul R. Johnson ("Johnson") on
October 15, 1999, to acquire 666,667 shares of the common stock (the "Link
Shares") of Link Express Delivery Solutions, Inc. ("Link") valued at $5,000,000.
Johnson was appointed a director of the corporation on January 12, 2000 and
elected as president of the Company on January 12, 2000. The option exercise
agreement under which the Company exercised its option to purchase the Link
Shares contained a provision providing the Company a right to rescind its
January 24, 2000 exercise of the option to purchase the Link Shares should there
be no public market for the Link Shares within six months of the exercise date.
As of July 24, 2000, there was no public market for the Link shares and the
Company rescinded the exercise of its option to purchase the 666,667 Link Shares
and canceled the issuance of the subject 2,580,645 shares of Common Stock.
On January 24, 2000, the Company issued 80,000,000 newly issued shares
of Common Stock pursuant to the January 11, 2000 Stock Purchase Agreement
executed in consideration for the exchange of all of the issued and outstanding
shares of stock of J.R. Solutions, Inc. which had assets valued in total of
$5,350.
On January 18, 2000 the Company increased the number of authorized
shares of common stock from 50,000,000 to 500,000,000 shares.
On January 27, 2000, the Company adopted the Year 2000 Stock Award Plan
(the "Stock Plan"). The Stock Plan provides that the Company may grant common
stock to selected employees, officers, directors, and key consultants and
advisors. The Stock plan authorizes the issuance of a maximum of 4,000,000
common stock shares. During the year ended June 30, 2000, the Company issued a
total of 152,000 Stock Plan shares valued at $69,806 to employees and 3,948,000
Stock Plan shares valued at $1,382,078 to consultants. The Stock Plan shares
were valued at the closing price of Company stock as of the dates granted.
On June 15, 2000, the Company adopted the Year 2000 Stock Award and
Option Plan (the "Plan"). The Plan provides that the Company may grant common
stock to selected employees, officers, directors, and key consultants and
advisors. The Plan, as amended, authorizes the issuance of a maximum of
20,000,000 shares of common stock. During the year ended June 30, 2000, the
Company issued a total of 6,412,000 Plan shares valued at $ 2,244,651 to
consultants. The Plan shares were valued at the closing price of Company stock
as of the dates granted. As of October 6, 2000, the Company had issued and
additional 8,832,000 Plan shares subsequent to fiscal year end.
Options and Warrants to Purchase Common Shares of the Company
In December 1998, the Company adopted its 1998 Incentive Stock Plan
("the Plan") under which 2.8 million options to purchase common stock were
granted to substantially all full-time employees. The options granted under the
Plan extend for 5 years from the date of grant and vest in monthly increments
over a period of up to two years. The exercise price was equal to the stock
price on the grant date. The Plan is considered to be a non-compensatory plan,
as defined by Statement of Financial Accounting Standards No. 123 "Accounting
9
for Stock-Based Compensation". Accordingly, no compensation cost has been
recognized for the years ended June 30, 2000 and 1999. The options were issued
at per share exercise prices between $0.01 and $1.00 per share. In June 1999,
335,000 of the options were canceled due to termination of employment when the
Company discontinued its marine operations. A total of 2,465,000 unexercised
options issued under this plan expired on September 30, 1999.
The Company has periodically issued common stock options and warrants
to non-employees, usually in connection with services rendered. When such
options or warrants are exercised, the fair value of the stock issued is charged
to operations in the period exercised.
In June 2000, the Company issued options to related parties to purchase
up to 875,000 shares of the Company's common stock at an exercise price of $0.16
per share. The options expire on June 16, 2003.
In June 2000, the Company issued options to related parties to purchase
up to 1,400,000 shares of the Company's common stock at an exercise price of
$0.18 per share. The options expire on June 6, 2003.
In May 2000, the Company issued options to related parties to purchase
up to 2,138,500 shares of the Company's common stock at an exercise price of
$0.25 per share. The options expire on May 22, 2003.
In April 2000, the Company issued options to a related party to
purchase up to 136,000 shares of the Company's common stock at an exercise price
of $0.45 per share. The options expire on April 3, 2003.
In April 2000, the Company issued options to purchase up to 300,000
shares of the Company's common stock at an exercise price of $1.00 per share.
The options are exercisable at any time after the date of the option
certificate.
In January 2000, the Company issued options to purchase up to 150,000
shares of the Company's common stock at an exercise price of $0.01 per share.
The options are immediately exercisable.
In January 2000, the Company issued options to purchase up to 1,000,000
shares of the Company's common stock at an exercise price of $0.01 per share.
The options become exercisable at a rate of 83,333 shares at the end of each
three month period from the grant date. The option was granted in accordance
with a three year consulting agreement. Should the Company terminate the
consulting agreement prior to the expiration of its term, all options granted
will become immediately exercisable.
In June 1999, the Company issued a warrant to purchase up to 1,500,000
shares of the Company's common stock at an exercise price of $0.37 per share.
The warrant was issued pursuant to a rescission agreement further disclosed in
Footnote 4 to the financial statements. The warrant expires June 30, 2002.
10
Information with respect to all stock options and warrants is
summarized as follows:
Weighted-
Average
Shares Exercise Price
- -----------------------------------------------------------------------------
Outstanding at June 30, 1998 545,000 $ 1.50
- -----------------------------------------------------------------------------
Granted 1999 4,550,000 0.36
- -----------------------------------------------------------------------------
Cancelled 1999 (335,999) 0.34
Outstanding at June 30, 1999 4,760,000 0.50
- -----------------------------------------------------------------------------
Granted 2000 5,999,500 0.21
- -----------------------------------------------------------------------------
Expired 2000 (2,715,000) 0.33
- -----------------------------------------------------------------------------
Outstanding at June 30, 2000 8,044,500 0.34
- -----------------------------------------------------------------------------
Options exercisable, June 30, 2000 7,211,166 $ 0.36
- -----------------------------------------------------------------------------
Options exercisable, June 30, 1999 4,373,054 $ 0.51
- -----------------------------------------------------------------------------
Item 6. Selected Financial Data
The following table sets forth selected historical financial data of
the Company as of the dates and for the periods indicated. The selected
financial data of the Company were derived from the audited consolidated
financial statements included herein. The selected consolidated financial
information presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements and related notes thereto of the Company
appearing elsewhere herein. Although Regulation S-K, Item 301, indicates that
information should be provided for continuing operations, the Registrant had no
continuing operations as of the end of the prior fiscal year. Therefore,
providing a convenient format to highlight certain significant trends in
registrants operations and financial condition may not have been helpful as of
the end of the prior fiscal year, as the operations were not continuing as of
the fiscal year ended June 30, 1999. Consequently, the information for
discontinued operations in the prior year is provided below along with current
year operating information.
2000 1999
------------- -----------
Operating Revenues $ 95,349 $ --
Operating Expenses (225,911) --
Consulting Fees (3,914,991) --
Valuation Losses (1,000,000) --
Loss from Continuing Operations (5,045,553) --
Loss from Discontinued Operations -- (3,432,808)
Loss on Disposal of Assets -- (918,047)
Net Loss from Discontinued Operations -- (4,350,855)
Weighted Average Shares Outstanding 34,964,896 7,129,680
Net Loss Per Share (0.16) ($0.61)
11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Investors are cautioned that certain statements contained in this
document, including the following section, as well as some statements by the
Company in periodic press releases, are "forward looking" statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act").
Forward-looking statements include statements which are predictive in nature,
which depend upon or refer to future events or conditions, which include words
such as "expects", "anticipates", "intends", "plans", "believes", "estimates",
or similar expressions. In addition, any statements concerning future financial
performance (including future revenues, earnings or growth rates), ongoing
business strategies or prospects, possible future Company actions, market share
growth, market opportunities, new product or service introductions, customer
acceptance of the Internet as a viable alternative business platform, are also
forward looking statements as defined by the Act. Forward-looking statements are
based on current expectations and projections about future events and are
subject to risks, uncertainties, and assumptions about the Company, economic and
market factors and the industry in which the Company does business, among other
things. These statements are not guarantees of future performance and the
Company has no specific intention to update these statements.
Actual events and results may differ materially from those expressed or
forecasted in forward-looking statements due to a number of factors. Such
factors include, but are not limited to, adverse changes in general economic
conditions, including changes in the travel industry market, adverse business
conditions, decreased or lack of growth in the use of the Internet, adverse
changes in consumer travel patterns, increased competition, lack of acceptance
of the Internet as a medium in which travel transactions are consummated,
pricing pressures, lack of success in technological advances and other factors,
including those listed below
Material Changes in Financial Condition, and Results of Operations and
Liquidity.
12
In June 1999, we resolved to discontinue our marine operations and to
sell substantially all of our assets used in the marine business line. We
disposed of these assets through the recission of the asset acquisition
agreement in which such assets were previously acquired, through two cash
settlements occurring in August 1999. Sales of these assets in the amount of
$2,200,000 were recognized on the accrual basis of accounting as of the end of
our previous fiscal year ended June 30, 1999 as part of the calculation of the
loss from the disposal of assets. The income statements for prior year
comparative periods were restated in accordance with applicable accounting
pronouncements to show the effects on operations in connection with our
discontinued business line then and now. Marine operations were formally
discontinued in the prior year. As a measure to enhance our business model, on
March 7, 2000, we acquired Preferred Travel and Tours, Inc. for $185,000, which
has an existing business base and recurring revenue stream. This cash
acquisition was funded by a loan from Allied Capital Corporation ("Allied"), one
of our majority shareholders. Through this acquisition, which comports well with
our stated objective of growing the Company through strategic alliances, our
business model has evolved into a "clicks and bricks" platform, a strategy which
serves to hedge the market risk of adhering to a pure " cyber" model.
