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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1999
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________
Commission file number 1-13271
800 TRAVEL SYSTEMS, INC.
(Exact name of Small Business Issuer as specified in its charter)
Delaware 59-3343338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4802 Gunn Highway
Tampa, Florida 33624
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 908-0903
------------------------------------------------------------------
N/A
---------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes |X| No |_|
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 7,616,296 shares of Common
Stock, $.01 par value, were outstanding, as of March 31, 1999.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
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<PAGE>
Form 10-QSB
INDEX
Page
Number
PART 1 FINANCIAL INFORMATION......................................... F-1 to F-6
Item 1. Financial Statements.......................................... F-1
BALANCE SHEETS.................................................. F-1
STATEMENTS OF OPERATIONS........................................ F-3
STATEMENT OF STOCKHOLDERS' EQUITY............................... F-4
STATEMENTS OF CASH FLOWS........................................ F-5
NOTES TO FINANCIAL STATEMENTS................................... F-6
Item 2. Management 's Discussion and Analysis of Financial
Condition and Results of Operations............................. 2
PART 2 OTHER INFORMATION...................................................... 9
Item 6. Exhibits, Lists and Reports on Form 8-K......................... 9
(a) Exhibits...................................................... 9
(b) Reports on Form 8-K........................................... 9
SIGNATURES....................................................................10
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
800 TRAVEL SYSTEMS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,988,956 $ 2,387,273
Commissions receivable 872,574 501,555
Prepaids 154,500 166,547
----------- -----------
Total current assets 3,016,030 3,055,375
----------- -----------
LEASEHOLD IMPROVEMENTS AND EQUIPMENT 1,149,713 1,079,302
Less accumulated depreciation (309,765) (264,077)
----------- -----------
Net leasehold improvements and equipment 839,948 815,225
----------- -----------
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED
Less accumulated amortization of
$342,396 and $292,542, respectively 4,713,010 4,762,864
----------- -----------
OTHER ASSETS
Trademarks, net of accumulated amortization of
$73,194 and $64,029, respectively 341,806 350,971
Capitalized software 523,733 397,194
Related party receivables 1,690 3,500
Bonds, security deposits and other assets 50,404 51,771
Prepaid expenses 141,914 154,494
----------- -----------
Total other assets 1,059,547 957,930
----------- -----------
TOTAL ASSETS $ 9,628,535 $ 9,591,394
=========== ===========
</TABLE>
(continued)
<PAGE>
800 TRAVEL SYSTEMS, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 34,620 $ 61,645
Accounts payable 489,137 354,892
Accrued liabilities 363,345 394,733
------------ ------------
Total current liabilities 887,102 811,270
DEFERRED RENT 80,561 75,641
LONG-TERM DEBT - excluding current maturities 18,516 24,818
------------ ------------
Total liabilities 986,179 911,729
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
1,000,000 shares authorized; none issued -- --
Common stock, $.01 par value,
10,000,000 shares authorized;
7,616,296 and 7,597,096 shares
issued and outstanding, respectively 76,163 75,971
Additional paid-in capital 12,137,150 12,067,342
Accumulated deficit (3,570,957) (3,463,648)
------------ ------------
Total stockholders' equity 8,642,356 8,679,665
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,628,535 $ 9,591,394
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
800 TRAVEL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months
Ended March 31,
-----------------------------
1999 1998
----------- -----------
REVENUES
Commissions $ 1,832,512 $ 1,558,915
Ticket delivery and service fees 1,047,946 519,468
----------- -----------
Total revenues 2,880,458 2,078,383
----------- -----------
OPERATING EXPENSES
Payroll, commissions and employee benefits 1,457,734 1,066,446
Telephone 474,955 325,673
Ticket delivery 200,764 167,251
Advertising 112,553 48,610
General and administrative 765,300 660,913
----------- -----------
Total operating expenses 3,011,306 2,268,893
----------- -----------
LOSS FROM OPERATIONS (130,848) (190,510)
OTHER INCOME (EXPENSE)
Interest income 24,021 27,247
Interest expense (482) (5,845)
----------- -----------
LOSS BEFORE INCOMES TAXES (107,309) (169,108)
INCOME TAX EXPENSE -- --
NET LOSS $ (107,309) $ (169,108)
=========== ===========
NET LOSS PER COMMON SHARE - BASIC $ (.01) $ (.02)
=========== ===========
NET LOSS PER COMMON SHARE - DILUTED $ (.01) $ (.02)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC 7,614,658 7,213,555
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - DILUTED 7,614,658 7,213,555
=========== ===========
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
800 TRAVEL SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Stock
----------------------- Paid-in Subscriptions Retained
Shares Amount Capital Receivable Deficit Total
---------- ------- ------------ ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1997 5,959,709 $59,597 $ 5,297,424 $(21,547) $(3,765,514) $1,569,960
Sales of common stock and
warrants net of issuance
expenses of $2,252,602 1,350,000 13,500 4,872,024 -- -- 4,885,524
Joseph Stevens Group, Inc.
