U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 2000
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from ____________ to ____________
Commission file number : 0-10124
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travelbyus, Inc.
(Exact name of Small Business Issuer as specified in its charter)
Texas 75-2631373
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
700 North Pearl Street
Suite 2170
Dallas, Texas 75201
(Address of Principal Executive Offices)
Aviation Group, Inc. (214) 922-8100 June 30
(Former Name) (Issuer's Telephone Number) (Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
---------- ----------
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
1,552,498 shares of Common Stock were outstanding as of February 16, 2001.
Transitional Small Business Disclosure Format (check one):
Yes No X
---------- ----------
Items 1 and 2 of Part I are amended to read as follows. All other Items
remain unchanged.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
TRAVELBYUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 30, June 30,
2000 2000
---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 265,000 $ 432,000
Restricted time deposit 1,768,000 1,957,000
Accounts receivable, net 281,000 2,018,000
Note receivable, affiliate -- 1,930,000
Inventory -- 1,049,000
Prepaid expenses and other 1,310,000 685,000
Prepaid tour costs 1,797,000 1,643,000
Assets held for sale 2,568,000 --
------------- -------------
Total Current Assets 7,989,000 9,714,000
------------- -------------
Property and equipment, net 167,000 2,653,000
Goodwill, net 44,935,000 50,657,000
Non-current assets held for resale 3,983,000 --
Other 209,000 720,000
------------- -------------
Total Assets $ 57,283,000 $ 63,744,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $ 3,635,000 $ 3,976,000
Current portion of capital lease obligations -- 150,000
Revolving and other short-term borrowings 3,939,000 4,162,000
Accounts payable, affiliate 4,122,000 --
Accounts payable 1,576,000 4,216,000
Customer deposits 1,581,000 3,718,000
Accrued liabilities 1,217,000 3,103,000
Liabilities of discontinued operations 5,346,000 --
------------- -------------
Total Current Liabilities 21,416,000 19,325,000
------------- -------------
Long-Term Liabilities
Long-term debt, net of current maturities -- 431,000
Capitalized leases, net of current maturities -- 264,000
Other 25,000 33,000
------------- -------------
Total Long-Term Liabilities 25,000 728,000
------------- -------------
Total Liabilities 21,441,000 20,053,000
------------- -------------
Shareholders' Equity
Series A 9% cumulative convertible Preferred Stock,
$10,000 liquidation preference 2,000 2,000
Series B 12% cumulative Preferred Stock, $10,000
liquidation preference 2,000 2,000
Common Stock 10,000 10,000
Additional paid-in capital 55,487,000 55,486,000
Retained earnings (deficit) (19,659,000) (11,809,000)
------------- -------------
Total Shareholders' Equity 35,842,000 43,691,000
------------- -------------
Total Liabilities and Shareholders' Equity $ 57,283,000 $ 63,744,000
============= =============
The accompanying notes are an integral part of these statements.
-1-
TRAVELBYUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
December 31, December 31,
------------ -------------
2000 1999 2000 1999
---- ---- ---- ----
Travel revenues $ 481,000 $ -- $ 1,592,000 $ --
General and Administrative Expenses 1,277,000 518,000 3,003,000 829,000
Depreciation and Amortization 1,240,000 -- 2,508,000 --
------------ ----------- ------------ ------------
2,517,000 518,000 5,511,000 829,000
------------ ----------- ------------ ------------
Loss From Operations (2,036,000) (518,000) (3,919,000) (829,000)
------------- ------------ ------------- -------------
Other Income (expenses)
Other income (expense) 22,000 -- 40,000 --
Interest expense, net (319,000) -- (608,000) --
--------- --------- --------- ---------
(297,000) -- (568,000) --
--------- --------- --------- ---------
Loss from continuing operations (2,333,000) (518,000) (4,487,000) (829,000)
Loss from discontinued operations (1,673,000) (878,000) (1,911,000) (1,087,000)
Gain (loss) on sale of subsidiaries, net (1,452,000) 681,000 (1,452,000) 602,000
------------- ------------ ------------- -------------
(3,125,000) (197,000) (3,363,000) (485,000)
------------- ----------- ------------- ------------
Net Income (Loss) $ (5,458,000) $ (715,000) $ (7,850,000) $ (1,314,000)
============= ============ ============= =============
Earnings (loss) per common share
Loss from continuing operations $ (2.35) $ (0.73) $ (4.61) $ (1.16)
Loss from discontinued operations (3.15) (0.27) (3.45) (0.68)
------------- ------------ ------------- ------------
Net loss per share (basic and diluted) $ (5.50) $ (1.00) $ (8.06) $ (1.84)
============= ============ ============= =============
Weighted average shares outstanding
Basic and diluted 991,344 714,786 974,752 714,786
============= ============ ============= =============
The accompanying notes are an integral part of these statements.