Revenues of $95,439 were realized during the fiscal year ended June 30,
2000, which revenues were attributable to the operations of Preferred. There
were no revenues for the corresponding prior fiscal year end since the Company
entered into the travel services industry beginning in the first calendar
quarter of 2000. Operating expenses of 225,911 were incurred during the fiscal
year ended June 30, 2000 which expenses have no prior year analogue since there
were no travel industry operations then. During the fiscal year ended June 30,
2000, the Company issued common stock shares valued at $3,914,991 in accordance
with generally accepted accounting principles, to various persons in lieu of
cash compensation for services rendered. These expenses were incurred primarily
pursuant to the development of our Internet-based platform. The remainder of the
operating expenses for the most recent fiscal year were attributable to normal
operating expenses.
We have incurred operating losses and negative cash flow since
inception, and we expect this trend to continue in the foreseeable future as we
invest in marketing and promotional activities to launch our Web site and as we
develop our new store-front travel agencies.. We have just recently launched our
Web site, and, consequently, there are no operating revenues yet to report as of
the year ended June 30, 2000 in connection with our e-commerce model. Our
acquisition of bricks and mortar travel agencies, such as Preferred and Journeys
Unlimited, should soon begin to provide some operating cash flow as we continue
to develop our recently launched Internet site. We will continue to also develop
our bricks and mortar travel agency acquisition campaign to grow further through
such combinations, all with the intent of enhancing shareholder value. We do
expect that our operating results will be volatile as we build our technology
infrastructure and make improvements to our Web site due to a variety of
factors, many of which are out of our control. During the initial phases of
implementing our business plan, we will be heavily reliant on external sources
of equity and debt financing.
Liquidity and Capital Resources
As of June 30, 2000, we had a cash overdraft balance of $9,693 as
compared to an overdraft balance of $3,636 as of the fiscal year ended June 30,
1999. For the fiscal year ended June 30, 2000, the Company had a working capital
deficit of $1,123,173 compared with a working capital deficit of $1,119,741 as
of June 30, 1999.
Net cash provided by operating activities was $16,203 for the fiscal
ended June 30, 2000 as compared to net cash used by operating activities of
$1,536,245 for fiscal 1999. The Company used $206,753 in investing activities
during fiscal 2000 and used $1,499,602 in investing activities during the fiscal
year ended June 30, 1999. Net cash provided by financing activities was $190,550
for the fiscal year ended June 30, 2000 as compared with $2,933,054 provided for
the comparable 1999 period.
We continue to secure additional small lots of capital. We believe that
we have adequate resources for the next six months of operations.
Factors That May Affect Future Results and Market Price of Stock.
Etravelserve.com, Inc. is engaged, in part, in the pursuit of commerce
on the Internet platform. This form of commerce involves many opportunities, as
well as significant threats, many of which are out of our control. Some of the
risks which we face are as follows:
Consumers, travel suppliers and advertisers may not accept our Web site
as a valuable commercial tool, which would impair the growth of our business.
For us to achieve the level of growth that we have projected,
consumers, travel suppliers, merchants and advertisers must accept our Web site
model as a valuable commercial tool. Consumers who have historically purchased
travel products using traditional commercial channels must change that paradigm
and purchase instead through our site. Consumers frequently "surf" sites like
our prospective site in search of route and rate information and then ultimately
revert to the traditional purchase channel. If this paradigm is not shifted, we
may never achieve our anticipated growth.
Similarly, travel suppliers, advertisers and merchants will also need
to accept and use our Web site. In order for this to occur, travel suppliers,
advertisers and merchants will need to perceive our site as efficient and
profitable channels of distribution for their travel products, for expenditure
of their advertising budgets and for their merchandise.
In order to achieve the acceptance of consumers, travel suppliers,
advertisers and merchants contemplated by our business plan, we will need to
make substantial investments in technology and brand. We can not, however,
assure you that these investments will be successful. Our failure to make
succeed in these areas will hamper the opportunities to achieve our business
plan.
We expect there to be operating losses and negative cash flows.
14
We expect to incur net losses and negative cash flows for the
foreseeable future and there can be no assurance that we will ever achieve
profitability or generate positive cash flows. As we launch our site and deploy
our business plan, we expect to incur significant operating expenses
particularly in the sales, marketing and operations. These types of expenses
will grow as we expand the scope and reach of our operations. If our revenues do
not grow as expected, or if our actual expenses exceed our budgeted expenses,
there could be a material adverse effect on our business, operating results and
financial condition. We will need to raise additional funds through the issuance
of equity, equity-related or debt securities. If we are unable to obtain
additional financing on reasonable terms to enable the development of our
business plan, we may never be able implement our on-line strategy.
The success of our business will depend on continued growth of online
commerce and the Internet.
Because we do intend to provide our service through on the Internet,
our future revenues and profits from this aspect of our business plan depend
upon the widespread acceptance and use of the Internet and online services as a
medium for commerce. Rapid growth in the use of the Internet and online services
is a recent phenomenon. This growth may not continue. A sufficiently broad base
of consumers may not accept, or continue to use, the Internet as a medium of
commerce. Demand for and market acceptance of recently introduced products and
services over the Internet involve a high level of uncertainty.
The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of traffic. Our
success will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a reliable
network backbone with the necessary speed, data capacity and security and the
timely development of complementary products for providing reliable Internet
access and services . Major online service providers and the Internet itself
have experienced outages and other delays as a result of software and hardware
failures and could face such outages and delays in the future. Outages and
delays are likely to affect the level of Internet usage and the processing of
transactions on our websites. In addition, the Internet could lose its viability
because of delays in the development or adoption of new standards to handle
increased levels of activity or of increased government regulation. The adoption
of new standards or government regulation may require us to incur substantial
compliance costs.
Interruptions in service from third parties could impair the quality of
our service.
We will rely upon third-party computer systems and third party service
providers, including the computerized central reservations systems of the
airline, hotel and car rental industries to make airline ticket, hotel room and
car rental reservations and credit card verifications and confirmations. Any
interruption in these third-party services or a deterioration in their
performance could impair the quality of our service. If our arrangement with any
of these third party were to be terminated, we may not be able to find an
alternative source of systems support on a timely basis or on commercially
reasonable terms.
15
Our success depends upon the development and maintenance of superior
technology systems and infrastructure.
In order to be successful, we must provide reliable, real-time access
to our systems for our customers and suppliers. As our operations grow in both
size and scope, domestically and internationally, we will need to continually
upgrade our systems and infrastructure to offer our customers and travel
suppliers enhanced products, services, features, and functionality. The
expansion of our systems will require additional financial, operational and
technical resource expenditures before business volume may reach levels
sufficient to yield profitability, with no assurance that the volume of business
will increase or that profitability will be achieved. 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 and financial condition.
The success of our business will depend upon the continued growth of
online commerce and the Internet.
Since we do not intend to provide our service in any other medium than
the Internet, our future revenues and profits depend on the widespread
acceptance and use of the Internet and online services as a medium for commerce.
Rapid growth in the use of the Internet and online services is a recent
phenomenon. Such growth may not continue and a sufficiently broad base of
consumers may not accept, or continue to use, the Internet as a medium of
commerce. Demand for and market acceptance of recently introduced products
involve a high level of uncertainty.
The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of traffic. Our
success will depend upon the development and maintenance of the Internet
infrastructure and other technological advances which may evolve to accommodate
this increased traffic. This will require a reliable network backbone with the
necessary speed, data capacity and security and the timely development of
complementary products for providing reliable Internet access services.
Our business is exposed to risks associated with online commerce
security and credit card fraud.
Consumer concerns over the security of transactions conducted on the
Internet or the privacy of users may inhibit the growth of the Internet and
online commerce. To transmit confidential information such as customer credit
card numbers securely, we will rely upon encryption and authentication
technology. Unanticipated events or developments could result in a compromise or
breach of integrity of our consumer transaction data. Our servers could also be
vulnerable to viruses transmitted over the Internet, which if not detected,
could create a service interruption.
Our success depends in large part upon the efforts of a few individuals
and our ability to attract, retain and motivate highly skilled employees.
16
We depend substantially on the services and performance of our senior
management, particularly Paul R. Johnson our Chief Executive Officer and Richard
Kreiger our Chief Operating Officer. These individuals may not be able to
fulfill their responsibilities adequately and may not remain with us. The loss
of the services any executive officer or other key employees could hurt our
business.
