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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 24, 2001
travelbyus, Inc.
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(Exact name of registrant as specified in its charter)
Texas 0-10124 75-2631373
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
700 North Pearl Street, Suite 2170, Dallas, Texas 75201
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 922-8100
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Aviation Group, Inc.
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(Former name or former address, if changed from last report)
Item 7. Financial Statements and Exhibits
(a) Financial Statements of the Businesses Acquired. The audited
financial statements of travelbyus.com, Ltd. required by this
Item 7(a) are included in this Amendment No. 1 to this Form 8-K
Current Report.
(b) Pro Forma Financial Information. The pro forma financial
statements of the Registrant required by this Item 7(b) are
included in this Amendment No. 1 to this Form 8-K Current Report.
(c) Exhibits.
None.
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 hereunto duly authorized.
TRAVELBYUS, INC.
Dated as of April 13, 2001. By: /s/ Richard L. Morgan
-------------------------------------------
Richard L. Morgan, Executive Vice President
travelbyus.com ltd.
Consolidated Balance Sheets as at September 30, 2000 and
1999, and Consolidated Statements of Operations and Deficit,
Cash Flows and Changes in Shareholders' Equity for the year
ended September 30, 2000 and for the period from
January 1, 1999 to September 30, 1999 and the year ended
December 31, 1998
(expressed in U.S. dollars)
PricewaterhouseCoopers LLP
Chartered Accountants
1111 West Hastings Street
Vancouver British Columbia
Canada V6E 3R2
Telephone +1(604)806 7000
Facsimile +1(604)806 7806
Report of Independent Accountants
To the Directors of
travelbyus.com ltd.
We have audited the consolidated balance sheet of travelbyus.com ltd. (formerly
LatinGold Inc.) as at September 30, 2000 and 1999 and the consolidated
statements of operations and deficit, cash flows and changes in shareholders'
equity for the year ended September 30, 2000 and for the period from January 1,
1999 to September 30, 1999. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at September 30,
2000 and 1999 and the results of its operations, its cash flows and changes in
shareholders' equity for the year ended September 30, 2000 and for the period
from January 1, 1999 to September 30, 1999 in accordance with generally accepted
accounting principles in the United States.
As discussed in note 2 to the financial statements, the company adopted the
accounting guidance set out by the American Institute of Certified Public
Accountants in Statement of Position 00-2, Accounting by Producers or
Distributors of Films during 2000.
The accompanying financial statements have been prepared assuming the company
will continue as a going concern. As discussed in note 1(b) to the financial
statements, the company has suffered recurring losses from operations and has a
net working capital deficiency that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in note 1(b). The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, Canada
February 26, 2001
(except as to note 23, which is as at April 1, 2001)
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors of
travelbyus.com ltd.
We have audited the consolidated statements of operations and deficit, cash
flows and changes in shareholders' equity of travelbyus.com ltd. [formerly
LatinGold Inc.] for the year ended at December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the results of operations of the Company, its cash flows and
changes in shareholders' equity for the year ended December 31, 1998 in
accordance with generally accepted accounting principles in the United States.
/s/ Ernst & Young LLP
Toronto, Canada, Ernst & Young LLP
April 21, 1999. Chartered Accountants
travelbyus.com ltd.
Consolidated Balance Sheets
As at September 30, 2000 and 1999
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(expressed in 000's of U.S. dollars)
2000 1999
$ $
Assets
Current assets
Cash and cash equivalents 2,002 2,215
Accounts receivable and prepaid expenses (note 5) 2,565 34
Inventory and barter credits (note 5) 501 -
Marketable securities (notes 4 and 14(f)) 229 222
----------------------------
5,297 2,471
Investment (note 5) 750 -
Cash deposits for acquisitions (note 8) - 4,898
Advances and other receivables (note 7) 2,873 297
Security deposits (note 9) 1,018 -
Deferred financing costs - net of accumulated amortization of $303
(1999 - $18) (note 13(a)) 236 629
Deferred acquisition costs - 132
Programming library (note 11) 1,230 -
Property, plant and equipment - net of accumulated amortization of $851
(1999 - $3) (note 10) 2,729 53
Software and other assets - net of accumulated amortization of $3,879 (1999 - $nil)
(note 12) 21,189 -
----------------------------
35,322 8,480
============================
travelbyus.com ltd.
Consolidated Balance Sheets
As at September 30, 2000 and 1999
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(expressed in 000's of U.S. dollars)
2000 1999
$ $
Liabilities
Current liabilities
Bank indebtedness (note 3) 278 -
Accounts payable and accrued liabilities (note 5) 4,484 206
Due to related parties (note 6(h) and 17(c), (d) and (e)) 588 149
Customer deposits 295 -
Advances (note 5) 2,800 -
Debentures (note 13) 7,735 -
----------------------------
16,180 355
Deferred tax liability (note 15) 4,092 -
Debentures (note 13(a)) - 4,255
----------------------------
20,272 4,610
----------------------------
Shareholders' Equity
Common stock (note 14)
Authorized
Unlimited number of common shares without par value
Issued
96,804,569 common shares (1999 - 41,539,178) 141,710 69,920
Additional paid-in capital 372 372
Advances for future programming services (note 11) (609) -
Warrants, options and special warrants (note 14(d) and (e)) 14,260 3,916
Cumulative translation adjustment 163 (52)
Accumulated other comprehensive loss - net of tax of $nil (note 14(f)) (306) (94)
Deficit (140,540) (70,192)
----------------------------
15,050 3,870
----------------------------
35,322 8,480
============================
Nature of operations and going concern (note 1)
Commitments and contingencies (note 16)
Subsequent events (note 23)
Approved by the Board of Directors
/s/ John Craig Director /s/ Bill Kerby Director
The accompanying notes are an integral part of these consolidated
financial statements.
travelbyus.com ltd.
Consolidated Statement of Operations and Deficit
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(expressed in 000's of U.S. dollars except for per share amounts)
Period from
January 1,
Year ended 1999 to Year ended
September 30, September 30, December 31,
2000 1999 1998
$ $ $
Revenues
Travel product sales 3,107 - -
Travel commissions 7,189 - -
Associate marketing program 411 - -
Advertising 602 - -
Technology sales 1,060 - -
---------------------------------------------------------
12,369 - -
---------------------------------------------------------
Expenses
Cost of travel product sales 3,402 - -
Cost of services 491 - -
Cost of technology product sales 1,081 - -
Advertising 2,874 - -
Amortization and write-off of goodwill 34,052 - -
Amortization of software and other assets 4,160 - -
Amortization of property, plant and equipment 412 5 -
Capital taxes 192 124 -
Foreign exchange loss (gain) 349 11 31
General and administration 17,802 531 173
Interest 2,672 191 -
Interest and other income (327) (5) (12)
Website costs 989 243 -
Write-down of contract rights (note 12(b)) 7,013 - -
Write-down of programming library, advances for future
programming services, investment and advances
(note 1(c)) 10,574 10 -
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85,736 1,110 192
---------------------------------------------------------
Loss from continuing operations before income tax (73,367) (1,110) (192)
Income tax recovery (note 15) 3,746 21 -
Loss from discontinued operations - net of tax of $nil
(note 21) - (51) (705)
---------------------------------------------------------
Loss before extraordinary item (69,621) (1,140) (897)
Extraordinary loss from repayment of debentures - net of
tax of $nil (note 13(a)) (727) - -
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Loss for the year (70,348) (1,140) (897)
Deficit - Beginning of year (70,192) (69,052) (68,155)
---------------------------------------------------------
Deficit - End of year (140,540) (70,192) (69,052)
=========================================================
Basic and diluted loss per common share before
consolidation from continuing operations and before
discontinued operations and extraordinary item (note 2) (0.92) (0.03) (0.01)
=========================================================
Basic and diluted loss per common share before
consolidation (note 2) (0.92) (0.04) (0.05)
=========================================================
Weighted average number of common shares outstanding
before consolidation 76,071,707 31,781,090 19,400,822
=========================================================
The accompanying notes are an integral part of these consolidated
financial statements.
travelbyus.com ltd.
Consolidated Statement ofChanges in Shareholders' Equity
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(expressed in 000's of U.S. dollars except for per share amounts)
Common stock Other capital accounts
------------------------- -------------------------------------
Additional Compensation
paid-in for
Number capital future Special
of shares Amount amount services warrants
$ $ $ $
Balance - December 31, 1997 16,489,178 68,633 - - -
Private placement of 4,000,000 common shares at $0.06 (Cdn $0.12)
per share
(note 14(a)) 4,000,000 321 - - -
Expiry of warrants - - 372 - -
Issuance of shares to acquire Mexican properties (note 21) 500,000 49 - - -
Cumulative translation adjustment - - - - -
Comprehensive income
Loss for the period - - - - -
Unrealized loss on marketable securities - - - - -
Total comprehensive income (loss)
--------------------------------------------------------------
Balance - December 31, 1998 20,989,178 69,003 372 - -
Private placement of 20,000,000 common shares at $0.04 (Cdn $0.06)
per share (note 14(b)) 20,000,000 793 - - -
Issuance of shares for cash from exercised options 550,000 124 - - -
Issuance of debenture financing warrants (notes 13 and 14(c)) - - - - -
Issuance of warrants as financing fee for debenture financing
(notes 13(a) and 14(c)) - - - - -
Costs of issuing debenture financing warrants (notes 13(a) and
14(c)) - - - - -
Cumulative translation adjustment - - - - -
Comprehensive income
Loss for the period - - - - -
Unrealized gain on marketable securities - net of tax of $21 - - - - -
Total comprehensive income (loss)
--------------------------------------------------------------
Balance - September 30, 1999 41,539,178 69,920 372 - -
Issuance of shares for cash from exercised options 847,200 265 - - -
Issuance of shares on business combinations (note 6) 32,018,861 38,336 - - -
Issuance of shares and warrants to purchase assets (notes 11 and
12) 4,360,553 11,285 - - -
Issuance of options to consultants - - - - -
Exercise of debenture financing warrants 9,360,000 7,878 - - -
Private placement of 4,000,000 units (consisting of one common
share and
one half warrant) at Cdn. $2.50 per unit (note 14(e)) 4,000,000 4,110 - - -
Exercise of private placement warrants to common shares 206,750 718 - - -
Compensation warrants on private placements (note 14(d) and (e)) - (532) - - -
Exercise of compensation warrants to common shares 215,000 664 - - -
Shares issued for future services (note 11) 1,031,827 2,915 - (609) -
Private placement of 8,000,000 special warrants (each special
warrant exercisable into one common share and one half warrant)
at Cdn. $2.50 per special warrant - - - - 8,000,000
Exercise of private placement special warrants to common shares 1,077,700 1,028 - - (1,007,000)
Exercise of financing fee warrants to common shares 147,500 123 - - -
Private placement of 2,000,000 common shares at $2.50 per share
(note 13(b)) 2,000,000 5,000 - - -
Cumulative translation adjustment - - - - -
Comprehensive income
Loss for the year - - - - -
Unrealized loss on marketable securities and cash equivalents - - - - -
Translation adjustment - - - - -
Total comprehensive income (loss) (note 14(f))
--------------------------------------------------------------
Balance - September 30, 2000 96,804,569 141,710 372 ( 609) 6,993,000
==============================================================
travelbyus.com ltd.
Consolidated Statement of Changes in Shareholders' Equity (continued)
--------------------------------------------------------------------------------
(expressed in 000's of U.S. dollars except for per share amounts)
Other capital accounts
---------------------------------------------------------------
Accumu-
lated
other
Compre-
hensive
income
Warrants (Deficit) (net
and retained of tax of
Amount options Amount earnings $nil)
$ $ $ $ $
(note 13)
Balance - December 31, 1997 - 1,705,000 372 (68,155) -
Private placement of 4,000,000 common shares at $0.06 (Cdn $0.12)
per share
(note 14(a)) - - - - -
Expiry of warrants - (1,705,000) (372) - -
Issuance of shares to acquire Mexican properties (note 21) - - - - -
Cumulative translation adjustment - - - - -
Comprehensive income
Loss for the period - - - (897) -
Unrealized loss on marketable securities - - - - (171)
Total comprehensive income (loss)
--------------------------------------------------------------
Balance - December 31, 1998 - - - (69,052) (171)
Private placement of 20,000,000 common shares at $0.04 (Cdn $0.06)
per share (note 14(b)) - - - - -
Issuance of shares for cash from exercised options - - - - -
Issuance of debenture financing warrants (notes 13 and 14(c)) - 9,560,000 3,989 - -
Issuance of warrants as financing fee for debenture financing
(notes 13(a) and 14(c)) - 700,270 550 - -
Costs of issuing debenture financing warrants (notes 13(a) and
14(c)) - - (623) - -
Cumulative translation adjustment - - - - -
Comprehensive income
Loss for the period - - - (1,140) -
Unrealized gain on marketable securities - net of tax of $21 - - - - 77
Total comprehensive income (loss)
--------------------------------------------------------------
Balance - September 30, 1999 - 10,260,270 3,916 (70,192) (94)
Issuance of shares for cash from exercised options - - - - -
Issuance of shares on business combinations (note 6) - - - - -
Issuance of shares and warrants to purchase assets (notes 11 and
12) - 50,000 90 - -
Issuance of options to consultants - 262,000 316 - -
Exercise of debenture financing warrants - (9,360,000 (3,557) - -
Private placement of 4,000,000 units (consisting of one common
share and
one half warrant) at Cdn. $2.50 per unit (note 14(e)) - 2,000,000 2,133 - -
Exercise of private placement warrants to common shares - (206,750) (224) - -
Compensation warrants on private placements (note 14(d) and (e)) - 1,200,000 532 - -
Exercise of compensation warrants to common shares - (215,000) (298) - -
Shares issued for future services (note 11) - - - - -
Private placement of 8,000,000 special warrants (each special
warrant exercisable into one common share and one half warrant)
at Cdn. $2.50 per special warrant 12,436 - - - -
Exercise of private placement special warrants to common shares (1,565) 503,500 537 - -
Exercise of financing fee warrants to common shares - (147,500) (56) - -
Private placement of 2,000,000 common shares at $2.50 per share
(note 13(b)) - - - - -
Cumulative translation adjustment - - - - -
Comprehensive income
Loss for the year - - - (70,348) -
Unrealized loss on marketable securities and cash equivalents - - - - (62)
Translation adjustment - - - - (150)
Total comprehensive income (loss) (note 14(f))
--------------------------------------------------------------
Balance - September 30, 2000 10,871 4,346,520 3,389 (140,540) (306)
==============================================================
travelbyus.com ltd.
Consolidated Statement of Changes in Shareholders' Equity (continued)
--------------------------------------------------------------------------------
(expressed in 000's of U.S. dollars except for per share amounts)
Other capital accounts
---------------------------
Cumulative Total
translation shareholders'
adjustment equity
$ $
Balance - December 31, 1997 - 850
Private placement of 4,000,000 common shares at $0.06 (Cdn $0.12)
per share
(note 14(a)) - 321
Expiry of warrants - -
Issuance of shares to acquire Mexican properties (note 21) - 49
Cumulative translation adjustment (21) (21)
Comprehensive income -
Loss for the period -
Unrealized loss on marketable securities -
Total comprehensive income (loss) - (1,068)
---------------------------
Balance - December 31, 1998 (21) 131
Private placement of 20,000,000 common shares at $0.04 (Cdn $0.06)
per share (note 14(b)) - 793
Issuance of shares for cash from exercised options - 124
Issuance of debenture financing warrants (notes 13 and 14(c)) - 3,989
Issuance of warrants as financing fee for debenture financing
(notes 13(a) and 14(c)) - 550
Costs of issuing debenture financing warrants (notes 13(a) and
14(c)) - (623)
Cumulative translation adjustment (31) (31)
Comprehensive income - -
Loss for the period -
Unrealized gain on marketable securities - net of tax of $21 -
Total comprehensive income (loss) (1,063)
---------------------------
Balance - September 30, 1999 (52) 3,870
Issuance of shares for cash from exercised options - 265
Issuance of shares on business combinations (note 6) - 38,336
Issuance of shares and warrants to purchase assets (notes 11 and
12) - 11,375
Issuance of options to consultants - 316
Exercise of debenture financing warrants - 4,321
Private placement of 4,000,000 units (consisting of one common
share and
one half warrant) at Cdn. $2.50 per unit (note 14(e)) - 6,243
Exercise of private placement warrants to common shares - 494
Compensation warrants on private placements (note 14(d) and (e)) - -
Exercise of compensation warrants to common shares - 366
Shares issued for future services (note 11) - 2,306
Private placement of 8,000,000 special warrants (each special
warrant exercisable into one common share and one half warrant)
at Cdn. $2.50 per special warrant - 12,436
Exercise of private placement special warrants to common shares - -
Exercise of financing fee warrants to common shares - 67
Private placement of 2,000,000 common shares at $2.50 per share
(note 13(b)) - 5,000
Cumulative translation adjustment 215 215
Comprehensive income
Loss for the year - -
Unrealized loss on marketable securities and cash equivalents - -
Translation adjustment - (70,560)
Total comprehensive income (loss) (note 14(f))
---------------------------
Balance - September 30, 2000 163 15,050
===========================
The accompanying notes are an integral part of these consolidated
financial statements.
travelbyus.com ltd.