-2-
TRAVELBYUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended December 30,
--------------------------------------
2000 1999
---- ----
Cash Flows From Operating Activities:
Net Loss $(6,850,000) $(1,314,000)
Adjustments to Reconcile Net Loss
to Net Cash Used by Operating Activities:
Loss (gain) on sale of subsidiaries 1,452,000 (602,000)
Depreciation and amortization 2,806,000 315,000
Decrease in restricted time deposits 189,000 434,000
(Increase) decrease in accounts receivable 533,000 902,000
(Increase) decrease in inventories (70,000) 186,000
(Increase) decrease in prepaids and other current assets (976,000) (523,000)
Decrease in accounts payable (364,000) (316,000)
Increase (decrease) in accrued liabilities 533,000 (118,000)
Other 246,000 32,000
------------ ------------
Total Adjustments 4,349,000 310,000
----------- ------------
Net Cash Used by Operating Activities (2,501,000) (1,004,000)
------------ ------------
Cash Flows From Investing Activities:
Proceeds from sale of discontinued business segments 175,000 2,583,000
Sales (payments) for property and equipment additions 10,000 --
Decrease in affiliate receivable 1,930,000 --
------------ ------------
Net Cash Provided by Investing Activities 2,115,000 2,583,000
Cash Flows From Financing Activities:
Increase (Repayments) of short-term borrowings, net 367,000 (690,000)
Principal payments on long-term debt (148,000) (604,000)
------------ ------------
Net Cash Provided (Used) by Financing Activities 219,000 (1,294,000)
------------ ------------
Net Increase in Cash and Cash Equivalents (167,000) 285,000
Cash and Cash Equivalents at Beginning of Period 432,000 84,000
------------ ------------
Cash and Cash Equivalents at End of Period $ 265,000 $ 369,000
============ ============
Supplemental Disclosure of Cash Paid for Interest and Income Taxes:
Cash paid for interest $ 400,000 $ 381,000
Cash paid for income taxes -- --
The accompanying notes are an integral part of these statements.
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TRAVELBYUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
In the opinion of management of travelbyus, Inc. (the "Company"), the
accompanying balance sheets and related interim statements of income and cash
flows include all adjustments (consisting only of normal recurring items)
necessary for their fair presentation in conformity with generally accepted
accounting principles. Preparing financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Examples include valuation of acquired
assets, provisions for warranty claims and bad debts and the length of assets'
useful lives. Actual results may differ from these estimates. Interim results
are not necessarily indicative of results for a full year. The information in
this Form 10-QSB should be read in conjunction with Management's Discussion and
Analysis and financial statements and notes thereto included in the Company's
Form 10-KSB for the year ended June 30, 2000.
NOTE B - SALES AND DISCONTINUATION OF BUSINESS SEGMENTS
The Company has since 1999 been in discussions with third parties
regarding the sale or merger of the entire enterprise, and is also in
discussions with certain third parties regarding the sale of certain remaining
segments of the Company's operations on an individual basis.
