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 September 30, 2000
| | 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) 908-0404
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: 7,895,516 shares of Common Stock,
$.01 par value, were outstanding, as of October 31, 2000.
Transitional Small Business Disclosure Format (check one):
Yes | | No |X|
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 869,759 $ 2,181,020
Commissions receivable 1,154,585 1,217,144
Prepaid assets 144,652 166,986
------------- -------------
Total current assets 2,168,996 3,565,150
------------- -------------
LEASEHOLD IMPROVEMENTS, EQUIPMENT AND
COMPUTER SOFTWARE, NET 2,512,314 1,799,050
------------- -------------
EXCESS OF COST OVER NET ASSETS ACQUIRED, NET 5,022,758 4,560,640
------------- -------------
OTHER ASSETS
Trademarks, net 302,548 323,299
Software development cost - 387,007
Other 104,190 77,025
------------- -------------
Total other assets 406,738 787,331
------------- -------------
TOTAL ASSETS $ 10,110,806 $ 10,712,171
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 123,753 $ 135,901
Accounts payable and accrued liabilities 801,961 958,048
Unearned revenue 92,795 100,529
------------- -------------
Total current liabilities 1,018,509 1,194,478
UNEARNED REVENUE 237,461 299,325
DEFERRED RENT 152,595 136,517
LONG-TERM DEBT - excluding current maturities 174,496 273,231
------------- -------------
Total liabilities 1,583,061 1,903,551
------------- -------------
STOCKHOLDERS' EQUITY
Common stock 78,955 76,163
Additional paid-in capital 12,742,545 12,137,150
Accumulated deficit (4,293,755) (3,404,693)
------------- -------------
Total stockholders' equity 8,527,745 8,808,620
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,110,806 $ 10,712,171
============= =============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements.
2
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
REVENUES (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Commission $ 2,057,731 $ 2,223,908 $ 5,436,815 $ 6,059,909
Ticket delivery and service fees 1,391,096 1,252,769 4,587,059 3,348,620
------------- ------------- ------------- -------------
Total revenues 3,448,827 3,476,677 10,023,874 9,408,529
OPERATING EXPENSES
Employee costs 1,903,166 1,592,910 5,303,966 4,499,629
Other selling, general, and administrative expenses 2,015,516 1,706,749 5,660,660 4,764,612
------------- ------------- ------------- -------------
Total operating expenses 3,918,682 3,299,659 10,964,626 9,264,241
------------- ------------- ------------- -------------
(LOSS) EARNINGS FROM
OPERATIONS (469,855) 177,018 (940,752) 144,288
INTEREST INCOME, NET 16,285 27,791 51,690 73,074
------------- ------------- ------------- -------------
(LOSS) EARNINGS BEFORE
INCOME TAXES (453,570) 204,809 (889,062) 217,362
Provision (benefit) for income taxes - - - -
------------- ------------- ------------- -------------
(LOSS) NET EARNINGS $ (453,570) $ 204,809 $ (889,062) $ 217,362
============= ============= ============= =============
(LOSS) NET EARNINGS PER
COMMON SHARE-BASIC $ (.06) $ .03 $ (.12) $ .03
============= ============= ============= =============
-DILUTED $ (.06) $ .03 $ (.12) $ .03
============= ============= ============= =============
AVERAGE OUTSTANDING
COMMON SHARES-BASIC 7,796,199 7,616,296 7,687,615 7,615,756
============= ============= ============= =============
-DILUTED 7,796,199 7,865,485 7,687,615 8,016,903
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements.
3
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock Additional
---------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999 7,616,296 $ 76,163 $12,137,150 $(3,404,693) $ 8,808,620
Common stock issued for
services (unaudited) 50,000 500 249,500 - 250,000
Common stock issued for
acquisition (unaudited) 229,240 2,292 355,895 - 358,187
Net loss (unaudited) - - - (889,062) (889,062)
------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2000
(unaudited) 7,895,536 $ 78,955 $12,742,545 $(4,293,755) $ 8,527,745
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements.
4
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
2000 1999
------------ ------------
Increase (decrease) in cash (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (889,062) $ 217,362
Adjustments to reconcile net (loss) earnings to net cash
(used in) provided by operating activities, net of acquisition:
Depreciation and amortization 678,905 313,816
Commissions receivable 74,392 (697,002)
Prepaid assets and other assets 9,664 126,043
Deferred rent and unearned revenue (53,520) 475,262
Accounts payable and accrued liabilities (26,700) 263,441
------------ ------------
Net cash (used in) provided by operating activities (206,321) 698,922
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of leasehold improvements, equipment and computer software (794,057) (110,685)
Software development costs - (246,745)
Cash paid for acquisition (200,000) -
------------ ------------
Net cash used in investing activities (994,057) (357,430)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (110,883) (55,269)
Proceeds from exercise of options and warrants - 70,000
------------ ------------
Net cash (used in) provided by financing activities (110,883) 14,731
------------ ------------
NET (DECREASE) INCREASE IN CASH (1,311,261) 356,223
CASH, AT THE BEGINNING OF PERIOD 2,181,020 2,387,273
------------ ------------
CASH, AT THE END OF THE PERIOD $ 869,759 $ 2,743,496
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 28,131 $ 2,362
============ ============
</TABLE>
NON-CASH ACTIVITIES
During 2000 the Company, in conjunction with an employment agreement with its
former CEO, issued 50,000 shares of common stock valued as of the date of such
agreement at $250,000.
During 2000, capitalized software development costs totaling $598,000 were
transferred to leasehold improvements, equipment and computer software.
OTHER INFORMATION
In August 2000, the Company completed a acquisition of Prestige Travel Systems,
Inc. in exchange for a cash payment of $200,000, 229,240 shares of common stocks
valued at $ 358,000 and assumption of liabilities and acquisition cost of
$148,000. The Company allocated approximately $620,000 of the purchase price to
goodwill.
The accompanying notes are an integral part of
these condensed consolidated statements.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 (unaudited)
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America (US GAAP) 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 US GAAP 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 and nine month periods ended September
30, 2000 are not necessarily indicative of results that may be expected for the
year ending December 31, 2000 or any future period. The condensed consolidated
financial statements should be read in conjunction with the financial statements
and the notes thereto, included in the annual report on Form 10-KSB for the year
ended December 31, 1999, together with management's discussion and analysis or
plan of operations.