Consolidated Statements of Cash Flows
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(expressed in 000's of U.S. dollars)
Year ended Period from January 1 Year ended
September 30, 1999 to September 30, December 31,
2000 1999 1998
$ $ $
Cash flows from operating activities
Loss for the year (70,348) (1,140) (897)
Items not affecting cash
Amortization of property, plant and equipment 412 53 -
Write-down of programming library, advances for
future programming services, investment, barter
credits and advances 10,574 10 -
Travel product costs 365 - -
Write-off and amortization of goodwill 34,052 - -
Amortization of software and other assets 3,879 - -
Interest accreted on convertible debentures (note
13(b)) 1,678 113 -
Amortization of deferred financing costs 281 18 -
Advances for programming library (note 11) (571) - -
Stock-based compensation to consultants 317 - -
Stock based compensation 210 - -
Gain on foreign exchange - - 21
Loss from discontinued operations - 50 58
Extraordinary loss from repayment of debentures
(note 13(a)) 727 - -
Income tax recovery (3,746) (21) -
Write-down of contract rights (note 12(b)) 7,013 - -
Net change in non-cash working capital items: -
Accounts receivable and prepaid expenses 2,210 (28) 245
Inventory and barter credits 1,049 - -
Marketable securities (8) - -
Increase in security deposits (878) - -
Accounts payable and accrued liabilities 1,118 312 (261)
Due to related parties 565 - -
Customer deposits (719) - -
-------------------------------------------------------------
(11,820) (633) (834)
-------------------------------------------------------------
Cash flows from investing activities
Cash paid for acquisitions - net (notes 6 and 12(b)) (12,961) - -
Cash deposits on acquisitions (note 23(c)) - (5,195) -
Advances (503) - -
Funds in trust 14 - -
Purchase of property, plant and equipment (2,007) - -
Investment (note 5) (6,360) - -
Investing activities from discontinued operations - (283) -
Proceeds from disposal of investment (note 5) 750 - -
-------------------------------------------------------------
(21,067) (5,478) -
-------------------------------------------------------------
Cash flows from financing activities
Bank indebtedness (396) - -
Proceeds from issuance of debentures (note 13(b)) 3,000 8,129 -
Issuance of notes payable (note 6(c)) 1,000 - -
Repayment of notes payable (note 6(c)) (1,000) - -
Costs on issuance of debentures (note 13(a)) - (719) -
Issuance of common shares - 810 324
Share issue costs (1,795) (17) (10)
Decrease in other liabilities - - (145)
Issue of special warrants (note 14(d)) 13,520 - -
Issue of equity units (note 14(e)) 6,760 - -
Private placement (note 13(b)) 5,000 - -
Exercises of options and warrants 5,513 124 -
Subscriptions received (note 14(f)) 2,800 - -
Repayment of debentures (note 13(a)) (1,697) - -
-------------------------------------------------------------
32,705 8,327 169
-------------------------------------------------------------
Foreign exchange effect on cash (31) (31) 14
-------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (213) 2,185 (651)
Cash and cash equivalents - Beginning of year 2,215 30 681
-------------------------------------------------------------
Cash and cash equivalents - End of year 2,002 2,215 30
=============================================================
The accompanying notes are an integral part of these consolidated
financial statements.
travelbyus.com ltd.
Consolidated Statementyearyear of Cash Flows ...continued
Supplemental Disclosure of Interest and Non-Cash Investing and Financing
Activities
--------------------------------------------------------------------------------
(expressed in 000's of U.S. dollars)
Year ended Period from January 1 Year ended
September 30, 1999 to September 30, December 31,
2000 1999 1998
$ $ $
Supplemental Information
Interest paid 909 1 -
Interest received 252 3 -
Non-cash investing activities
Mineral property expenditures paid by issuing common
shares - - 49
Common shares issued in connection with acquisition of
subsidiaries 38,336 - -
Common shares issued in connection with acquisition of
assets (notes 11 and 12) 11,285 - -
Common shares issued for future programming services
(note 11) 2,915 - -
Compensation warrants issued to agents in connection with
private placements (note 14(e)) 532 - -
Compensation warrants issued to agents in connection with
debenture financing (note 13(a)) - 550 -
Compensation special warrants issued to agents in
connection with private placements (note 14(d)) 1,091 - -
Compensation warrants issued to agents in connection with
asset purchase
(note 12) 90 - -
The accompanying notes are an integral part of these consolidated
financial statements.
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
1 Nature of operations and going concern
a) Nature of operations
travelbyus.com ltd. (formerly LatinGold Inc.) (the "company") is an
integrated travel company providing consumers, primarily located in
the United States, with various products including travel packages,
cruises, discounted air fares and other services. These travel
products are provided through various travel agencies some of which
are owned by the company and a substantial number of which are
considered member agencies under various programs offered by the
company and the company's 800-i-TRAVEL call center and internet
bookings engines. The majority of these travel products are provided
on an agency basis from various travel providers. The company also
provides products, marketing services and support to non-owned travel
agencies, travel providers and other corporate customers. The company
is in the process of developing a new travel magazine and television
show which have not been launched as at September 30, 2000.
The company was incorporated in 1986 under the Business Corporations
Act (Ontario). The company was a precious metals exploration company
until 1999 when it changed its business focus to the travel sector.
In April 1999, the company discontinued its mining activities, and
accordingly, its mining activities have been presented as
discontinued operations. The company changed its name to
travelbyus.com ltd. from LatinGold Inc. on June 11, 1999. In 1999,
the company changed its year end to September 30.
On January 24, 2001, the company completed a reverse take-over of
Aviation Group, Inc. as further described in note 23(a). The name of
Aviation Group, Inc. was changed to travelbyus, Inc. Shareholders of
the company exchanged their shares in the company for exchangeable
shares of the company on a one-for-one basis. All outstanding
warrants, convertible instruments and other commitments to issue
shares of travelbyus.com are exchangeable into exchangeable shares of
travelbyus.com. The exchangeable shares are exchangeable at any time
into shares of common stock of travelbyus, Inc. on the basis of five
exchangeable shares for each share of common stock. As a result of
the reverse takeover, the company became a subsidiary of travelbyus,
Inc. and the holders of the exchangeable shares have an economic
interest in travelbyus, Inc. See note 23 (a) for further description
of terms and conditions of exchangeable shares and unaudited pro
forma information about the combined companies.
All share and per share information for the company in these
financial statements is based on the share capital of the company
prior to this merger except where otherwise noted. As a result of the
merger, the shareholders of the company no longer have an effective
interest in travelbyus.com and therefore the shareholders should
refer to the financial statements of travelbyus, Inc.
b) Going concern
These financial statements have been prepared using generally
accepted accounting principles ("GAAP") applicable to a going
concern. The company incurred a net loss before write-off and
amortization of goodwill of approximately $33,204,000 during the year
ended September 30, 2000, and had an accumulated deficit of
approximately $140,540,000 and a working capital deficiency of
approximately $10,883,000 at the end of the fiscal year and continued
to incur losses subsequent to the year end. The company used cash of
approximately $11,820,000 to fund operations during the most recent
year and continued to incur losses subsequent to the year end. In
addition, substantially all of the company's assets are provided as
security for various financings. Management estimates that financing
facilities currently available are insufficient to maintain
operations and repay obligations due or
(1)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
coming due in the coming year and the company will require new
sources of financing in order to continue its operations and satisfy
its obligations in the normal course. Accordingly, the use of GAAP
applicable to a going concern may not be appropriate because
substantial doubt exists with respect to the company's ability to
continue as a going concern.
Management is addressing this situation by attempting to raise
additional financing, by eliminating redundant and unnecessary costs
following its recent acquisitions and by working to realize the
revenue potential of its recent acquisitions and products and
services. However, the company's current business model has a limited
operating history and its recent acquisitions have yet to be fully
integrated. Subsequent to year end, the company raised a total of
$9,250,000 in various debt financings (note 23) and has signed a
letter of intent and is undergoing due diligence with Amadeus NMC
Holding, for financing which, in the opinion of management, would be
sufficient to enable it to continue operations for the next fiscal
year.
Although there is no assurance that the company will be successful in
these actions, management is confident that it will be able to secure
the necessary financing and improvement in operating cash flow to
enable it to continue as a going concern. Accordingly, these
financial statements do not reflect adjustments to the carrying value
of assets and liabilities, the estimated useful lives of assets, the
reported revenues and expenses and balance sheet classifications used
that would be necessary if the going concern assumption were not
appropriate. Such adjustments could be material.
c) Write-downs
As a result of the going concern issues, continuing operating and
cash flow losses and changes in economic and industry conditions,
management has reviewed the carrying amount of long-lived assets
including goodwill and determined that goodwill, investments in and
advances to Aviation Group Inc., programming library and the wireless
contract were impaired. The amount of impairment loss on goodwill
amounted to $28,922,000 of which $13,405,000 related to the Travel
operating segment, $15,404,000 related to the technology operating
segment, and $113,000 related to other operating segment. The
estimated net recoverable value of goodwill was determined based on
an analysis of undiscounted expected future operating cash flows and
residual values. In addition to goodwill, the impairment losses were
recorded on the following assets: investments in and advances to
Aviation Group Inc. (note 5); programming library (note 11), wireless
contract (note 12(b)).
2 Summary of significant accounting policies
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States. A summary of the significant accounting policies is set out below.
Basis of consolidation
The consolidated financial statements include the accounts of the company
and its wholly-owned subsidiaries.
(2)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
Business combinations
Business combinations have been accounted for under the purchase method of
accounting and therefore include the results of operations of the acquired
business from the date of acquisition. Assets acquired and liabilities
assumed are recorded at their fair values at the date of their
acquisition.
Use of estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results may differ from those
estimates.
Cash and cash equivalents
Cash and cash equivalents consist of balances with banks and investments
in money market instruments with original maturities of less than 90 days.
Inventory and barter credits
Data storage systems are recorded at the lower of cost or estimated net
realizable value. Cost includes direct materials, labour and an allocation
of overhead, and is determined on a first-in, first-out basis.
Media credits are recorded at the lower of carrying value or estimated net
realizable value. Carrying value is determined as cost (the amount paid to
the media company in exchange for the media credits). Where the media
credits represent media availability which expires over time, cost is
amortized on a straight-line basis over the time to expiry. Where the
company incurs costs to prepare the media for use by the customer, the
cost of these services is included in the carrying value of the media
credits.
Travel credits are recorded at the lower of cost and estimated net
realizable value. As prescribed by EITF Abstract Issue No. 93-11, cost is
determined as the carrying value of the media credits exchanged for travel
credits on the basis that there is not persuasive evidence of the fair
value of the media credits given up for the travel credits. The company
does not record revenue on the exchange of media credits for travel
credits.
Revenue recognition
The company recognizes revenue when all of the following criteria are met:
persuasive evidence of an arrangement exists, the price of the products or
services are fixed or determinable, the products have been delivered or
service performed as further outlined below and collection is reasonably
assured.
a) Travel product sales and commissions
Travel sales consist of revenues derived from the sale of travel
products including airline tickets, hotel and vacation property
accommodations, car rentals, vacation packages including cruises and
tours, and volume bonuses and overrides from suppliers of these
products.
(3)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
Where the company sells airline tickets or provides travel bookings
as an agent, at prices determined by the supplier, commission revenue
is recognized at the time the ticket is issued to the customer, which
generally corresponds to the time the payment is processed, less an
allowance for returns and cancellations based on the company's
historical experience.
Where the company acquires an inventory of travel services from
airlines, hotels, vacation properties, car rental companies and
vacation package providers and the company determines the selling
price of these products, revenue for these services is recognized
upon the customer's scheduled departure date. Travel product sales
are recorded at the gross amount collected from the customer only
where the company has acquired an inventory which is non-returnable
and non-refundable and bears general inventory risk, has latitude in
establishing pricing, bears credit risk and is the merchant of
record. Where these conditions do not exist, sales are recorded at
the amount paid by the customer net of the travel product costs.
The company also earns commissions for booking accommodations and
vehicle rentals, and receives certain volume bonuses and overrides
from the travel product suppliers (overrides represent commissions
earned on the basis of volumes). Revenues related to accommodations
and vehicle rentals are recognized on the customers' scheduled
departure dates. Volume bonus and override commission revenues are
recognized as specified in the contractual arrangement when the
specified targets have been achieved.
b) Marketing program revenues
The company provides retail travel agencies with access to certain
travel product suppliers under preferred supplier agreements as well
as administrative, website and marketing services. Under these
associate marketing programs, the member agencies are charged an
annual or monthly license fee. The license fees are recognized on a
straight-line basis over the license period.
c) Advertising revenues
Advertising revenues are derived from travel product suppliers'
advertising included in printed marketing and promotional materials
prepared by the company and delivered to travel agents and customers.
Advertising revenues are recognized at the time the marketing and
promotional materials are distributed to the travel agents and
customers. Costs of sales comprise the direct costs of developing and
producing the marketing and promotional materials.
d) Technology sales
Revenue from the sales of computer data storage equipment is
recognized upon delivery of the equipment.
e) Television programming revenues
Revenues from the license of television program material are
recognized when the license period begins and all of the following
conditions have been met: a) the license fee is known, b) the cost of
the episodes provided under the license agreement is known or
reasonably determinable, c) the episodes have been accepted by the
licensee in accordance with the license agreement and d) the episodes
are available for the first telecast.
(4)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
f) Management fees
Fees earned in connection with services provided to related parties
(note 17(d)) are recognized when the related services are provided.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
amortization. Amortization is recorded on a straight-line basis to
amortize the cost of the capital assets over their estimated useful lives.
Amortization rates are as follows:
Automobiles 5 years
Office and computer equipment and
furniture 5 - 7 years
Manufacturing equipment 7 years
Leasehold improvements over term of lease
Goodwill
Goodwill represents the excess of costs over amounts assigned to the net
identifiable assets of acquired entities. The excess is amortized on a
straight-line basis over three years, as determined by the expected period
of benefit from each acquisition.
In addition to the impairment policy for long-lived assets, the company
periodically evaluates whether changes have occurred that would require
revision of the remaining estimated useful life of the goodwill on both an
acquired business unit and overall enterprise level. If such circumstances
arise, the company would use an estimate of the undiscounted value of the
expected future operating cash flows and residual to determine whether the
net carrying amount of the goodwill exceeds the estimated net recoverable
amount.
Other intangibles
Proprietary software, trademarks, airline contracts, sales channels,
workforce, and the agency network are being amortized on a straight-line
basis over three years. The costs of acquiring the right to the
800-i-TRAVEL number are being amortized on a straight-line basis over five
years.
Impairment of long-lived assets
The company reviews the carrying amount of long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The determination of any impairment includes
a comparison of future operating cash flows anticipated to result from the
use of the asset to the net carrying value of the asset. In the event of a
business combination, any goodwill arising in the transaction is included
in the group of assets for the purpose of the recoverability tests, or is
allocated to the individual assets being tested on a pro rata basis using
the relative fair values of the long-lived assets acquired at the
acquisition date. In instances where goodwill is identified with assets
that are subject to an impairment loss, the carrying value of the goodwill
is eliminated before making any reduction of the carrying amounts of
impaired long-lived assets.
(5)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
Programming library
The costs to acquire television programming are capitalized and amortized
in the same ratio that current gross revenues bear to anticipated total
gross revenues. Estimates of anticipated total gross revenues are reviewed
periodically and revised when necessary to reflect more current
information. Where the carrying value of the unamortized costs exceeds the
estimated net realizable value, the carrying value is written down to the
net realizable value.
Foreign currency translation
The company has adopted the United States dollar as its reporting
currency. The company uses the current rate method for translating
financial statement amounts denominated in foreign currencies. Under this
method assets and liabilities of operations where the currency is other
than U.S. dollars are translated at the exchange rate at the balance sheet
date. Revenues, costs and expenses of such operations are translated at
the average rate of exchange prevailing during the period. Transaction
amounts denominated in foreign currencies are translated at exchange rates
prevailing at the transaction dates.
Advertising costs
The company accounts for advertising costs in accordance with AICPA
Statement of Position 93-7, Reporting on Advertising Costs, whereby costs
are generally expensed as incurred except for television and radio
advertisements, which are expensed, including related production costs,
the first time the advertising takes place.
Stock-based compensation
The company accounts for stock-based employee compensation arrangements
using the intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations; accordingly, compensation cost of stock awards is
measured as the excess, if any, of the quoted market price of the
company's stock at the date of the grant over the option exercise price
and is charged to operations over the vesting period.
Income taxes
The company follows the asset and liability method of accounting for
income taxes. Under this method, deferred income tax assets and
liabilities are recognized for the estimated tax consequences attributable
to differences between the financial statement carrying values and their
respective income tax basis (temporary differences). The resulting changes
in the net future income tax asset or liability are included in income.
Future income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which temporary
differences are expected to be recovered or settled. The effect on future
income tax rates is included in income in the period that includes the
enactment date.
(6)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
Loss per share
Basic loss per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding
during the period. Common shares outstanding include shares issuable for
little or no cash consideration and for which all necessary conditions
have been satisfied. Diluted loss per share is computed using the treasury
stock method by including other potential common stock from exercise of
stock options and warrants in the weighted average number of common shares
outstanding for a period, if dilutive.
The following table sets forth the computation of loss per share before
consolidation:
Period from
January 1,
Year ended 1999 to Year ended
September 30, September 30, December 31,
2000 1999 1998
$ $ $
Loss for the period (70,348) (1,140) (897)
=========================================================
Weighted average number of shares outstanding
Common shares 70,086,465 31,781,090 19,400,822
Special warrants 5,985,242 - -
---------------------------------------------------------
76,071,707 31,781,090 19,400,822
=========================================================
Basic and diluted loss per common share (0.92) (0.19) (0.05)
=========================================================
As a result of the business combination with Aviation Group, Inc. as
described in notes 1(a) and 23(a), a consolidation of shares will
occur when the exchangeable shares are tendered for travelbyus, Inc.
common shares. Accordingly, the loss per share has been adjusted for
all prior periods on the basis of the five for one consolidation.
Consolidated weighted average number of shares
outstanding (note 1(a)) 15,214,341 6,356,218 3,880,164
=========================================================
Consolidated basic and diluted loss per common
share (note 1(a)) (4.62) (0.19) (0.24)
=========================================================
Diluted loss per common share excludes a maximum of 24,764,032 (4,952,806
additional shares after consolidation) additional common shares issuable
pursuant various option, warrant, debenture and acquisition agreements and
subsequent to the year end the company issued or agreed to allow the issue
of shares pursuant to various agreements (notes 13, 16 and 23).