On December 29, 1999, the Company sold its Tri-Star Airline Services
ground handling subsidiary operations. On February 8, 2000, the Company sold its
Casper Air Service general aviation fixed base operations. Both businesses were
sold to unrelated third parties and, when combined, generated a net gain on sale
to the Company of $600,000 in fiscal 2000. On December 20, 2000, the Company
sold its General Electrodynamics Corporation aircraft scale manufacturing
business to another unrelated third party for $535,000 in cash and debt
assumption, generating a net loss on sale to the Company of $1,452,000.
In January 2001, the Company completed the arrangement with travelbyus.
com, Ltd. In connection with that transaction, the Company intends to dispose of
all non-travel related operations. The non-travel related assets, liabilities
and operations are presented as held for sale or discontinued in the
accompanying financial statements.
NOTE C - ACQUISITION OF GLOBAL LEISURE TRAVEL, INC.
On March 17, 2000, the Company executed agreements to purchase
Global Leisure Travel, Inc. ("Global"). On May 10, 2000, the Company completed
its acquisition of Global, and Global is now a wholly-owned subsidiary of the
Company. As consideration for the purchase, the Company issued:
$16,500,000 in liquidation preference, represented by 1,650 shares, of its
Series A 9% cumulative convertible preferred stock and Series A
warrants to purchase 750,000 shares of its common stock at an
exercise price of $5.00 per share to the former owners of Global in
exchange for the transfer or cancellation of the stock and
indebtedness owned by them and their affiliates; and
Series B warrants to purchase 3,500,000 shares of its common stock
at an exercise price of $3.00 per share to the former
warrantholders in Global in exchange for cancellation of their
warrants.
In connection with the acquisition, the Company also invested $20.4
million in Global. These funds were used primarily to pay debts and other
payables of Global. The financing for this investment by the Company in Global
was provided by:
$5,000,000 invested by travelbyus.com, ltd. through the purchase of
500 shares of Series B preferred stock from the Company at $10,000
per share;
$2,000,000 invested by private investors in the purchase of 750,000
shares of the Company's common stock at $2.667 per share, and;
-4-
$16,000,000 invested by private investors in the purchase of 1,600
units of the Company's Series B 12% cumulative preferred stock and
Series C warrants, at a price of $10,000 per unit, each unit
consisting of one share and 750 warrants.
Effective September 30, 2000, Global and travelbyus.com entered into a
management agreement under which travelbyus.com assumed responsibility for
management of Global's business. travelbyus.com provides management and support
services, including office space, utilities, office equipment, staff support,
bookkeeping, accounting, billing, collection, contract administration and other
overhead services. Global is required to pay to travelbyus.com a servicing fee
of $55 per paid trip and a monthly retainer of $5,000 and to reimburse
travelbyus.com for direct advertising and marketing expenses and long distance
charges arising from Global's business. travelbyus.com also assumed
responsibility for Global's working capital deficits commensurate with the
agreement's term. This management agreement expires September 1, 2001.
For financial reporting purposes, the Company has treated the Global
acquisition as if it occurred on March 31, 2000. Global's operating results have
been consolidated with the Company's operating results since April 1, 2000.
NOTE D - BUSINESS COMBINATION WITH TRAVELBYUS.COM LTD.
In late February 2000, the Company entered into letters of intent and
publicly announced a proposed three-way business combination with Global. and
travelbyus.com. Global is a travel business specializing in the sale of Hawaiian
and other Pacific-region vacation tour and other travel products to consumers.
travelbyus.com is an integrated travel company. The business combination
contemplated the acquisition by the Company of these two companies with
financing provided by travelbyus.com and private investment capital raised by
Doerge Capital Management, the Company's financial advisor for this transaction.
Additionally, the Company engaged the investment firm of CIBC World Markets
Corp. to review the transaction with travelbyus.com and express an opinion
regarding the fairness of the terms to the Company's shareholders.
travelbyus.com is an integrated travel company which provides travel
services via the Internet, through 1-800 call centers and through traditional
travel agencies. travelbyus.com's Web site, www.travelbyus.com, provides
consumers with on-line travel options 24 hours per day. travelbyus.com provides
a broad range of travel products, targeted primarily at the leisure customer,
including airline tickets, cruise packages and ground packages.
