UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
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.
(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 [ ]
The number of issued and outstanding shares of the Registrant's Common Stock,
$0.001 par value, as of September 30, 2000 was 96,860,716.
ETRAVELSERVE.COM, INC.
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements:
Consolidated Balance Sheets as of September, 2000 and June 30, 2000.............................3
Consolidated Statements of Operations for the Three Months
Ended September 30, 2000 and 1999...............................................................5
Consolidated Statements of Cash Flows for the Three Months Ended
September 30, 2000 and 1999.....................................................................6
Notes to Consolidated Financial Statements...................................................8-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................13-18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................19
Item 2. Changes in Securities..........................................................................19
Item 3. Defaults Upon Senior Securities................................................................19
Item 4. Submission of Matters to a Vote of Security Holders............................................19
Item 5. Other Information..............................................................................19
Item 6. Exhibits and Reports on Form 8-K...............................................................19
Signatures.......................................................................................................20
2
Item 1. Financial Statements
etravelserve.com, Inc.
----------------------
Consolidated Balance Sheets
---------------------------
ASSETS
September 30, June 30,
2000 2000
(Unaudited) (Audited)
-------- --------
Current Assets
Cash and cash equivalents $ 19,140 $ --
Receivable from related parties 17,121 --
-------- --------
Total Current Assets 19,140 17,121
-------- --------
Property and Equipment, Net
27,045 22,355
-------- --------
Intangible Assets, Net 166,218 175,690
-------- --------
Investments, Net -- --
-------- --------
Total Assets $212,403 $215,167
======== ========
Accompanying notes are an integral part
of the consolidated financial statements.
3
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
2000 2000
(Unaudited) (Audited)
------------ ------------
Current Liabilities
Cash overdrafts $ -- $ 9,693
Accounts payable 398,004 419,228
Accounts payable--related parties 324,186 307,314
Accrued liabilities 1,038,716 219,059
Notes payable--related parties 185,000 185,000
------------ ------------
Total Current Liabilities 1,945,906 1,140,294
------------ ------------
Commitments and Contingencies 54,897 54,897
------------ ------------
Stockholders' Equity
Preferred stock, 300,000 shares authorized, 1,206
shares of $40 par Series B Convertible Preferred
Stock (liquidation preference $48,240) outstanding 48,240 48,240
Common stock, $0.001 par value, 500,000,000 shares
authorized, 84,348,867 and 111,018,907 shares issued
and outstanding at September 30, 2000 and
June 30, 2000, respectively 84,349 111,019
Additional paid-in-capital 10,831,784 9,123,195
Retained deficit (12,752,773) (10,262,478)
------------ ------------
Total Stockholders' Equity (Deficit) (1,788,400) (980,024)
------------ ------------
Total Liabilities and Stockholders' Equity $ 212,403 $ 215,167
============ ============
Accompanying notes are an integral part
of the consolidated financial statements.
4
etravelserve.com, Inc.
----------------------
Consolidated Income Statements
------------------------------
(Unaudited)
Three months ended
September 30,
2000 1999
------------ ------------
Operating Revenue $ 34,460 $ --
Operating Expenses 137,365 --
Consulting Fees 2,387,390 --
------------ ------------
Loss from Continuing Operations (2,490,295) --
Income (Loss) from Discontinued Operations 190,419 --
------------ ------------
Net Income (Loss) $ (2,490,295) $ 190,419
============ ============
Weighted Average Common Shares Outstanding 72,272,317 10,898,810
Basic and Diluted Loss per Common Share:
Loss from continuing operations $ (0.03) $ --
Loss from discontinued operations -- (0.02)
------------ ------------
$ (0.03) $ (0.02)
============ ============
Interim results are not indicative of the
results expected for a full year.
Accompanying notes are an integral part
of the consolidated financial statements.
5
etravelserve.com, Inc.
(Formerly Revenge Marine, Inc.)
A Development Stage Company
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
Three months ended
September 30,
2000 1999
----------- -----------
Cash Flows From Operating Activities:
Cash collected from customers $ 34,461 $ 274,826
Cash paid for goods and services (7,450) (274,341)
----------- -----------
Net Cash Provided by Operating Activities 27,011 485
----------- -----------
Cash Flows from Investing Activities:
Additions to plant, property & equipment (7,871) --
----------- -----------
Cash Flows From Financing Activities:
Proceeds from sale of assets -- 2,200,000
Repayment of short-term debt -- (2,200,000)
----------- -----------
Net Cash Provided (Used) by Financing Activities -- --
----------- -----------
NET INCREASE (DECREASE) IN CASH $ 19,140 485
CASH AT BEGINNING OF PERIOD -- --
----------- -----------
CASH AT END OF PERIOD $ 19,140 $ 485
=========== ===========
Accompanying notes are an integral part
of the consolidated financial statements.