(7)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
Change in reporting currency
The consolidated financial statements of the company have historically
been expressed in Canadian dollars. During the year the company has
adopted the U.S. dollar as its reporting currency for the consolidated
financial statements.
As the company's functional currency is the Canadian dollar, the
consolidated financial statements for 2000 have been translated using the
current rate method. The comparative financial information for the fiscal
years ended September 30, 1999 and 1998 have been restated in U.S. dollars
using a translation method of convenience.
Change in accounting policy
During the year ended September 30, 2000 the company adopted the
accounting guidance set out by the American Institute of Certified Public
Accountants in Statement of Position 00-2, Accounting by Producers or
Distributors of Films. The write-down of the programming library during
the year ended September 30, 2000 (note 11) was determined in accordance
with this guidance. This change in accounting policy had no effect on the
current period as the company only acquired the film assets (note 11)
during the year.
New accounting pronouncements
On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("FAS 133"). FAS 133, as
subsequently amended, is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000 (October 1, 2000 for the company). FAS
133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. As management of
the company does not currently use derivative instruments, the adoption of
FAS 133 is not expected to have a significant effect on the company's
results of operations or its financial position.
3 Bank indebtedness
A Canadian subsidiary of the company has an operating line of credit
available of approximately U.S. $431,000 (Cdn. $650,000), bearing interest
at the bank's prime lending rate plus 2.5%. Bank indebtedness drawn
against this line of credit is payable on demand and is secured by a
general security agreement covering all of the subsidiary's assets other
than real property and Export Development Corp. insurance coverage on
certain accounts receivable as well as by a general corporate level
guarantee. During the year, the bank (and the company) terminated the
facility and the subsidiary has agreed to repay the line by paying $43,000
per month including interest on the outstanding balance at the bank's
prime lending rate plus 2.5%. As at September 30, 2000, $128,000 was
outstanding.
A U.S. subsidiary of the company has an operating line of credit available
of $250,000, bearing interest at 10.5%. Bank indebtedness drawn against
this line of credit is payable on demand and is secured by a general
(8)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
security agreement covering all of the subsidiaries assets other than real
property. As at September 30, 2000, $150,000 has been drawn against this
facility.
4 Marketable securities
Marketable securities are considered available-for-sale and are stated at
market value. Unrealized holding gains and losses are excluded from
earnings and reported in a separate component of shareholders' equity. At
September 30, 2000 the company held 639,912 (September 30, 1999 - 639,912;
December 31, 1998 - 639,912) common shares of Scorpion Minerals Inc.
("Scorpion"), a company related by virtue of a director in common. At
September 30, 2000, the cost of these marketable securities was $153,000
(September 30, 1999 - $153,000; December 31, 1998 - $153,000).
5 Balance sheet components
Accounts receivable and prepaid expenses
2000 1999
$ $
Trade receivables 2,183 2
Less: Allowance for doubtful accounts (288) -
Other accounts receivable 300 26
----------------------------
2,195 28
Prepaid expenses 370 6
----------------------------
2,565 34
============================
Inventory and barter credits
Data storage systems 357 -
Media credits 14 -
Travel credits 130 -
----------------------------
501 -
============================
Data storage systems comprise three major types of products: disk systems,
optical mediums (CD and DVD servers), and tape back-up products. There are
substantially no raw materials or work in process.
Investments in and advances to Aviation Group, Inc.
In connection with the business combination with Aviation Group, Inc.
("Aviation Group") (note 23(a)), the company has invested $5,000,000 in
Aviation Group through the purchase of 500 shares of non-voting Series B
12% cumulative preferred stock from Aviation Group at $10,000 per share
liquidation value, the proceeds of which were used, in part, by Aviation
(9)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
Group to acquire Global Leisure Travel, Inc. ("Global Leisure"). In
addition, $1,360,000 was advanced during the year to Aviation Group for
working capital purposes. The advance is non-interest bearing.
During the year ended September 30, 2000, 75 shares of non-voting Series B
12% cumulative preferred stock were sold to Doerge Capital Management
(note 16(b)) for proceeds of $750,000. Subsequent to the year ended
September 30, 2000, an additional 75 shares were sold for proceeds of
$750,000. As at September 30, 2000, the company has written down its
investment in the preferred shares of Aviation Group to $750,000 and
recorded an allowance for credit losses against the advances amounting to
$1,360,000. No dividends or interest income were recognized related to
these amounts.
Accounts payable and accrued liabilities
2000 1999
$ $
Trade accounts payable 2,766 138
Accrued interest 110 62
Accrued lease liability 31 -
Accrued payroll 515 -
Accrued professional fees 210 -
Income tax payable 291 -
Other liabilities 561 6
------------------------------
4,484 206
==============================
Advances
During the year ended September 30, 2000, the company received advances in
the amount of $2,800,000 from certain investors related to Aviation Group
and Global Leisure (note 23(a)) on the understanding that these advances
would be applied towards a private placement subscription. Subsequent to
year end, the company agreed to issue 1,302,326 common shares at $2.15 per
share to these investors pursuant to subscription agreements entered into
subsequent to year end.
6 Acquisitions
All per share prices indicated for the various acquisitions outlined below
reflect the market value of the shares at the date of announcement of the
respective transactions, except where the purchase agreement contains
provisions guaranteeing the value of total share consideration subsequent
to the completion date. These values have been used to account for these
transactions by the purchase method, with effect from the completion dates
indicated.
(10)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
a) Mr. Cheaps Travel Ltd. ("Mr. Cheaps Travel") and Gotham Media Group
Ltd. ("Gotham Media Group")
On October 4, 1999, the company acquired all of the outstanding
shares of Mr. Cheaps Travel and Gotham Media Group (companies under
common control and management) for aggregate consideration of
$3,887,000 consisting of $3,067,000 ($3,000,000 cash and costs of
acquisition of $67,000) and 2,000,000 common shares at $0.41 (Cdn
$0.61) per share. A finder's fee of 150,000 common shares at $0.41
(Cdn $0.61) per share was paid to an officer of the company. The
finder's fee has been accounted for as stock-based compensation and
included in general and administration expense. The company acquired
$1,544,000 of assets and assumed $242,000 of liabilities. Goodwill
arising from this acquisition is being amortized over three years.
Mr. Cheaps Travel is a travel agency specializing in discount and
last minute airfares. Gotham Media Group acquires the rights to
outdoor billboards, radio, television and print advertising which it
exchanges with its airline and hotel clients in return for travel
credits to be applied toward the purchase of travel products. Both of
the companies are based near Portland, Oregon.
b) International Tours Inc., IT Cruise Inc. and GalaxSea Cruises and
Tours, Inc.
On October 13, 1999, the company acquired the travel marketing
operations of International Tours, Inc., the cruise-only marketing
operations of GalaxSea Cruises and Tours, Inc. and all of the shares
of IT Cruise Inc. for aggregate consideration of $2,515,000
consisting of $2,105,000 ($2,050,000 cash and costs of acquisition of
$55,000) and 1,000,000 common shares at $0.41 (Cdn $0.61) per share.
Assets with a fair value of approximately $2,341,000 including the
fair value of the agency network of $1,742,000 were acquired.
Goodwill arising from this acquisition is being amortized over three
years. All of the companies are based in Dallas, Texas. International
Tours, Inc. maintains a network of affiliated travel agencies in the
United States, and GalaxSea Cruises and Tours, Inc. maintains a
network of affiliated cruise-only offices.
c) Express Vacations, LLC ("Express Vacations")
On November 1, 1999, the company acquired Express Vacations, a
vacation package wholesaler in Reno, Nevada, for aggregate
consideration of $3,710,000 consisting of $1,048,000 ($1,000,000 cash
and costs of acquisition of $48,000), $1,000,000 in short-term
promissory notes which were paid shortly after closing, 3,462,000
common shares at $0.46 (Cdn $0.68) per share, and a finder's fee of
150,000 common shares at $0.46 (Cdn $0.68) per share which was paid
to a third party. The company acquired $1,469,000 of assets and
assumed $1,365,000 of liabilities. Subsequent to the acquisition,
Express was unable to renew certain key agreements with airlines as
the air service to certain destinations (note 1(b)). As a
consequence, management has determined that the future cash flows
from the Express business were less than the unamortized carrying
value of the long-lived assets acquired and has written down the
goodwill balance of $2,507,000.
d) Legacy Storage Systems Corp. ("Legacy")
On December 1, 1999, the company acquired all of the outstanding
common shares of Legacy for aggregate consideration of $1,263,000
consisting of $112,000 ($95,000 cash and costs of acquisition of
$17,000) and 3,028,000 common shares at $0.38 (Cdn $0.56) per share.
The company acquired $1,150,000 of assets and assumed $755,000 of
(11)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
liabilities. Goodwill arising from this acquisition is being
amortized over three years. Legacy designs and sells data storage
systems and is based in Markham, Ontario. Subsequent to the
acquisition, several key employees were released from the company and
the web development office in Florida was closed (note 1(b)). As a
consequence, management has determined that the future cash flows
from the Legacy business were less than the unamortized carrying
value of the long-lived assets acquired and has written down the
balance of goodwill of $627,000.
e) Cheap Seats Inc. ("Cheap Seats")
On January 6, 2000, the company acquired all of the outstanding
shares of Cheap Seats, a Los Angeles based airfare consolidator. The
company acquired $10,002,000 of assets consisting primarily of
airline relationships with a fair value of $6,732,000 (note 12) and
$3,178,000 of liabilities. Goodwill arising from this acquisition and
intangible assets acquired are being amortized over three years. The
terms of the agreement include total consideration of $9,942,000
consisting of $4,392,000 ($4,337,000 cash and costs of acquisition of
$55,000) and 5,000,000 common shares at $1.11 (Cdn $1.61) per share.
At the time of closing, the company paid $5,000,000 in cash and the
vendors advanced $500,000 to Cheap Seats pending resolution of
certain working capital adjustments. Certain capital adjustments, as
agreed with the vendors, resulted in a reduction of the purchase
price by $663,000 which was applied to reduce goodwill. The company
has determined that $2,500,000 of the purchase consideration paid, is
returnable in accordance with a formula contained in the purchase
agreement based on Cheap Seats' pre-tax net income for the
twelve-month period ended November 30, 1999. This amount has been
recorded as a non-current other receivable and has been applied to
reduce goodwill. The purchase price may also be increased by up to
$4,000,000 based on the increase in certain gross revenues for the
period from October 1, 1999 to September 30, 2002, calculated in
accordance with the terms of the agreement. The vendors have agreed
to apply the $2,500,000 price adjustment noted above against any
payment owing for the increase in gross revenues.
f) Bell Travel Systems ("Bell Travel")
On April 3, 2000, the company acquired all of the assets of Bell
Travel Systems, a travel agent consortium based in Scotts Valley,
California. Under the terms of the agreement, the company paid
aggregate consideration of $3,718,000 consisting of $1,936,000
($1,900,000 in cash and costs of acquisition of $36,000) and 690,558
common shares at $2.58 (Cdn $3.80) per share. The company acquired
$1,823,000 of assets including the fair value of the agency network
of $1,623,000, and assumed no liabilities. The difference between
purchase price and fair value of assets acquired is allocated to
goodwill and is being amortized over three years.
g) Cruise Shoppes America, Ltd. ("Cruise Shoppes")
On April 4, 2000, the company acquired all of the outstanding shares
of Cruise Shoppes for aggregate consideration of $9,038,000
consisting of $1,836,000 ($1,800,000 in cash and costs of acquisition
of $36,000) and 2,619,000 common shares at $2.75 (Cdn $4.00) per
share with the number of shares subject to adjustment based on the
trading price of the common shares on July 5, 2000. Subsequent to
July 5, 2000, an additional 2,541,591 common shares were issued
pursuant to the adjustment clause contained in the purchase agreement
to maintain the value of total consideration at $9,002,000. The
company acquired $4,477,000 in assets consisting primarily of an
agency network with a fair value of $1,765,000 and $1,742,000 in
liabilities. Goodwill arising from the acquisition is being amortized
over three years.
(12)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
h) Epoch Technology, Inc. ("Epoch")
On May 23, 2000, the company acquired Epoch, a tour wholesale
software development company based in Dallas, Texas. Under the terms
of the agreement, the company paid aggregate consideration of
$10,231,000 consisting of $2,031,000 ($2,000,000 in cash and costs of
acquisition of $31,000) and 3,280,000 common shares at $2.50 per
share. Per the terms of the purchase agreement, the share
consideration is subject to adjustment based on the price of the
common shares of the company on August 22, 2000 up to a maximum of
3,280,000 common shares. On September 25, 2000, the company issued
3,280,000 additional shares. The company acquired $5,662,000 in
assets consisting primarily of proprietary software rights with a
fair value of $5,188,000 (note 12) and $1,919,000 in liabilities.
Goodwill arising from this acquisition is being amortized over three
years. To complete the acquisition, the company borrowed $1,975,000
from Aviation Group under a 12% note due February 28, 2001, or
earlier, in certain events. This note payable has been repaid as at
September 30, 2000. Aviation Group obtained the funds for this note
from a $3,000,000 loan that has been guaranteed by the company.
i) Prosoft Corporation ("Prosoft")
On September 14, 2000, the company acquired all of the issued and
outstanding shares of ProSoft for aggregate consideration of
$2,994,000 consisting of costs of acquisition of $27,000 and
1,260,000 common shares at a deemed value of $2,967,000. An
additional 420,000 common shares are contingently issuable subject to
the completion of the vendors' two year employment contracts. The
value of these contingently issuable shares is being recorded as
compensation expense over the two-year employment term. If the
employment contracts are terminated under the terms of the employment
agreements or a resignation is tendered before the two-year term, the
applicable affected vendor will not receive his share of the pro rata
contingent common shares. The initial shares to be paid on closing
and the 420,000 contingently issuable shares are adjustable based on
the price of the company's shares on December 15, 2000. The share
consideration was valued for purchase accounting as the maximum
number of shares issuable under the agreement at the completion day
price of $1.18 per share or $2,967,000 as this value is less than the
otherwise guaranteed minimum value of the shares contemplated in the
agreement. On December 15, 2000, 1,260,000 additional shares were
determined to be issuable in accordance with the terms of the
agreement. The company acquired $1,320,000 in assets and $965,000 in
liabilities. Also, in connection with this transaction, the company
issued 450,000 options to purchase common shares at a price of Cdn
$1.70 per share for a period of three years and which vest one-third
annually. Prosoft is a custom software programming company located in
San Diego, California. Prosoft also holds 12% of the outstanding
shares of SiteRabbit.com Inc. (note 6(j)).
j) SiteRabbit.com, Inc. ("SiteRabbit.com")
On September 14, 2000 the company acquired the remaining issued and
outstanding shares of SiteRabbit.com for aggregate consideration of
$8,403,000 consisting of costs of acquisition of $27,000 and
3,557,712 common shares at a deemed value of $8,376,000. The number
of shares was adjustable based on the price of the company's shares
on December 15, 2000. The share consideration was valued for purchase
accounting as the maximum number of shares issuable under the
agreement at the completion day price of $1.18 per share or
$8,376,000 as this value is less than the otherwise guaranteed
minimum value of the shares contemplated in the agreement. On
December 15, 2000, 3,557,712 additional shares were determined to be
issuable in accordance with the terms of the agreement. The company
acquired $4,328,000 in assets consisting primarily of $3,744,000 in
(13)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
proprietary software (note 12) and $2,207,000 in liabilities. Also,
in connection with this acquisition, the company issued 669,000
options to purchase common shares at a price of Cdn $1.70 per share
for a period of three years. Of these options, 50% vest immediately
and the fair value is included in the purchase price. The fair value
of the remainder will be accounted for as employee stock options.
During the year, the company advanced SiteRabbit.com $100,000 to be
used for software development and working capital. SiteRabbit.com
predominantly develops and markets internet based application service
products and is in the development stage. The goodwill arising from
this acquisition and the intangible assets acquired are being
amortized over three years.
Details of the fair value of net assets acquired and consideration given
for the acquisitions, in aggregate, during the period since September 30,
1999 are as follows:
$
Net non-cash assets acquired - at fair market values
Assets acquired 34,027
Liabilities assumed (12,373)
Less: Cash of acquired operations (778)
--------
Net non-cash assets acquired 20,876
Excess of cost of net assets over assigned value
Goodwill 34,052
--------
54,928
========
Cash consideration (including costs of acquisition) 16,577
Promissory notes 1,000
Share capital issued 38,129
Less: Cash of acquired operations (778)
--------
54,928
========
All acquisitions are accounted for using the purchase method and the
results of operations of each entity acquired are included from the date
of acquisition.
The unaudited pro forma consolidated revenues, loss and basic and diluted
loss per share for the year ended September 30, 2000 are $18,590,000,
($67,385,000) and ($0.80), respectively, presented as if the acquisition
of Mr. Cheaps Travel and Gotham Media Group, International Tours Inc., IT
Cruise Inc. and GalaxSea Cruises and Tours, Inc., Express Vacations,
Legacy, Cheap Seats, Bell Travel, Cruise Shoppes, Epoch, Prosoft and
SiteRabbit had occurred on October 1, 1999. This summarized information
does not purport to be indicative of what would have occurred had the
acquisitions actually been made as of such dates or of results which may
occur in the future.
The unaudited pro forma consolidated revenues, income and basic and
diluted earnings per share for the year ended September 30, 1999 are
$29,765,000, $(11,115,000) and $(0.17), respectively, presented as if the
acquisition of Mr. Cheaps Travel and Gotham Media Group, International
Tours, Inc., IT Cruise Inc. and GalaxSea Cruises and Tours, Inc., Express
(14)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
Vacations, Legacy, Cheap Seats, Bell Travel, Cruise Shoppes, Epoch,
Prosoft and Site Rabbit had occurred on October 1, 1998. This summarized
information does not purport to be indicative of what would have occurred
had the acquisitions actually been made as of such dates or of results
which may occur in the future.