We are controlled by our principal shareholders. The directors and
executive officers of the Company own a majority of the outstanding Common Stock
in the Company. In particular, Paul R. Johnson and Allied Capital Corporation,
and entity controlled by former officer and director William C. Robinson,
constitute the largest shareholders of the Company's Common Stock. As a result,
Mssrs. Johnson and Robinson may be able to control the election of members of
the Company's Board of Directors and generally exercise control over the
Company's corporate actions. Such concentration of ownership may also have the
effect of delaying or preventing a change in control of the Company.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
We do not invest or trade in foreign currency or commodity transactions
which would ordinarily be subject to market risk. As we have very little
indebtedness presently tied to the prime rate, we would not be immediately
effected by increases in the prime rate, unless we began to borrow additional
capital to implement our Internet and information technology business plans. We
believe, however, that our financial instruments are disclosed at their fair
values. Fair value estimates are made at a specific point in time and are based
on relevant market information and information about the financial instrument;
they are subjective in nature and involve uncertainties and matters of judgment
and, therefore, cannot be determined with precision. These estimates do not
reflect any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular instrument. Changes in
assumptions could significantly affect these estimates. The carrying amount of
cash and cash equivalents is assumed to be the fair value because of the
liquidity of these instruments. The carrying amount of accounts payable and
accrued expenses approximates fair value because of the short maturity of these
instruments. The terms of the Company's notes payable approximates the terms in
the market place at which they could be replaced. Therefore, the fair value
approximates the carrying value of these financial instruments.
17
Item 8. Financial Statements and Supplementary Data.
The following financial statements and supplementary data for the
Company and independent auditors' report set forth on pages F-1 through F-9 is
incorporated herein by reference and is filed herewith as Appendix A.
Independent Auditor's Report .................................... F-1
Consolidated Balance Sheets ..................................... F-2
Consolidated Income Statements .................................. F-4
Consolidated Statement of Stockholders' Equity 2000 ............. F-5
Consolidated Statement of Stockholders' Equity 1999 ............. F-6
Consolidated Statements of Cash Flows ........................... F-7
Notes to Consolidated Financial Statements ...................... F-9
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The executive officers, directors and other key employees of the
Company, and their ages and positions as of June 30, 2000 are as follows:
Name Age Position
- ---- --- --------
Paul R. Johnson 29 President, Chief Executive Officer, Director of
etravelserve.com
Richard Kreiger 38 Chief Operating Officer
Paul R. Johnson has been the President, Chief Executive Officer and
Chairman of the Board of the Company since January, 2000. Mr. Johnson is also
the President and a director of Genesis Business Alliance, Inc., a privately
held business consulting firm, and has served as a business consultant to J & J
Consulting, a Canadian consulting firm, since 1993. Both Genesis Business
Alliance and J&J Consulting render various services to the Company. See Item 13,
Certain Relationships and Related Transactions. Until it ceased business
operations, Mr. Johnson was also President and a director of Link Express
Delivery Solutions, Inc. ("Link Express") a company formed by Mr. Johnson in a
prior attempt to build a delivery services company. The business plan for Link
Express was essentially the same as the business plan for the Company, but was
unsuccessful because financial commitments were made prior to receiving the
required capital, which did not materialize at the times and in the amounts
required. As a result, the business plan of the Company has been modified in an
effort to avoid the financing problems encountered in Link Express. From July
1992 to September 1993, Mr. Johnson served as President of RDS Delivery Company
in Detroit, Michigan. Mr. Johnson was Executive Vice President of Adams
Industrial Material Handling Inc. in London, Ontario, Canada from April 1991, to
June 1992. Mr. Johnson has also had extensive experience and contact with
numerous companies in North America as an independent business consultant during
the past six years.
18
Richard Krieger has been successfully managing travel agencies for over
15 years. Starting his career as General Manager of a large New York City based
travel company, Mr. Krieger directed the firms revolutionary marketing plan and
turned the agency into one of the most important travel retailers in the nation.
Moving to Florida and opening Preferred Travel & Tours, Inc. over 9
years ago, that company has become a leader in upscale travel with industry
sales well exceeding 7 million dollars. By keeping an eye on industry trends,
Mr. Krieger was well aware of the drastic changes travel agencies were forced to
bear in the late 90's. Changing the direction of Preferred and restructuring the
marketing plan, Preferred not only survived the industry wide changes and
commission cuts, but Mr. Krieger turned 1999 into the company's most profitable
year.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
As of the date of this filing on Form 10-K, the Company became aware
that certain persons, at various times during the fiscal year ended June 30,
2000 failed to file, or filed untimely, certain reports required to be made by
Section 16(a) of the Exchange Act of 1934. Such persons, the number of reports
not timely filed or not filed, and the number of transactions that were not
reported on a timely basis are detailed as follows:
# of Reports # of Transactions
Untimely or Unfiled Not Timely Reported
(1) Allied Capital Corporation - 8 150
------------------------------------------------------------------------
(2) Paul R. Johnson - 7 24
-----------------------------------------------------------------------
The Company has brought these filing delinquencies to the attention of
the named reporting persons and has been advised by such parties that the
reports that are necessary to report such transactions will be filed with the
SEC as soon as practicable.
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
Other Number of Shares
Annual Underlying Restricted
Name and Position Year Salary Bonus Options Stock Awards
- ----------------- ---- ------------- ------------ ---------- -------------
Paul Johnson -- -- -- -- --
CEO (1) 2000 $ 0 $405,000 1,891,500 0
Richard Kreiger, COO 2000 90,000 (2) 67,970(2) 500,000(2) 0
William Robinson, CEO (3) 1998 0 0 0 0
William Robinson, CEO 1999 72,000 0 0
William Robinson, CEO 2000 0 0 0
Donald Mitchell, CEO (4) 1998 0 0 0 0
Donald Mitchell, CEO 1999 90,000 0 0
19
(1) The Company has entered into a consulting agreement with J&J Consulting,
Inc., an Ontario corporation ("J&J"), owned by Caterina Johnson, mother of
Paul R. Johnson, who is chairman and CEO of that company. Under the
consulting agreement, J&J supplies the company with the full-time services
of Mr. Johnson who is currently a Canadian citizen and cannot be directly
employed by the Company. The Company awarded 3,130,000 shares of common
stock to J&J and Caterina Johnson during the fiscal year ended June 30,
2000. The Company awarded options to purchase 2,658,000 shares of common
stock to J&J and awarded options to Genesis Business Alliance to purchase
1,891,500 shares of Company common stock. The Company also used the
management and administrative services of Genesis Business Alliance, Inc.,
a Florida corporation, owned 100% by Paul R. Johnson.
(2) Richard Kreiger has served as the Chief Operating Officer of the Company
since March, 2000. The Company has entered into an employment agreement
with Mr. Kreiger calling for monthly compensation in the amount of $7,500.
During the fiscal year ended June 30,2000, the Company issued 150,000
shares to Mr. Kreiger as additional compensation. Pursuant to the January,
2000 stock purchase of Preferred Travel & Tours, Inc. by JR Solutions,
Inc., Mr. Krieger, as one of the selling shareholders of Preferred,
received options to purchase 500,000 shares of Company stock, such options
vesting 100,000 shares each year after the expiration of each year,
beginning on March 7, 2001.
(3) William Robinson served as CEO of Revenge from February, 1999 through
January, 2000. **(4) Donald Mitchell served as CEO of Revenge from September,
1998 through February, 1999.
Option/SAR Grants in Last Fiscal Year
Potential
Realized Value at
Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term
(a) (b) (c) (d) (e) (add'l) (f) (g)
- -----------------------------------------------------------------------------------------------------
Number of % of Ttl
Securities Options Exercise/
Underlying Granted Base
Options To Emp'ees Price Exp
Name Granted in Fiscal Yr ($/sh) Date 0% 5% 10%
Paul Johnson, CEO (1) 916,500 48.45% $.25 5/22/03 $458M
600,000 31.72% $.1797 6/06/03 $12M
375,000 19.83% $.1565 6/16/03 $14M
(1) The options specified here were granted to Genesis Business Alliance, Inc.,
a corporation wholly owned by Mr. Johnson.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option SAR Values
(a) (b) (c) (d) (e)
- ---------------------------------------------------------------------------------------------------
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at FY-End ($)
At FY-End (#)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (3) Value Realized ($) Unexercisable Unexercisable
Paul Johnson, CEO (1) -- -- 916,500/0
119,122 $21,406 480,878/0
375,000 $58,594 0/0
(1) The options specified here were granted to Genesis Business Alliance, Inc.,
a corporation wholly owned by Mr. Johnson.
Director Compensation
The directors are not compensated for being directors.
Employment Agreements
Mr. Krieger is employed under an employment agreement entered into in
March 2000 with JR Solutions, Inc., a Delaware corporation ("JR"), a wholly
owned subsidiary of the Company . The agreement covers a mutually extendable one
year term and provides that Mr. Krieger be compensated at the rate of $7,500 per
month for his employment in an operational capacity for all affiliates of JR,
including the Company. The agreement also provides that Mr. Krieger be
compensated if he performs certain discrete liaison functions in connection with
certain business transactions of JR (e.g. business acquisitions), as such
discrete transactions may be clearly articulated to Mr. Krieger by the board of
directors of JR from time to time. In such event, Mr. Krieger would be
compensated by payment of 1/2 of 1% of the value of the applicable transaction
in cash, and 1/2 of 1% of the valued of the transaction in restricted common
stock of the Company, based on the value of Company common stock at the time of
any such designated transaction.
21
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
Name and address of Amount and nature
beneficial owner of beneficial ownership Percent of class
- ------------------- ----------------------- ----------------
Genesis Business Alliance, Inc.(1) 26,103,000 29.9%
Allied Capital Corporation (2) 18,193,794 20.9%
Paul R. Johns on 500,000 *
Directors and executive
officers as a group 500,000 *
* Ownership amount constitutes less than one percent of class.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock underlying options held by such person, that are
currently exerciseable or exerciseable within 60 days of June 30, 2000 are
deemed outstanding. Shares underlying a person's options disclosed in this
manner are not included in the calculation of the percentage that another owns
in the Company. Unless indicated in the footnotes to this table below or
pursuant to applicable community property laws, each stockholder named in the
table has sole voting and investment power with respect to the shares set forth
opposite that stockholder's name.