NOTE B: NET (LOSS) EARNINGS PER COMMON SHARE
The following table reconciles the numerators and denominators of the basic and
diluted net earnings (loss) per common share computations, as computed in
accordance with FAS 128:
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net (loss) earnings - (numerator) $ (453,570) $ 204,809 $ (889,062) $ 217,362
Basic:
Average common shares outstanding
(denominator) 7,796,199 7,616,296 7,687,615 7,615,756
============ ============ ============ ============
Net (loss) earnings per
Common share-basic $ (.06) $ .03 $ (.12) $ .03
============ ============ ============ ============
Diluted:
Average common shares outstanding 7,796,199 7,616,296 7,687,615 7,615,756
Effect of dilutive options - 249,189 - 401,147
------------ ------------ ------------ ------------
Adjusted average common shares
(denominator) 7,796,199 7,865,485 7,687,615 8,016,903
============ ============ ============ ============
Net (loss) earnings per
common share-diluted $ (.06) $ .03 $ (.12) $ .03
============ ============ ============ ============
</TABLE>
All options and warrants outstanding for the three and nine months ended
September 30, 2000 are excluded from the calculation of diluted weighted average
shares as they are anti-dilutive.
7
<PAGE>
NOTE C: BUSINESS COMBINATION
In August 2000, the Company completed a acquisition of Prestige Travel Systems,
Inc. in exchange for a cash payment of $ 200,000, 229,240 shares of common
stocks valued at $ 358,000 and assumption of liabilities and acquisition cost of
$148,000. The Company allocated approximately $620,000 of the purchase price to
goodwill.
NOTE D: COMMITMENTS AND CONTINGENCIES
Agreements with Related Parties
-------------------------------
In April 1999, 800 Travel Systems entered into a $60,000 loan agreement and a
$100,000 deferred compensation agreement with Mr. Mark Mastrini, then President
and CEO of 800 Travel Systems. Pursuant to the terms of the loan agreement, the
loan amount would be forgiven in two $30,000 installments if Mr. Mastrini was
employed by 800 Travel Systems as of January 1, 2000 and 2001, respectively. In
June 2000, Mark D. Mastrini resigned from the Company, the deferred compensation
agreement was terminated and the remaining outstanding loan balance of $30,000
is due to the Company according to the terms of the agreement. In June 2000, 800
Travel Systems entered into a consulting agreement for the term of 12 months
with Mark D. Mastrini, under which $180,000 of fees will be paid and expensed
over the life of the agreement.
Legal Proceedings
-----------------
From time to time the Company is involved in litigation in the ordinary course
of its business. Except as described below, the Company is not a party to any
material litigation and is not aware of any threatened material litigation.
The Company is the defendant in an action currently pending in the 134th
District Court of Dallas County, Texas entitled FIRST LONDON SECURITIES
CORPORATION V. 800 TRAVEL SYSTEMS, INC. A/K/A/ I FLY, Case No. 00-02222. The
Company was served with this action in April, 2000; the action was brought by
First London Securities, the Company's managing underwriter for its IPO in
January 1998. The plaintiff asserts in this action that the Company failed to
keep current all filings necessary to enable the plaintiff to exercise its
rights under its Underwriting and Representatives' Warrant Agreements at an
optimal market price. Plaintiff currently alleges damages up to approximately
$1.7 million, in addition to court costs and attorney's fees. The case is set
for trial on February 12, 2001. The Company has filed a Motion for Summary
Judgement, which is set for hearing on November 20, 2000, by which the Company
seeks to have the entire case dismissed before the trial date on the basis of
various defenses. While it is impossible to predict the eventual outcome of this
action, the Company believes that it has defenses to these claims and intends to
defend this suit vigorously.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto included elsewhere
in this Form 10-QSB. This discussion contains certain forward-looking statements
that involve risks and uncertainties. The Company's actual results and the
timing of certain events could differ materially from those discussed in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth herein and elsewhere in this Form 10-QSB.
OVERVIEW
800 Travel Systems, Inc. and its wholly-owned subsidiary Prestige Travel
Systems, Inc. referred to herein as "the Company", "we", "our", "us", "800
Travel Systems", "800 Travel" is a leading direct marketer of travel related
services, focused primarily on providing leisure air and cruise reservation
services. The Company provides low-priced air and cruise line tickets for
domestic and international leisure travel to its customers through its
easy-to-remember, toll-free numbers, through its websites on the World Wide Web
(at www.LowAirfare.com and www.CruiseBrokers.com) and through its nationwide
network of over 1,200 independent remote travel agents. The Company operates two
reservation centers, one in Tampa, Florida and the other in San Diego,
California 7 days a week throughout the year. Also in Tampa, Florida, the
Company operates its cruise and remote agent fulfillment center. As a result of
its agreements to sell discounted tickets with air and cruise lines directly, as
well as other ticket suppliers, the Company is able to charge its customers a
service charge, while still offering low-priced tickets. Since 800 Travel is
currently a broker for tickets, it does not purchase or inventory tickets and
accordingly, has no costs and/or risks associated with such inventory.
The Company generates revenues principally from (i) commissions on air and
cruise travel reservations including override commissions on reservations the
Company books on certain air and cruise lines, (ii) segment incentives under its
contract with SABRE, and (iii) service fees that it charges its customers. The
Company markets its services by (i) advertising in Yellow Pages directories
across the United States, (ii) advertising on the Internet with banner ads and
keywords, (iii) initiating sales efforts to businesses that desire travel
fulfillment services, and (iv) enrolling independent remote travel agents.
In January 1999, 800 Travel Systems began to broaden its ticket distribution by
offering online booking at "www.LowAirfare.com." Internet bookings as a
percentage of total gross reservations for the three and nine months ended
September 30, 2000 and 1999 were approximately 14.1%, 3.1%, 13.1% and 1.8%,
respectively. 800 Travel Systems expects online gross reservations and online
revenues to represent an increasing percentage of gross reservations and
revenues in future periods. To differentiate itself from the competition, the
Company's website was designed to have online human interaction capabilities.
The desired result from the Company's Internet initiative is to increase
completed Internet sales in a cost effective manner by providing business to
business (B2B) and business to consumer (B2C) customers a website that offers
the choice of making reservations conveniently, without an agent or if needed,
with an agent. The Company jointly announced the completion of certain
enhancements to its website in April 2000 by integrating technology developed
with Sabre Holdings Corporation (SABRE) and e-Business Interactive Solutions,
Inc. (EIS). With this integrated technology, the Company is experiencing an
approximate 18% completed sales ratio (look-to-book ratio) which compares
favorably to the e-commerce industry average of approximately 2%. The Company
considers a "look" to be an online shopper who requests an airfare. In addition,
this technology enables the Company's experienced reservation agents to handle
up to eight online customers at once as each online customer progresses through
the online booking process.