7 Advances and other receivables
In connection with the acquisition of Cheap Seats, the company is entitled
to a return of $2,500,000 of the purchase consideration, which has not yet
been returned pending resolution of any further amounts contingently due
to the vendors (note 6(e)).
During the year ended September 30, 2000, the company advanced a total of
$500,000 to a travel agency. These advances are unsecured and bear
interest at 10% per annum and are due and payable in the event the company
does not acquire the travel agency. Negotiations are currently continuing
with management, shareholders and creditors of the travel agency, however,
no agreement has been reached and there is no assurance an agreement will
be reached. The travel agency has certain financial constraints and has
not paid any interest on the loan, accordingly, the company has made an
allowance of $500,000 and no interest income has been recognized.
The balance of advances relates to other potential acquisitions and
business arrangements (note 16(a)) being investigated by the company.
8 Cash deposits for acquisitions
As at September 30, 1999, $4,898,000 was held by the company's lawyers in
trust for the company's acquisitions of Mr. Cheaps Travel, Gotham Media
Group, International Tours, Inc., IT Cruise Inc. and GalaxSea Cruises and
Tours, Inc.
9 Security deposits
As at September 30, 2000, letters of credit totalling $452,000 have been
issued to various hotels. These letters of credit are required as security
under certain hotel agreements. During the year ended September 30, 2000,
$nil has been drawn against these letters of credit. As at September 30,
2000, $386,000 has been deposited as security for these letter of credit
agreements.
In addition, $134,000 represents the amount held as security for an
irrevocable letter of credit issued to the Airline Reporting Corporation
("ARC") to comply with the applicable regulations for travel agencies in
the United States. During the period, $400,000 was remitted to the
company's merchant bank card processor to be held as a deposit. The
remaining balance of $98,000 consists of customer deposits held in trust
for remittance to cruise lines.
(15)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
10 Property, plant and equipment
Property, plant and equipment consist of the following:
2000
----------------------------------------------------------------
Accumulated
Cost amortization Net
$ $ $
Automobiles 40 10 30
Office and computer equipment and furniture 3,210 743 2,467
Manufacturing equipment 77 33 44
Leasehold improvements 253 65 188
----------------------------------------------------------------
3,580 851 2,729
================================================================
1999
----------------------------------------------------------------
Accumulated
Cost amortization Net
$ $ $
Office and computer equipment and furniture 56 3 53
================================================================
11 Programming library
On November 15, 1999, the company acquired 120 episodes of the television
program "The Travel Magazine", except for certain home video rights and
television distribution agency rights, for an aggregate consideration of
$3,422,000 paid by the issuance of 2,855,883 common shares at $1.16 (Cdn
$1.75) per share. All programming contained in this library consists of
completed episodes.
Pursuant to an agreement dated October 1, 1999, as amended on January 21,
2000, the company entered into an arrangement to acquire 130 future
episodes of "The Travel Magazine" to be produced over the next 24 months.
The company issued 1,146,497 shares at $2.76 (Cdn $4.13) per share to
First Property Holdings Inc. Under the agreement the company must pay a
further $1,800,000 in cash only upon delivery of the 40 new episodes which
is non-refundable. The company paid $300,000 of this amount during the
period. After receiving the first 40 future episodes, the company has the
right to terminate the arrangement. If the company does not terminate the
arrangement, the company will be committed to acquire the remaining 90
episodes for $50,000 per episode or $4,500,000 in aggregate.
During the year ended September 30, 2000, the company received thirteen
episodes and reclassified $1,149,000 from advances for programming
services to programming library. Subsequent to the year end, the company
received the balance of the first 40 episodes.
(16)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
The costs capitalized to date are categorized as follows:
2000 1999
$ $
Completed programs - released 1,203 -
Advances for future programming services - in development 609 -
---------------------------
1,812 -
===========================
The company's policy is to amortize capitalized costs for these episodes
using the ratio that current gross revenues, from licensing for broadcast,
bears to the estimated unrecognized ultimate gross revenues as of the
beginning of the year. No revenue has been earned to September 30, 2000
from this programming library. Expected amortization for the next twelve
months is $147,000 and the total expected amortization for the next three
years is $1,121,000. In addition, it is expected that amortization of 80%
of the capitalized cost at September 30, 2000 will be reached in 2004. It
is reasonably possible that those estimates of anticipated future gross
revenues will be significantly reduced in the near term. Delays in
completion of episodes and other factors may indicate that the costs of
the episodes exceed the fair value of such episodes. Further, the company
may decide not to acquire the additional 90 episodes. As a result, the
carrying amount of the programming library and the advances may be reduced
materially in the near term.
The amount recorded as advances for programming services will be
reclassified as programming library based on the program costs per episode
upon receipt of each episode.
The company has assessed the estimated fair value of the programming
library and future programming services and determined those amounts to be
impaired. The Company has written down the carrying values by $5,381,000
to the estimated fair value. These write-downs were based on the Company's
estimate of the fair values of the episodes received during the year and
the Company's estimate of the fair value of future services to be
received. If the company does not terminate the arrangement, the company
will be committed to acquire the remaining 90 episodes for $50,000 per
episode or $4,500,000 in aggregate.
(17)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
12 Software and other assets
2000 1999
------------------------------------------------------ -----------------
Accumulated
amortization
and
Cost write-down Net Net
$ $ $ $
Proprietary software (note 6(h) and (j)) 8,932 590 8,342 -
800-i-TRAVEL 910 46 864 -
Trademarks 550 99 451 -
Agency network (note 6(b), (f) and (g)) 5,123 1,147 3,976 -
Airline relationships (note 6(e)) 6,730 1,661 5,069 -
Assembled workforce, management contracts and
other 2,823 336 2,487 -
Contract rights (note 12(b)) 7,013 7,013 - -
--------------------------------------------------------------
32,081 10,892 21,189 -
==============================================================
a) On December 7, 1999, the company acquired the right to the 800-i-TRAVEL
numbers and a system which utilizes a telephone switching technology that
will route customers' calls to their closest member travel agency or to the
company's call center. The vendor, a U.S. partnership which included a
former officer of the company, was paid 350,000 common shares at $2.35 (Cdn
$3.46) per share and warrants to purchase 50,000 common shares at $1.00 per
share. The warrants are exercisable only upon certain performance
conditions and expire on December 7, 2002 (fair value of $89,000).
Performance criteria are fulfilled if certain minimum numbers of customer
calls to the two 1-800 numbers have been achieved prior to May 2001 or the
average trading price of the company's common shares during November 2000,
had been at least $4.00 per common share, which it was not. In addition,
the vendors will receive a royalty of $0.10 per call for a period of 48
months to commence once the company's network of member agents are linked
to the system. No royalties have been paid or are payable to September 30,
2000. In the event that certain performance criteria are not fulfilled, the
vendors may exercise an automatic right to re-acquire the right to the
numbers and system for no consideration. If the company determines that it
no longer seeks to utilize these numbers and system, the company has the
right to transfer the numbers and system back to the vendors for no
consideration. As at September 30, 2000, the performance criteria noted
above have not yet been fulfilled. Accordingly, measurement uncertainty is
considered to exist with respect to the recoverability of the carrying
value of this asset. A more definitive assessment will be made in due
course.
b) On July 20, 2000, the company acquired the rights to a wireless contract
through the purchase of all of the issued and outstanding shares of Muffin
Communications Ltd., an inactive company, for aggregate consideration of
$7,013,000 consisting of $300,000 cash and costs of acquisition of $13,000,
and 1,000,000 common shares at the guaranteed price of $6.70 per common
share. Per the terms of the agreement, the share consideration was subject
to adjustment based on the price of the common shares of the company on
December 15, 2000. Because the market value of the stock at December 15,
2000 was below the guaranteed price of $6.70, additional shares will be
issued or cash will be paid to maintain the value of share consideration at
$6,700,000. The combination of shares and/or cash in respect of this
adjustment may be determined by the company.
(18)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
Due to the significant uncertainty about the level of revenues
expected to be derived from the underlying wireless customer base,
the company has written-off the costs associated with the acquisition
of the wireless contract in the current period. Management is
currently in negotiations with the vendor as to the required number
of shares and amount of cash required to compensate the vendor.
Subsequent to September 30, 2000, the Company has accrued for
$6,310,000 as a contingency as the Company's share price was below
the guaranteed value of $6.70 per share.
c) The recoverability of the carrying value of software and other assets
is subject to significant uncertainty (note 1(b)). Management's
estimates of recoverable amounts are subject to change in the near
term and these revised estimates may indicate that the unamortized
costs exceed the estimated recoverable amounts. As a result, the
carrying value of the amounts recorded in software and other assets
may be reduced materially in the near term. In addition, the
estimates of the useful lives of the respective assets may change.
13 Debentures
a) Senior redeemable debentures and deferred financing costs
As at September 9, 1999, the company issued 12.5% senior redeemable
debentures for gross proceeds of $8,130,000 (Cdn. $11,950,000). The
debentures earn interest at 12.5% per annum, payable semi-annually,
and mature on September 9, 2001. The company may repay the debentures
at any time. A senior fixed and floating charge covering all assets
of the company has been granted as security.
Attached to each $1,000 debenture were warrants to purchase 800
common shares at $0.46 (Cdn $0.68) per common share. The warrants
expire at the earlier of September 9, 2001 and ten days following
notice by the company of an amended expiry date. The company has the
right to amend the expiry at any time that the daily closing price of
the company's common shares has exceeded $0.93 (Cdn. $1.36) for a
period of ten trading days. In September 2000, the company exercised
its right to accelerate the expiry date of the warrants. As at
September 30, 2000, all but 200,000 share purchase warrants were
exercised. In October 2000, the remaining warrants were exercised.
The proceeds received on the debentures have been allocated to the
debentures and the warrants based on the relative fair values of the
respective instruments. The debentures were initially recorded at
$4,140,000 and the warrants at $3,989,000. The discount on the
debenture resulted in an effective annual rate of approximately 40%
and is being accreted over the term of the debenture.
Costs related to the issuance of the debentures and warrants amounted
to $1,270,000, which has been allocated to deferred financing costs
and warrants in the amounts of $647,000 and $623,000, respectively,
based on the relative fair values of the two instruments. Included in
costs related to issuance is the amount of $550,000 related to
700,270 share purchase warrants issued to the agents as an 8%
commission based on an estimated fair value of $0.785 warrant. The
warrants are to purchase 700,270 common shares at $0.46 (Cdn $0.68)
per share and expire on September 9, 2001.
On March 9, 2000, the company repaid debentures with a face value of
$1,697,000 for aggregate consideration of $1,697,000. The settlement
resulted in an extraordinary loss of $727,000 based on a carrying
(19)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
value for a proportionate share of the debt on the settlement day of
$970,000 and a proportionate share of deferred financing costs of
$108,000.
b) Convertible debenture
During June 2000, the company completed a private placement of
2,000,000 common shares at $2.50 per share for proceeds of $5,000,000
from Travel24.com. Travel24.com also invested $3,000,000 in a
convertible, callable, redeemable, secured debenture due on June 16,
2002 with interest payments payable quarterly in arrears at LIBOR plus
1% until such time that the debenture is paid in full. This debenture
is convertible at the option of the holder, at any time, for such
number of common shares of the company that is determined by dividing
the outstanding principal amount by $3.00 (note 1a). The effective
interest rate on this debenture, taking into account the estimated
value of the conversion feature based on the amended conversion price,
is approximately 20%. Subsequent to year end, a further $750,000 was
borrowed from Travel24.com and the conversion price for the total
amount borrowed was reduced to $2.00 per share.
14 Capital stock
a) On May 14, 1998, the company completed a private placement of
4,000,000 common shares at $0.08 (Cdn. $0.12) per share for proceeds
of $321,000 (net of costs of $11,000) (note 1a).
b) During the period ended September 30, 1999, the company completed a
private placement of 20,000,000 common shares at $0.04 (Cdn. $0.06)
per share for gross proceeds of $810,000 (net proceeds $793,000).
c) On September 9, 1999, the company issued warrants to purchase a total
of 10,260,270 common shares at $0.46 (Cdn. $0.68) per share in
connection with the debenture financing (note 13(a)). These warrants
expire on September 9, 2001. As of September 30, 2000, 752,770 of the
warrants were outstanding.
d) On December 21, 1999, the company completed a private placement of
8,000,000 special warrants at a price of $1.69 (Cdn. $2.50) per
special warrant for proceeds of $12,436,000 (net of costs of
$1,084,000 excluding cost of compensation warrants), each special
warrant being exchangeable, without additional consideration, into one
common share and one half of a share purchase warrant, each whole
warrant entitling the holder to purchase an additional common share
for a price of $2.37 (Cdn $3.50) per share for a period of 15 months.
The company filed a preliminary prospectus to qualify the common
shares and share purchase warrants issuable upon exercise of the
special warrants offering in March 2000. Since receipts for a final
prospectus qualifying the issuance of the common shares and share
purchase warrants were not issued by applicable regulatory authorities
within 180 days of the closing of the special warrant offering,
holders of the outstanding special warrants are entitled to receive
1.1 common shares (in lieu of one common share) upon the exercise of
each special warrant. The agents were paid a commission of 7% of the
gross proceeds of the special warrant offering together with
compensation warrants entitling the agents to purchase that number of
common shares equal to 10% of the number of special warrants placed at
a price of $1.69 (Cdn $2.50) per share for a period of 15 months from
the closing of the offering.
During the period, holders of special warrants exercised 1,007,000
special warrants into 1,077,700 common shares and 503,500 common share
purchase warrants (note 1a). Of the 1,007,000 special warrants
exercised, 707,000 were entitled to receive 1.1 common shares as they
were exercised after the 180 day term. In December 2000, the remaining
special warrants were exercised into 7,692,300 common shares and
3,496,500 common share purchase warrants (note 1a).
(20)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
e) On December 21, 1999, the company completed a private placement of
4,000,000 units at a price of $1.69 (Cdn $2.50) per unit for proceeds
of $6,243,000 (net of costs of $520,000, excluding cost of
compensation warrants), each unit consisting of one common share and
one half of a share purchase warrant, each whole warrant entitling the
holder to purchase an additional common share at a price of $2.37 (Cdn
$3.50) for a period of 15 months. The agent was paid a commission of
10% of gross proceeds together with warrants to purchase that number
of common shares equal to 10% of the number of units placed at a price
of $1.69 (Cdn $2.50) per share for a period of 15 months (400,000
warrants). As of September 30, 2000, 1,793,250 of the warrants at
$2.37 (Cdn $3.50) per share and 185,000 of the warrants at $1.69 (Cdn
$2.50) per share were outstanding (note 1a).
f) The ending accumulated other comprehensive income balance of
$(306,000) (1999 - $94,000) consists of an accumulated unrealized loss
on marketable securities of $156,000 (1999 - $94,000), and an
accumulated unrealized foreign exchange translation adjustment of
$(150,000) (1999 - $nil).
15 Income taxes
The company is subject to U.S. federal and state income taxes in the U.S.
and Canadian federal and provincial taxes in Canada.
The loss from continuing operations before income tax of $73,704,000
reflects losses incurred in Canada and the U.S. of $14,089,000 and
$59,615,000 respectively.
The company has non-capital losses for Canadian income tax purposes of
approximately $8,867,000 which are available for carryforward to reduce
future years' taxable income. These income tax losses expire as follows:
$
Year ending September 30, 2001 120
2002 -
2003 614
2004 848
2005 1,178
2006 2,068
Subsequent thereto 4,039
-----
8,867
=====
In addition, the company has net capital losses of approximately
$35,833,000 for application against net taxable capital gains of future
years.
As at September 30, 2000, the company has non-capital losses for U.S.
income tax purposes of approximately U.S. $11,757,000 (Cdn. $17,308,000)
which are available for carryforward to reduce future years' taxable
income of the U.S. companies. The losses expire in 2020.
(21)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
Net deferred income tax assets and liabilities are as follows:
September 30, September 30, December 31,
2000 1999 1998
$ $ $
Deferred income tax assets
Net operating loss carryforwards
($3,990 incurred in Canada and
$4,709 incurred in the United
States) 8,693 1,631 1,000
Net capital loss carryforwards -
Canada 9,137 9,367 9,367
Share issue costs - Canada 196 - 80
Deferred income tax liabilities
Property, plant and equipment -
United States (177) - -
Software and other assets -
United States (8,639) (21) -
-------------------------------------------------
9,210 10,977 10,447
Valuation allowance (9,210) (10,977) (10,447)
-------------------------------------------------
Net deferred income tax assets - - -
=================================================
Management believes there is sufficient uncertainty regarding the
realization of deffered income tax assets such that a full valuation
allowance has been provided.