(1) Shares owned by Genesis Business Alliance, Inc. are under the beneficial
ownership of Paul R. Johnson, an officer and director of the Company.
(2) Allied Capital Corporation is owned by the Desai V. Robinson Living Trust
and is, therefore, under the beneficial ownership of Desai V. Robinson, the
wife of former officer and director William C. Robinson. Included in this
number are 230,000 shares owned by Capital Market Alliance, Inc., a wholly
owned subsidiary of Allied Capital Corporation
Item 13. Certain Relationships and Related Transactions
The Company has utilized, and expects to continue to utilize certain
management and administrative services provided by Genesis Business Alliance,
Inc., a company owned by Paul R. Johnson, Chairman and Chief Executive Officer
of the Company. Services will be provided primarily on a "cost plus" basis, and
will be provided at prices and/or terms more advantageous to the Company than
available from third party vendors.
22
The Company has entered into a Consulting Agreement with J&J
Consulting, an Ontario corporation owned by Caterina Johnson, mother of Paul R.
Johnson. Under the Consulting Agreement, J&J Consulting supplies the Company
with the full-time services of Mr. Johnson, who is currently a Canadian citizen
and cannot be directly employed by the Company at this time, for a fee to be
negotiated among the parties from time to time.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8K.
(a) Financial Statements and Schedules
The financial statements as set forth under Item 8 of this report on Form 10-K
are incorporated herein by reference.
Financial statement schedules have been omitted since they are either not
required, not applicable, or the information is otherwise included.
1
(b) Reports on Form 8-K
A report of Form 8-K was filed on May 15, 2000 announcing the buy-back
of certain free trading shares of Company common stock and the
retirement of 40,000,000 shares of common stock, and is incorporated
herein by reference.
A report of Form 8-K was filed on August 23, 2000 announcing the
closing of the acquisition of Journeys Unlimited, Inc. and is incorporated
herein by reference.
(c) Exhibit Listing
Exhibit
Number Description
3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated By-Laws
10.1 Term Sheet for Series C Preferred Stock Issuance
10.2 Term Sheet for Series D Preferred Stock Issuance
10.3 May 1, 2000 Lease Agreement for Powerline Road Premises
10.4.1 Consulting Agreement with Joseph Antonini
10.4.2.1 Consulting Agreement with J&J Management
10.4.2.2 Amendment No. 1 to Consulting Agreement with J&J Management
10.4.3 Consulting Agreement with Genesis Business Alliance
10.4.4 Consulting Agreement with Michael Storms
10.4.5 Consulting Agreement with Roy Meadows
10.5.1 Caribbean Concepts, Inc. Asset Purchase Agreement
10.5.2 Sea Gull Travel, Inc. Asset Purchase Agreement
23
10.5.3.1 All Seasons Travel, Inc. Asset Purchase Agreement
10.5.3.2 All Seasons Travel, Inc. Addendum to Asset Purchase Agreement
10.5.4 (1) Journeys Unlimited on the Concourse, Inc. Asset Purchase
Agreement
10.5.5 (2) Agreement to Acquire J.R. Solutions, Inc.
10.5.6 J.R. Solutions Agreement to Acquire Preferred Travel & Tours,
Inc.
10.6 Stock Purchase and Cancellation Agreement
10.7.1 Option Grant Agreement to Purchase Link Express Shares
10.7.2 Option Assignment Agreement to Purchase Link Express Shares
10.7.3 Option Exercise Agreement to Purchase Link Express Shares
10.8.1 (3) Year 2000 Stock Plan
10.8.2 (4) Year 2000 Stock Award and Option Plan
10.9 Employment Agreement between J.R. Solutions, Inc. and Richard
Kreiger
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
(1) Filed with Form 8-K on August 23, 2000 and incorporated herein by
reference.
(2) Filed with Form 8-K on January 26, 2000 and incorporated
herein by reference.
(3) Filed with Form S-8 on February 1, 2000 and incorporated herein by
reference.
(4) Filed with Form S-8 and June 19, 2000 and incorporated
herein by reference.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned; thereunto duly authorized, in the City of Boca
Raton, State of Florida, on November 21, 2000.
ETRAVELSERVE.COM, INC.
By /s/ Paul R. Johnson
---------------------------------------
Paul R. Johnson, Chairman, Chief Executive
Officer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Registrant and in the capacities indicated on November 21, 2000.
/s/ Richard Kreiger
Richard Kreiger Chief Operating Officer
25
APPENDIX "A"
etravelserve.com, Inc.
----------------------
(Formerly Revenge Marine, Inc.)
Consolidated Financial Statements
For the Years Ended
June 30, 2000 and 1999,
and
Independent Auditor's Report
* * * * *
C O N T E N T S
Page
----
Independent Auditor's Report.............................................F-1
Consolidated Balance Sheets..............................................F-2
Consolidated Income Statements...........................................F-4
Consolidated Statement of Stockholders' Equity 2000......................F-5
Consolidated Statement of Stockholders' Equity 1999......................F-6
Consolidated Statements of Cash Flows....................................F-7
Notes to Consolidated Financial Statements...............................F-9
F-i
Independent Auditor's Report
To the Board of Directors and Stockholders of etravelserve.com, Inc.
We have audited the accompanying consolidated balance sheets of
etravelserve.com, Inc., (a Nevada corporation) and subsidiaries as of June 30,
2000 and 1999, and the related consolidated statements of income, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 audits 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
etravelserve.com, Inc. as of June 30, 2000 and 1999, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
CROSS AND ROBINSON
Certified Public Accountants
Tulsa, Oklahoma
October 6, 2000
F-1
etravelserve.com, Inc.
----------------------
and Subsidiaries
----------------
Consolidated Balance Sheets
---------------------------
June 30, 2000 and 1999
----------------------
ASSETS
------
2000 1999
---------- ----------
Current Assets
Proceeds receivable, discontinued operations (Note 3) $ -- $2,200,000
Prepaid expenses -- 60,000
Receivable from related parties (Note 8) 17,121 --
---------- ----------
Total Current Assets 17,121 2,260,000
---------- ----------
Property and Equipment, Net (Note 6) 22,355 1,796
---------- ----------
Intangible Assets, Net (Note 7) 175,690 1,700
Investments, Net (Note 5) -- 1,000,000
---------- ----------
Total Assets $ 215,167 $3,263,496
========== ==========
Accompanying notes are an integral part of the
consolidated financial statements.
F-2
etravelserve.com, Inc.
----------------------
and Subsidiaries
----------------
Consolidated Income Statements
------------------------------
For the Year Ended June 30, 2000 and 1999
-----------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
------------- -------------
Current Liabilities
Cash overdrafts $ 9,693 $ 3,636
Accounts payable 419,228 933,557
Accounts payable--related parties (Note 8) 307,314 127,304
Accrued liabilities 219,059 198,744
Customer deposits -- --
Notes payable (Note 9) -- 2,116,500
Notes payable--related parties (Note 8) 185,000 --
------------- -------------
Total Liabilities 1,140,294 3,379,741
------------- -------------
Commitments and Contingencies (Note 14) 54,897 79,000
------------- -------------
Stockholders' Equity (Note 10)
Preferred stock, 300,000 shares authorized, 1,206 and
2,718 shares of $40 par Series B Convertible
Preferred
Stock (liquidation preference $48,240 and
$108,720)outstanding at June 30, 2000 and 1999, respectively 48,240 108,720
Common stock $0.001 par value, 500,000,000 shares
authorized, 111,018,907 and 10,898,810 shares
issued and outstanding at June 30, 2000 and 1999, respectively 111,019 10,899
Additional paid-in capital 9,123,195 4,354,923
Retained deficit (10,262,478) (4,669,787)
------------- -------------
Total Stockholders' Equity (Deficit) (980,024) (195,245)
------------- -------------
Total Liabilities and Stockholders' Equity $ 215,167 $ 3,263,496
============= =============
Accompanying notes are an integral part of the
consolidated financial statements.
F-3
etravelserve.com, Inc.
----------------------
and Subsidiaries
----------------
Consolidated Statement of Stockholders' Equity
----------------------------------------------
For the Year Ended June 30, 2000
--------------------------------
2000 1999
------------ ------------
Operating Revenue $ 95,349 $ --
Operating Expenses 225,911 --
Consulting Fees 3,914,991 --
Valuation Losses (Note 5) 1,000,000 --
------------ ------------
Loss from Continuing Operations (5,045,553) --
Discontinued Operations (Note 3):
Loss from Discontinued Operations (451,688) (3,432,808)
Loss on Disposal of Assets -- (918,047)
------------ ------------
Total (451,688) (4,350,855)
------------ ------------
Net Loss $ (5,497,241) $ (4,350,855)
============ ============
Weighted Average Shares Outstanding 32,989,256 7,129,680
============ ============
(Note 11)
Net Loss per Share
Continuing operations $ (0.16) $ --
Discontinued operations (0.01) (0.61)
------------ ------------
$ (0.17) $ (0.61)
============ ============
Accompanying notes are an integral part of
the consolidated financial statements.
F-4
etravelserve.com, Inc.