800 Travel Systems believes its growth strategy leverages Internet technologies
with its core competencies of low cost, call center operations and travel
industry expertise to both B2B and B2C markets. The growth strategy includes the
expectation of selling higher volumes of cruise tickets, hotel reservations,
auto rentals and tour packages as well as providing travel operation functions
such as, order administration, ticketing, shipping, quality control and customer
service to online travel service providers who may seek to outsource these
functions. This growth strategy should lessen the current dependency on air
travel reservation commissions and should help offset the anticipated continued
pressure on margins from airline commission reductions and other competitive
forces. The Company announced in July 2000 the signing of a one-year strategic
9
<PAGE>
marketing alliance whereby the 800 Travel System's customers will be offered
hotel accommodations fulfilled by First Internet Travel, L.L.C and likewise,
First Internet Travel, L.L.C.'s online customers will be offered airline
reservations fulfilled by 800 Travel Systems. Revenues from sales made through
the strategic marketing alliance will be shared by the two companies. In
addition, the Company announced in October 2000 the signing of two revenue
sharing travel fulfillment service contracts - the first for a one-year period
and the second for a six-month period. 800 Travel Systems expects revenues from
sources other than airline ticket sales to increase in future periods.
In August 2000, 800 Travel Systems announced the merger of a newly formed,
wholly owned subsidiary of the Company with Prestige Travel Systems, Inc.
("Prestige"). Prestige is a full service travel company, headquartered in Tampa,
Florida that operates a website specializing in discount cruise vacations at
www.CruiseBrokers.com. In addition, Prestige has developed a nationwide network
of over 1,200 independent remote travel agents who serve to generate travel
bookings through Prestige, on a nonexclusive, pre-negotiated, revenue sharing
arrangement. Consideration for this transaction included a combination of cash
and stock from 800 Travel. The addition of cruise reservations from the Prestige
merger reflects the furtherance of the Company's strategic plan to expand its
services to offer cruise, hotels and auto rentals in addition to discount
airfares.
Net earnings for the nine-month ended September 30, 2000 were negatively
impacted from the Internet initiative by approximately $232,000. While the
online operation had no material adverse affect on net earnings for the three
months ended September 30, 2000, the Company expects online revenues and
expenses to increase in the future. Net earnings for the three and nine months
ended September 30, 2000 were negatively impacted from the additional costs and
compensation for new executives and consultants associated with the continued
implementation of the Company's growth strategy by approximately $245,000 and
$663,000 respectively. The Company also anticipates its operating and marketing
expenses to increase as its strategy continues to be implemented.
Gross reservations represent the aggregate retail value of the tickets sold to
consumers, including delivery and service fees charged by the Company and taxes
and impact fees levied on the behalf of various authorities. For comparative
purposes, it is important to recognize that certain other travel companies
report their gross reservations as revenues. Gross reservations are not required
by generally accepted accounting principles (GAAP) and should not be considered
in isolation or as a substitute for other information prepared in accordance
with GAAP. Gross reservations for the three and nine months ended September 30,
2000 and 1999 were $23,609,660, $21,455,622, $68,271,583 and $60,195,762
respectively. Substantially all of the gross reservations are generated from air
and cruise line ticket sales. As previously disclosed, airline commissions were
reduced in October 1999 and continue to negatively impact revenues to the extent
that such reduced commissions are not able to be offset by increases in service
fees charged to customers. The Company anticipates being able to offset future
commission reductions by negotiating non-published fares directly with the
airline carriers to which a mark up paid by the consumer could be earned by the
Company.
The Company's operating expenses include primarily those items necessary to
advertise its services, maintain and staff its travel reservation and
fulfillment centers including technological enhancements, payroll, commissions
and benefits, telephone, ticket delivery, general and administrative expenses
including rent and computer maintenance fees; and interest, fees and expenses
associated with 800 Travel's financing activities. The Company expects to
continue to incur additional operating and selling expenses relating to its
Internet and technological initiatives.
10
<PAGE>
Set forth below for the periods indicated are the revenues as a percentage of
gross reservations and operating expenses, other income and net loss as a
percentage of revenues for the three and nine months ended September 30, 2000
and 1999, respectively.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
2000 1999 2000 1999
--------- ---------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues
Commissions 8.7% * 10.4% * 8.0% * 10.1% *
Ticket delivery and service fees 5.9 5.8 6.7 5.6
--------- ---------- --------- ---------
Total Revenues 14.6% 16.2% 14.7% 15.7%
--------- ---------- --------- ---------
Operating Expenses
Employee Costs 55.2% ** 45.8% ** 52.9% ** 47.8% **
SG & A, other 58.4 49.1 56.5 50.7
--------- ---------- --------- ---------
Total Operating Expenses 113.6 94.9 109.4 98.5
--------- ---------- --------- ---------
Other Income 0.4 0.8 0.5 0.8
--------- ---------- --------- ---------
Net Earnings (Loss) (13.2)% 5.9% (8.9)% 2.3%
========= ========== ========= =========
</TABLE>
* Revenue as a percentage of gross reservations.
** Expenses as a percentage of revenues.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
REVENUES. Revenues for the three months ended September 30, 2000 were
approximately equal to the revenues for the three months ended September 30,
1999. Revenues of approximately $.2 million resulting from the Prestige merger
and increases in the average revenue per air ticket sold were offset by
decreases in the volume of air tickets sold. The average revenue per air ticket
increased as increased service fees charged to customers and segment incentives
related to the new contract with 800 Travel's reservation system provider were
partially offset by a reduction in commissions paid by airlines. The decreased
volume of tickets sold was primarily due to increased competitive pressures from
Internet-based, on-line travel agencies, airlines selling directly to customers
on-line and a decreased number of selling agents employed by the Company due to
attrition. The Company intends to increase the volume of tickets sold by
continuing to initiate B2B sales efforts and retaining and increasing the number
selling agents through the implementation of an improved selling agent
compensation package. In addition, the Company will evaluate adding a third
reservation center in a city where conditions for the recruitment and retention
of selling agents are more favorable to the Company. Revenues as a percentage of
gross reservations decreased to 14.6% for the three months ended September 30,
2000 from 16.2% for the three months ended September 30, 1999. This decrease was
primarily due to the increased percentage of Internet bookings, since the
Company charges lower service fees on such bookings when compared to its call
center bookings. The Company currently earns the same amount of commissions and
segment incentives on Internet and call center bookings. Gross reservations
booked for the three months ended September 30, 2000 increased $2.2 million or
10% to $23.6 million. This increase resulted primarily from approximately $1.8
million of gross reservations resulting from the Prestige merger and increases
in the price of tickets sold and was partially offset by decreases in the volume
of air tickets sold.