The income tax recovery (provision) for the year ended September 30, 2000
differs from the amount obtained by applying the applicable statutory
income tax rates to loss before income taxes as follows:
September 30, September 30, December 31,
2000 1999 1998
$ $ $
Combined statutory income tax rate 45% 45% 45%
----------------------------------------------------
Income tax recovery based on combined statutory rate 33,342 522 403
Effect of U.S. income tax rates for the year ended
September 30, 2000 (4,618) - -
Non-deductible goodwill (21,920) - -
Other non-deductible amounts (733) 29 9
Change in valuation allowance 1,767 (530) (412)
----------------------------------------------------
7,838 21 -
====================================================
Recovery
Current
Canada - 21 -
U.S. 172 - -
Deferred
Canada - - -
U.S. 3,574 - -
----------------------------------------------------
3,746 21 -
====================================================
Valuation allowance related to acquired losses 609 - -
====================================================
(22)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
16 Commitments and contingencies
a) During June 2000, the company entered into an agreement with
HealthyConnect.com Inc. ("HC.com"), a private health care related
internet technology company. Pursuant to the terms of the agreement,
HC.com will issue 1,200,000 common shares to the company upon
confirmation of necessary technical specifications to establish links
between their respective web-sites. The company will issue 1,000,000
common shares in exchange for a further 1,400,000 common shares of
HC.com upon certain conditions (note 1a). Under the terms of the
agreement, HC.com may request the company to acquire up to 1,200,000
common shares of HC.com at $2.50 per share for total cash
consideration of $3,000,000 subject to satisfactory due diligence by
and board approval of the company. The completion of these
transactions is subject to the necessary regulatory approvals. No
shares have been exchanged as at September 30, 2000. On August 8,
2000, the company provided a demand loan to HC.com for $175,000 at 6%
interest. The loan is secured by 1,200,000 common shares of HC.com and
is included in advances.
b) The company has entered into a financing and loan commitment with
Doerge Capital Management whereby Doerge Capital Management directly
and through its affiliates ("Doerge") agreed to purchase from the
company up to $1,500,000 liquidation value of Series B preferred stock
of Aviation Group, held by the company of which $750,000 was acquired
prior to September 30, 2000 and $750,000 was acquired subsequent to
September 30, 2000 and to provide to the company a line of credit for
up to $10,000,000. The line of credit bears interest at 12% per annum,
is collateralized by a security interest in substantially all the
company's assets, subject to the security interests relating to the
existing debentures, and expires on October 15, 2001. Doerge may elect
to convert any amounts outstanding on the line of credit plus accrued
and unpaid interest, to exchangeable common shares of the company at a
conversion price of $2.00 per share. For each $1,000,000 drawn under
the financing and loan commitment, the company will grant to Doerge
warrants to acquire 100,000 common shares exercisable at $2.00 per
share and expiring three years following their grant. The financing
agreement restricts the company from paying dividends or entering into
certain other transactions without the consent of the lender.
Subsequent to year end, the company borrowed $3,000,000 under this
facility.
c) The company has operating leases for the rental of office premises and
equipment. Payments required under these leases are as follows:
$
2001 1,281
2002 1,146
2003 735
2004 675
2005 477
Thereafter 7
-----
4,321
=====
(23)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
The company in turn has committed recoveries in accordance with
contract terms on certain sub-lease agreements related to office
premises as follows:
$
2001 52
2002 52
2003 4
---
108
===
d) During the year ended September 30, 2000, the company agreed to
guarantee a $3,000,000 promissory note issued by Aviation Group. The
note bears interest at an annual rate of 12% and is payable in full on
February 28, 2001. The company has paid interest payments of $90,000
in respect of interest payments with respect to this promissory note.
In February 2001, the due date for the note was extended to March 31,
2001 with no amendment to any other terms of the promissory note (note
1a). The note is past due and the company is in discussions with the
lender regarding settlement thereof (note 1a).
17 Related party transactions
a) During the year ended September 30, 2000, the company paid $274,000
(September 30, 1999 - $82,000) in consulting fees to companies
controlled by officers and directors.
b) During the year ended September 30, 2000, the company paid or accrued
legal fees totalling $662,000 (September 30, 1999 - $172,000) to a
firm in which a director is a partner.
c) As at September 30, 2000, $143,000 (September 30, 1999 - $149,000;
December 31, 1998 - $2,000) was due to a law firm in which a director
is a partner.
d) During the year, Aviation Group, Global Leisure and travelbyus.com
entered into a management services agreement under which
travelbyus.com provides management and support for the operations of
Global Leisure in consultation with management of Global Leisure for
an initial term to June 30, 2001 with provision for termination by any
of the parties to the agreement subject to certain conditions. The
company provides management and support services, including office
space, utilities, office equipment, staff support, bookkeeping,
accounting, billing, collection, contract administration and other
overhead services. To the extent funds are available, Global Leisure
is required to pay to the company a servicing fee of $36 (Cdn $55) per
paid passenger and a monthly retainer of Cdn $5,000 and to reimburse
the company for direct advertising and marketing expenses and long
distance, postage and delivery charges arising from Global Leisure's
business. This management agreement expires September 1, 2001. For the
year ended September 30, 2000, $170,000 has been charged to Global
Leisure primarily as reimbursement of expenses. No management fees
have been recognized during the year due to uncertainty of collection
of the related amounts.
(24)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
18 Fair value of financial instruments
The fair value of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate their carrying value due to the
relatively short term to maturity of these instruments. The fair value of
the marketable securities is based on quoted market values. The fair value
of the redeemable debentures has been determined by discounting the face
value of the debenture and related semi-annual interest payments using an
implicit rate equivalent to debt instruments without representation of
detachable warrants. The fair value of the convertible debentures of
$2,488,000 was determined by discounting the face value of the debenture
and related interest payments using the implicit rate equivalent to debt
instruments without representation of a conversion feature.
19 Concentration of credit risk
Financial instruments which potentially subject the company to
concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The company limits its exposure
to credit loss by placing its cash and cash equivalents on deposit with
high credit quality financial institutions. Receivables arising from sales
to customers are generally not significant individually and are not
collateralized; as a result, management continually monitors the financial
condition of its customers to reduce the risk of loss.
20 Segmented information
The company operates within three operating segments: Travel, Technology
and Other. The Travel segment provides a broad range of travel products,
targeted primarily at the leisure customer, including airfare, hotel rooms,
cruise packages, and ground packages. Products and services are offered
through the traditional travel agency base, 1-800 call centers and the
internet. Included in the Travel segment are the operations of the
following subsidiaries: Mr. Cheaps Travel, International Tours Inc.,
GalaxSea Cruises and Tours, Inc., Express Vacations, Cheap Seats, Bell
Travel and Cruise Shoppes.
The Technology segment designs and manufactures electronic data storage
systems and develops internet accessible travel reservations systems.
Included in this segment are the operations of Legacy, Epoch, Prosoft and
SiteRabbit.com.
The Other segment consists of the advertising and associate marketing
operations of International Tours Inc., GalaxSea Cruises and Tours, Inc.
and Cruise Shoppes.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies.
For the years prior to September 30, 1999, the company had a single
operating segment which encompassed its mining operations which were
discontinued (note 21). As a result of the significant change in the
direction of the company, segmented information for the year ended December
31, 1998 would reflect only corporate expenses.
(25)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
Consolidated Travel Technology Other
------------------------------- ---------------------------- ---------------------------- ---------------------------
Continuing Continuing Continuing
operations operations Continuing operations
for the for the operations for
period period for the the period
from from period from from
January 1, January 1, January 1, January 1,
1999 to 1999 to 1999 to September 1999 to
September September September September 30, September September 30, September
30, 2000 30, 1999 30, 2000 1999 30, 2000 30, 1999 2000 30, 1999
$ $ $ $ $ $ $ $
Revenue from
external
customers (1) 12,369 - 10,296 - 1,060 - 1,013 -
=================================================================================================================
Operating
(loss)
income
before
amortization
of capital
assets,
goodwill and
other
intangibles (25,749) (900) (25,982) (900) (352) - 585 -
Amortization
of capital
assets,
goodwill and
other
intangibles (1) 38,343 54 20,356 54 17,027 - 960 -
-----------------------------------------------------------------------------------------------------------------
Operating loss (64,092) (954) (46,338) (954) (17,379) - (375) -
Interest
expense 29 - 1 - 28 - - -
---------------------------------------------------------------------------------
(46,339) (954) (17,407) - (375) -
=================================================================================
Write-down of
investment 4,860 -
Corporate
interest
expense 967 191
Corporate
interest
income (327) (5)
Extraordinary
loss from
repayment of
debentures 727 -
--------------------------
Loss for the
period (70,348) (1,140)
==========================
Capital
expenditures 2,007 - 1,972 - 35 - - -
Additions to
goodwill 34,052 - 17,517 - 16,366 - 169 -
Total assets (2) 35,322 8,480 21,976 8,480 11,472 - 1,874 -
(1) For the years ended September 30, 2000 and 1999, revenue is
substantially derived from and goodwill and intangible assets are
substantially employed in the U.S.
(2) For the year ended September 30, 2000, the capital assets were
substantially employed in the United States (September 30, 1999,
December 31, 1998 - Canada).
(26)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
21 Discontinued operations
As described in note 1, the company discontinued its mining activities and
accordingly the results of operations from these operating activities have
been disclosed separately from those of continuing operations for the
periods presented. During the period ended September 30, 1999, the company
discontinued all mining activities and abandoned its South American
mineral property interests. No gain or loss arose on the disposal of
assets related to these discontinued operations. The company had no
revenues and no other income or loss from these discontinued operations
other than those already disclosed in the consolidated statement of
operations and deficit for the periods presented.
The assets and liabilities of the company relate to its continuing
operations.
22 Stock options and warrants
The company has a Stock Option Plan that provides for the granting of
options to purchase common shares to directors, officers, employees and
consultants of the company (note 1a). The number of common shares reserved
for issuance under the Stock Option Plan shall not exceed 10,000,000
common shares or a greater number as approved by the shareholders of the
company. Terms of the options shall not be for a period less than one year
or longer than ten years. The option price shall be fixed by the directors
of the company subject to price restrictions imposed by the regulators.
All options were granted at or above market value at the date of grant.
Accordingly, no current or deferred compensation expense has been recorded
in the periods presented.
Stock option transactions
Weighted Weighted
Options average average
exercisable exercise exercise
at end of price price
period Shares Cdn. $ U.S. $
Balance outstanding - December 31, 1997 - 1,837,000 2.22 1.49
================
Options granted during the year - 1,075,000 0.54 0.36
Options expired during the year - (1,737,000) 2.21 1.49
Options exercisable at end of year 350,000 - 0.64 0.43
----------------
Balance outstanding - December 31, 1998 - 1,175,000 0.70 0.47
================
Options granted during the year - 2,725,000 0.65 0.44
Options exercised during the year - (550,000) 0.34 0.23
Options expired during the year - (675,000) 1.12 0.75
Options exercisable at end of year 350,000 - 0.64 0.43
----------------
Balance outstanding - September 30, 1999 - 2,675,000 0.61 0.41
================
Options granted during the period - 6,072,000 2.77 1.88
Options exercised during the period - (847,200) 0.46 0.31
Options expired during the period - (451,000) 3.56 2.42
Options exercisable at end of period 2,775,467 - 1.28 0.87
----------------
Balance outstanding - September 30, 2000 - 7,448,800 2.21 1.50
================
(27)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
The following table summarizes information about options outstanding at
September 30, 2000:
Range of Range of Number
exercise exercise outstanding at Weighted average
prices prices September 30, remaining
Cdn. $ U.S. $ 2000 contractual life
0.12 1 0.08 1 250,000 30 months
0.46 1 0.31 1 301,300 43 months
0.55 2 0.36 2 89,000 46 months
0.79 1 0.52 1 600,000 45 months
1.00 1 0.66 1 500,000 46 months
1.50 2 2.26 2 175,000 34 months
1.50 2 2.26 2 126,500 59 months
1.50 5 2.26 5 120,000 59 months
1.62 1 1.07 1 175,000 60 months
1.65 2 2.49 2 220,000 59 months
1.65 1 1.09 1 675,000 50 months
1.70 2 1.13 2 466,500 36 months
1.70 4 1.13 4 864,000 36 months
2.05 2 3.09 2 33,000 58 months
2.35 2 1.56 2 180,000 56 months
2.77 2 1.84 2 91,500 56 months
2.80 2 1.86 2 350,000 57 months
3.20 3 2.12 3 200,000 16 months
3.25 2 2.16 2 90,000 56 months
3.30 2 2.19 2 21,000 54 months
3.40 1 2.26 1 12,000 20 months
3.30 2 2.19 2 250,000 51 months
3.75 2 2.49 2 50,000 4 months
3.75 2 2.49 2 109,500 55 months
3.80 2 2.52 2 16,500 53 months
3.90 1 2.59 1 100,000 52 months
4.04 2 2.68 2 4,500 52 months
4.08 2 2.71 2 4,500 53 months
4.28 2 2.84 2 1,126,500 52 months
4.29 2 2.85 2 31,500 52 months
4.39 2 2.91 2 3,000 55 months
4.47 2 2.97 2 18,000 54 months
4.50 2 2.99 2 105,000 54 months
4.90 2 3.25 2 75,000 52 months
1 Options vest per one-year period, with 1/2 vesting in six months and 1/2
vesting in the remaining six months.
2 Options vest over a three-year period, with 1/3 vesting in each year.
(28)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
(3)Options vest at specific dates as follows:
50,000 on May 8, 2000
50,000 on August 6, 2000
50,000 on November 5, 2000
50,000 on February 3, 2001
(4)Options vest per six-month period, with 1/2 vesting immediately and 1/2
vesting in the remaining six months.
(5)Options vest over a two-year period, with 1/2 vesting in each year.
Warrant transactions
The following table summarizes information about the company's warrant
activity:
Number of
underlying Exercise price Exercise price
shares Cdn. $ U.S. $
(note 1a)
Warrants outstanding - December 31, 1998 - - -
Issued 10,260,270 0.68 0.46
----------------------------------------------------------------
Warrants outstanding - September 30, 1999 10,260,270 0.68 0.46
Issued 11,753,500 3.50 2.38
Exercised (10,936,250) 0.68 - 3.50 0.46 - 2.38
----------------------------------------------------------------
Warrants outstanding - September 30, 2000 11,077,520 0.68 - 3.50 0.46 - 2.38
================================================================
Warrants outstanding at September 30, 2000 are due to expire from March
21, 2001 to December 7, 2002.
(29)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
Pro forma compensation costs
Had the company determined compensation costs based on fair value at the
date of grant for its awards under the method for determining fair value
prescribed by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" the company's pro forma loss and
loss per share would be as follows:
Period from
January 1, 1999
September 30, to September 30, December 31,
2000 1999 1998
$ $ $
Loss for the period (70,348) (1,140) (897)
Additional compensation expense (1,574) (71) (139)
----------------------------------------------------------------
Pro forma net loss (71,922) (1,211) (1,036)
Pro forma basic loss per common share (0.95) (0.04) (0.05)
----------------------------------------------------------------
Pro forma diluted loss per common share (0.95) (0.04) (0.05)
================================================================
The pro forma compensation expense reflected above has been estimated
using the Black Scholes option pricing model. Assumptions used in the
pricing model included:
a) risk-free interest rate of between 5.40% - 5.84%;
b) expected volatility of 90%;
c) expected dividend yield of $nil; and
d) an estimated average life of one to three years.
23 Subsequent events
a) The company completed a merger with Aviation Group, an aviation
services company based in Dallas, Texas effective January 24, 2001.
Aviation Group provides services and products to airline companies and
other aviation firms primarily in the United States. The company has
become an indirect subsidiary of Aviation Group. The arrangement
resulted in a change in control of Aviation Group and former
travelbyus.com ltd. shareholders own directly or indirectly more than
90% of Aviation Group's outstanding common stock. Through Aviation
Group, the company acquired 100% of Global Leisure, a provider of
discount air and land vacation packages. Aviation Group has issued
$16,500,000 of 9% convertible preferred shares and 4,250,000 warrants
to Global Leisure debt and equity-holders to acquire Global Leisure.
In connection with the business combination of Aviation Group and
Global Leisure, a financing arrangement was completed whereby
$5,000,000 was invested in Aviation Group by the company through the
purchase of 500 shares of Series B preferred stock from Aviation Group
(30)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
at $10,000 per share (paid during March 2000 (note (5)); approximately
U.S. $1,372,000 (Cdn. $2,000,000) invested in Aviation Group by
private investors in the purchase of 750,000 shares of Aviation Group
common stock at approximately U.S. $1.77 (Cdn. $2.67) per share; and
approximately U.S. $10,949,000 (Cdn. $16,500,000) invested in Aviation
Group by private investors in the purchase of approximately 1,650
units of Aviation Group Series B preferred stock and Series C
warrants, at a price of U.S. $7,000 (Cdn. $10,000) per unit, each unit
consisting of one share and 750 warrants. Aviation Group used these
funds to acquire control of Global Leisure and to service indebtedness
of Global Leisure.
The following summary unaudited pro forma combined financial
information reflects the above described arrangement as if it had
occurred as of December 31, 2000 with respect to the pro forma balance
sheet information, and as of October 1, 1999 with respect to the pro
forma results of operations, and is based on the audited consolidated
financial statements of travelbyus.com as at and for the year ended
September 30, 2000, and on the audited consolidated financial
statements of Aviation Group as at and for the year ended June 30,
2000 (including Global Leisure) and the unaudited consolidated
financial statements of the respective entities as at December 31,
2000.
$
Assets 92,917
------------------
Liabilities 52,252
Shareholders' Equity 40,665
------------------
Liabilities and Shareholders' Equity 92,917
==================
Revenue 21,661
------------------
Cost of Sales and Services 8,393
General and administrative 47,148
Depreciation, amortization and impairment 117,382
Interest expense - net 3,836
Other 66
------------------
Loss before income tax (155,164)
------------------
Income tax recovery 3,586
------------------
Net loss (151,578)
==================
Basic and diluted loss per share (5.26)
==================
(31)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
The basic and diluted loss per share has been calculated using the
outstanding common shares of both travelbyus.com ltd. and Aviation
Group as at their respective year ends, as the completion of the
Arrangement resulted in travelbyus.com shareholders receiving one
exchangeable share in travelbyus.com for each common share they
currently own. In connection with the consummation of the Arrangement,
Aviation Group effected a one-for-five reverse split of its own common
stock and increased its authorized number of shares of common stock
from 10,000,000 to 250,000,000. Accordingly each five exchangeable
shares may be exchanged by the holder for one share of Aviation Group
common stock. The exchangeable shares of travelbyus.com not previously
exchanged will be automatically exchanged into Aviation Group common
stock on January 1, 2003 or earlier on the occurrence of certain
events. The exchangeable shares will entitle their holders to
dividends and other rights that are, as nearly as practicable,
economically equivalent to those of Aviation Group common stock. They
will also entitle their holders to vote at meetings of Aviation Group
shareholders through a voting trust.