Acquisition 383,333 3,833 1,944,082 -- -- 1,947,915
Purchase and retirement of
shares (204,615) (2,046) (405,954) -- -- (408,000)
Exercise of warrants 58,200 582 363,168 -- -- 363,750
Exercise of stock options 100,000 1,000 99,000 -- -- 100,000
Issuance of options for
services -- -- 144,750 -- -- 144,750
Shares exchanged in payment
of receivables (49,531) (495) (247,152) -- -- (247,647)
Payment of stock
subscription -- -- -- 21,547 -- 21,547
Net earnings -- -- -- -- 301,866 301,866
--------- ------- ------------ -------- ----------- ----------
BALANCE,
DECEMBER 31, 1998 7,597,096 75,971 12,067,342 -- (3,463,648) 8,679,665
Conversion of warrants (unaudited) 2,000 20 12,480 -- -- 12,500
Conversion of stock options (unaudited) 17,200 172 57,328 -- -- 57,500
Net loss (unaudited) -- -- -- -- (107,309) (107,309)
--------- ------- ------------ -------- ----------- ----------
BALANCE,
MARCH 31, 1999 7,616,296 $76,163 $ 12,137,150 $ -- $(3,570,957) $8,642,356
========= ======= ============ ======== =========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement
F-4
<PAGE>
800 TRAVEL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (107,309) $ (169,108)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 100,810 89,964
Prepaid rent amortization -- 3,000
Changes in operating assets and liabilities, net of effects of acquisition:
Commissions receivable (371,019) (150,725)
Prepaids and other assets 27,804 (433,015)
Related party receivables -- (12,750)
Deferred rent 4,920 5,411
Accounts payable and accrued expenses 102,857 (1,228,874)
----------- -----------
Net cash used in operating activities (241,937) (1,896,097)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of leasehold improvements and equipment (66,514) (199,269)
Software development costs (126,539) --
Merger deposits and deferred acquisition costs -- (144,053)
----------- -----------
Net cash used in investing activities (193,053) (343,322)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Deferred offering cost -- (1,194,305)
Proceeds from borrowings, net -- 100,000
Principal payments on debt (33,327) (1,749,667)
Proceeds from exercise of options and warrants 70,000 --
Issuance of common stock -- 7,138,126
Purchase of common stock -- (308,000)
----------- -----------
Net cash provided by financing activities 36,673 3,986,154
NET INCREASE (DECREASE) IN CASH (398,317) 1,746,735
CASH AT THE BEGINNING OF PERIOD 2,387,273 18,710
----------- -----------
CASH AT THE END OF PERIOD $ 1,988,956 $ 1,765,445
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest expense $ 482 $ 6,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
800 TRAVEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. They do not include all information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1999, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
NOTE 2 - NET LOSS PER COMMON SHARE
The following table reconciles the numerators and denominators of the basic and
diluted loss per share computations, as computed in accordance with FAS 128:
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net earnings (loss) - (numerator) $ (107,309) $ (169,108)
=========== ===========
Basic:
Weighted average shares outstanding (denominator) 7,614,658 7,213,555
=========== ===========
Net loss per common share - basic $ (.01) $ (.02)
=========== ===========
Diluted:
Weighted average shares outstanding 7,614,658 7,213,555
Effect of dilutive options -- --
----------- -----------
Adjusted weighted average shares (denominator) 7,614,658 7,213,555
=========== ===========
Net loss per common share - diluted $ (.01) $ (.02)
=========== ===========
</TABLE>
All options and warrants outstanding as of March 31, 1999 and 1998 are excluded
from the calculation of diluted weighted average shares, as they are
anti-dilutive.