11
<PAGE>
Revenues through call centers decreased $.6 million or 16.5% to $2.8 million for
the three months ended September 30, 2000. This decrease primarily resulted from
a decreased volume of tickets sold and was partially offset by increases in the
average revenue per air ticket sold. The volume of tickets sold through the call
centers decreased primarily from a reduction in telephone calls received from
Yellow Page advertising and the number of call center selling agents employed by
the Company to service incoming calls. The reduction in telephone calls received
was primarily due to increased competitive pressures from Internet-based,
on-line travel agencies and airlines selling directly to customers on-line. 800
Travel anticipates the volume of telephone calls to continue to decline when
compared to a comparable period in the prior year, however the Company believes
this decline is slowing and will level off in the near future. To improve the
volume of telephone calls 800 Travel intends to increase and/or reallocate
advertising dollars to new marketing programs. Gross reservations booked through
call centers for the three months ended September 30, 2000 decreased $2.3
million or 11.1% to $18.4 million. This decrease resulted primarily from a
decreased volume of tickets sold and was partially offset by increased prices of
tickets sold.
Revenues from Internet bookings were $.4 million (or 11.8% of total revenues)
for the three months ended September 30, 2000. Revenues from Internet bookings
for the three months ended September 30, 1999 were immaterial. Gross
reservations from Internet bookings for the three months ended September 30,
2000 increased $2.7 million or 406% to $3.3 million. This increase resulted
primarily from increases in the volume and the price of tickets sold. 800 Travel
Systems expects Internet gross reservations and revenues to represent an
increasing portion of gross reservations and revenues in future periods.
OPERATING EXPENSES. Operating expenses, which include $.2 million resulting from
the Prestige merger, increased $.6 million, or 18.8% to $3.9 million for the
three months ended September 30, 2000. Operating expenses as a percentage of
revenues increased 18.7% to 113.6%. Employee costs increased $.3 million to $1.9
million (or 55.2% of revenues) for the three months ended September 30, 2000
from $1.6 million (or 45.8% of revenues) for the three months ended September
30, 1999. This increase resulted primarily from the Prestige merger, new
corporate personnel hired to implement the Company's growth strategy and the
addition of a quality control and customer service agents. Other selling,
general and administrative ("SG&A") expenses increased $.3 million to $2 million
(or 58.4% of revenues) for the three months ended September 30, 2000 from $1.7
million (or 49.1% of revenues) for the three months ended September 30, 1999.
SG&A expenses including increases in advertising, legal, consulting expenses,
depreciation of capitalized software and technology and software maintenance
cost, were partially offset by decreases in telephone expenses. This decrease
resulted primarily from a new telecommunications contract that became effective
in August 1999. The Company anticipates further reductions in telecommunications
costs as the result of continued negotiations with its primary
telecommunications service provider. In addition, the Company expects to reduce
certain professional fees by having its existing employees perform these
services in the future.
INCOME TAXES. No provision for income taxes has been recorded since 800 Travel
Systems currently does not record a benefit for losses.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUES. Revenues increased $.6 million, or 6.5%, to $10 million for the nine
months ended September 30, 2000. This increase was due to approximately $.2
million resulting from the Prestige merger and increases in the average revenue
per air ticket sold while the volume of air tickets sold remained relatively
constant. The average revenue per ticket increased as increased service fees
charged to customers and commissions related to the new contract with 800 Travel
Systems' reservation system provider were partially offset by a reduction in
commissions paid by airlines. Revenues as a percentage of gross reservations
decreased to 14.7% for the nine months ended September 30, 2000 from 15.7% for
the nine months ended September 30, 1999. This decrease was primarily due to the
increased percentage of Internet bookings, since the Company charges lower
service fees on such bookings when compared to its call center bookings. The
Company currently earns the same amount of commissions and segment incentives on
Internet and call center bookings. Gross reservations booked for the nine months
ended September 30, 2000 increased $8.1 million or 13.4% to $68.3 million. This
increase was due to approximately $1.8 resulting from the Prestige merger and
increases in the price of tickets sold.
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Revenues through call centers decreased $.4 million or 4.3% to $8.9 million for
the nine months ended September 30, 2000. This decrease primarily resulted from
a decreased volume of tickets sold and was partially offset by increases in the
average revenue per air ticket sold. The volume of tickets sold through the call
centers decreased primarily from a reduction in telephone calls received from
Yellow Page advertising and the number of call center selling agents employed.
The reduction in telephone calls received was primarily due to increased
competitive pressures from Internet-based, on-line travel agencies and airlines
selling directly to customers on-line. When compared to prior year, 800 Travel
anticipates the volume of telephone calls to continue to decline, however the
Company believes this decline is slowing and will level off in the near future.
To improve the volume of telephone calls 800 Travel intends to increase and/or
reallocate advertising dollars to new marketing programs. Gross reservations
booked through call centers for the nine months ended September 30, 2000
decreased $.3 million or .5% to $58.8 million. This decrease caused primarily by
the decreases in the number of tickets sold.
Revenues from Internet bookings were $.9 million (or 9.4% of total revenues) for
the nine months ended September 30, 2000. Revenues from Internet bookings for
the nine months ended September 30, 1999 were immaterial. Gross reservations
from Internet bookings for the nine months ended September 30, 2000 increased
$7.9 million or 725% to $8.9 million. This increase resulted primarily from
increases in the volume and the price of tickets sold. 800 Travel Systems
expects Internet gross reservations and revenues to represent an increasing
portion of gross reservations and revenues in future periods.
OPERATING EXPENSES. Operating expenses, which include $.2 million resulting from
the Prestige merger, increased $1.7 million, or 18.4%, to $11 million for the
nine months ended September 30, 2000. Operating expenses as a percentage of
revenues increased 10.9% to 109.4%. Employee costs increased $.8 million to $5.3
million (or 52.9% of revenues) for the nine months ended September 30, 2000 from
$4.5 million (or 47.8% of revenues) for the nine months ended September 30,
1999. This increase resulted primarily from the Prestige merger, new corporate
personnel hired to implement the Company's growth strategy and the addition of a
quality control and customer service agents. Other selling, general and
administrative ("SG&A") expenses increased $.9 million to $5.7 million (or 56.5%
of revenues) for the nine months ended September 30, 2000 from $4.8 million (or
50.7% of revenues) for the nine months ended September 30, 1999. SG&A expenses
including increases in advertising, depreciation, technology and software
maintenance, legal and consulting expenses were partially offset by decreases in
telephone expenses. This decrease resulted primarily from a new
telecommunications contract that became effective in August 1999. The Company
anticipates further reductions in telecommunications costs as the result of
continued negotiations with its primary telecommunications service provider. In
addition, the Company expects to reduce certain professional fees by having its
existing employees perform these services in the future.