The companies held shareholder meetings on December 20, 2000 to vote on
the business combination, which was approved. On January 25, 2001, the Company
completed the statutory arrangement (the "Arrangement") in accordance with
Ontario, Canada law pursuant to which travelbyus.com ltd., an Ontario
corporation ("travelbyus.com"), was acquired by Travelbyus Canada Holdings Ltd.,
formerly known as Aviation Group Canada Limited, a Canadian subsidiary of the
Company. In connection with the consummation of the Arrangement, on January 24,
2001, the Company also changed its name from Aviation Group, Inc. to travelbyus,
Inc., effected a one-for-five reverse split of its common stock and increased
its authorized number of shares of common stock from 10,000,000 to 250,000,000.
The Company's pre-existing shareholders retained beneficial ownership of
approximately 5% of the combined entity. The accompanying financial statements
reflect the reverse split from the earlaiest period presented.
As part of the Arrangement, the outstanding common shares of
travelbyus.com were converted into exchangeable shares of travelbyus.com on a
one-for-one basis. Under the terms of the exchangeable shares and related
agreements, every five exchangeable shares are exchangeable, at the holder's
election, into one share of the Company's common stock. Any remaining
exchangeable shares not previously exchanged will automatically be exchanged
into the Company's common stock on January 1, 2003, or earlier upon the
occurrence of certain events. Each share of common stock of the Company that was
outstanding prior to the Arrangement remains outstanding and unchanged by the
Arrangement, except that every five shares now represents one share in
accordance with the reverse split.
The combined companies will account for the transaction under the
purchase method of accounting as if travelbyus.com had acquired the Company and
had recapitalized under the capital structure of the Company. Accordingly, the
-5-
combined company will record the assets and liabilities of the Company as being
acquired by travelbyus.com in the Arrangement.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
A key element of the Company's strategy historically involved growth
through acquisitions of other companies, assets or product or service lines that
would complement or expand the Company's existing aviation service operations.
Since 1996, the Company has purchased five separate entities. Management
believed that acquisitions would enable it to leverage its fixed costs of
operations and further expand the products and services that it could offer to
its customers. The Company intended to use its common stock as the major source
of its capital to execute its acquisition strategy.
While management was successful in identifying candidates that met its
acquisition criteria, the trading price of the Company's shares and the level of
trading volume experienced in the public marketplace created a significantly
negative environment for acquiring aviation businesses for the Company using its
stock as consideration. Management endeavored since 1998 to remedy this
condition, while continuing to incur high corporate overhead costs necessary to
properly operate and maintain its aviation service enterprises.
During the fiscal 2000 year, management concluded that (a) the
Company's stock traded below the potential value of its existing underlying
companies, (b) acquisitions of new companies at these lower share price levels
would dilute existing shareholders, and (c) continuation of its historical
corporate overhead strategy without growth from acquisitions would erode
shareholder value. Accordingly, in August 1999, the board of directors approved
a management plan to engage investment advisors and pursue the additional
strategy of selling all or part of the Company's businesses, or merging with
another company with greater growth and shareholder appreciation potential.
During the quarter ended December 31, 1999, the Company sold its
Tri-Star Airline Services ground handling subsidiary operations. On February 8,
2000, the Company sold its Casper Air Service general aviation fixed base
operations. Both businesses were sold to unrelated third parties, and together
generated a net gain on sale to the Company of $600,000. On December 20, 2000,
the Company sold its General Electrodynamics Corporation aircraft scale
manufacturing business to another unrelated third party for $535,000 in cash and
debt assumption, generating a net loss on sale to the Company of $1,452,000.