Many of the adjustments made to arrive at the pro forma financial
information including the fair value of warrants and preferred shares
are based on preliminary estimates, and are therefore subject to
change. This unaudited pro forma combined financial information is not
indicative of the financial position or results of operations which
would have actually occurred if the transactions described above had
occurred at the dates presented or of results which may occur in the
future based on the actual effective date of the arrangement.
b) In late December 2000, the company executed agreements relating to a
$2,500,000 loan from DCM Asylum LLC, (a company related to Doerge
Capital Management) of which $1,000,000 was funded to the company in
October 2000. This loan matured on February 15, 2001. The company has
amended the loan agreement and extended the maturity date to May 15,
2001. All other terms remain unchanged. The loan bears interest at 12%
annually. In connection with the original loan, the company issued
warrants to purchase 250,000 of its common shares at an exercise price
of $2.00 per share expiring in December 2005. As consideration for the
amendment of the maturity date, a further 250,000 warrants were issued
with an exercise price of $0.50 per share (note 1a). The loan is
collateralized by security interests in 150 shares of Series B
preferred stock of Aviation Group owned by the company and essentially
all of the assets of Mr. Cheaps Travel, Ltd., Gotham Media Group, Ltd.
and travelbyus-Travel Magazine Incorporated, which are subsidiaries of
the company.
c) In late December 2000, the company borrowed $1,500,000 from DCM KG LLC
(a company related to Doerge Capital Management). The loan bears
interest at 12% per year and matured on February 5, 2001. The company
has amended the loan agreement and extended the maturity date to June
5, 2001. All other terms remain unchanged. The loan is secured by the
guaranty of Travelbyus Cruise Operations, Inc. and Cheap Seats, Inc.,
which are subsidiaries of the company, and the grant of a security
interest on essentially all of the assets of Cruise Shoppes and Cheap
Seats. In connection with the original loan, the company granted
warrants to purchase 300,000 common shares at an exercise price of
$1.00 per share expiring on December 29, 2003 (note 1a). As
consideration for the amendment of the maturity date, a further
150,000 warrants were issued with an exercise price of $0.50 per share
(note 1a). The loan is also convertible at the option of the lender
into common shares of travelbyus.com at a conversion price of the
lessor of $1.00 per exchangeable share or the seven-day weighted
average trading price of Aviation Group's common stock, calculated on
a pre-reverse stock split basis, plus a premium of 5% (note 1a).
d) In late December 2000, the company borrowed $2,000,000 from Amadeus
NMC Holding, Inc. This loan bears interest at 8% per year and is
repayable in eight equal installments payable quarterly commencing on
March 31, 2001 and with a final instalment due November 30, 2002. The
loan is convertible into travelbyus.com ltd. common shares at any time
(32)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
As at September 30, 2000 and 1999 and for the period from January 1, 1999 to
September 30, 1999
--------------------------------------------------------------------------------
(tabular amounts expressed in 000's of U.S. dollars except where otherwise
noted)
at a conversion price equal to the weighted average trading price for
the common shares or exchangeable shares on The Toronto Stock Exchange
for the greater of one day and the 10 days weighted average prior to
the date of delivery of the conversion notice (note 1a). The balance
of the loan will be automatically converted into common shares or
exchangeable shares of the company if and when Amadeus makes an equity
investment in the company (note 1a). The company's chief executive
officer, Bill Kerby, pledged 6,083,334 common shares in the company
that were beneficially owned by him to collateralize this loan (note
1a). The installment payment became past due on April 1, 2001. The
Company is in discussions with the lender regarding settlement of this
payment.
e) In early January 2001, the company borrowed $1,000,000 from Aberdeen
Strategic Capital LP. This loan bears interest at 12% per year and
matured on February 29, 2001 (note 1a). In connection with the
original loan, the company granted warrants to purchase 200,000 common
shares at an exercise price of $1.00 per share expiring on December
29, 2003. The Company has subsequently extended the maturity date to
April 27, 2001. There have been no changes to the other terms of the
loan. The loan is collateralized by the guaranty of Cheap Seats, Inc.
and a security interest in essentially all the assets of Cheap Seats
and Travelbyus Cruise Operations Inc., which are subsidiaries of the
company. The loan is convertible into common shares of the company at
a conversion price of the lessor of $1.00 per share or the seven-day
weighted average trading price of Aviation Group's common stock,
calculated on a pre-reverse stock split basis, plus a premium of 5%.
f) Subsequent to September 30, 2000, the company also borrowed $3,000,000
on the line of credit referred to in note 16(b). Under the agreement,
Doerge is entitled to 300,000 share purchase warrants which have not
been issued (note 1a). A further $750,000 was advanced by Travel24.com
(note 13(b)).
(33)
travelbyus.com ltd.
Consolidated Balance Sheets as at December 31, 2000
(unaudited) and September 30, 2000, and Consolidated
Statements of Operations and Deficit and Cash Flows for the
three months ended December 31, 2000 and 1999 (unaudited)
(Prepared by management - expressed in U.S. dollars)
travelbyus.com ltd.
Consolidated Balance Sheets
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management under U.S. GAAP - expressed in 000's of U.S. dollars)
December 31, September 30,
2000 2000
$ $
(Unaudited)
Assets
Current assets
Cash and cash equivalents 1,564 2,002
Accounts receivable and prepaid expenses 2,314 2,565
Inventory and barter credits 798 501
Marketable securities 213 229
--------------------------------
4,889 5,297
Investment in and advances to Aviation Group (note 3) - 750
Advances and other receivables 2,858 2,873
Security deposits 983 1,018
Deferred financing costs - net of accumulated amortization of $399 (September
30, 2000 - $303) 140 236
Programming library (note 4) 1,839 1,230
Property, plant and equipment - net of accumulated amortization of $929
(September 30, 2000 - $851) 3,129 2,729
Software and other assets - net of accumulated amortization of $5,923
(September 30, 2000 - $3,879) 19,145 21,189
--------------------------------
32,983 35,322
================================
travelbyus.com ltd.
Consolidated Balance Sheets ...continued
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management under U.S. GAAP - expressed in 000's of U.S. dollars)
December 31, September 30,
2000 2000
$ $
(Unaudited)
Liabilities
Current liabilities
Bank indebtedness 252 278
Accounts payable and accrued liabilities (notes 4 and 5) 13,044 4,484
Due to related parties 143 588
Customer deposits 709 295
Advances 3,056 2,800
Loans (notes 6(a) and (b)) 14,837 7,735
--------------------------------
32,041 16,180
Deferred tax liability 892 4,092
Loans (note 6(b)) 1,000 -
--------------------------------
33,933 20,272
--------------------------------
Shareholders' Deficiency (no equity as per current year PWC Standard)
Common stock (note 6)
Authorized
Unlimited number of common shares without par value
Issued
104,696,869 common shares (September 30, 2000 - 96,804,569) 149,072 141,710
Additional paid-in capital 372 372
Advances for future programming services (note 4) - (609)
Warrants, options and special warrants (note 10) 7,091 14,260
Cumulative translation adjustment 137 163
Accumulated other comprehensive loss - net of tax of $nil (253) (306)
Deficit (157,369) (140,546)
--------------------------------
(950) 19,142
--------------------------------
32,983 35,322
================================
Going concern (note 1)
Commitments and contingencies (note 8)
Subsequent events (note 11)
Approved by the Board of Directors
/s/ John Craig Director /s/ Bill Kerby Director
----------------------- -----------------------
John Craig Bill Kerby
The accompanying notes are an integral part of these consolidated financial
statements.
travelbyus.com ltd.
Consolidated Statements of Operations and Deficit
AThree-month period ended December 31, 2000 and 1999 is unaudited
--------------------------------------------------------------------------------
(Prepared by management under U.S. GAAP - expressed in 000's of U.S. dollars
except for per share amounts)
Three months ended December 31,
----------------------------------------------------
2000 1999
$ $
(Unaudited) (Unaudited)
Revenues
Travel product sales 305 1,568
Travel commissions 1,365 287
Associate marketing program 9 -
Advertising 135 86
Technology sales 565 139
-----------------------------------
2,379 2,080
-----------------------------------
Expenses
Cost of travel product sales 25 716
Cost of services 100 86
Cost of technology product sales 282 99
Advertising 605 38
Amortization of goodwill - 276
Amortization of software and other assets 2,140 92
Amortization of property, plant and equipment 68 50
Foreign exchange loss (gain) (28) 1
General and administration 6,158 3,480
Interest 927 695
Interest and other income (7) (40)
Website costs 20 -
Write down of advances (note 3) 4,302 -
Write down programming library (note 4) 1,500 -
Contingency (note 5) 6,310 -
-----------------------------------
22,402 5,493
-----------------------------------
Loss before income tax (20,023) (3,413)
Income tax (expense) recovery (3,194) 24
-----------------------------------
Loss for the period (16,829) (3,389)
Deficit - Beginning of period (140,540) (69,073)
-----------------------------------
Deficit - End of period (157,369) (72,462)
-----------------------------------
Basic and diluted loss per common share (0.16) (0.07)
-----------------------------------
Weighted average number of common shares outstanding 104,053,145 50,586,156
===================================
The accompanying notes are an integral part of these consolidated financial
statements.
travelbyus.com ltd.
Consolidated Statement of Cash Flows
Three-month period December 31, 2000 and 1999 is unaudited
--------------------------------------------------------------------------------
(Prepared by management under U.S. GAAP - expressed in 000's of U.S. dollars)
Three months ended December 31,
----------------------------------------------------
2000 1999
$ $
(Unaudited) (Unaudited)
Cash flows from operating activities
Loss for the period (16,829) (3,389)
Items not affecting cash
Amortization of property, plant and equipment 68 50
Amortization of goodwill - 276
Amortization of software and other assets 2,044 -
Interest accreted on convertible debentures (note 5) 455 510
Amortization of deferred financing costs 96 92
Advances for programming library (note 4) - -
Financing fee warrants (note 5(b) and (c)) 100 -
Income tax expense (recovery) (3,194) (24)
Write-off of advances (note 3) 4,302 -
Net change in non-cash working capital items:
Accounts receivable and prepaid expenses 251 204
Inventory and barter credits (297) 12
Decrease in security deposits 35 -
Accounts payable and accrued liabilities 8,560 957
Due to related parties (445) -
Customer deposits 414 (446)
-------------------------------
(4,440) (1,758)
-------------------------------
Cash flows from investing activities
Cash paid for acquisitions - (1,353)
Advances 15 (128)
Funds in trust - (443)
Purchase of property, plant and equipment (468) (910)
Investment (note 3) (4,302) -
Proceeds from disposal of investment (note 3) 750 -
-------------------------------
(4,005) (2,834)
-------------------------------
Cash flows from financing activities
Bank indebtedness (26) (170)
Proceeds from issuance of debentures (note 5) 7,647 1,000
Payment of debentures - (1,000)
Issue of special warrants - 13,520
Private placement - 6,243
Exercises of options and warrants 92 1,994
Subscriptions received 256 -
-------------------------------
7,969 21,587
-------------------------------
Foreign exchange effect on cash 38 13
-------------------------------
Increase (decrease) in cash and cash equivalents (438) 17,008
Cash and cash equivalents - Beginning of period 2,002 2,215
-------------------------------
Cash and cash equivalents - End of period 1,564 19,223
===============================
The accompanying notes are an integral part of these consolidated financial
statements.
travelbyus.com ltd.
Notes to Consolidated Financial Statements
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management - tabular amounts expressed in 000's of
U.S. dollars except where otherwise noted)
1 Nature of operations and going concern
a) Basis of preparation of interim financial statements
The consolidated financial statements of travelbyus.com ltd. (the
company) included herein have been prepared by the company, without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have
been condensed or omitted pursuant to such rules and regulations.
While we believe that the disclosures are adequately presented, it is
suggested that these consolidated condensed financial statements be
read in conjunction with the audited consolidated financial statements
for the year ended September 30, 2000. There have been no material
changes in the accounting policies followed by the company during the
three months ended December 31, 2000.
Interim results are subject to variations and are not necessarily
indicative of the results of operations for a full fiscal year. In the
opinion of management, adjustments (which include only normal
recurring adjustments) necessary for a fair statement of the results
of the interim periods shown have been made.
b) The company completed a merger with Aviation Group, an aviation
services company based in Dallas, Texas on January 24, 2001. Aviation
Group provides services and products to airline companies and other
aviation firms primarily in the United States. The company has become
an indirect subsidiary of Aviation Group. The arrangement resulted in
a change in control of Aviation Group and former travelbyus.com ltd.
shareholders own directly or indirectly more than 90% of Aviation
Group's outstanding common stock. Through Aviation Group, the company
acquired 100% of Global Leisure, a provider of discount air and land
vacation packages. Aviation Group has issued $16,500,000 of 9%
convertible preferred shares and 4,250,000 warrants to Global Leisure
debt and equity-holders to acquire Global Leisure. In connection with
the business combination of Aviation Group and Global Leisure, a
financing arrangement was completed whereby $5,000,000 was invested in
Aviation Group by the company through the purchase of 500 shares of
Series B preferred stock from Aviation Group at $10,000 per share
(paid during March 2000; approximately U.S. $1,372,000 (Cdn.
$2,000,000) invested in Aviation Group by private investors in the
purchase of 750,000 shares of Aviation Group common stock at
approximately U.S. $1.77 (Cdn. $2.67) per share; and approximately
U.S. $10,949,000 (Cdn. $16,500,000) invested in Aviation Group by
private investors in the purchase of approximately 1,650 units of
Aviation Group Series B preferred stock and Series C warrants, at a
price of U.S. $7,000 (Cdn. $10,000) per unit, each unit consisting of
one share and 750 warrants. Aviation Group used these funds to acquire
control of Global Leisure and to service indebtedness of Global
Leisure.
The following summary unaudited pro forma combined financial
information reflects the above described arrangement as if it had
occurred as of December 31, 2000 with respect to the pro forma balance
sheet information, and as of October 1, 1999 with respect to the pro
forma results of operations, and is based on the audited consolidated
financial statements of travelbyus.com as at and for the three months
ended December 31, 2000, and on the audited consolidated financial
statements of Aviation Group as at and for the three months ended
December 31, 2000 (including Global Leisure).
(1)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management - tabular amounts expressed in 000's of
U.S. dollars except where otherwise noted)
$
Assets 92,917
==========
Liabilities 52,252
Shareholders' Equity 40,665
----------
Liabilities and Shareholders' Equity 92,917
==========
Revenue 2,860
----------
Cost of Sales and Services 427
General and administrative 8,040
Depreciation, amortization and impairment 14,320
Interest expense - net 1,189
----------
(21,116)
Loss before income tax ----------
Income tax recovery 3,194
----------
Net loss (17,922)
==========
Basic and diluted loss per share (0.82)
==========
The basic and diluted loss per share has been calculated using the
outstanding common shares of both travelbyus.com ltd. and Aviation
Group as at their respective year ends, as the completion of the
Arrangement resulted in travelbyus.com shareholders receiving one
exchangeable share in travelbyus.com for each common share they
currently own. In connection with the consummation of the Arrangement,
Aviation Group effected a one-for-five reverse split of its own common
stock and increased its authorized number of shares of common stock
from 10,000,000 to 250,000,000. Accordingly, each five exchangeable
shares may be exchanged by the holder for one share of Aviation Group
common stock. The exchangeable shares of travelbyus.com not previously
exchanged will be automatically exchanged into Aviation Group common
stock on January 1, 2003 or earlier on the occurrence of certain
events. The exchangeable shares will entitle their holders to
dividends and other rights that are, as nearly as practicable,
economically equivalent to those of Aviation Group common stock. They
will also entitle their holders to vote at meetings of Aviation Group
shareholders through a voting trust. All outstanding warrants,
convertible instruments and other commitments to issue shares of
travelbyus.com are exchangeable into exchangeable shares of
travelbyus.com.
Many of the adjustments made to arrive at the pro forma financial
information including the fair value of warrants and preferred shares
are based on preliminary estimates, and are therefore subject to
(2)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management - tabular amounts expressed in 000's of
U.S. dollars except where otherwise noted)
change. This unaudited pro forma combined financial information is not
indicative of the financial position or results of operations which
would have actually occurred if the transactions described above had
occurred at the dates presented or of results which may occur in the
future based on the actual effective date of the arrangement.
All share and per share information for the company in these financial
statements is based on the share capital of the company prior to this
merger except where otherwise noted. As a result of the merger, the
shareholders of the company no longer have an effective interest in
travelbyus.com and therefore the shareholders should refer to the
financial statements of Aviation Group.
c) Going concern
These financial statements have been prepared using generally accepted
accounting principles ("GAAP") applicable to a going concern. The
company incurred a net loss before write-off and amortization of
goodwill of approximately $33,204,000 during the year ended September
30, 2000, and had an accumulated deficit of approximately $140,540,000
and a working capital deficiency of approximately $10,883,000 at the
end of the fiscal year and continued to incur losses subsequent to the
year end. The company used cash of approximately $11,820,000 to fund
operations during the most recent year. In addition, substantially all
of the company's assets are provided as security for various
financings. Management estimates that financing facilities currently
available are insufficient to maintain operations and repay
obligations due or coming due in the coming year and the company will
require new sources of financing in order to continue its operations
and satisfy its obligations in the normal course. Accordingly, the use
of GAAP applicable to a going concern may not be appropriate because
substantial doubt exists with respect to the company's ability to
continue as a going concern.
Management is addressing this situation by attempting to raise
additional financing, by eliminating redundant and unnecessary costs
following its recent acquisitions and by working to realize the
revenue potential of its recent acquisitions and products and
services. However, the company's current business model has a limited
operating history and its recent acquisitions have yet to be fully
integrated. Subsequent to year end, the company raised a total of
$9,250,000 in various debt financings (note 6) and has signed a letter
of intent and is undergoing due diligence with Amadeus NMC Holding,
for financing which, in the opinion of management, would be sufficient
to enable it to continue operations for the next fiscal year.