----------------------
and Subsidiaries
----------------
Consolidated Statement of Stockholders' Equity
----------------------------------------------
For the Year Ended June 30, 2000
--------------------------------
Additional Retained
Preferred Common Paid-in Earnings
Stock Stock Capital (Deficit)
----- ----- ------- ---------
Balance at June 30, 1999 $ 108,720 $ 10,899 $ 4,354,923 $ (4,669,787)
80,000,000 shares issued to acquire
JR Solutions, Inc. (Note 4) -- 80,000 --
152,500 shares issued as employee
compensation (Note 10) -- 153 69,654
10,360,000 shares issued in exchange
for services rendered (Note 10) -- 10,360 3,616,369
2,580,645 shares issued to exercise
stock options (Note 5) -- 2,581 (2,581)
5,086 shares of Series B issued as
debt settlement 203,437 -- --
5,729 shares of Series C issued as
debt settlement 286,486 -- --
4,079 shares of Series D issued as
debt settlement 203,955 -- --
6,598 shares of Series B converted
into 3,518,500 common shares (263,917) 3,519 260,399
5,729 shares of Series C converted
into 2,841,012 common shares (286,486) 2,841 283,645
4,079 shares of Series D converted
into 374,681 common shares (203,955) 375 203,581
492,759 shares of issued as
settlement of debt -- 493 337,007
200,000 shares cancelled pursuant to
cancellation agreement (Note 16) -- (200) 200
Net Loss (5,592,691)
------------
Balance at June 30, 2000 $ 48,240 $ 111,019 $ 9,123,195 $(10,262,478)
=========== =========== =========== ============
Accompanying notes are an integral part of
the consolidated financial statements.
F-5
etravelserve.com, Inc.
----------------------
and Subsidiaries
----------------
Consolidated Statement of Stockholders' Equity
----------------------------------------------
For the Year Ended June 30, 1999
--------------------------------
Additional Retained
Preferred Common Paid-in Earnings
Stock Stock Capital (Deficit)
Balance at June 30, 1998 $ -- $ 6,676 $ 3,093,581 $ (318,932)
1,004,005 shares issued through
conversion of debentures -- 1,004 243,546
180,692 shares issued pursuant to asset
purchase agreement (Note 4) -- 180 236,887
194,281 shares issued in exchange
for services rendered -- 194 155,299
1,692,558 shares issued to First Chance
per rescission agreement (Note 4) -- 1,693 1,448,307
895,333 shares cancelled pursuant to
CYC rescission agreement (Note 4) -- (895) (1,368,964)
895,333 shares issued pursuant to lease
settlement agreement (Note 13) -- 895 177,105
5,938 shares issued in exchange for
cancellation of debt 237,500 -- --
1,206 shares issued pursuant to BYC
rescission agreement (Note 4) 48,240 -- --
4,832 shares issued for cash 193,293 -- --
9,258 shares of preferred stock converted
into 1,151,554 common shares (370,313) 1,152 369,161
Net Loss -- -- -- (4,350,855)
----------- ----------- ----------- -----------
Balance at June 30,1999 $ 108,720 $ 10,899 $ 4,354,923 $(4,669,787)
=========== =========== =========== ===========
Accompanying notes are an integral part of
the consolidated financial statements.
F-6
etravelserve.com, Inc.
----------------------
and Subsidiaries
----------------
Consolidated Statements of Cash Flows
-------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
2000 1999
----------- -----------
Cash Flows From Operating Activities:
Cash received from customers $ 95,349 $ 6,817,156
Interest received -- 18,120
Cash paid for goods and services (79,147) (8,216,205)
Interest paid -- (155,316)
----------- -----------
Net Cash Provided (Used( by Operating Activities 16,203 (1,536,245)
----------- -----------
Net Cash Used By Investing Activities:
Acquisition of subsidiaries (185,000) --
Fixed asset purchases and improvements (21,753) (1,499,602)
----------- -----------
Net Cash Used by Investing Activities (206,753) (1,499,602)
----------- -----------
Cash Flows From Financing Activities:
Issuance of common stock -- 721,048
Proceeds from long-term debt 185,000 2,100,000
Proceeds from short-term debt -- 331,500
Proceeds sale of assets, net 2,200,000 --
Repayment of short-term debt (2,200,000) (160,994)
Repayment of long-term debt -- (58,500)
Net Cash Provided by Financing Activities 190,550 2,933,054
----------- -----------
Net Increase (Decrease) in Cash -- (102,793)
Cash at Beginning of Period -- 102,793
----------- -----------
Cash at End of Period $ -- $ --
=========== ===========
Accompanying notes are an integral part of
the consolidated financial statements.
F-7
etravelserve.com, Inc.
----------------------
and Subsidiaries
----------------
Consolidated Statements of Cash Flows
-------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
1999 2000
----------- -----------
Reconciliation of Net Loss to Net
Cash Provided by Operating Activities:
Net loss $(5,592691) $(4,350,855)
Loss on sale of assets -- 918,047
Depreciation 2,481 174,790
Valuation Loss 1,000,000 --
Amortization of intangible assets 12,964 61,268
Stock issued as compensation 69,806 --
Stock issued in exchange for services 3,650,935 322,288
Stock issued pursuant to BYC rescission -- 48,240
Debt assumption by third party (75,000) --
Write off of assets 4,190 --
(Increase) Decrease in related party receivables (17,121) --
Increase (Decrease) in customer deposits -- (64,500)
(Increase) Decrease in work in progress -- 60,500
(Increase) Decrease in deposits -- 50,000
Increase (Decrease) in accrued liabilities 279,698 501,971
(Increase) Decrease in stock subscriptions receivable -- 100,000
(Increase) Decrease in prepaid assets 60,000 89,561
(Increase) Decrease in accounts receivable -- (238,430)
Increase (Decrease) in accounts payable 545,962 708,239
Increase (Decrease) in contingent liabilities -- 79,000
Increase (Decrease) in cash overdrafts 531 3,636
----------- -----------
Total Adjustments 5,608,895 2,814,610
----------- -----------
Net Cash Provided (Used) by Operating Activities $ 16,203 $(1,536,245)
=========== ===========
Schedule of Other Non-cash Transactions:
Stock issued in connection with subsidiary acquisitions 80,000 --
Accompanying notes are an integral part of
the consolidated financial statements.
F-8
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 1 - Organization and Description of Business
etravelserve.com, Inc. (together with its
subsidiaries, referred to herein as "the Company") was
incorporated in Nevada on December 28, 1979. The Company has
operated under various names and operating plans since its
incorporation, most recently operating as a holding Company
for boat manufacturing enterprises under the name Revenge
Marine, Inc. ("Revenge") from January 1998 to January 2000.
The Company had no significant operations from January 1995
through January 1998.
The Company reorganized in January 1998 and changed
its primary focus to acquiring yacht manufacturing and marine
technology companies. Principal operations commenced in July
1998. In June 1999, the Company discontinued its marine
operations and sold substantially all of its assets.
In the fiscal year ended June 30, 2000, the Company
redirected its business plan toward the Internet travel and
communication industries. The Company changed its name to
etravelserve.com following the January 11, 2000 acquisition of
JR Solutions, Inc., ("JR") and commenced its travel industry
operations in March 2000 following the acquisition of
Preferred Travel and Tours, Inc., ("Preferred"). The
aforementioned acquisitions are disclosed further in Note 4.
Note 2 - Summary of Significant Accounting Policies
Principals of Consolidation
The consolidated financial statements include the
accounts of etravelserve.com, Inc. and its wholly owned
subsidiary, JR Solutions, Inc. (a Delaware corporation) from
November 22, 1999 to June 30, 2000 and JR's wholly owned
subsidiary Preferred Travel and Tours, Inc. (a Florida
corporation) from March 7, 2000 to June 30, 2000. The
consolidated financial statements also include the accounts of
the Company's wholly owned inactive subsidiaries Revenge
Marine, Inc., (an Oklahoma corporation), Egret Boat Company,
Inc., (a Florida corporation), and Consolidated Marine, Inc.
(a Florida corporation) for the year ended June 30, 2000. All
material intercompany transactions and balances have been
eliminated in consolidation.
Cash and Cash Equivalents
The Company considers highly liquid investments (that
are readily convertible to cash) purchased with original
maturity dates of three months or less to be cash equivalents.
Cash overdraft positions may occur from time to time
due to the timing of making bank deposits and releasing checks
in accordance with the Company's cash management policies.
F-9
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 2 - Summary of Significant Accounting Policies (continued)
Intangible Assets
Intangible assets, consisting of organizational costs
and goodwill are amortized over their estimated useful lives
using the straight-line method. The goodwill arose from the
purchase of Preferred Travel and Tours, Inc. and is being
amortized over 5 years. The organizational costs are being
amortized over five years.
Property and Equipment
Property and equipment are stated at cost and
depreciated using the straight-line method for financial
reporting and accelerated methods for income tax purposes over
the estimated useful life of the asset, typically 5 to 10
years. Leasehold improvements are amortized over the shorter
of the useful life of the improvement or the remaining term of
the lease. When assets are retired or otherwise disposed of,
the cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in
operations in the period realized.
Income Taxes
The Company uses the liability method of accounting
for income taxes as set forth in Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
Under the liability method, deferred taxes are determined
based on the differences between the financial statement and
tax bases of assets and liabilities at enacted tax rates in
effect in the years in which the differences are expected to
reverse. Presently, the Company files its tax returns on a
calendar year basis, which may result in temporary differences
in book and tax reporting. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the
deferred tax assets will not be realized.
