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 DECEMBER 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)
22191 Powerline Road, Bay 22C.
Boca Raton, FL 33433
(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 December 30, 2000 was 102,560,716.
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 December 30, 2000 and 1999................................................................4
Consolidated Statements of Operations for the Six Months
Ended December 30, 2000 and 1999................................................................5
Consolidated Statements of Cash Flows for the Six Months Ended
December 30, 2000 and 1999......................................................................6
Notes to Consolidated Financial Statements....................................................7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................10-18
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.
And Subsidiaries
Consolidated Balance Sheets
(Unaudited)
ASSETS December 31, June 30,
2000 2000
------------ ------------
Current Assets
Cash and cash equivalents $ -- $ --
Receivable from related parties 24,348 17,121
------------ ------------
Total Current Assets 24,348 17,121
Property and Equipment, Net 24,618 22,355
Intangible Assets, Net 155,795 175,691
Investments, Net -- --
------------ ------------
Total Assets $ 204,761 $ 215,167
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 166,218 428,921
Accounts payable--related parties 221,683 307,314
Accrued liabilities 176,384 219,059
Notes Payable--related parties 185,000 185,000
------------ ------------
Total Liabilities 749,285 1,140,294
Commitments and Contingencies 54,897 54,897
------------ ------------
Stockholders' Equity
Preferred stock, $40 par value, 300,000 shares authorized, 48,240 48,240
1,206 and 2,718 shares of Series B Convertible (liquidation preference
$48,240) issued and outstanding December 31 and June 30, 2000
Common Stock, $0.001 par value, 500,000,000 shares 102,561 111,019
authorized, 102,560,716 and 111,018,907 issued and
outstanding at December 31 and June 30, 2000
Additional paid-in-capital 12,417,749 9,123,195
Retained deficit (13,167,971) (10,262,478)
------------ ------------
Total Stockholders' Equity (Deficit) (599,421) (980,024)
------------ ------------
Total Liabilities and Stockholders' Equity $ 204,761 $ 215,167
============ ============
3
Etravelserve.com, Inc.
and subsidiaries
Consolidated Income Statements
Three Months Ended December 31, 2000, and 1999
(Unaudited)
------------ ------------
2000 1999
------------ ------------
Operating Revenue $ 180,484 $ --
Operating Expenses 258,238
------------
Consulting Fees 337,443 --
------------ ------------
Loss from Continuing Operations (415,197) --
Discontinued Operations:
Loss from Discontinued Operations -- (596,377)
------------ ------------
Net Loss $ (415,197) $ (596,377)
============ ============
Weighted Average Common Shares Outstanding 97,878,460 14,890,378
Basic and Diluted Loss per Common Share:
Loss from Continuing operations $ (0.00) $ --
Loss from Discontinued operations 0.00 (0.04)
------------ ------------
Net Loss per Common Share $ (0.00) $ (0.04)
============ ============
4
Etravelserve.com, Inc.
and Subsidiaries
Consolidated Income Statements
Six Months Ended December 31, 2000, and 1999
(Unaudited)
------------ ------------
2000 1999
------------ ------------
Operating Revenue $ 214,944 $ --
Operating Expenses 395,605 --
Consulting Fees 2,724,832 --
------------ ------------
Loss from Continuing Operations (2,905,493) --
Discontinued Operations:
Loss from Discontinued Operations -- (405,958)
------------ ------------
Net Loss (2,905,493) (405,958)
============ ============
Weighted Average Common Shares Outstanding 97,617,519 14,890,378
Basic and Diluted Loss per Common Share:
Loss from Continuing operations $ (0.03) $ --
Loss from Discontinued operations
-- (0.03)
------------ ------------
Net Loss per Common Share $ (0.03) $ (0.03)
============ ============
5
Etravelserve.com, Inc.