In February 2000, the Company entered into letters of intent and
publicly announced a proposed three-way business combination with Global Leisure
Travel, Inc. and travelbyus.com ltd. Global is a travel business specializing in
the sale of Hawaiian and other Pacific-region vacation tour and other travel
products to consumers. travelbyus.com is an integrated travel company which
provides travel services via the Internet, through 1-800 call centers and
through traditional travel agencies. This business combination and its related
costs have been funded by financing provided to the Company by travelbyus.com
along with private investment capital raised by Doerge Capital Management, the
Company's financial advisor for this transaction. Additionally, the Company
engaged the investment firm of CIBC World Markets Corp. to review the
transaction and express an opinion regarding the fairness of the terms to the
Company's shareholders.
The companies held shareholder meetings on December 20, 2000 to vote on
the business combination, which was approved. On January 25, 2001, the Company
completed the statutory arrangement (the "Arrangement"). The Company also
changed its name to travelbyus, Inc., effected a one-for-five reverse split of
its common stock (the "Reverse Split") and increased its authorized number of
shares of common stock from 10,000,000 to 250,000,000.
Beginning January 2001, the combined companies will account for the
transaction under the purchase method of accounting as if travelbyus.com had
acquired the Company and had recapitalized under the capital structure of the
Company. Accordingly, the combined company will record the assets and
liabilities of the Company as being acquired by travelbyus.com in the
Arrangement.
In connection with the Arrangement, the Company intends to dispose of
all non-travel related operations. The non-travel related assets, liabiliaties
and operations are presented as held for sale or discontinued in the Company's
financial statements included elsewhere in this report.
The combination with travelbyus.com allows management to reduce
overlapping corporate overhead, complete the integration of its Global travel
operations into and with travelbyus.com, and pursue the sale of its remaining
aviation service and manufacturing businesses. While negotiations regarding the
sale of these businesses is underway with certain third parties, no agreements
have been reached.
-6-
Results of Operations
The following discussions and tables set forth a summary of changes in
the major categories, presented by division, of revenues, costs of goods sold
and operating expenses from each of the previous period's results. These
historical results are not necessarily indicative of results to be expected for
any future period.
Three months ended Six months ended
December 31, December 31,
(Unaudited 000's) (Unaudited 000's)
------------------ -----------------
Total Company 2000 1999 2000 1999
------------- ---- ---- ---- ----
Travel revenues $ 481 $ -- $ 1,592 $ --
Operating and other expenses (607) -- (1,973) --
--------- --------- --------- ---------
(126) -- (381) --
--------- --------- --------- ---------
Corporate overhead (670) (518) (1,030) (829)
Depreciation and amortization (1,240) -- (2,508) --
Loss from discontinued operations (1,673) (878) (1,911) (1,087)
Gain (loss) on sale of subsidiaries (1,452) 681 (1,452) 602
Interest and other income 22 -- 40 --
Interest expense (319) -- (608) --
--------- --------- --------- ----------
Pre-tax income (loss) $ (5,458) $ (715) $ (7,850) $ (1,314)
========= ========= ========= ==========
Leisure Travel Division
-----------------------
In conjunction with the Company's letter of intent agreement to combine
with travelbyus.com, on March 17, 2000, the Company executed agreements to
purchase Global. On May 10, 2000, the Company completed its acquisition of
Global, and Global is now a wholly-owned subsidiary of the Company. Global
provides travel related services primarily through retail travel agencies, and
is a seller of bulk travel services, maintaining several wholesale and discount
contracts with leading providers of travel in the industry.
Since its acquisition, the Company has worked closely with
travelbyus.com to integrate Global's products and operations into those of
travelbyus.com. The Company has executed a management agreement with
travelbyus.com providing for the integration of Global's business into and with
travelbyus.com. Cost reductions have been implemented by shutting down Global's
Seattle, Washington offices, and combining its operations with those of
travelbyus.com in Reno, Nevada. Global's travel products are being combined and
cross-sold with travelbyus.com travel products, thus increasing potential for
future revenue growth. When fully integrated into travelbyus.com's Internet
distribution system, management believes operating margins of Global should
improve in the coming fiscal year. Management believes that this integration is
vital to the success of its leisure travel operations, and if successful, can
allow Global to grow and achieve profitability for the Company and
travelbyus.com.