F-6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company operates as a direct marketer of travel-related services,
primarily providing air transportation reservation services for domestic and
international travel through its easy to remember, toll-free numbers and through
its website.
The Company's operating revenues presently consist, and for the immediate
future will continue to consist, principally of (i) commissions on air travel
tickets; (ii) override commissions on air travel tickets booked on certain
airlines; (iii) segment incentives under the Company's agreement with SABRE;
(iv) co-op promotions with suppliers of travel related products and services;
and (v) service fees charged to customers.
The Company's revenues are a function of the number and price of the
tickets its sells and the percentage of the price of such tickets it retains as
commissions and override commissions, as well as the service charge imposed on
customers. As a result of its override agreements and its agreement with a TWA
Discounter, the Company is able to charge its customers a service charge, while
still offering low-priced tickets.
The Company's operating expenses include primarily those items necessary
to advertise its services, maintain and staff its travel reservation centers,
including payroll, commissions and benefits; telephone; general and
administrative expenses, including rent and computer maintenance fees; and,
interest, fees and expenses associated with the Company's financing activities.
Set forth below for the periods indicated are the gross dollar amounts of
reservations booked, revenues and revenues as a percentage of reservations, the
gross dollar amount of expenses, expenses as a percentage of revenues, net loss
as a percentage of revenues and changes therein for the three month periods
ended March 31, 1999 and 1998.
-2-
<PAGE>
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, 1999 % March 31, 1998 % Change %
-------------- --- -------------- --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Gross Reservations ... $ 18,722,300 $ 15,150,399 $ 3,571,901 24
Revenues
(including override
and service charges) $ 2,880,458 15* $ 2,078,383 14* 802,075 39*
OPERATING
EXPENSES:
Employee
Costs ............ 1,457,734 51** 1,066,466 51** 391,268 37**
Telephone .......... 474,955 16 325,673 16 149,282 46
Ticket Delivery .... 200,764 7 167,251 8 33,513 20
Advertising ........ 112,553 4 48,610 2 63,943 132
General and
Administrative ... 765,300 27 660,913 32 104,387 16
------------ ------------
Total Operating
Expenses ......... 3,011,306 105 2,268,893 109 742,413 33
Other Income ..... 23,539 1 21,402 -- 2,137 10
------------ ------------
Net Earnings (Loss) .. $ (107,309) 4 (169,108) 8 (61,799) 37
============ ============
</TABLE>
- ----------
*Revenues as a percentage of gross reservations.
**Expenses as a percentage of revenues.
Results of Operations
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
1998
Revenues for the three months ended March 31, 1999 ("First Quarter '99")
increased 39% to $2,880,458 compared to $2,078,383 for the three months ended
March 31, 1998 ("First Quarter '98"). The increased revenues reflect the 24%
increase in gross reservations booked in First Quarter '99 ($18,722,300) as
compared to First Quarter '98 ($15,150,399) and the slight increase in the
percentage of gross reservations retained by the Company. The gross reservation
increase and the resulting revenue increase is largely attributable to the
increase in the volume of calls handled at the Company's reservation centers as
a result of increases in the number of reservation agents during the First
Quarter '99. As a percentage of gross reservations, revenues increased slightly
to 15% during First Quarter '99 from 14% during First Quarter '98. The increase
in revenues as a percentage of gross reservations reflects the Company's ability
to increase its revenues through overrides and service fees charged to
customers.