INCOME TAXES. No provision for income taxes has been recorded since 800 Travel
Systems currently does not record a benefit for losses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $.2 million for the nine months ended
September 30, 2000 primarily as a result of a net loss and was partially offset
by depreciation and amortization expenses. For the nine months ended September
30, 1999 net cash provided by operating activities was $.7 million primarily as
a result of net earnings, depreciation and amortization expenses and increases
in accounts payable and unearned revenues and offset by an increase in
commissions receivables.
Net cash used in investing activities was $1.0 million for the nine months ended
September 30, 2000 primarily as a result of computer hardware, software and
software development costs incurred in connection with the Company's Internet
and technological initiatives and the merger with Prestige Travel. For the nine
months ended September 30, 1999, net cash used in investing activities was $.4
million primarily as a result of software development costs incurred in
connection with the Company's Internet and technological initiatives.
Net cash used by financing activities was $110,883 for the nine months ended
September 30, 2000 primarily as a result of principal payment on debt. For the
nine months ended September 30, 1999 net cash provided by financing activities
was $14,731 primarily as a result of net proceeds received from the exercise of
options and warrants.
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While the Company has attempted to negotiate development, maintenance and
licensing agreements with EIS in conjunction with the joint development of the
agent interactive software as well as website maintenance and hosting, the
Company has been unable to enter into definitive written agreements to date. The
Company continues to work with EIS and make monthly payments to EIS for
maintenance and other services provided by EIS. The Company is simultaneously
working to undertake to perform certain website maintenance and modifications
in-house in order to minimize its payments to EIS and enhance its ability to
improve its web site operation. With this ability, the Company will be able to
quickly and efficiently modify the appearance and content of its web site as
well establish links to other sites pursuant to marketing agreements and
alliances. If the Company is unable to successfully conclude its negotiations
with EIS with respect to definitive written development, maintenance and
licensing agreements for the jointly developed agent interactive software and
related technological support, the Company will need to expend additional
capital resources to continue to provide the agent interactive services on a
cost effective and beneficial basis.
Management believes that the existing cash and cash expected to be provided by
operating activities will be sufficient to fund the short term capital and
liquidity needs of 800 Travel Systems' operations. In anticipation of the
Company's longer-term capital requirements, the Company currently has made plans
to seek to raise between $4 million and $10 million of private equity capital.
800 Travel Systems has currently budgeted approximately $3 million for capital
expenditures for computer hardware and software purchases and upgrades which it
expects to make over the next 12 months, provided the Company is able to raise
additional capital. 800 Travel Systems will need to seek to sell additional
equity or debt securities or obtain credit lines from financial institutions to
meet its longer-term liquidity and capital requirements. There is no assurance
that 800 Travel Systems will be able to obtain additional capital or financing
in amounts or on terms acceptable to 800 Travel Systems, if at all or on a
timely basis. The sale of equity securities or convertible debt securities would
result in additional dilution to 800 Travel Systems' shareholders.
YEAR 2000 READINESS
As of the date of this report 10-QSB, which is subsequent to the year beginning
2000, 800 Travel Systems has experienced no material adverse affects from the
onset of Year 2000. 800 Travel Systems will continue to monitor for potential
negative affects from the Year 2000 however, no material adverse affects are
anticipated. 800 Travel Systems' total costs of its year 2000 preparedness were
not material. There can be no assurances that the costs resulting from future
potential year 2000 issues will not have a material impact on 800 Travel
Systems' business, operations or financial condition in future periods.
SEASONALITY
Based upon the results of its operations during 1999 and 2000 to date and its
knowledge of the travel industry, 800 Travel Systems anticipates its business
may be affected by seasonality. Travel bookings typically are lower in the
months November through March and higher in April through October as consumers
plan their vacations. In response, 800 Travel Systems will vary the number of
agents on staff at any time. There can be no assurance that 800 Travel Systems
may not have to take proactive steps to reduce its work force in response to
seasonal fluctuations in the future. Notwithstanding 800 Travel Systems'
efforts, the seasonality of the travel industry is likely to adversely impact
800 Travel Systems' business. Moreover, as a consequence of such seasonality and
other factors, 800 Travel Systems' quarterly revenue and operating results will
be difficult to forecast and period to period comparisons of results may not be
relevant or informative.
FORWARD LOOKING STATEMENTS -- RISK FACTORS
Investors should carefully consider the following risk factors, in
addition to the other information concerning the factors affecting
forward-looking statements. Each of these risk factors could adversely affect
our business, operating results and financial condition as well as adversely
affect the value of an investment in 800 Travel Systems. You should be able to
bear a complete loss of your investment.
Certain oral statements made by management from time to time and certain
statements contained herein and in documents incorporated herein by reference
that are not historical facts are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and, because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. The terms "800 Travel Systems,"
"company," "we," "our," and "us" refer to 800 Travel Systems, Inc. The words
"expect", "believe", "goal", "plan", "intend", "anticipate", "estimate", "will"
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and similar expressions and variations thereof if used, are intended to
specifically identify forward-looking statements. Forward-looking statements are
statements regarding the intent, belief or current expectations, estimates or
projections of 800 Travel Systems, our Directors or our Officers about 800
Travel Systems and the industry in which we operate, and assumptions made by
management, and include among other items, (i) our strategies regarding growth,
including our intention to further develop and improve our Internet capabilities
and diversify revenues utilizing our call center operation and travel industry
expertise; (ii) our financing plans; (iii) trends affecting our financial
condition or results of operations; (iv) our ability to continue to control
costs and to meet our liquidity and other financing needs; (v) our ability to
respond to changes in customer demand, including as a result of increased
competition and the increase of Internet activity. Although we believe our
expectations are based on reasonable assumptions, we can give no assurance that
the anticipated results will occur. We disclaim any intention or obligation to
update or revise forward-looking statements, whether as a result of new
information, future events or otherwise.