For financial reporting purposes, the Company has treated the Global
acquisition as if it occurred on March 31, 2000 and has included the operations
of Global with the Company's operations beginning April 1, 2000.
-7-
Three months ended Six months ended
December 31, December 31,
(Unaudited 000's) (Unaudited 000's)
------------------ -----------------
Travel Division 2000 1999 2000 1999
--------------- ---- ---- ---- ----
Gross bookings $ 4,333 $ -- $ 10,560 $ --
Cost of tickets (3,853) -- (8,968) --
Reportable revenues 481 -- 1,592 --
Operating & other expenses (607) -- (1,973) --
--------- ----- --------- -----
Recurring division income (loss) (126) -- (381) --
--------- ----- --------- -----
Corporate Overhead
------------------
Operating expenses consist of all general and administrative and
operating costs to provide management to the Company's divisions, to support
expected growth, and to seek acquisition targets, not directly attributable to
the divisions' operations. These charges include legal, accounting, travel and
other related overhead. During the quarters ended December 31, 2000 and 1999,
the Company incurred $465,000 and $41,000 in non-amortizable acquisition related
costs and direct costs associated with the Company's status as a public company.
For the six months ended December 31, 2000 and 1999, such amounts were $602,000
and $99,000. Management continues its efforts to reduce overhead costs, and
having completed its combination with travelbyus in January 2001 expects
additional improvements in future periods, principally from reductions in the
Company's management overhead, insurance cost reductions, and reductions in
accounting, legal, and other indirect expenses.
Three months ended Six months ended
December 31, December 31,
(Unaudited 000's) (Unaudited 000's)
Corporate Overhead 2000 1999 2000 1999
------------------ ---- ---- ---- ----
Operating and other expenses $ (205) $ (477) $ (428) $ (730)
Acquisition and business combination costs (465) (41) (602) (99)
-------- -------- -------- ---------
Total corporate overhead $ (670) $ (518) $ (1,030) $ (829)
Gain (Loss) on Sale of Discontinued
Operations
------------
Purchase proceeds $ 175 $ 1,749 $ 175 $ 1,758
Book value of assets sold, net $ (513) (87) (513) (87)
Write-off of unrealized goodwill, net (1,114) (981) (1,114) (1,069)
-------- -------- --------- ---------
Gain (loss) on sale $(1,452) 681 $ (1,452) $ 602
Seasonality and Variability of Results
The Global travel operations experience seasonal variability in
revenues, primarily relating to the heavy summer and year-end leisure travel
seasons. Management believes, however, that the integration of Global into
travelbyus.com's other travel and technology companies will allow it to increase
revenues above historical levels in future periods, and that when combined with
other travelbyus.com travel products, can generate higher gross margins as well.
The Company's aircraft painting operations can experience significant
seasonality and quarter-to-quarter variability in its stripping and painting
operations. Scheduling of the Company's paint customer fleet deliveries can
significantly affect quarter-to-quarter results as well. During fiscal 2000, the
Company experienced reductions in revenues relating to the completion of its
multi-year painting contract with United Airlines. This reduction, along with
the retention of multiple paint facility locations pending the completion of its
Boeing-747 sized paint facility in Louisiana, contributed to the operating loss
for the fiscal 2000 year. Management anticipates, based upon projected backlog
amounts from existing and new customers, increases in paint revenues beginning
in calendar 2001. Significant changes in such scheduled operations or failure to
attract additional aircraft painting contracts could have a material adverse
effect on the Company's operations. Management, therefore, is required to plan
cash flow accordingly.
-8-
Quarter Ended December 31, 2000 Compared to the Quarter Ended
December 31, 1999
The Company's net revenue increased by $481,000 for the three months
months ended December 31, 2000 compared to the quarter ended December 31, 1999,
which results from the inclusion of travel revenues beginning in 2000.