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 at the date of the
financial statements and the reported revenues and expenses
during the reporting period. Accordingly, actual results could
differ from those estimates.
F-10
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 2 - Summary of Significant Accounting Policies (continued)
Earnings (Loss) per Common Share
The Company has adopted the provisions of SFAS No.
128, "Earnings per Share", which requires presentation on the
face of the income statement of both basic and diluted
earnings per share. Basic earnings (loss) per common share is
computed by dividing net income (loss) attributable to common
shares by the weighted average number of common shares
outstanding during the period. Diluted earnings per common
share is computed using the combination of dilutive common
share equivalents and the weighted average number of common
shares outstanding during the period. In years where the
Company recognizes a loss from continuing operations, the
assumed exercise of common stock equivalents has an
antidilutive effect and therefore would not be included in the
weighted average number of shares used in the calculation of
loss per common share.
Prepaid Expenses
Certain expenses are routinely paid that cover more
than the current fiscal period. Prepaid expenses at June 30,
1999 consisted of consulting services.
Marketable Securities
The Company accounts for marketable securities in
accordance with Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." This statement requires certain
investments to be recorded at fair value or amortized cost.
The appropriate classification of the investments in
marketable equity securities is determined at the time of
purchase and re-evaluated at each balance sheet date. The
Company's investments in First Chance Marine Finance, Inc. and
Link Express Delivery Solutions, Inc. (see Note 5), which are
classified as held for sale, are recorded at their estimated
fair market values.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 7,
"Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial
instruments, whether or not recognized in the consolidated
balance sheet. The Company's financial instruments include
cash and cash equivalents, investment securities, and notes
payable to related parties. The carrying amounts of these
financial instruments have been estimated by management to
approximate their fair values.
F-11
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 2 - Summary of Significant Accounting Policies (continued)
Valuation of Non-Employee Stock-Based Compensation
The Company applies the provisions of SFAS No. 123
"Accounting for Stock-Based Compensation", to all issuances of
stock to non-employees in exchange for goods and services.
Accordingly, such issuances are accounted for based on the
fair value of the goods or services received or the fair value
of the shares issued, whichever is more reliably measured.
Leases
Leases that transfer substantially all of the risks
and benefits of ownership are capital leases. Other leases are
operating leases. Capital leases are included in fixed assets
and are amortized using the straight-line method over their
respective terms. Operating leases are expensed over the terms
of the leases using the straight-line method. The Company had
no capital lease obligations at June 30, 2000 or 1999.
Advertising
The Company expenses all advertising costs as they
are incurred. Total advertising costs for the years ended June
30, 2000 and 1999 were $2,633 and $371,350, respectively.
Note 3 - Discontinued Operations
In June 1999, the Company elected to discontinue its
marine operations and sell substantially all of its assets.
The assets were disposed of through two cash sales totaling
$2,200,000 in August 1999 and through the rescission of asset
purchase agreements with Consolidated Yacht Corporation
("CYC") and BYC Acquisition Corporation ("BYC"). Accordingly,
the results of the Company's marine operations and the loss on
the disposal of assets have been reflected as components of
discontinued operations on the consolidated income statements.
Net sales from the Company's marine operations for the year
ended June 30, 2000 were approximately $21,225.
Note 4 - Acquisitions
JR Solutions, Inc.
On January 11, 2000, the Company acquired JR
Solutions, Inc. through the exchange of 80,000,000 shares of
newly issued Company common stock, in exchange for all of the
outstanding shares of JR's common stock. The acquisition was
structured as a tax-free reorganization and was accounted for
using the purchase method of accounting. As these companies
were under common control at the time of the acquisition, the
purchase price was based on the historical cost of the net
assets purchased of $80,000.
F-12
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 4 - Acquisitions (Continued)
Preferred Travel and Tours, Inc.
March 7, 2000, the Company acquired all of the
outstanding common stock of Preferred Travel and Tours, Inc.
("Preferred Travel") for a purchase price of $185,000. The
acquisition was accounted for using the purchase method of
accounting. In accordance with Accounting Principles Board
("APB") No. 16, the aggregate purchase price has been
allocated to the assets and liabilities of Preferred Travel
based upon their fair market as follows:
Working capital, net $ (1,954)
Goodwill 186,954
---------
Total $ 185,000
=========
The following unaudited pro forma summary presents
the consolidated results of operations of the Company as if
the acquisition had occurred at the beginning of the periods
presented. The calculations include adjustments for
depreciation, amortization, and interest. The pro forma
results may not be indicative of the results that would have
occurred if the acquisition had been effective on the date
indicated or of the results that may be obtained in the
future.
Year Ended June 30,
-------------------
2000 1999
----------- -----------
Revenue $ 439,454 $ 228,833
Loss from continuing operations $(5,138,383) $ (169,670)
Net Loss $(5,590,071) $(4,350,855)
Loss per Share--continuing operations $ (0.07) $ (0.01)
---------- -----------
Net Loss per Share $ (0.07) $ (0.05)
=========== ===========
Note 5 - Investments
First Chance Marine Finance, Inc.
On June 4, 1999, the Company entered into an
agreement to rescind an attempted merger with First Chance
Marine Finance, Inc. ("First Chance"), a Florida corporation.
Pursuant to this agreement, the Company issued a total of
1,696,000 shares of its common stock, valued at $1,450,000 to
First Chance and its associates. First Chance, which had
previously advanced the Company $450,000 in cash, issued
500,000 of its common stock, valued at $1,000,000 to Revenge.
The 500,000 shares issued to Revenge equate to approximately
7% of First Chance's total outstanding common stock.
During the fiscal year ended June 30, 2000, First
Chance ceased its principal operations. Accordingly, the fair
value of the Company's investment in First Chance was
determined to be zero at June 30, 2000. As the decline in fair
value was determined to be other than temporary, the cost
basis of the securities held by the Company was written down
to fair value and charged against earnings in the current
year.
F-13
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 5 - Investments (Continued)
Link Express Delivery Solution, Inc.
On October 15, 1999, the Company was granted options to purchase
700,000 shares of Link Express Delivery Solutions, Inc. ("Link"). The options
were granted to the Company in connection with consulting services provided to
link by the Company's former president, William C. Robinson. Paul Johnson, who
became chief executive officer of etravelserve.com in January 2000, is also the
president of Link.
On January 24, 2000, the Company exercised options to purchase 666,667
shares of Link common stock in exchange for 2,580,645 shares of etravelserve.com
stock valued at $5,000,000, based on the closing bid price on the NASDAQ
Bulletin Board on the date the options were exercised. The Company's holdings
represent an approximate 2% ownership interest in Link.
The option exercise agreement contained a provision whereby the Company
could rescind its exercise of the Link options if there was no public market for
Link's common stock within six months of the date of the agreement. Prior to
June 30, 2000, Link ceased its principal operations. On October 5, 2000, the
Company exercised its right to rescind the option exercise. Accordingly, the
fair value of the Company's investment in Link was adjusted to zero at June 30,
2000.
Note 6 - Property and Equipment
Property and equipment consists of the following at
June 30:
2000 1999
-------- --------
Office equipment $ 20,794 $ 2,764
Leasehold improvements 13,055 --
-------- --------
Total consolidated property
and equipment 33,849 2,764
Less accumulated depreciation (11,494) (968)
--------
Net property and equipment $ 22,355 $ 1,796
======== ========
Total depreciation expense for 2000 and 1999 was
$2,481 and $174,790, respectively.
F-15
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 7 - Intangible Assets
Intangible assets consists of the following at June
30:
Estimated
Useful
2000 1999 Life
---- ---- ----
Goodwill $ 186,954 $ -- 5 years
Organizational costs 2,500 2,500 5 years
Less accumulated amortization (13,764) (800)
--------
Net intangible assets $ 175,690 $ 1,700
========= ========
Amortization expense relating to continuing
operations for 2000 and 1999 was $12,964 and $800,
respectively.
Note 8 - Related Party Transactions
Allied Capital Corporation
Since inception, Allied Capital Corporation
("Allied") has periodically advanced cash to the Company and
has paid certain operating expenses on behalf of the Company.
Allied held 33,670,000 shares or approximately 30% of the
Company's outstanding common stock at June 30, 2000 and is
wholly owned by the Desai Vol Robinson Trust. Desai Robinson,
president of Allied, is a former officer of the Company and is
the wife of William C. Robinson, former president and chief
executive officer of the Company. At June 30, 2000 and 1999,
the Company's total debt to Allied was $377,526 and $127,304,
respectively.
The Company's total debt to Allied at June 30, 2000
includes a promissory note from the Company's wholly owned
subsidiary, JR Solutions, Inc. The note carries a principal
balance of $185,000, and a due date of April 6, 2000, with
default interest accruing at 18% per annum. The funds were
loaned to JR Solutions to finance the purchase of Preferred
Travel and Tours, Inc. (see Note 4). The note is currently in
default, with $7,753 in accrued interest outstanding at June
30, 2000.
In October 2000, Allied transferred all of its
interest in the amounts due from the Company to Capital
Markets Alliance, Inc. ("CMA"). William C. Robinson is the
president of CMA. On October 7, 2000, the Company executed a
promissory note with CMA, which replaces the original $185,000
note to Allied. The new note has a principal amount of
$202,287, which includes the original $185,000 debt, plus
accrued default interest on the original note through October
7, 2000 and matures October 7, 2002, with monthly payments of
$9,335, which include interest at 10% per annum. One half of
the note payment may be in the form of travel credits at the
discretion of CMA. Pursuant to the terms of the note, CMA
agreed to forgive $192,526 of the original debt owed to
Allied.