Investors and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those in the forward-looking statements as a result of various factors which
include, among others, (i) general economic conditions, particularly those
affecting fuel and other travel costs and their effect on the volume of consumer
air travel; (ii) conditions in the capital markets, including the interest rate
environment and the availability of capital, which could affect our internal
growth and possibilities for strategic alliances in the travel and telemarketing
areas; (iii) changes in the competitive marketplace that could affect our
revenue and/or cost bases, such as increased competition from traditional and
Internet based travel agencies, consolidators and the airlines themselves,
changes in the commissions paid by airlines, and increased labor, marketing,
computer software/hardware and telecommunications costs; (iv) the availability
and capabilities of the SABRE electronic travel reservation system and ancillary
software; (v) the success of our Internet initiatives; (vi) changes in
commission rates; (vii) the retention of our reservation agents and improved
productivity of our reservation agents as they gain experience and utilize
technological improvements; (viii) our rights to the use of software and other
intellectual property and the potential for others to challenge and otherwise
adversely affect or impair such rights; and (ix) other factors including those
identified in our filings with the SEC including but not limited to information
under the heading "Risk Factors" in the Form SB-2 Registration Statement and
Prospectus for our initial public offering as amended from time to time, and the
following risk factors:
WE HAVE A LIMITED OPERATING HISTORY AND A HISTORY OF LOSSES. OUR FUTURE
OPERATING RESULTS MAY NOT BE PROFITABLE.
We have been operating for less than four years and during that time we
have generated a significant accumulated operating loss. There can be no
assurance that we will be able to operate profitably, particularly if we seek to
expand through acquisitions or the addition of new Internet services. We only
recently initiated our online operations and, accordingly, our prospects in this
field must be considered in light of the difficulties encountered in any new
business. These risks include our failure to:
o attract additional travel suppliers and consumers to our
service
o maintain and enhance our brand
o expand our service offerings
o operate, expand and develop our operations and systems
efficiently
o maintain adequate control of our expenses
o raise additional capital
o attract and retain qualified personnel
o respond to technological changes
o respond to competitive market conditions
o operate at a profit
OUR LOSSES AND NEGATIVE CASH FLOWS MAY CONTINUE.
We have incurred net losses and negative cash flows on both an annual
and interim basis. For the nine months ended September 30, 2000, we had a net
loss of $889,062 and we had a net decrease in cash of $1,311,261. We may
continue to incur net losses for the foreseeable future and we cannot assure you
that we will ever achieve, or if achieved, sustain profitability or generate
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positive cash flow. We expect our operating expenses to grow. These increased
expenses will result primarily from our Internet initiatives, advertising and
expansion of our operations. As a result, we will need to increase our revenues
to become profitable. If our revenues do not grow as expected, or if increases
in our expenses are not in line with our plans, there could be a material
adverse effect on our business, operating results and financial condition.
WE WILL NEED FUTURE CAPITAL.
We expect to increase sales volumes by expanding our business with both
our Internet initiatives as well as our traditional "bricks and mortar" call
center operations. There can be no assurance that our revenues will increase as
a result of our expansion efforts or even continue at their current levels. As
we expend significant resources to expand our operations, it is possible that we
would continue to incur losses and negative cash flow. It is likely that we will
require additional capital in the near future to meet our capital requirements.
There is no assurance that such capital will be available to us or, if
available, be on terms acceptable to us. An increase in capital resulting from a
capital raising transaction could result in dilution to existing holders of our
common stock and adversely impact our stock price.
WE ARE DEPENDENT ON THE SABRE SYSTEM.
Our ability to quote air travel ticket prices, make reservations and
sell tickets is dependent upon our contractual right to use, and the performance
of, the SABRE electronic travel reservation system. In May 1999, we entered into
a five-year agreement with SABRE, Inc. to lease the SABRE system in our Tampa
and San Diego reservation centers. If the SABRE system were to cease
functioning, or if we were to lose our contractual right to use the SABRE system
through our inability to renew the agreement, upon expiration thereof or through
a default by us or other termination event under the agreement during the term
thereof, we 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 on comparable terms or if
obtained, installed in time to successfully continue operations.
During any interruption in the operation of SABRE, we would lose
revenues. Other travel agencies using other travel reservation systems would not
be subject to such interruption of their operations, and we may lose market
share to such competitors. Upon the interruption of the operation of the SABRE
system, we could decide to commence operations with another travel reservation
system. Substantial expenses could be required for acquiring the right to use a
new system and retraining reservation agents. In addition, any impairment of the
SABRE system which does not cause us to cease operations could, nevertheless,
adversely affect the quality of our services, resulting in lost revenues or
market share and could require us to subscribe to a different travel reservation
system.
WE ARE SUBJECT TO ADJUSTMENTS IN AIRLINE COMMISSIONS WHICH COULD REDUCE OUR
REVENUES.
In October 1999, the major airlines announced reductions in the
commissions they will pay traditional travel agents from approximately 8% to 5%
and subject to a cap of $50.00 for domestic round trip ticket sales. In
addition, many airlines have implemented a fixed-rate commission of $10.00 for
domestic online round trip ticket sales. We anticipate continued downward
pressure on airline commission rates. Such reductions and future reductions, if
any, could have a material adverse effect on our operations. We may not be paid
commissions by airlines for stand-alone bookings on our web site or online agent
assisted bookings on our web site. We also may not be able to impose service
charges for our Internet services, which could adversely affect our future
online revenues and earnings.
A DECLINE IN COMMISSION RATES OR THE ELIMINATION OF COMMISSIONS COULD REDUCE OUR
REVENUES AND MARGINS.
A substantial majority of our online revenues depends on the
commissions paid by travel suppliers for bookings made through our call centers
and through our online travel service. Generally, we do not have written
commission agreements with most of our suppliers. As is standard practice in the
travel industry, we rely on informal arrangements for the payment of commissions
which applies to all travel agencies. Travel suppliers are not obligated to pay
any specified commission rate for customer bookings made online through our
websites. We cannot assure you that airlines, hotel chains or other travel
suppliers will not reduce current industry commission rates or eliminate
commissions entirely, either of which could reduce our revenues and margins. For
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example, in 1995, most of the major airlines placed a cap on per-ticket
commissions payable to all travel agencies for domestic airline travel. In
September 1997, the major United States airlines reduced the commission rate
payable to traditional travel agencies from 10% to 5%. In 1997, the major United
States airlines reduced the commission rate payable for online reservations from
8% to 5%. In addition, since 1998, many airlines have implemented a commission
cap of $10.00 for domestic online round-trip ticket sales. Because a high
percentage of our business relates to airline ticket sales, a further reduction
in airline ticket commissions could reduce our revenues.
WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE AND OPERATE OUR NEW CRUISE BUSINESS.
We recently acquired Prestige in order to add cruise services to our
service mix. We may not be able to successfully operate or integrate the cruise
operation into our existing business. Integration of the cruise business may
take longer and cost more than we anticipated.