Direct operating costs and overhead associated with Global travel
operations accounted for a significant portion of the increase in fiscal 2001 to
$1,277,000 from $518,000 in fiscal 2000. Also, Company corporate overhead for
the quarter ended December 31, 2000 includes $465,000 in business combination
costs versus $41,000 for the quarter ended December 31, 1999. The Company's
interest expense was $319,000 for the three months ended December 31, 2000
versus zero for the three months ended December 31, 1999. The increase results
from interest expense incurred relating to financings associated with the
Company's acquisition and operation of Global.
Depreciation and amortization expense rose significantly during the
quarter ended December 31, 2000 to $1,240,000 from zero for the quarter ended
December 31, 1999. This increase relates to goodwill amortization associated
with the Company's acquisition of Global and, while non-cash in nature, will
have a significant negative effect on reported net income figures in future
periods, totaling approximately $50,000,000 over the next ten years.
During the quarter ended December 31, 2000, the Company sold 100% of
the stock of its aviation scale business, General Electrodynamics Corporation,
to an unrelated third party. The Company received $175,000 in cash and short
term notes for the business, plus the assumption of $360,000 in bank debt. Net
of this consideration and the elimination of goodwill, the Company incurred a
loss of $1,452,000 in the sale of this business. For the quarter ended December
31, 1999, the Company recorded a net gain on sale of its TriStar Airline
Services ground handling and Casper Air Service fixed base operations of
$681,000.
The Company has reported all of its non-travel related activities as
discontinued because the Company intends to dispose of these operations
following completion of the Arrangement with travelbyus.com in January 2001. The
loss from discontinued operations was $1,673,000 for the three months ended
December 31, 2000 compared to $878,000 for the three months ended December 31,
1999. The loss in the current quarter includes $1,000,000 reserved for severance
pay for the Chairman of the Company, who resigned his employment in February
2001.
Six Months Ended December 31, 2000 Compared to the Quarter Ended
December 31, 1999
The Company's net revenue increased by $1,592,000 for the six months
ended December 31, 2000 compared to the six months ended December 31, 1999. The
increase was due to the inclusion of net travel revenues from the Company's
Global Travel subsidiary.
Direct operating costs and overhead associated with Global travel
operations accounted for most of the increase in the six months ended December
31, 2000 to $3,003,000 from $829,000 for the same six month fiscal 2000 period.
Company corporate overhead for the six months ended December 31, 2000 includes
$602,000 in business combination costs versus $99,000 for the six months ended
December 31, 1999. The Company's interest expense was $608,000 for the six
months ended December 31, 2000 versus zero for the six months ended December 31,
1999. The increase results from interest expense incurred relating to financings
associated with the Company's acquisition and operation of Global.
Depreciation and amortization expense rose significantly during the six
months ended December 31, 2000 to $2,508,000 from zero for the six months ended
December 31, 1999. This increase relates to goodwill amortization
-9-
associated with the Company's acquisition of Global and, while non-cash in
nature, will have a significant negative effect on reported net income figures
in future periods, totaling approximately $50,000,000 over the next ten years.
Financial Condition and Liquidity
The Company has incurred significant losses, due in part to corporate
overhead associated with the Company's acquisition strategy. Management
continues its efforts to reduce overhead costs. Reductions in non-essential
division operating expenses, along with elimination of marginal products and
services that do not provide future growth or near-term profits have also been
pursued.
Since the acquisition of Global, the Company has worked closely with
travelbyus.com to integrate Global's products and operations into those of
travelbyus.com. The Company has executed a management agreement with
travelbyus.com providing for the integration of Global's business into and with
travelbyus.com, including the funding by travelbyus.com of operating shortfalls
at Global pending the completion of the Company's combination with
travelbyus.com. Cost reductions have been implemented by shutting down Global's
Seattle, Washington offices and combining its operations with those of
travelbyus.com in Reno, Nevada. Global's travel products are being combined and
cross-sold with travelbyus.com travel products, thus increasing potential for
future revenue growth. When fully integrated into travelbyus.com's Internet
distribution system, operating margins of Global should improve in the coming
fiscal year. Management believes that this integration and the related
arrangement with travelbyus.com is vital to the long term success of the
Company.