F-16
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 8 - Related Party Transactions (Continued)
J&J Business Management, Inc. / Genesis Business Alliance,
Inc.
On January 4, 2000, the Company entered into an
agreement for consulting services with J&J Business
Management, Inc. ("J&J") through December 31, 2000. Caterina
Johnson, president of J&J is the mother of Paul Johnson, chief
executive officer of etravelserve.com. The services to be
provided include development of the Company's business and
marketing plans, web site development and implementation, and
graphic design services. Under the terms of the agreement, as
amended, the company has the option to pay J&J in cash, free
trading stock at a 30% discount from the closing price on the
day prior to issuance, or restricted stock at a 50% discount
from the closing price on the day prior to issuance.
During the year ended June 30, 2000, the Company
issued 4,630,000 shares of common stock with a fair value of
$1,710,453 to J&J in connection with the consulting contracts.
The Company has also agreed to pay J&J $25,000 per month for
shareholder relations. At June 30, 2000, there was an accrued
liability of $15,000,000 relating to this agreement.
On April 10, 2000, J&J executed a subcontract with
Genesis Business Alliance, Inc. ("Genesis"), whereby J&J may
subcontract all or part of its consulting agreement with
etravelserve.com. Paul Johnson, chief executive officer of
etravelserve.com, is also the president of Genesis.
At June 30, 2000, the Company had an outstanding
payable to Genesis for cash advances made to the Company of
$12,000.
At June 30, 2000, the Company's wholly owned
subsidiary, Preferred Travel and Tours, Inc., had a receivable
from Genesis of $17,121 relating to travel expenses incurred
by Genesis.
From April to June 2000, the Company granted options
to Genesis and J&J to purchase up to 4,549,500 of the
Company's common stock at a weighted average price per share
of $ 0.20 (see Note 12). As of June 30, 2000, $102,788 had
been received from J&J and Genesis as payment to convert
585,274 options into common stock. These common shares had not
been issued as of the date of this report.
Note 9 - Notes Payable
Notes payable consists of the following at June 30:
2000 1999
---- ----
Notes payable to related parties (see Note 8):
Promissory note, dated March 7, 2000,
due April 7, 2000, currently in default, with
Default interest accruing at 18% per annum. $ 185,000 $ --
F-17
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 9 - Notes Payable (Continued)
Notes payable to other entities:
Note payable to FINOVA Capital Corporation,
Secured by certain fixed assets, originally due
on October 22, 2001, with interest equal to the
prime rate plus 1% (10% at June 30, 1999).
The note was paid down in August 1999
in conjunction with the sale of the
Company's marine assets (see Note 3). -- 2,041,500
Unsecured $75,000 operating line of credit
with First Union National Bank, with interest only
payments due monthly at an interest rate
equal to the prime rate plus 2% (9.75% at
June 30, 1999). -- 75,000
----------------- ----------------
Total Current Notes Payable $ 185,000 $2,116,500
================= ================
Note 10 - Stockholders' Equity
The capital stock of the corporation at June 30 2000
was as follows:
Series B 10 % Cumulative Convertible Preferred Stock,
$40 stated value, convertible into Common Stock based on a 40%
discount to the bid price as listed on the NASDAQ Bulletin
Board on the day of conversion; 75,000 shares authorized;
17,330 shares issued; 1,206 and 2,718 shares outstanding at
June 30, 2000 and 1999; liquidation preference equal to the
stated value of any outstanding shares plus accrued dividends,
if any prior to any distributions to Common Stock holders.
Dividends in arrears amounted to $4,824 or $4 per share at
June 30, 2000.
Series C 10% Cumulative Convertible Preferred Stock,
$50 stated value, convertible into Common Stock upon closing
of a $5,000,000 or greater secondary public offering at a 30%
discount to the bid price as listed on the day of conversion;
authorized 75,000 shares; no shares issued or outstanding at
June 30, 2000 or 1999; liquidation preference equal to the
stated value of the preferred shares outstanding.
Series D Convertible Preferred Stock, $50 state
value, convertible into Common Stock upon closing of a
$6,000,000 or greater secondary public offering at a 30%
discount to the public offering price as listed on the day of
conversion or convertible anytime at the holder's discretion
at a 30% discount to the 10-day average bid price on the
NASDAQ Bulletin Board; authorized 75,000 shares; no shares
issued or outstanding at June 30, 2000 or 1999; liquidation
preference equal to the stated value of the preferred shares
outstanding.
F-18
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 10 - Stockholders' Equity (Continued)
Common Stock, $0.001 par value, 500,000,000 shares
authorized, 111,018,907 and 10,898,810 shares issued and
outstanding at June 30, 2000 and 1999, respectively.
Effective January 18, 2000 the Company increased the
number of authorized shares of common stock from 50,000,000 to
500,000,000 shares.
On January 27, 2000, the Company adopted the Year
2000 Stock Plan, under which the Company may grant common
stock or options to selected employees, officers, directors,
and key consultants and advisors. The Plan, allows for a
maximum of 4,000,000 shares of common stock to be granted, all
of which had been issued as of June 30, 2000.
On June 15, 2000, the Company adopted the Year 2000
Stock Award and Option Plan, under which the Company may grant
common stock or options to selected employees, officer,
directors, and key consultants and advisors. The plan, as
amended, allows for a maximum of 20,000,000 shares of common
stock to be granted.
During the year ended June 30, 2000, the Company
issued a total of 152,500 shares valued at $69,807 to
employees and 10,360,000 shares valued at $3,626,729 to
consultants under the two plans. The valuation of the shares
was based on the closing price of the Company's stock on the
date the shares were issued. As of the date of this report,
the Company had issued an additional 8,832,000 shares to
consultants under the Plan after June 30, 2000.
Note 11 - Earnings per Common Share
Basic earnings (loss) per share are computed by
dividing earnings available to common stockholders by the
weighted average number of common shares outstanding during
the period. The following reconciles amounts reported in the
financial statements as basic earnings per share:
For the Year Ended June 30, 2000
-------------------------------------------------------
Weighted
Income Average Shares Earnings
(Numerator) (Denominator) Per Share
----------------- --------------------- --------------
Loss from:
Continuing operations $ (5,141,003) 32,989,256 $ (0.16)
Discontinued operations (451,688) 32,989,256 (0.01)
----------------- --------------
Net Loss $ (5,592,691) $ (0.17)
================= ==============
For the Year Ended June 30, 1999
-------------------------------------------------------
Weighted
Income Average Shares Earnings
(Numerator) (Denominator) Per Share
---------------------
Loss from Discontinued
Operations $ (4,350,855) 7,129,680 $ (0.61)
================= ==============
F-19
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 11 - Earnings per Common Share (Continued)
The calculation of weighted average common shares
outstanding includes the effect of the stock cancellation
agreement disclosed in Note 16, and the rescission agreement
disclosed in Note 5.
No calculation for dilutive earnings per share has
been made, as the inclusion of the Company's common stock
equivalents in the computation of diluted loss per share would
be antidilutive. Further, the effect of the issuance of
additional common shares as compensation after June 30, 2000
(see Note 10) has not been included in the computation of
earnings per share, because the effect of their inclusion
would be antidilutive.
Note 12 - Stock Options and Warrants
In December 1998, the Company adopted its 1998
Incentive Stock Plan ("the Plan") under which options to
purchase 2.8 million shares of common stock were granted to
substantially all full-time employees. The options granted
under the Plan extend for 5 years from the date of grant and
vest in monthly increments over a period of up to two years.
The exercise price was equal to the stock price on the grant
date. The Plan is considered to be a non-compensatory plan, as
defined by Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation". Accordingly, no
compensation cost has been recognized for the years ended June
30, 2000 and 1999. In June 1999, 335,000 of the options were
cancelled due to termination of employment when the Company
discontinued its marine operations. A total of 2,465,000
unexercised options issued under this plan expired on
September 30, 1999.
The Company has periodically issued common stock
options and warrants to non-employees, usually in connection
with services rendered. When such options or warrants are
exercised, the fair value of the stock issued is charged to
operations in the period exercised.
In June 2000, the Company issued options to related
parties (see Note 8) to purchase up to 875,000 shares of the
Company's common stock at an exercise price of $0.16 per
share. The options expire on June 16, 2003.
In June 2000, the Company issued options to related
parties (see Note 8) to purchase up to 1,400,000 shares of the
Company's common stock at an exercise price of $0.18 per
share. The options expire on June 6, 2003.
In May 2000, the Company issued options to related
parties (see Note 8) to purchase up to 2,138,500 shares of the
Company's common stock at an exercise price of $0.25 per
share. The options expire on May 22, 2003.
F-20
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 12 - Stock Options and Warrants (Continued)
In April 2000, the Company issued options to a
related party (see Note 8) to purchase up to 136,000 shares of
the Company's common stock at an exercise price of $0.45 per
share. The options expire on April 3, 2003.
In April 2000, the Company issued options to purchase
up to 300,000 shares of the Company's common stock at an
exercise price of $1.00 per share. The options are exercisable
at any time after the date of the option certificate.
In January 2000, the Company issued options to
purchase up to 150,000 shares of the Company's common stock at
an exercise price of $0.01 per share. The options are
immediately exercisable.