and Subsidiaries
Consolidated Statement of Cash Flows
Six Months Ended December 31, 2000, and 1999
(Unaudited)
----------- -----------
2000 1999
----------- -----------
OPERATING ACTIVITIES
Net (loss) $(2,905,493) $ (405,958)
Adjustments to reconcile net income to
cash (used in) operating activities:
Depreciation and amortization
16,857 526
Stock issued in exchange for services 3,006,324 --
(Decrease) in security deposits and other assets
-- 60,000
Stock issued pursuant to BYC rescission
75,000 --
(Decrease) in accounts payable and accrued expenses
(266,864) (310,569)
----------- -----------
Net cash (used in) operating activities
(74,176) (656,001)
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment
(8,571) --
----------- -----------
Net cash (used) by investing activities
(8,571) --
----------- -----------
FINANCING ACTIVITIES
Principal increase in note payable
-- 83,500
Increase in contributed capital
-- 662,665
Increase (Decrease) in related party loans
29,157 (35,734)
Decrease in related party receivables
50,272 --
Recission of preferred stock
-- (60,480)
Sale of common stock
13,011 7,050
----------- -----------
Net cash provided in financing activities
92,440 657,001
----------- -----------
Net increase in cash
9,693 1,000
Cash at the beginning of the year
(9,693) --
----------- -----------
Cash at the end of the period $ -- $ 1,000
=========== ===========
Supplemental Information:
During the six months ended December 31, 2000, the company issued 27,985,515
shares of common stock valued at $3,286,095 in exchange for consulting
services. Of these shares, 23,838,849, with an aggregate value of $2,850,490
were issued to related parties.
6
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Three Months Ended December 31, 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.
7
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Three Months Ended December 31, 2000 and 1999
------------------------------------------------------
(Unaudited)
-----------
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.
Note 2 - Property and Equipment Property and equipment consists of the following
at December 31 and June 30:
12/31/00 6/30/00
-------- -------
Office equipment $ 24,272 $ 20,794
Leasehold improvements 18,147 13,055
-------- --------
Total consolidated property
and equipment 42,419 33,849
Less accumulated depreciation (17,801) (11,494)
-------- --------
Net property and equipment $ 24,618 $ 22,355
======== ========
Total depreciation expense for the six months ended
December 31, 2000 was $6,307.
8
etravelserve.com, Inc.
----------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Three Months Ended December 31, 2000 and 1999
------------------------------------------------------
(Unaudited)
-----------
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. Organizational costs were amortized
over five years.
Note 3 - Stockholders' Equity
During the three months ended December 31, 2000, the
Company issued 18,186,849 shares of common stock valued at
$1,604,176 to related parties in exchange for consulting
services.
Series B 10% Cumulative Convertible Preferred Stock,
$40 par value; convertible into Common Stock based on a 40%
discount to the bid price as listed o the NASDAQ Bulletin
Board on the day of conversion; authorized 300,000 shares;
1,206 and 2,718 shares outstanding at December 31 and June 30,
2000 respectively; liquidation preference equal to the par
value of any outstanding shares plus accrued dividends, if
any, prior to any distributions to Common Stock holders.
Note 4 - (Loss) per Common Share
The Company has adopted the provisions of SFAS No.
128, "Earnings per Share", which requires presentation of the
face of the income statement of both basic and diluted
earnings per share. Basic (loss) per common share is computed
by dividing net (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.
9
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
10
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.
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
11
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 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 will leverage our international relationships to create a unique
global, interactive, destination and community site oriented to on-line
12
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).
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
13
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 $180,484 were realized during the three months
ended December 31, 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 second
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
258,238 were incurred during the three months ended December 31, 2000 which
expenses have no prior year analogue since there were no travel industry
operations then. During the three months ended December 31, 2000, the Company
recognized consulting expenses of $337,443 which were paid entirely in Company
common stock issued 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 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 December 31, 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 have
begun 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
14
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 December 31, 2000, we had a cash and cash equivalent balance of
$0 as compared to an overdraft balance of $9,693 as of the fiscal year ended
June 30, 2000. For the fiscal three months ended December 31, 2000, the Company
had a working capital deficit of $724,937 compared with a working capital
deficit of $1,123,173 as of June 30, 2000.
Net cash used by operating activities was $74,176 for the three months
ended December 31, 2000 as compared to net cash used by operating activities of
$656,001 for the same period in fiscal 1999. The Company used $8,571 in
investing activities during the three months ended December 31, 2000 and none in
investing activities during the same period of fiscal 1999. Net cash provided by
financing activities was $92,440 for the three months ended December 31, 2000 as
compared to net cash provided of $657,001 for the same period in fiscal 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
15
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 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
16
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.
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.
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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.
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.
1. Exhibits
None.
2. Reports on Form 8-K
None.
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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: February 20, 2001 ETRAVELSERVE.COM, INC.
By /s/ Paul R. Johnson
----------------------
Paul R. Johnson
President and Chief Executive Officer
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