During the fiscal year ended June 30, 2000, the Company sold its
Tri-Star Airline Services ground handling and its Casper Air Service general
aviation fixed base operations. Both businesses were sold to unrelated third
parties, and together generated a gain on sale to the Company of $600,000. On
December 20, 2000, the Company sold its General Electrodynamics Corporation
aircraft scale manufacturing business to another unrelated third party for
$535,000 in cash and debt assumption, generating a net loss on sale to the
Company of $1,452,000. The combination with travelbyus.com, now completed,
allows management to reduce overlapping corporate overhead, complete the
integration of its Global travel operations into and with the travel operations
of travelbyus.com, and pursue the sale of its remaining aviation service and
manufacturing businesses. While negotiations regarding the sale of these
businesses is underway with certain third parties, no agreements have been
reached.
In connection with the Company's acquisition of Global, through March
31, 2000, the Company raised a total of $20.4 million in capital. These funds
were used primarily to finance Global, with the Company retaining approximately
$500,000 in funds for operating and transaction cost funding purposes. In
December 2000, the Company's Paint Division borrowed $375,000 in two-year notes
from the Louisiana Economic Development Commission to fund its operations. These
notes require equal quarterly installments beginning March 2001, and bear a 12%
interest rate. Together, these funds have supplemented the Company's existing
revolving credit facilities to fund its business.
At December 31, 2000, the Company had a working capital deficit of
$13,427,000. Of this amount, the Company has negotiated with certain of its
aviation service vendors and other lenders exchange agreements wherein these
parties may elect to receive the Company's common stock in exchange for
cancellation of certain current payables and debt totaling $1.5 million. The
Company has also deferred until fiscal 2002 an additional $3.5 million relating
to fees and advances due Doerge Capital Management relating to the acquisition
and operation of the Company's Global subsidiary. The deficit also included
$4,122,000 in Global advances due to travelbyus.com at December 31, 2000 which
were eliminated upon completion of the business combination arrangement with
travelbyus.com in January 2001. Additionally, $3,000,000 in short term debt is
supported by a travelbyus.com guarantee.
Since December 31, 2000, the Company has also incurred an obligation to
its Chairman, Lee Sanders, for employment severance payments totaling
approximately $1,000,000. Mr. Sanders resigned his employment with the Company
on February 13, 2001. As a result of the changes in the Company's ownership and
management, his employment contract requires that severance payments be made to
him following his resignation. These payments are secured by a pledge of the
Company's stock in its aviation paint and battery subsidiaries. The Company is
in the process of negotiating payment of these obligations with Mr. Sanders.
Significant interruptions in currently scheduled paint service
operations or failure of travelbyus.com to support its working capital
requirements, along with those of the Company, would adversely affect the
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Company's financial condition and require additional capital from asset sales,
borrowings, or equity financings in order to allow the Company to meet its
obligations. On November 9, 2000, travelbyus.com announced that it had signed a
letter of intent with Amadeus NMC Holding, Inc. In the letter, Amadeus stated
that it intended to make a strategic equity investment in travelbyus.com. The
Company now expects that, as a result of the Arrangement, any investment by
Amadeus would be made in the Company. Amadeus is one of the leading global
distribution systems in the travel industry. The Company expects that, in
connection with the purchase of this minority ownership position, an Amadeus
representative will join the Company's Board of Directors. travelbyus.com also
expects to become a value added reseller offering integrated technology from
travelbyus.com with Amadeus' global distribution system services.
travelbyus.com's Web site has, since inception, used the booking technology of
Amadeus for making travel reservations. Amadeus has no binding commitment to
invest in the Company, and no investment by Amadeus can be assured. The Company
is also in negotiations with other parties regarding equity investment into the
business. No assurance can be made that such sales or financings will be
available on terms acceptable to the Company.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: February 23, 2001. TRAVELBYUS, INC.
By: /s/ Richard L. Morgan
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Richard L. Morgan, Chief Financial Officer
and Executive Vice President
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