Operating expenses for First Quarter '99 increased 33% to $3,011,306
compared to $2,268,893 for First Quarter '98. The increase in operating expenses
resulted primarily from an increase in the Company's payroll, commissions and
employee benefits expenses as a result of increases in the number of reservation
agents during the First Quarter '99 as compared to First Quarter '98. Such
expenses increased 37% to $1,457,734 in First Quarter '99 from $1,066,466 in
First Quarter '98. Consistent with the increase in the volume of tickets sold by
the Company, the Company also recorded increases in its telephone and ticket
delivery expenses. Also contributing to the increase in operating expenses was
an increase in the Company's advertising expense of 132% to $112,553 in First
Quarter '99 from $48,610 in First Quarter '98 as the Company increased the
number of yellow page directories in which it advertises. The Company's general
and administrative costs increased 16% to $765,300 in First Quarter 1999
compared to $660,913 in First Quarter
-3-
<PAGE>
'98. Despite the increase in general and administrative expenses over the
periods, general and administrative expenses decreased as a percentage of
revenues to 27% in First Quarter '99 as compared to 32% in First Quarter '98.
During First Quarter '99 the Company's net loss was $107,309, an
improvement over the $169,108 in net loss income recorded in First Quarter '98.
The reduction in net loss reflects the substantial increase in revenues, offset
by the net increase in operating expenses associated particularly with (i)
developing, testing and rolling out the Company's interactive reservation
Internet System (IRIS(TM)), which as of First Quarter '99 has not generated
significant additional reservations and revenues for the Company, and (ii)
staffing increases during December 1998 and January 1999 in anticipation of
increased reservations during the remainder of 1999.
Liquidity and Capital Resources
Cash Flow from Operating Activities
During First Quarter '99, the Company used $241,937 in operating
activities as compared to $1,896,097 used in First Quarter '98. The use of cash
during First Quarter '99 reflects the loss from operations of $107,309 as well
as an increase in accrued commissions receivable due from various airlines
offset, in part, by an increase in accounts payable. The increase in commissions
receivable reflects the growth in the Company's gross reservations.
The significant improvement in cash used in operations in First Quarter
'99 as compared to First Quarter '98 is attributable to the fact that the
Company used a significant portion of proceeds of its IPO to pay liabilities it
had accrued prior to the Company's January 1998 IPO.
Cash Flow from Investing Activities
During the First Quarter '99, the Company's capital expenditures were
approximately $193,053, of which $126,539 reflects software development costs
incurred in connection with the development of its IRIS(TM) Website. Other
leasehold improvement and equipment expenditures decreased to $66,514 in First
Quarter '99 from $199,269 in First Quarter '98, as the Company made most of its
necessary capital improvements immediately after, and out of the proceeds of,
its IPO.
Cash Flow from Financing Activities
Prior to the IPO, the Company financed its operations out of capital
contributions, loans and services provided by vendors to be paid out of future
revenues. The Company consummated its IPO in First Quarter '98 and, as a result,
net cash provided by financing activities in that period aggregated $3,986,154.
The Company recorded a net decrease in cash of $398,317 during First Quarter
'99, and had cash on hand of $1,988,956 as of March 31, 1999, reflecting a net
increase of $223,511 from March 31, 1998. If the Company's gross reservations
increase during the last three quarters of 1999, its current cash should be
sufficient to finance operations for the foreseeable future.
Seasonality
Based upon the results of its operations during 1998 and 1999 to date and
its knowledge of the travel industry, the Company anticipates its business may
be affected by seasonality. Travel bookings typically are low in the first
quarter, increase during the second quarter as consumers plan their vacations
and typically decline in the fourth quarter. In response, the Company will vary
the number of agents on staff at any time. During 1998, the Company was able to
decrease the number of its reservation agents during the fourth quarter through
attrition. There can be no assurance that the Company may not have to take
pro-active steps to reduce
-4-
<PAGE>
its work force in response to seasonal fluctuations in the future.