6
2000 1999
----------- -----------
Cash Flows From Operating Activities:
Net income (loss) $(2,490,295) $ 190,419
Adjustments to reconcile net loss to net
Cash used by operating activities:
Depreciation 3,181 139
Amortization 9,472 125
Stock issued for services 1,681,919 --
Decrease in related party receivables 17,121 --
Decrease in prepaid assets -- 7,500
Increase in related party payables 16,872 --
Decrease in trade payables (21,224) (78,818)
Debt assumption by third party (75,000) --
Decrease in cash overdrafts (9,693) (3,636)
Increase (decrease) in accrued liabilities 819,657 40,244
----------- -----------
Total adjustments 2,442,305 34,446
----------- -----------
Net Cash Provided by Operating Activities $ 27,010 $ 485
=========== ===========
Accompanying notes are an integral part
of the consolidated financial statements.
7
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Three Months Ended September 30, 2000 and 1999
------------------------------------------------------
(Unaudited)
-----------
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 accompanying unaudited consolidated financial
statements include the accounts and results of the Company's
wholly owned subsidiary, JR Solutions, Inc. (a Delaware
corporation) and JR's wholly owned subsidiary Preferred Travel
and Tours, Inc. (a Florida corporation). 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). All material intercompany transactions and
balances have been eliminated in consolidation.
These financial statements should be read in
conjunction with the consolidated financial statements and
related notes included in the Company's Annual Report on Form
10-K for the year ended June 30, 2000. The financial statements
reflect all adjustments which, in the opinion of management,
are necessary for a fair presentation of the results of
operations for the periods shown. The results of operations for
such periods are not necessarily indicative of the results
expected for the full fiscal year of for any future period.
8
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Three Months Ended September 30, 2000 and 1999
------------------------------------------------------
(Unaudited)
-----------
Note 2 - Property and Equipment
Property and equipment consists of the following at
September 30:
2000 1999
------- ------
Office equipment $ 23,573 $ 2,764
Leasehold improvements 18,147 --
-------- -------
Total consolidated property
and equipment 41,720 2,764
Less accumulated depreciation (14,675) (1,107)
-------- --------
Net property and equipment $ 27,045 $ 1,657
======== =======
Total depreciation expense for the three months ended
September 30, 2000 and 1999 was $3,181 and $139, respectively.
Note 3 - Common Stock Issuances
During the three months ended September 30, 2000, the
Company issued 9,798,666 shares of common stock valued at
$1,681,919 in exchange for consulting services. Of these
shares, 5,652,000, with an aggregate valuation of $1,246,314,
were issued to related parties.
Note 4 - 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 Three Months Ended
September 30, 2000
---------------------------------------------------
Weighted
Income Average Shares Earnings
(Numerator) (Denominator) Per Share
------------ ---------- -----------
Loss from:
Continuing operations $ (2,490,295) 72,272,317 $ (0.03)
============ ===========
9
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Three Months Ended September 30, 2000 and 1999
------------------------------------------------------
(Unaudited)
-----------
Note 4 - Earnings per Common Share (Continued)
For the Three Months Ended
September 30, 1999
-------------------------------------------------------
Weighted
Income Average Shares Earnings
(Numerator) (Denominator) Per Share
----------- ------------- ---------
Income from Discontinued
Operations $ (190,419) 10,898,810 $ (0.02)
========== ========
No calculation for dilutive earnings per share has
been made for the three months ended September 30, 2000, as
the inclusion of the Company's common stock equivalents in the
computation of diluted loss per share would be antidilutive.
Note 5 - 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.
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 September 30, 2000.
10
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Three Months Ended September 30, 2000 and 1999
------------------------------------------------------
(Unaudited)
-----------
Note 5 - Commitments and Contingencies (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 entered 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 September 30, 2000.
Asset Purchase Agreement--Sea Gull Travel, Inc.
On August 23, 2000, the Company entered 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 September 30, 2000.
11
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Three Months Ended September 30, 2000 and 1999
------------------------------------------------------
(Unaudited)
-----------
Note 5 - Commitments and Contingencies (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.
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 September 30, 2000 under
this agreement was approximately $1,000.
12
Item 2. 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.
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.
13
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.
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.
14
On August 23, 2000, Preferred completed the acquisition of essentially
all of the assets of 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.
On October 5, 2000, Preferred completed the acquisition of essentially
all of the assets of Rohl, Inc., a Florida corporation doing business as All
Seasons Travel ("All Seasons") pursuant to its acquisition agreement with All
Seasons dated June 16, 2000. The acquisition price of $175,000 was paid $127,500
cash and $47,500 in Company common stock, valued as of October 4, 2000. The
assets purchased included ticket stock and merchandise, tangible personal
property (such as equipment, photocopiers, telephone systems, furniture,
signage, leasehold improvements and office supplies) and intangible property
(e.g. goodwill, customer lists and going concern value). The funds required to
close were raised from our issuance of $500,000 in debentures.