RISKS RELATING TO THE AIRLINE INDUSTRY
Developments in the airline industry may result in a decrease in the
price of tickets or number of tickets we sell. Consolidation of airline carriers
could adversely impact ticket prices, the available discounts on same as well as
commission rates. Concerns about passenger safety may result in a decrease in
passenger air travel and a consequent decrease in the number of tickets we sell.
There can be no assurance that any such developments will not occur or that we
will not be adversely affected by any such decrease in the level of passenger
air travel.
IF TRAVEL RELATED INTERNET SERVICES OR THE DIVERSIFIED USE OF OUR CALL CENTER
OPERATIONS DO NOT ACHIEVE WIDESPREAD MARKET ACCEPTANCE, OUR BUSINESS MAY NOT
GROW.
Our success will depend in large part on widespread market acceptance
of the Internet as a vehicle for the buying of airline tickets and other travel
related products and services as well as the diversified use of our call center
operations. Consumers who have historically purchased airline tickets and other
travel related products and services using traditional commercial channels, such
as local travel agents and calling airlines directly, must instead purchase
these products through our website or through call center operations. Consumers
frequently use our website or call centers for route pricing and other travel
information and then choose to purchase airline tickets or make other
reservations directly from travel suppliers or other travel agencies. If the
online market develops more slowly than expected, or if our services do not
achieve widespread market acceptance, our business may decline, may not grow or
may grow more slowly than expected. Our future growth, if any, will depend on
critical factors including but not limited to: (i) the growth of the Internet as
a tool used in the process of buying airline tickets and other travel related
products and services; (ii) our ability to successfully and cost effectively
market our services to a sufficiently large number of people and thereby attract
new and repeat customers; and (iii) our ability to consistently deliver high
quality and fast and convenient service at competitive prices.
Our revenues will not grow as much as we anticipate if the market for
our services does not continue to develop, our services do not continue to be
adopted or consumers fail to significantly increase their use of the Internet as
a tool in the process of buying airline tickets and other travel related
products and services or opt to use competitors services or airline carriers
Internet services directly.
In order to achieve the acceptance of consumers, travel suppliers and
advertisers contemplated by our business plan, we will need to continue to make
substantial investments in our technology. However, we cannot assure you that
these investments will be successful. Our failure to make progress in these
areas will harm the growth of our business.
WE MAY BE UNABLE TO DEVELOP NEW RELATIONSHIPS WITH STRATEGIC PARTNERS AND
MAINTAIN OUR EXISTING RELATIONSHIPS.
Our business depends on establishing and maintaining relationships with
airlines, SABRE and others. As a result of our agreements to sell discounted
tickets with airlines directly, as well as other ticket suppliers, we are able
to charge our customers a service charge, while still offering low priced
tickets. We cannot assure you that we will be able to establish new
relationships or maintain existing relationships. If we fail to establish or
maintain these relationships, it could adversely affect our business.
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Our business model relies on relationships with travel suppliers, and
it would be negatively affected by adverse changes in these relationships. We
depend on travel suppliers to enable us to offer our customers comprehensive
access to travel services and products. It is possible that travel suppliers may
choose not to make their inventory of services, discounts and products available
through online distribution. Travel suppliers could elect to sell exclusively
through other sales and distribution channels or to restrict our access to their
inventory, either of which could significantly decrease the amount or breadth of
our inventory of available travel offerings. Of particular note is the proposed
airline direct-distribution website, which is currently named "Orbitz." Orbitz
has announced its intention to launch in 2001 and is reportedly owned by
American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines and
United Air Lines. Forester Research reports that Orbitz will be the only website
for consumers to find unpublished special fares on these and at least 23 other
airlines. If a substantial number of our airline suppliers collectively agree or
choose to restrict their special fares solely to Orbitz, such action may have a
material adverse affect on our business. Adverse changes in any of these
relationships, whether due to Orbitz or otherwise, could reduce the amount of
travel services which we are able to offer through our websites.
WE OPERATE IN A HIGHLY COMPETITIVE MARKET WITH LOW BARRIERS TO ENTRY WHICH COULD
HARM OUR BUSINESS.
While the market for buying airline tickets and other travel related
products and services on the Internet is relatively new and rapidly evolving, it
is already competitive and characterized by entrants that may develop services
similar to ours. Many of our existing competitors, as well as our potential
competitors, have longer operating histories on the Web, greater name
recognition, higher amounts of user traffic and significantly greater financial,
technical and marketing resources than we do. In addition, there are relatively
low barriers to entry to our business. We do not have patents or other
intellectual property that would preclude or inhibit competitors from entering
the market. Moreover, due to the low cost of entering the market, competition
may intensify and increase in the future. We compete against other online travel
web sites, including those of airline carriers. We also compete with traditional
methods used by travel agents to market airline tickets, including yellow pages,
classified ads, travel brochures and other media advertising. This competition
may limit our ability to become profitable or result in the loss of market
share.
WE COMPETE WITH A VARIETY OF COMPANIES WITH RESPECT TO EACH PRODUCT OR SERVICE
WE OFFER. THESE COMPETITORS INCLUDE:
o Internet travel agents such as Travelocity.com, Expedia and
American Express Interactive, Inc.;
o local, regional, national and international traditional travel
agencies;
o consolidators and wholesalers of airline tickets, hotels and
other travel products, including online consolidators such as
Cheaptickets.com and Priceline.com and online wholesalers such
as Hotel Reservations Network, Inc.;
o airlines, hotels, rental car companies, cruise operators and
other travel service providers, whether working individually
or collectively, some of which are suppliers to our websites;
and
o operators of travel industry reservation databases.
In addition to the traditional travel agency channel, many travel
suppliers also offer their travel services as well as third-party travel
services directly through their own websites. These travel suppliers include
many suppliers with which we do business. In particular, five airline suppliers,
American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines and
United Air Lines, have announced their intention to launch a direct-
distribution website, currently named "Orbitz," in 2001. Forester Research
reports that Orbitz will be the only website for consumers to find unpublished
weekly special fares on at least 23 other airlines. Suppliers also sell their
own services directly to consumers, predominantly by telephone. As the market
for online travel services grows, we believe that travel suppliers, traditional
travel agencies, travel industry information providers and other companies will
increase their efforts to develop services that compete with our services by
selling inventory from a wide variety of suppliers. We cannot assure you that
our online operations will compete successfully with any current or future
competitors.