Notwithstanding the Company's efforts, the seasonality of the travel industry is
likely to adversely impact the Company's business. Moreover, as a consequence of
such seasonality and other factors, the Company's quarterly revenue and
operating results will be difficult to forecast and period to period comparisons
of results may not be material.
Other Considerations
In addition to the other information in this Report, the following should
be considered in evaluating the Company's business and prospects:
Limited Operating History; History of Losses; Future Operating Results.
The Company has been operating for less than four years and during that
time it has generated a significant accumulated operating loss. There can be no
assurance that the Company can continue to operate profitably, particularly if
it seeks to expand through acquisitions or the addition of new services. The
Company only recently initiated its online operations and, accordingly, its
prospects in this field must be considered in light of the difficulties
encountered in any new business.
Future Capital Needs.
The Company intends to seek to expand its business to increase sales
volume. There can be no assurance that the Company's revenues will increase or
even continue at their current levels. If the Company were to choose to expend
significant resources to expand its operations, it is possible that it would
incur losses and negative cash flow. In such event it is likely the Company
would require additional capital. There is no assurance that such capital will
be available or, if available, be on terms acceptable to the Company.
Unpredictability of Future Revenues; Fluctuations in Quarterly Results.
As a result of the Company's limited operating history, the Company is
unable to accurately forecast its revenues. The Company's current and future
expense levels are based on its operating plans and estimates of future revenues
and are to a large extent fixed. The Company may be unable to adjust spending in
a timely manner to compensate for any unexpected revenue shortfall. Accordingly,
any significant shortfall in revenues would likely have an immediate material
adverse effect on the Company's business, operating results and financial
condition. Further, if the Company should substantially increase its operating
expenses to offer expanded services, to fund increased sales and marketing or to
develop its technology and transaction-processing systems, and such expenses are
not subsequently followed by increased revenues, the Company's operating results
may deteriorate.
The Company expects that it will experience seasonality in its business,
reflecting seasonal fluctuations in the travel industry. Seasonality in the
travel industry is likely to cause quarterly fluctuations in the Company's
operating results and could have a material adverse effect on the Company's
business, operating results and financial condition.
Risks Relating to Airline Commissions.
In 1997 the major airlines announced reductions in the commissions they
will pay travel agents from approximately 10% to approximately 8%. The Company
anticipates continued downward pressure on airline commission rates. Such future
reductions, if any, could have a material adverse effect on the Company.
The Company is able to offer its customers attractive airfares in large
part due to the favorable override commission arrangements it has obtained for
selling tickets on certain airlines. For example, the Company is able to offer
attractive fares on TWA because of its override commission arrangement with a
consolidator which sells tickets on TWA at a discount (the "TWA Discounter").
The override commission
-5-
<PAGE>
agreements with most airlines are on a year-to-year basis. If and when the TWA
Discounter is no longer able to sell TWA tickets, or such agreement otherwise
expires, or if the Company is unable to extend its current override commission
arrangements with other carriers or enter into similar arrangements with similar
carriers, the Company could lose its competitive advantages and its business
could be materially adversely affected.
Risks of Year 2000 Non-Compliance.
The economy in general, and the travel and transportation industry in
particular, may be adversely affected by risks associated with the onset of the
Year 2000. The Company's business, financial condition, and results of
operations could be materially adversely affected if systems that it operates or
systems that are operated by other parties (e.g., SABRE, members of the airline
industry, utilities, telecommunications service providers, data providers,
credit card transaction processors) with which the Company's systems interface,
are not Year 2000 compliant in time. There can be no assurance that the systems
of the Company or the systems of these other parties will continue to properly
function and interface and will otherwise be Year 2000 compliant. Although the
Company is not aware of any threatened claims related to the Year 2000, the
Company may be subject to litigation arising from such claims and, depending on
the outcome, such litigation could have a material adverse affect on the
Company. It is not clear whether the Company's insurance coverage would be
adequate to offset these and other business risks related to the Year 2000.