In January 2000, the Company issued options to
purchase up to 1,000,000 shares of the Company's common stock
at an exercise price of $0.01 per share. The options become
exercisable at a rate of 83,333 shares at the end of each
three month period from the grant date. The option was granted
in accordance with a three year consulting agreement. Should
the Company terminate the consulting agreement prior to the
expiration of its term, all options granted will become
immediately exercisable.
In June 1999, the Company issued a warrant to
purchase up to 1,500,000 shares of the Company's common stock
at an exercise price of $0.37 per share. The warrant was
issued pursuant to a rescission agreement further disclosed in
Note 4. The warrant expires June 30, 2002.
Information with respect to all stock options and
warrants for the years ended June 30, 2000 and 1999 is
summarized below:
Weighted-
Average
Shares Exercise Price
------------------- -------------------------
Outstanding at June 30, 1998 545,000 $ 1.50
Granted 1999 4,550,000 0.36
Cancelled 1999 (335,000) 0.34
-------------------
Outstanding at June 30, 1999 4,760,000 0.50
Granted 2000 5,999,500 0.21
Expired 2000 (2,715,000) 0.33
Outstanding at June 30, 2000 8,044,500 $ 0.34
=================== =========================
Options exercisable, June 30, 2000 7,211,166 $ 0.36
Options exercisable, June 30, 1999 4,373,054 $ 0.51
F-21
Note 13 - Income Taxes
The Company has incurred net operating losses since
inception and has a loss carryforward of approximately
$10,200,000 at June 30, 2000, expiring in years beginning in
2013. As of June 30, 2000 and 1999, the Company had a net
deferred tax asset of approximately $4,108,315 and $1,867,915
respectively. A valuation allowance has been recognized to fully
offset this asset due to the uncertainty of realizing the future
benefit in accordance with the provisions of FASB Statement No.
109, "Accounting for Income Taxes". The Company continually
reviews the adequacy of the valuation allowance and will
recognize the tax benefits of these assets only as assessment
indicates that it is more likely than not that the benefits will
be realized.
Significant components of the Company's deferred tax
assets and liabilities as of June 30, 2000 and 1999 are as
follows:
2000 1999
----------------- ------------------
Deferred tax assets:
Net operating loss carryforward $ 4,104,991 $ 1,867,915
Goodwill amortization 3,324 --
Valuation allowance (4,108,315) (1,867,915)
Total deferred tax assets $ -- - $ --
================= ==================
Net increase in deferred tax asset
valuation allowances $ 2,240,400 $ 1,757,054
================= ==================
The amount of net operating loss carryforward
relating to discontinued operations was $1,921,017 and
$1,740,342 for 2000 and 1999, respectively.
Deferred taxes reflect a combined federal and state
tax rate of approximately 40%. A reconciliation between the
amount of federal and state income taxes, based on a forty
percent (40%) tax rate, and the effective amount of income
taxes charged to operations is as follows:
2000 1999
----------------- ------------------
Statutory federal income taxes (refund) (2,235,747) (1,740,342)
Goodwill amortization (1,329) --
Valuation allowance 2,237,076 1,740,342
----------------- ------------------
Effective income taxes $ -- $ --
================= ==================
F-22
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 14 - Commitments and Contingencies
Legal Proceedings
The Company is engaged in legal proceedings arising
from normal business activities. In the opinion of management,
the maximum future liability arising from these proceeding
would not exceed $54,897.
Lease Obligations
The Company is obligated under an operating lease for
its operating facility, which expires on April 30, 2005. The
lease has a renewal option that would extend the lease through
the year 2010. This non-cancelable lease contains a provision
which adjusts the lease payment based upon changes in the
consumer price index and increases in real estate taxes and
operating expenses. The following is a schedule by year of
estimated future minimum lease payments under the lease at
June 30, 2000:
Fiscal Year
Ended June 30,
--------------
2001 $61,600 $ 19,011 $ 80,611
2002 61,600 21,429 83,029
2003 61,600 23,290 85,520
2004 61,600 26,486 88,086
51,333 24,274 $ 75,607
------- ------ ----------
$297,733 $ 115,120 $ 412,853
======== ========= ==========
In 1999, the Company was obligated under operating
and capital leases for its operating facility and certain
office equipment, most of which were cancelled or assumed by
other parties after the Company discontinued its marine
operations (see Note 3). Amounts capitalized under a capital
lease were charged to discontinued operations upon transfer of
the lease to another party.
The lease on the Company's marine operating facility
was assumed by Consolidated Yacht Corporation, pursuant to an
October 1999 agreement with the owner of the property. In a
related settlement agreement with the landlord, the Company
co- signed a promissory note for $178,000, which is to be paid
by CYC. In consideration for paying the promissory note, the
Company agreed to nullify the cancellation of 895,333 shares
of Revenge Marine common stock owned by CYC's president. These
shares were to be cancelled pursuant to the June 30, 1999
rescission agreement with CYC referred to in Note 3.
Total rental expense under all leases was $34,663 and
$623,672 for the years ended June 30, 2000 and 1999,
respectively.
F-23
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 14 - Commitments and Contingencies (continued)
Asset Purchase Agreement--All Seasons Travel/ROHL, Inc.
On June 15, 2000, the Company entered into an
agreement to acquire the operating assets and assume certain
liabilities of All Seasons Travel/ROHL, Inc. ("All Seasons"),
a Florida Corporation. The assets purchased include office
fixtures and equipment, customer lists, trade names, ticket
stock, and other miscellaneous assets. The acquisition is to
be accounted for as a purchase with any excess of the purchase
price over the estimated fair value of assets to be amortized
using the straight-line method. The purchase agreement had not
been closed as of the date of this report.
Other Obligations
Pursuant to the June 30, 1999 replacement agreement
with BYC Acquisition Corporation (see Note 3), the Company is
obligated to pay BYC a fee equal to 1% of its total revenues
from all sources for the period from April 1, 1999 to April
30, 2002. The total obligation at June 30, 2000 under this
agreement was approximately $1,000.
Note 15 - Reclassifications of Financial Statement Presentation
Certain reclassifications have been made to the 1999
financial statements to conform with the 2000 financial
statement presentation. Such reclassifications had no effect
on net income as previously reported.
Note 16 - Subsequent Events
Stock Cancellation Agreement
Pursuant to an agreement dated July 12 2000, Paul R.
Johnson, chief executive officer of the Company, and Allied
Capital Corporation, (see Note 8) agreed to return 15,000,000
and 25,000,000 shares of common stock to the Company from
their personal holdings or from their affiliated entities. The
shares to be cancelled were originally issued in connection
with the acquisition of JR Solutions, Inc. (see Note 4). Of
the 25,000,000 shares to be cancelled by Allied, 542,833
shares of stock issued to their affiliates were cancelled
prior to June 30, 2000. Mr. Johnson's shares as well as the
remaining shares from Allied Capital and affiliates were
cancelled after June 30, 2000.
F-24
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 16 - Subsequent Events (Continued)
Asset Purchase--Journeys Unlimited on the Concourse, Inc.
On August 23, 2000, the Company acquired the
operating assets and assumed certain liabilities of Journeys
Unlimited on the Concourse, Inc. ("Journeys"), a Florida
Corporation. The assets purchased include office fixtures and
equipment, customer lists, trade names, ticket stock, and
other miscellaneous assets.
The total purchase price of $60,000, included $40,000
paid in cash and the remaining $20,000 in the form of shares
of etravelserve.com common stock, based on a price per share
equal to the average of the closing bid and asked prices for
such stock as of the close of business on the day prior to the
closing date. The acquisition was accounted for as a purchase
and the excess purchase price over the estimated fair value of
assets is being amortized using the straight-line method over
5 years.
Asset Purchase Agreement--Caribbean Concepts, Inc.
On August 14, 2000, the Company entere into an
agreement to acquire the operating assets and assume certain
liabilities of Caribbean Concepts, Inc. ("Caribbean"), a New
York Corporation. The assets to be purchased include office
fixtures and equipment, customer lists, trade names, ticket
stock, and other miscellaneous assets. The acquisition is to
be accounted for as a purchase with any excess of the purchase
price over the estimated fair value of assets to be amortized
using the straight-line method. The purchase agreement had not
been closed as of the date of this report.
Asset Purchase Agreement--Sea Gull Travel, Inc.
On August 23, 2000, the Company entere into an
agreement to acquire the operating assets and assume certain
liabilities of Sea Gull Travel, Inc. ("Sea Gull"), a Florida
Corporation. The assets to be purchased include office
fixtures and equipment, customer lists, trade names, ticket
stock, and other miscellaneous assets. The acquisition is to
be accounted for as a purchase with any excess of the purchase
price over the estimated fair value of assets to be amortized
using the straight-line method. The purchase agreement had not
been closed as of the date of this report.
F-25
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Years Ended June 30, 2000 and 1999
------------------------------------------
Note 16 - Subsequent Events (Continued)
Stock Buyback Program
On September 11, 2000, the Company announced the
implementation of a 40 day stock buyback program whereby the
Company would repurchase up to 12,000,000 free trading
etravelserve.com common stock from its shareholders in
exchange for 1.5 shares of restricted common stock. Under the
program, the Company would register for resale up to 25% of
the restricted shares after six months and an additional 25%
of the restricted shares every three months thereafter. In
addition, each participating shareholder would receive stock
options for a number of shares of common stock equal to the
number of free traded shares repurchased by the Company.
F-26