Although there is no assurance that the company will be successful in
these actions, management is confident that it will be able to secure
the necessary financing and improvement in operating cash flow to
enable it to continue as a going concern. Accordingly, these financial
statements do not reflect adjustments to the carrying value of assets
and liabilities, the estimated useful lives of assets, the reported
revenues and expenses and balance sheet classifications used that
would be necessary if the going concern assumption were not
appropriate. Such adjustments could be material.
(3)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management - tabular amounts expressed in 000's of
U.S. dollars except where otherwise noted)
2 Summary of significant accounting policies
Revenue recognition
The company provides internet related software development and support
services primarily to member agents. Revenue related to these services is
recognized rateably over the period these services are performed, provided
collectibility is reasonably assured.
Loss per share
Basic loss per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding
during the period. Common shares outstanding include shares issuable for
little or no cash consideration and for which all necessary conditions
have been satisfied. Diluted loss per share is computed using the treasury
stock method by including other potential common stock from exercise of
stock options and warrants in the weighted average number of common shares
outstanding for a period, if dilutive.
The following table sets forth the computation of loss per share:
Three months ended December 31,
--------------------------------------
2000 1999
$ $
(Unaudited) (Unaudited)
Loss for the period (16,829) (3,389)
Weighted average number of shares outstanding
Common shares 97,820,254 50,463,005
Special warrants 6,232,891 123,151
-----------------------------------
104,053,145 50,586,156
===================================
Basic and diluted loss per common share (0.16) (0.07)
===================================
Diluted loss per common share excludes a maximum of 26,507,979 additional
common shares issuable pursuant various option, warrant, debenture and
acquisition agreements and subsequent to the year end the company issued
or agreed to allow the issue of shares pursuant to various agreements
(notes 7 and 10).
3 Investments in and advances to Aviation Group, Inc.
During the three months ended December 31, 2000, the company advanced
$4,302,000 to Aviation Group. As the amounts were not considered
recoverable, the company has written off the advances made during the
quarter. In addition, the company sold to Doerge Capital Management (note
7(b)) preferred shares of Aviation Group in the amount of $750,000 for
proceeds of $750,000.
(4)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management - tabular amounts expressed in 000's of
U.S. dollars except where otherwise noted)
4 Programming library
During the three months ended December 31, 2000, the company received the
balance of the first 40 episodes and has therefore reclassified the
remaining balance of advances for programming services to the programming
library. In addition, the company capitalized and accrued for the
remaining balance of advances due of $1,500,000 with respect to the 40 new
episodes. These advances were written off during the period to bring the
carrying value of the programming library down to the estimated fair
value.
The costs capitalized to date are categorized as follows:
December 31, September 30,
2000 2000
$ $
(Unaudited)
Completed programs - unreleased 1,839 1,230
Advances for future programming services - in development - 609
-----------------------------
1,839 1,839
=============================
5 Software and other assets
Pursuant to the terms of the share purchase agreement for Muffin
Communications Ltd., the share consideration given for the rights to the
wireless contract was subject to adjustment based on the trading price of
the common shares of travelbyus.com on December 15, 2000. The combination
of shares and/or cash to be paid or given to maintain the total
consideration of $6,700,000 or $6.70 per share pursuant to the adjustment
formula, has not yet been decided by travelbyus.com. The required value of
additional consideration of $6,310,000 has been included in accrued
liabilities as at December 31, 2000 and expensed in the period due to the
continued significant uncertainty about the level of revenues expected to
be derived from the underlying wireless customer base.
6 Loans
a) Short term borrowings
December 31, September 30,
2000 2000
$ $
(Unaudited)
DCM Asylum LLC (i) 2,500 -
DCM KG LLC convertible loan (ii) 1,500 -
Promissory note (iii) 650 -
Related party loan (iv) 247 -
------------------------------
4,897 -
Less: Current portion 4,897 -
------------------------------
Long-term portion - -
==============================
i) In late December 2000, the company executed agreements relating to a
$2,500,000 loan from DCM Asylum LLC, (a company related with Doerge
Capital Management) of which $1,000,000 was funded to the company in
October 2000. This loan matured on February 15, 2001. The company has
amended the loan agreement and extended the maturity date to May 15,
2001. All other terms of the loan remain unchanged. In connection with
the original loan, the company issued warrants to purchase 250,000 of
its common shares at an exercise price of $2.00 per share expiring in
December 2005. The fair value of warrants were expensed during the
period as a financing fee. As consideration for the amendment of the
maturity date a further 250,000 warrants were issued with an exercise
price of $0.50 per share. The loan is collateralized by security
interests in 150 shares of Series B preferred stock of Aviation Group
owned by the company and essentially all of the assets of Mr. Cheaps
Travel, Ltd., Gotham Media Group, Ltd. and travelbyus-Travel Magazine
Incorporated, which are subsidiaries of the company.
(5)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management - tabular amounts expressed in 000's of
U.S. dollars except where otherwise noted)
ii) In late December 2000, the company borrowed $1,500,000 from DCM KG LLC
(a company related with Doerge Capital Management). The loan matured
February 5, 2001. The company has amended the loan agreement and
extended the maturity date to June 5, 2001. All other terms remain
unchanged. The loan is secured by the guaranty of Travelbyus Cruise
Operations, Inc. and Cheap Seats, Inc., which are subsidiaries of the
company, and the grant of a security interest on essentially all of
the assets of Cruise Shoppes and Cheap Seats. In connection with the
original loan, the company granted warrants to purchase 300,000 common
shares at an exercise price of $1.00 per share expiring on December
29, 2003. As consideration for the amendment of the maturity date a
further 150,000 warrants were issued with an exercise price of $0.50
per share.The fair value of warrants were expensed during the period
as a financing fee. The loan is also convertible at the option of the
lender into common shares of travelbyus.com at a conversion price of
the lessor of $1.00 per exchangeable share or the seven-day weighted
average trading price of Aviation Group's common stock, calculated on
a pre-reverse stock split basis, plus a premium of 5%.
iii) On December 2000, the Company borrowed $650,000 and issued a
non-interest bearing promissory note repayable on demand. The Company
repaid this loan in January 2001.
iv) In November 2000, the Company borrowed $247,000 from a director of the
Company. The loan bears interest at 10% per year and was repayable
December 30, 2000. The loan was repaid in January 2001.
b) Long-term debt
December 31, September 30,
2000 2000
$ $
(unaudited)
Senior redeemable debenture 5,190 4,735
Travel 24.com convertible debenture (i) 3,750 3,000
Amadeus NMC Holding convertible debenture (ii) 2,000 -
------------------------------
10,940 7,735
Less current portion 9,940 7,735
------------------------------
Long-term portion 1,000 -
==============================
i) During October, 2000, a further $750,000 was advanced to the company
from Travel24.com. In addition, the conversion price on the total
balance was reduced to $2.00 per share.
ii) In late December 2000, the company borrowed $2,000,000 from Amadeus
NMC Holding, Inc. This loan bears interest at 8% per year and is
repayable in eight equal installments payable quarterly commencing
on March 31, 2001 and with a final instalment due November 30, 2002.
The loan is convertible into travelbyus.com ltd. common shares at
any time at a conversion price equal to the weighted average trading
price for the common shares or exchangeable shares on The Toronto
Stock Exchange for the greater of one day and the 10 days weighted
average prior to the date of delivery of the conversion notice. The
balance of the loan will be automatically converted into common
shares or exchangeable shares of the company if and when Amadeus
makes an equity investment in the company. The company's chief
executive officer, Bill Kerby, pledged 6,083,334 common shares in
the company that were beneficially owned by him to collateralize
this loan. The installment payment became past due on April 1, 2001.
The company is in discussions with the lender regarding the
settlement of this payment.
(6)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management - tabular amounts expressed in 000's of
U.S. dollars except where otherwise noted)
7 Common stock
Number of
common shares $
Balance - September 30, 2000 96,804,569 141,710
Common shares issued on exercise of share purchase warrants 200,000 166
Common shares issued on exercise of special warrants (a) 7,692,300 7,196
-----------------------------------
Balance - December 31, 2000 (unaudited) 104,696,869 149,072
===================================
a) In December 2000, the remaining special warrants outstanding of
6,993,000 at September 30, 2000 were exercised into 7,692,300 common
shares and 3,496,500 (allocated value of $3,675,000) common share
purchase warrants (note 1b).
8 Commitments and contingencies
a) During June 2000, the company entered into an agreement with
HealthyConnect.com Inc. ("HC.com"), a private health care related
internet technology company. Pursuant to the terms of the agreement,
HC.com will issue 1,200,000 common shares to the company upon
confirmation of necessary technical specifications to establish links
between their respective web-sites. The company will issue 1,000,000
common shares in exchange for a further 1,400,000 common shares of
HC.com upon certain conditions. Under the terms of the agreement,
HC.com may request the company to acquire up to 1,200,000 common
shares of HC.com at $2.50 per share for total cash consideration of
$3,000,000 subject to satisfactory due diligence by and board approval
of the company. The completion of these transactions is subject to the
necessary regulatory approvals. No shares have been exchanged as at
December 31, 2000. On August 8, 2000, the company provided a demand
loan to HC.com for $175,000 at 6% interest. The loan is secured by
1,200,000 common shares of HC.com and is included in advances.
b) The company has entered into a financing and loan commitment with
Doerge Capital Management whereby Doerge Capital Management directly
and through its affiliates ("Doerge") agreed to purchase from the
company up to $1,500,000 liquidation value of Series B preferred stock
of Aviation Group, held by the company of which $1,500,000 was
acquired as at December 31, 2000 and to provide to the company a line
of credit for up to $10,000,000.
The line of credit bears interest at 12% per annum, is collateralized
by a security interest in substantially all the company's assets,
subject to the security interests relating to the existing debentures,
and expires on October 15, 2001. Doerge may elect to convert any
amounts outstanding on the line of credit plus accrued and unpaid
interest, to exchangeable common shares of the company at a conversion
price of $2.00 per share. For each $1,000,000 drawn under the
financing and loan commitment, the company will grant to Doerge
warrants to acquire 100,000 exchangeable common shares exercisable at
$2.00 per share and expiring three years following their grant. The
financing agreement restricts the company from paying dividends or
entering into certain other transactions without the consent of the
lender. Subsequent to December 31, 2000, the company borrowed
$3,000,000 under this facility.
(7)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management - tabular amounts expressed in 000's of
U.S. dollars except where otherwise noted)
c) During the year ended September 30, 2000, the company agreed to
guarantee a $3,000,000 promissory note issued by Aviation Group. The
note bears interest at an annual rate of 12% and was payable in full
on February 28, 2001. In February, 2001, the due date for the note was
extended to March 16, 2001 with no amendment to any other terms of the
promissory note. The note is past due and the Company is in
discussions with the lender regarding settlement thereof.
9 Segmented information
The company operates within three operating segments: Travel,
Technology and Other. The Travel segment provides a broad range of
travel products, targeted primarily at the leisure customer, including
airfare, hotel rooms, cruise packages, and ground packages. Products
and services are offered through the traditional travel agency base,
1-800 call centers and the internet. Included in the Travel segment
are the operations of the following subsidiaries: Mr. Cheaps Travel,
International Tours Inc., GalaxSea Cruises and Tours, Inc., Express
Vacations, Cheap Seats, Bell Travel and Cruise Shoppes.
The Technology segment designs and manufactures electronic data
storage systems and develops internet accessible travel reservations
systems. Included in this segment are the operations of Legacy, Epoch,
Prosoft and SiteRabbit.com.
The Other segment consists of the advertising and associate marketing
operations of International Tours Inc., GalaxSea Cruises and Tours,
Inc. and Cruise Shoppes.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies in the
September 30, 2000 consolidated financial statements.
(8)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management - tabular amounts expressed in 000's of
U.S. dollars except where otherwise noted)
Consolidated Travel Technology Other
---------------------------- ---------------------------- ---------------------------- ---------------------------
Three months ended Three months ended Three months ended Three months ended
December 31, December 31, December 31, December 31,
---------------------------- ---------------------------- ---------------------------- ---------------------------
2000 1999 2000 1999 2000 1999 2000 1999
$ $ $ $ $ $ $ $
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue from
external
customers (1) 2,379 2,080 1,670 1,568 565 139 144 373
----------------------------------------------------------------------------------------------------------------
Operating
(loss)
income
before
amortization
of capital
assets,
goodwill and
other
intangibles (9,606) (2,316) (9,606) (2,592) (692) (15) 127 291
Amortization
of capital
assets,
goodwill and
other
intangibles (1) 2,112 418 2,054 390 35 2 23 26
----------------------------------------------------------------------------------------------------------------
Operating loss (11,718) (2,734) (11,095) (2,982) (727) (17) 104 265
Interest
expense 10 3 - - 10 3 - -
-----------------------------------------------------------------------------------
(11,095) (2,982) (737) (20) 104 265
===================================================================================
Write-down of
investment 4,203 -
Corporate
interest
expense 917 692
Corporate
interest
income (7) (40)
------------------------
Loss for the
period (16,829) (3,389)
========================
Capital
expenditures 468 910 266 905 79 5 123 -
(1) For the three months ended December 31, 2000 and 1999, revenue is
substantially derived from and goodwill and intangible assets are
substantially employed in the U.S.
10 Stock options and warrants
The company has a Stock Option Plan that provides for the granting of
options to purchase common shares to directors, officers, employees and
consultants of the company. The number of common shares reserved for
issuance under the Stock Option Plan shall not exceed 10,000,000 common
shares or a greater number as approved by the shareholders of the company.
Terms of the options shall not be for a period less than one year or
longer than ten years. The option price shall be fixed by the directors of
the company subject to price restrictions imposed by the regulators. All
options were granted at or above market value at the date of grant.
Accordingly, no current or deferred compensation expense has been recorded
in the periods presented.
(9)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management - tabular amounts expressed in 000's of
U.S. dollars except where otherwise noted)
Stock option transactions
Weighted Weighted
Options average average
exercisable exercise exercise
at end of price price
period Shares Cdn. $ U.S. $
Balance outstanding - September 30, 2000 7,448,800 2.21 1.50
================
Options granted during the period 547,000 1.69 1.09
Options exercised during the period - 0.00 0.00
Options expired during the period (406,500) 3.70 2.47
Options exercisable at end of period 3,483,967 - 1.60 1.07
----------------
Balance outstanding - December 31, 2000
(Unaudited) 7,589,300 2.10 1.40
================
Warrant transactions
The following table summarizes information about the company's warrant
activity:
Number of
underlying Exercise price Exercise price
shares Cdn. $ U.S. $
Warrants outstanding - September 30, 2000 11,077,520 0.68 - 3.50 0.46 - 2.38
Issued on exercise of special warrants
(note 6(a)) 3,496,500 2.50 1.67
Issued on debt financings (note 5(b) and
(c) 550,000 1.50 - 3.75 1.00 - 2.00
Special warrants exercised (6,993,000) 2.50 1.67
Debenture warrants exercised (200,000) 0.68 0.45
--------------------------------------------------------
Warrants outstanding - December 31, 2000
(unaudited) 7,931,020 0.68 - 3.50 0.45 - 2.33
========================================================
Warrants outstanding at December 31, 2000 are due to expire from March 21,
2001 to December 18, 2005. The 800,000 compensation warrants issued to the
agents expired unexercised on March 21, 2001.
The outstanding private placement warrants at September 30, 2000
consisting of 1,793,250 at $3.50 per share and 185,000 at $2.50 per share
expired unexercised on March 21, 2001.
(10)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management - tabular amounts expressed in 000's of
U.S. dollars except where otherwise noted)
Pro forma compensation costs
Had the company determined compensation costs based on fair value at the
date of grant for its awards under the method for determining fair value
prescribed by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" the company's pro forma loss and
loss per share would be as follows:
Three months ended December 31,
-----------------------------------------
2000 1999
$ $
(Unaudited) (Unaudited)
Loss for the period (16,829) (3,389)
Additional compensation expense (434) (137)
-------------------------------
Pro forma net loss (17,263) (3,526)
Pro forma basic loss per common share (0.17) (0.07)
===============================
Pro forma diluted loss per common share (0.17) (0.07)
===============================
The pro forma compensation expense reflected above has been estimated
using the Black Scholes option pricing model. Assumptions used in the
pricing model included:
a) risk-free interest rate of between 5.40% - 5.84%;
b) expected volatility of 90%;
c) expected dividend yield of $nil; and
d) an estimated average life of one to three years.
(11)
travelbyus.com ltd.
Notes to Consolidated Financial Statements
Three-month period ended December 31, 2000 is unaudited
--------------------------------------------------------------------------------
(Prepared by management - tabular amounts expressed in 000's of
U.S. dollars except where otherwise noted)
11 Subsequent events
a) In early January 2001, the company borrowed $1,000,000 from Aberdeen
Strategic Capital LP. This loan matured on February 29, 2001. In
connection with the original loan, the company granted warrants to
purchase 200,000 common shares at an exercise price of $1.00 per share
expiring on December 29, 2003. The company has subsequently extended
the maturity date to April 27, 2001. There have been no changes to the
other terms of the loan. The loan is collateralized by the guaranty of
Cheap Seats, Inc. and a security interest in essentially all the
assets of Cheap Seats and Travelbyus Cruise Operations Inc., which are
subsidiaries of the company. The loan is convertible into common
shares of the company at a conversion price of the lessor of $1.00 per
exchangeable share or the seven-day weighted average trading price of
Aviation Group's common stock, calculated on a pre-reverse stock split
basis, plus a premium of 5%.
b) Subsequent to December 31, 2000, the company borrowed $3,000,000 on
the line of credit referred to in note 7(b). Under the agreement,
Doerge is entitled to 300,000 share purchase warrants which have not
been issued.