The key systems integral to the operations of the Company's business are
the SABRE computer reservation system and its telephone switching equipment.
Because the Company books tickets in advance (in certain cases up to ten months
in advance), Year 2000 problems could have surfaced as early as the first
quarter of 1999, but have not yet materialized. Representatives of SABRE have
already implemented a project to ensure that the SABRE system is Year 2000
compliant during the first half of 1999. Representatives of SABRE have already
begun to upgrade the systems at the Company's facilities and this work is
substantially complete. The Company, together with its telephone equipment
vendors, have already completed service intended to make sure its telephone
switching equipment is Year 2000 compliant.
The Company will continue to test its ancillary equipment and interface
with its vendors to determine if they are Year 2000 compliant and, if not, to
address any problems uncovered. The Company has substantially completed testing
its systems and does not see a need for substantial future expenditures with
respect to its systems.
The expected costs and completion dates for the Year 2000 projects are
forward looking statements based on management's best estimates, which were
derived using numerous assumptions of future events, including the continued
availability of resources, third party modification plans and other factors.
Actual results could differ materially from these estimates as a result of
factors such as the availability and cost of trained personnel, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
Contingency Plans.
Given the interdependence of the Company and certain third parties, for
example SABRE, ARC and other members of the airline industry, the Company may be
unable to maintain continuous operations if the systems of one or more of these
parties is not Year 2000 compliant. To the extent possible, the Company will
develop and implement contingency plans designed to allow continued operations
in the event of failure of the Company's or third parties' systems to be Year
2000 Compliant. For example, the Company plans to have dedicated staff available
at crucial dates to remedy unforeseen problems and may install defensive code to
protect its real-time systems from improperly formatted date data supplied by
third parties.
Dependence on SABRE System.
-6-
<PAGE>
The Company's ability to quote air travel ticket prices, make reservations
and sell tickets is dependent upon its contractual right to use, and the
performance of the SABRE electronic travel reservation system. In April 1996,
the Company entered into a five-year agreement with The SABRE Group, Inc. to
lease the SABRE system in its Tampa headquarters and in November 1996, entered
into a five-year agreement to lease the SABRE system in its San Diego
reservation center. If the Company were to lose the contractual right to use the
SABRE system through its inability to renew the agreements upon expiration
thereof or through the Company's default under the agreements during the
respective terms thereof, the Company would not be able to conduct operations
until a replacement system was installed and became operational. Only a very
limited number of companies provide reservation systems to the travel agency
industry. There can be no assurance that a replacement system could be obtained
or, if obtained, leased on favorable terms or installed in time to successfully
continue operations.
If the SABRE system were to cease functioning, the Company would not be
able to conduct operations until a replacement system were installed and became
operational. There can be no assurance that a replacement system could be
obtained or, if obtained, installed in time to successfully continue operations.
During any interruption in the operation of SABRE, the Company would lose
revenues. Other travel agencies using other travel reservation systems would not
be subject to such interruption of their operations, and the Company may lose
market share to such competitors. Upon the interruption of the operation of the
SABRE system, the Company could decide to commence operations with another
travel reservation system. Such a change in reservation systems could incur
substantial expenses for acquiring the right to use such system and retraining
its reservation agents. In addition, any impairment of the SABRE system which
does not cause it to cease operations could, nevertheless, adversely affect the
quality of the Company's services, resulting in lost revenues or market share
and could require the Company to subscribe to a different travel reservation
system.
Dependence Upon Key Personnel.
The success of the Company is substantially dependent upon the continuing
services of Mark D. Mastrini, as well as other key personnel. While the Company
has employed a number of executives with industry experience, the loss of Mr.
Mastrini or other significant members of management could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Shares Eligible for Future Sale.