On October 20, 2000, Preferred completed the acquisition of all
wholesale travel assets of Caribbean Concepts, Inc., a New York corporation
("Caribbean") for $125,000, paid $75,000 in cash and $50,000 in Company common
stock valued as of October 19, 2000. The assets purchased on this transaction
consisted solely of Caribbean's intangible assets such as customer lists,
telephone numbers, trade names, goodwill and going concern value.
These acquisitions are representative of the types of acquisitions 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. Moreover, these acquisitions also help to position the Company as a
clicks and mortar business, effectively hedging some of the market risk inherent
in being a "pure-play" Internet Company. 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 one more
existing travel agency, Seagull Travel, which we anticipate will close within
the next several 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.
15
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).
Material Changes in Financial Condition and Results of Operations.
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. 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 $34,460 were realized during the three months
ended September 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 quarter of fiscal 2000. The revenues to be reported for this period would
have been higher, yet due to our not having written contractual provisions in
place respective to certain receivables which we expect to collect for first
quarter travel, GAAP prevents us from recognizing these revenues. We intend to
attempt to formally memorialize these relationships respective to commissions
due from the service providers for travel packages sold, so as to enable us to
recognize revenues once they become measurable and reasonably determinable in
accordance with GAAP versus only once cash is received. Operating expenses of
137,365 were incurred during the the trhee months ended September 30, 2000 which
expenses have no prior year analogue since there were no travel industry
operations then. During the three months ended September 30, 2000, the Company
recognized consulting expenses of $2,387,390 of which amount $1,681,919 in
Company common stock was issued in accordance with generally accepted accounting
principles, to various persons in
16
lieu of cash compensation for services rendered. These expenses were incurred
primarily pursuant to the continued development of our Web commerce platform.
Furthermore, in our effort to conserve cash, in essentially all instances in
which stock shares were issued to various vendors and consultants in lieu of
cash, a 30% market discount was taken upon such issuances of Company shares in
accordance with the terms of our agreements with such parties.
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, www.etravelserve.com and, consequently, there are no operating
revenues yet to report as of the year ended September 30, 2000 in connection
with our e- commerce model. Our acquisition of bricks and mortar travel
agencies, such as Preferred, Journeys Unlimited, All Seasons Travel and
Caribbean Concepts 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 September 30, 2000, we had a cash and cash equivalent balance of
$19,140 as compared to an overdraft balance of $9,693 as of the fiscal year
ended June 30, 2000. For the fiscal three months ended September 30, 2000, the
Company had a working capital deficit of $1,926,766 compared with a working
capital deficit of $1,123,173 as of June 30, 2000.
Net cash provided by operating activities was $27,011 for the three
months ended September 30, 2000 as compared to net cash provided by operating
activities of $485 for the same period in fiscal 1999. The Company used $7,871
in investing activities during the three months ended September 30, 2000 and
none in investing activities during the same period of fiscal 2000. There was no
cash provided by financing activities in either of the three month periods ended
September 30, 2000 or 1999.
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 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
website 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.
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Similarly, travel suppliers, advertisers and merchants will
also need to accept and use our website. 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.
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 not intend to provide our service through any
commercial medium other than the Internet, our future revenues and profits
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.
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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.
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 Intenet 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.
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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.
We depend substantially on the services and performance of our
senior management, particularly Paul R. Johnson our Chief Executive Officer and
Richard Krieger, the 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, an 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits
27.1 Financial Data Schedule
B. Reports on Form 8-K
On November 3, 2000, the Company filed a Report on
Form 8-K reporting its acquisition of the assets of Rohl, Inc, a Florida
corporation, doing business as All Seasons Travel. The Report on Form 8-K
contained information required under Item 2 - Acquisition and Disposition of
Assets.
On November 3, 2000, the Company filed a Report on
Form 8-K reporting its acquisition of the intangible assets of Caribbean
Concepts, Inc., a New York corporation. The Report on Form 8-K contained
information required under Item 2 - Acquisition and Disposition of Assets and
reported that the information required by Item 5, Financial Statements, Pro
Forma Financial Information and Exhibits, would be provided within the 60 day
statutory time frame provided to reporting entities, enabling them time to
complete the preparation of various financial disclosures pursuant to Regulation
S-X of the Securities and Exchange Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: November 20, 2000 ETRAVELSERVE.COM, INC.
By /s/ Paul R. Johnson
----------------------
Paul R. Johnson
President and Chief Executive Officer
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