(12)
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements have
been prepared to reflect the transactions described below as if they had all
occurred as of December 31, 2000, with respect to the pro forma balance sheet,
and as of October 1, 1999 with respect to the pro forma statements of
operations. The transactions are as follows:
1. The issuance by Aviation Group of $16.5 million liquidation value of Series
A convertible preferred stock and warrants in March 2000 to certain debt
holders and the common stockholders and warrant holders of Global Leisure
in exchange for retirement of the debt and cancellation of the outstanding
common stock.
2. The sale of $21 million of Series B preferred stock and warrants in March
2000 by Aviation Group and the purchase of Series B preferred stock of
Global Leisure and the retirement of Global Leisure debt and payables with
the proceeds.
3. The acquisition of Aviation Group by travelbyus.com by the issuance of
Aviation Group common stock to the travelbyus.com shareholders, resulting
in the travelbyus.com shareholders owning approximately 95% of the
outstanding common stock of Aviation Group.
4. The acquisitions by travelbyus.com of Cheap Seats, Inc. and Express
Vacations, Inc. during the fourth calendar quarter of 1999, Cruise Shoppes
America, Ltd. in April 2000, Epoch Technology Inc. in May 2000, Muffin
Communication, Inc. in July 2000, and ProSoft Corporation and
SiteRabbit.com in September 2000.
The pro forma financial statements combine the historical financial
statements of the various companies and include adjustments to reflect the
effects of the transactions described above. The pro forma financial statements
are expressed in U.S. dollars. The pro forma statements of operations are
presented based upon the September 30 fiscal year end of travelbyus.com. The
fiscal year end of Express Vacations is also September 30. The statements of
operations of the other entities, which do not have a September 30 fiscal year
end are combined with the appropriate fiscal quarters to conform with the
presentation. The pro forma statement of operations for the year ended September
30, 2000 includes (a) the statement of operations of Aviation Group for the year
ended June 30, 2000; (b) the statement of operations of Global Leisure for the
nine months ended March 31, 2000 (Global's operating results were consolidated
into Aviation Group beginning April 1, 2000); and (c) the statement of
operations for Epoch Technology for the eight months ended May 31, 2000, Express
Vacations for the one month period ending October 31, 1999, Cheap Seats for the
three months ending December 31, 1999, Cruise Shoppes for the six months ending
March 31, 2000 and ProSoft and SiteRabbit for the eleven months ended August 31,
2000, all of which are prior to these companies' acquisition and consolidation
into the statement of operations of travelbyus.com. The acquisition of Muffin is
effectively an asset acquisition. Therefore, the operations of Muffin are
excluded from the pro forma statement of operations.
The acquisition of Global Leisure by Aviation Group effectively
occurred as of March 31, 2000 and was accounted for as a purchase and reflected
in the Aviation Group historical financial statements beginning March 31, 2000.
The acquisition of Aviation Group, following its acquisition of Global Leisure,
by travelbyus.com is accounted for as a purchase combined with a
recapitalization of travelbyus.com under the capital structure of Aviation
Group.
Several of the adjustments in the pro forma financial information are
based on preliminary estimates, subject to change upon obtaining more
information about specific assets acquired and liabilities assumed and
performing more detailed appraisals and valuations of the assets acquired.
Accordingly, adjustments may be made to the purchase price allocations to the
businesses acquired by travelbyus.com and Aviation Group, the purchase price
allocation on the acquisition of Aviation Group by travelbyus.com (including the
allocation of the purchase price to the Aviation Group non travel business to be
sold) and the estimates of the useful lives of the assets acquired.
The unaudited pro forma combined financial statements should be read in
conjunction with the accompanying notes and with the historical financial
statements of the various companies involved in the transactions described
above, which are included herein (in the case of travelbyus.com) or in other
filings of the Company.
The unaudited pro forma combined financial statements are not
indicative of the financial position or results of operations of travelbyus.com
which would actually have occurred if the transactions described above had
occurred at the dates presented or which may be obtained in the future.
AVIATION GROUP, INC. AND TRAVELBYUS.COM, LTD
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
(expressed in U.S. Dollars)
10
Aviation Other Pro Forma Pro Forma
Group Global travelbyus Companies Adjustments Combined
------------- ----------- -------------- ------------- ------------- ---------
Revenues, net $ 817 $ 5,578 $ 12,369 $ 2,897 $ 21,661
Expenses:
Cost of sales and services 5,963 2,430 8,393
General and administrative
expenses 5,717 18,325 20,868 1,744 494 (9) 47,148
Depreciation, amortization and
impairment 1,332 552 56,211 61 740 (7) 117,382
4,050 (7)
54,436 (5)
----------- ---------- ----------- ------------ ---------- ---------
Income (loss) from operations (6,232) (13,299) (70,673) (1,338) (59,719) (151,261)
Other income (expense):
Other (62) - (22) 17 (67)
Interest expense (353) (3,152) (2,672) (32) 2,799 (6) (3,836)
(426)(12)
------------ ----------- ------------ ------------- ---------- ---------
Total other income (expense) (415) (3,152) (2,694) (15) 2,373 (3,903)
Income (loss) from continuing
operations before income taxes (6,647) (16,451) (73,367) (1,353) (57,346) (155,164)
Income tax recovery (expense) 3,746 (160) 3,586
----------- ---------- ----------- ------------- ---------- ---------
Income (loss) from continuing
operations $ (6,647) $ (16,451) $ (69,621) $ (1,513) $ (57,346) $(151,578)
=========== ========== =========== ============ ========== =========
Income (loss) from continuing
operations per share - basic
and diluted $ (1.94) $ (0.92) $ (2.40) $ (5.26)
=========== ========== =========== ============ ========== =========
252 (11)
(55,133)(8)
Weighted average shares 3,419 76,072 4,187 (8) 28,797
outstanding =========== ========== =========== ============ ========== =========
See notes to Pro Forma Adjustments.
AVIATION GROUP, INC. AND TRAVELBYUS.COM, LTD
UNAUDITED PRO FORMA COMBINED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 2000
(expressed in thousands of U.S. dollars)
Aviation Pro Forma Pro Forma
Group travelbyus Adjustments Combined
----------------- --------------- ----------------- ------------------
Revenues, net $ 481 $ 2,379 $ 2,860
Expenses:
Cost of sales and services 427 427
General and administrative expenses 1,277 6,757 8,028
Depreciation, amortization and
impairment 1,240 14,320 (1,240)(7) 14,320
--------------- ------------- -------------- ---------------
Loss from operations (2,036) (19,125) 1,240 (19,921)
Other income (expense):
Interest and other 22 29 51
Interest expense (319) (927) (1,246)
Other expense
--------------- ------------- -------------- ---------------
Total other income (expense) (297) (898) - (1,195)
--------------- ------------- -------------- ---------------
Loss from continuing operations
before income tax $ (2,333) $ (20,023) $ 1,240 $ (21,116)
Income tax recovery 3,194 3,194
--------------- ------------- -------------- ---------------
Loss from continuing operations $ (2,333) $ (16,829) $ 1,240 $ (17,922)
Income (loss) from continuing
operations per share - basic and
diluted $ (2.35) $ (0.16) $ (0.96)
=============== ============= ===============
Weighted average shares outstanding 991 104,053 (83,114)(8) 21,930
=============== ============= ============== ===============
See notes to Pro Forma Adjustments.
TRAVELBYUS.COM, LTD
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 2000
(expressed in thousands of U.S. dollars)
Aviation Pro Forma Pro Forma
Group travelbyus Adjustments Combined
---------------- --------------- ----------------- -----------------
Cash and cash equivalents $ 265 $ 1,564 $ 1,829
Accounts receivable 281 2,314 2,595
Inventory and barter credits 1,310 798 2,108
Other current assets 3,565 213 (1,250)(1) 2,528
Assets held for sale 2,568 2,568
--------------- ------------- -------------- ---------------
Total current assets 7,989 4,889 (1,250) 11,628
Property and equipment, net 167 3,129 3,296
Programming library 1,839 1,839
Goodwill 44,935 15,838 (1) 48,835
(3,500)(1)
(8,438)(1)
Software, contracts and other intangible
assets 19,145 19,145
Non current assets held for sale 3,983 3,983
Other assets 209 3,981 4,190
-------------- ------------- -------------- ---------------
Total assets $ 57,283 $ 32,983 $ 2,650 $ 92,916
============== ============= ============== ===============
Notes payable and current maturities of
long-term debt 7,574 15,089 22,663
Accounts payable and accrued expenses 8,496 16,952 1,000 (2) 22,326
(4,122)(4)
Liabilities of discontinued operations 5,346 5,346
-------------- ------------- -------------- ---------------
Total current liabilities 21,416 32,041 (3,122) 50,335
Deferred tax liability 892 892
Long-term debt 25 1,000 1,025
-------------- ------------- -------------- ---------------
Total liabilities 21,441 33,933 (3,122) 52,252
- Continued -
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 2000
(expressed in thousands of U.S. dollars)
Aviation Pro Forma Pro Forma
Group travelbyus Adjustments Combined
---------------- -------------- -------------- ---------------
Preferred stock 31,500 (1,000)(2) 16,500
(3,500)(1)
(10,500)(1)
Common stock 10 149,072 209 (3) 219
(149,072)(3)
Other stockholders' equity 23,991 7,347 (209)(3) 177,193
149,072 (3)
14,870 (1)
4,050 (1)
(23,991)(1)
2,063 (1)
Accumulated earnings (deficit) (19,659) (157,369) 19,659 (1) (153,247)
4,122 (4)
---------------- ------------- --------------
Total stockholders' equity 35,842 (950) 5,773 40,665
---------------- -------------- -------------- ----------------
Total liabilities and stockholders'
equity $ 57,283 $ 32,983 $ 2,650 $ 92,916
================ ============= ============== ================
See notes to Pro Forma Adjustments.
Notes to Unaudited Pro Forma Adjustments
1. Adjustment to record the acquisition of Aviation Group by travelbyus.com
and the recapitalization of travelbyus.com by recording the approximate
market value of the shares of common stock, options and warrants held by
the Aviation Group shareholders at the common share price immediately
preceding the announcement of the merger with travelbyus.com. The shares of
common stock, options and warrants held by Aviation Group's shareholders
are treated as an issuance of new equity by travelbyus.com. 4,956,722
shares of Aviation Group common stock at the quoted price of $3.00 per
share results in an adjustment to stockholders' equity of approximately
$14,870,000. The value of the options and warrants of $4,050,000 results in
an additional adjustment to stockholders' equity. The values of the options
and warrants are estimated using the Black Scholes option pricing model.
These amounts, as well as approximate transaction costs incurred of
$1,000,000 are allocated to the identifiable net assets of Aviation Group
based upon the estimated fair market values of those assets with the
remainder of $48,836,000 assigned to goodwill. The goodwill that was
recorded on the Aviation Group balance sheet at December 31, 2000 of
$44,935,000 (net of accumulated amortization of approximately $4,000,000)
was increased by $15,838,000 as an adjustment to reflect the effect of the
acquisition. The adjustment also includes the removal of Aviation Group's
other stockholders' equity and accumulated deficit accounts. An additional
adjustment eliminates $3,500,000 of Series B preferred stock of Aviation
Group owned by travelbyus.com. The offset of the elimination of the
preferred stock owned by travelbyus.com is to goodwill, because
travelbyus.com had written off the investment against earnings prior to
December 31, 2000. The adjustments to goodwill also include a $8,438,000
reduction to the value of the Series A preferred stock on the Aviation
Group balance sheet (and a corresponding $2,063,000 increase to common
stock) to reflect the value of the underlying common stock into which the
Series A was subsequently converted.
The components of the purchase adjustment are as follows:
Value of shares issued $ 14,870,000
Value of warrants and options 4,050,000
Transaction costs 1,000,000
Other 10,000
---------------
Total consideration and costs $ 19,930,000
Fair value of identifiable assets $ (11,098,000)
Fair value of liabilities 21,441,000
Fair value of preferred stock 18,563,000
---------------
Net obligations acquired 28,906,000
---------------
Goodwill $ 48,836,000
===============
Certain amounts in the purchase calculation above are based on the
preliminary estimates and the final amounts may differ.
2. Adjustment to record a $1 million payment related to arranging the Series B
preferred stock sale. The payment of this amount was contingent on
completion of the transactions.
3. Adjustment to record the $0.01 per share par value of the Aviation Group
shares of common stock to be issued to travelbyus.com shareholders,
104,697,000 shares outstanding at December 31, 2000, and reflect the
reorganization of travelbyus.com's shareholders' equity accounts to
Aviation Group's capital structure.
4. Adjustment to eliminate $4,122,000 of advances made to Aviation Group by
travelbyus.com. The advances were recorded in accounts payable and accrued
expenses on the Aviation Group balance sheet and had been charged off
against earnings by travelbyus.com.
5. Adjustment to record the effect of the amortization of the goodwill
recorded upon the purchase of Global Leisure over 10 years as if the
acquisition had occurred October 1, 1999 of $3,675,000 for the year ended
September 30, 2000, and the impairment of the remaining value of the
goodwill recorded for the acquisition of Aviation Group of $50,761,000. The
impairment of the remaining value of the goodwill resulted because due to
uncertainty regarding funding necessary to permit the combined company
sufficient time to fully implement its business plan, projected future cash
flows may be insufficient to support the carrying value of the goodwill.
6. Adjustment to record the reduction in interest expense of $2,799,000 for
the retirement of approximately $26.0 million in Global Leisure debt, as if
the retirement had occurred at October 1, 1999. The average effective
interest rate on the retired debt was approximately 14% for the year ended
September 30, 2000.
7. Adjustment to record the effect of the amortization of the software,
contracts, and other intangibles, recorded upon the purchases of Cheap
Seats, Cruise Shoppes, Epoch Technology, and SiteRabbit as if these
acquisitions had occurred at October 1, 1999. The software, contracts and
other intangibles are amortized over three years for each company. All
goodwill associated with the acquisitions, as well as the intangible assets
associated with the acquisition of Muffin, were written off by
travelbyus.com during the year ended September 30, 2000. The amortization
for Cheap Seats, Cruise Shoppes, Epoch Technology, and SiteRabbit are
included in the travelbyus.com historical statements of operations for the
year ended September 30, 2000 beginning January 1, 2000, April 1, 2000,
June 1, 2000, and September 1, 2000, respectively. The pro forma
adjustments record the additional amounts which would have been recorded if
the acquisitions had occurred at the beginning of the periods. The amounts
of the adjustments are as follows:
Year ended
September 30, 2000
------------------
Cheap Seats $ 595,000
Epoch Technology 1,287,000
Pro Soft 510,000
Cruise Shoppes 405,000
SiteRabbit 1,253,000
------------
Total $ 4,050,000
============
An additional adjustment is made to record the increase in amortization of
goodwill recorded upon the acquisition of Aviation Group by travelbyus.com.
This adjustment is $740,000 for the year ended September 30, 2000. The
amortization adjustment that is recorded for the three months ended
December 31, 2000 is to remove the $1,240,000 recorded in the Aviation
Group historical financial statements for that period, because the goodwill
is assumed to be written off for pro forma purposes at the end of the
September 30, 2000 year as discussed in Note 5 above.
8. Adjustment to the number of weighted average shares outstanding as if the
share exchange between Aviation Group and travelbyus.com and the common
stock issued in the acquisitions of Cheap Seats, Express Vacations, Epoch
Technology, Cruise Shoppes, Muffin, ProSoft and SiteRabbit had occurred at
October 1, 1999. The adjustments for the shares issued in the share
exchange between Aviation Group and travelbyus.com are reductions of
49,147,000 and 76,892,000 for the year ended September 30, 2000 and the
three months ended December 31, 2000, respectively. These amounts give
effect to a one for five reverse split of the common stock, which occurred
after December 31, 2000, and was reflected in the Aviation Group historical
numbers but not in the travelbyus.com historical numbers. The adjustment
for shares issued to acquire the companies is a total of 4,264,000 for the
year ended September 30, 2000 after giving effect to the reverse split
referred to above. Unexercised common stock options, warrants and
convertible securities are not considered because their effect would be
antidilutive.
9. Adjustment to record compensation expense for effect of $987,000 of
contingent stock consideration to be issued two years after the acquisition
of ProSoft if the individuals are still employed at that time. The expense
is accrued over the two year period and an adjustment of $494,000 is
recorded for the year ended September 30, 2000 to reflect the expense as if
it had been accrued since October 1, 1999.
10. The operations of Express Vacations, Cheap Seats, Cruise Shoppes, Epoch
Technology, ProSoft and SiteRabbit are combined as "other companies" in the
pro forma statement of operations for the year ended September 30, 2000 and
are presented for the periods prior to November 1, 1999, January 6, 2000,
April 3, 2000, May 23, 2000, September 14, 2000 and September 14, 2000,
respectively, after which the operations of these companies are
consolidated with the historical statement of operations of travelbyus.com.
11. Adjustment to the number of weighted average shares outstanding as if the
sale of 750,000 shares of common stock by Aviation Group and 930,000 common
shares by travelbyus.com in connection with these transactions had occurred
at October 1, 1999. The adjustment for the year ended September 30, 2000
(after giving effect to the reverse split referred to in Note 8 above) is
252,000 shares.
12. Adjustment to record the interest expense that would be incurred on a $3
million borrowing by Aviation Group in connection with these transaction,
as if the borrowing had occurred at October 1, 1999. The stated interest
rate is 12% and the note is due nine months after issuance. The borrowing
includes five-year warrants to purchase 225,000 shares (before reverse
split) at $2.125 per share. The interest expense is $527,000 for the year
ended September 30, 2000, which includes $257,000 for the amortization of
the discount on the debt related to the value of the warrants issued with
the debt. The adjustment, after considering $101,000 recorded in the
historical financial statements, is $426,000 for the year ended September
30, 2000.