The Company has 7,616,296 shares of Common Stock outstanding, without
giving effect to an additional 4,501,156 shares issuable upon exercise of
options and warrants currently outstanding. Of the currently outstanding shares,
2,821,966 are subject to "lock-up" agreements which have prevented them from
being offered on the open market. The lock-up agreements with respect to 350,000
shares expires in July 1999 and the lock-up agreements with respect to 2,471,966
shares expires in January 2000.
The Company is unable to predict the effect, if any, that future sales of
Common Stock (or the potential for such sales), whether those currently subject
to lock-up agreements or otherwise, may have on the market price of the Common
Stock prevailing from time to time. Future sales of substantial amounts of
Common Stock in the public market could impair the Company's ability to raise
capital through an offering of securities and may adversely affect the market
price of the Common Stock.
Necessity to Maintain Current Prospectus and Registration Statement.
The Company must maintain an effective registration statement on file with
the Commission before the holder of any of the warrants sold in its IPO (the
"Warrants") may be redeemed or exercised. It is possible that the Company may be
unable to cause a registration statement covering the Common Stock underlying
the Warrants to be effective. It is also possible that the Warrants could be
acquired by persons residing in states
-7-
<PAGE>
where the Company is unable to qualify the Common Stock underlying the Warrants
for sale. In either event, the Warrants may expire, unexercised, which would
result in the holders losing all the value of the Warrants.
State Blue Sky Registration Required to Exercise Warrants.
Holders of the Warrants have the right to exercise the Warrants only if
the underlying shares of Common Stock are qualified, registered or exempt from
registration under applicable securities laws of the states in which the various
holders of the Warrants reside. The Company cannot issue shares of Common Stock
to holders of the Warrants in states where such shares are not qualified,
registered or exempt. The Company has qualified the Warrants for listing on the
Boston Stock Exchange, which provides for blue sky registration in over 20
states.
Redeemable Warrants and Impact on Investors.
The Warrants are subject to redemption by the Company in certain
circumstances. The Company's exercise of this right would force a holder of a
Warrant to exercise the Warrant and pay the exercise price at a time when it may
be disadvantageous for the holder to do so, to sell the Warrant at the then
current market price when the holder might otherwise wish to hold the Warrant
for possible additional appreciation, or to accept the redemption price, which
is likely to be substantially less than the market value of the Warrant in the
event of a call for redemption. Holders who do not exercise their Warrants prior
to redemption by the Company will forfeit their right to purchase the shares of
Common Stock underlying the Warrants. The foregoing notwithstanding, the Company
may not redeem the Warrants at any time that a current registration statement
under the Securities Act covering the sale of the shares of Common Stock
issuable upon exercise of the Warrants is not then in effect.
Forward-Looking Statements.
This Report includes "forward looking statements" within the meaning of
Section 27A of the Securities Act, and Section 21E of the Exchange Act. The
actual results of the Company may differ significantly from the results
discussed in such forward-looking statements. Certain factors that might cause
such differences include, but are not limited to, the factors discussed in this
"Other Considerations" section.
-8-
<PAGE>
PART 2
OTHER INFORMATION
Item 6. Exhibits, Lists and Reports on Form 8-K.
(a) Exhibits.
Exhibit Description
- ------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
Not Applicable.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1999
800 TRAVEL SYSTEMS, INC.
(Registrant)
By:
--------------------------------------------
Mark D. Mastrini, President, Chief Executive
Officer and Chief Operating Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,988,956
<SECURITIES> 0
<RECEIVABLES> 872,574
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,016,030
<PP&E> 839,948
<DEPRECIATION> (309,765)
<TOTAL-ASSETS> 9,628,535
<CURRENT-LIABILITIES> 887,102
<BONDS> 18,516
0
0
<COMMON> 76,163
<OTHER-SE> 8,566,193
<TOTAL-LIABILITY-AND-EQUITY> 9,628,535
<SALES> 1,832,512
<TOTAL-REVENUES> 2,880,458
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,011,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 482
<INCOME-PRETAX> (107,309)
<INCOME-TAX> 0
<INCOME-CONTINUING> (107,309)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107,309)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