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Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than us and may enter into
strategic or commercial relationships with larger, more established and well
financed companies. Certain of our competitors may be able to secure services
and products from travel suppliers on more favorable terms, devote greater
resources to marketing and promotional campaigns and devote substantially more
resources to website and systems development than us. In addition, new
technologies and the expansion of existing technologies may increase competitive
pressures on us. In particular, Microsoft Corporation has publicly announced its
intent to continue to invest heavily in the area of travel technology and
services. Increased competition may result in reduced operating margins, loss of
market share and brand recognition. There can be no assurance that we will be
able to compete successfully against current and future competitors, and
competitive pressures faced by us may have a material adverse effect on our
business, operating results and financial condition.
Our sales affiliates and employees are generally not subject to
non-competition agreements. In addition, our business model does not involve the
use of a large amount of proprietary information. As a result, we are subject to
the risk that our sales affiliates or employees may leave us and may work for
competitors or may start competing businesses. The emergence of these
enterprises will further increase the level of competition in our market and
could harm our growth and financial performance.
WE MAY NOT BE ABLE TO MAINTAIN OUR WEB DOMAIN NAME, WHICH MAY CAUSE CONFUSION
AMONG WEB USERS AND DECREASE THE VALUE OF OUR BRAND NAME.
We currently hold a Web domain name relating to our brand. Currently,
the acquisition and maintenance of domain names is regulated by governmental
agencies and their designees. The regulation of domain names in the U.S. and in
foreign countries is expected to change in the near future. As a result, we may
not be able to maintain our domain name. These changes could include the
introduction of additional top level domains, which could cause confusion among
Web users trying to locate our sites. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. We may be unable to prevent third parties from
acquiring domain names that are similar to ours. The acquisition of similar
domain names by third parties could cause confusion among Web users attempting
to locate our site and could decrease the value of our brand name and the use of
our site.
WE MAY NOT BE ABLE TO ATTRACT AND EXPAND OUR ONLINE TRAFFIC.
We believe that establishing, maintaining and enhancing our
LowAirfare.com website is a critical aspect of our efforts to attract and expand
our online traffic. The number of Internet sites that offer competing services
increases the importance of establishing and maintaining brand recognition. Many
of these Internet sites already have well-established brands in online services
or the travel industry generally. Promotion of the LowAirfare.com website will
depend largely on our success in providing a high-quality online experience
supported by a high level of customer service. In addition, we intend to
increase our spending on marketing and advertising with the intention of
expanding the recognition of our website to attract and retain online users and
to respond to competitive pressures. However, we cannot assure you that these
expenditures will be effective to promote our brand or that our marketing
efforts generally will achieve our goals.
IF WE ARE UNABLE TO INTRODUCE AND SELL NEW PRODUCTS AND SERVICES, OUR BUSINESS
COULD BE ADVERSELY EFFECTED.
We need to broaden the range of travel products and services and
increase the availability of products and services that we offer in order to
enhance our service. We will incur substantial expenses and use significant
resources trying to expand the range of products and services that we offer.
However, we may not be able to attract sufficient travel suppliers and other
participants to provide desired products and services to our consumers. In
addition, consumers may find that delivery through our service is less
attractive than other alternatives. If we launch new products and services and
they are not favorably received by consumers, our reputation, business and the
value of the Lowairfare.com.com brand could be adversely effected.
Our relationships with consumers and travel suppliers are mutually
dependent since consumers will not use a service that does not offer a broad
range of travel services. Similarly, travel suppliers will not use a service
unless consumers actively make travel purchases through it. We cannot predict
whether we will be successful in expanding the range of products and services
that we offer. If we are unable to expand successfully, this could also
adversely effect our business.
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WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED TO SUCCEED.
We may be unable to retain our key employees and consultants and key
sales agents or attract, assimilate or retain other highly qualified employees
and sales agents in the future. Our future success depends on our ability to
attract, retain and motivate highly skilled employees and sales agents. If we do
not succeed in attracting new personnel or retaining and motivating our current
personnel, it may be difficult for us to manage our business and meet our
objectives. The labor market is currently very tight and it is difficult to find
qualified and capable individuals willing to work as selling agents. We may be
unable to attract and retain selling agents to handle the volume of business we
generate. We may experience significant turnover and incur higher training and
recruitment costs. If we are unable to hire and retain selling agents our
business may be adversely affected.
A FAILURE IN THE PERFORMANCE OF OUR WEB HOSTING FACILITY SYSTEMS COULD HARM OUR
BUSINESS AND REPUTATION.
We depend upon a third party Internet service provider to host and
maintain our web site. Any system failure, including network, software or
hardware failure, that causes an interruption in the delivery of our web site or
a decrease in responsiveness of our web site service could result in reduced
revenue, and could be harmful to our reputation and brand. Our Internet service
provider does not guarantee that our Internet access will be uninterrupted,
error free or secure. Any disruption in the Internet service provided by such
provider could significantly harm our business. In the future, we may experience
interruptions from time to time. Our insurance may not adequately compensate us
for any losses that may occur due to any failures in our system or interruptions
in our service. Our Web servers must be able to accommodate a high volume of
traffic and we may in the future experience slower response times for a variety
of reasons. If we are unable to add additional software and hardware to
accommodate increased demand, this could cause unanticipated system disruptions
and result in slower response times. The costs associated with accommodating
such increased demand may exceed the revenues the increased demand may generate.
Ticket buyers may become dissatisfied by any system failure that interrupts our
ability to provide access or results in slower response time and thereby not
return to the site.
Any reduction in performance, disruption in the Internet access or
discontinuation of services provided by our Internet service provider, EIS,
Sabre, Verizon and AT&T, or other telecommunications provider, or any disruption
in our ability to access the SABRE systems or systems and software provided by
EIS, could have a material adverse effect on our business, operating results and
financial condition. There can be no assurance that our transaction processing
systems and network infrastructure will be able to accommodate increases in
traffic in the future, or that we will, in general, be able to accurately
project the rate or timing of such increases or upgrade our systems and
infrastructure to accommodate future traffic levels on our online sites. In
addition, there can be no assurance that we will be able in a timely manner to
effectively upgrade and expand our transaction processing systems or to
successfully integrate any newly developed or purchased modules with our
existing systems. There can be no assurance that we will successfully utilize
new technologies or adapt our online sites, proprietary technology and
transaction processing systems to customer requirements or emerging industry
standards.
Our call center computer and communications hardware is provided under
a leasing arrangement and is located at the respective centers in Tampa, Florida
and San Diego, California. If either call center experiences a disaster that
interrupts service, inbound telephone calls can be re-routed to the other
center. Substantially all of our Internet computer and communications hardware
is provided by Exodus and is located at Exodus' New York Internet data center.
Our systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and similar
events. We currently do not have redundant systems or a formal disaster recovery
plan and may not carry sufficient business interruption insurance to compensate
us for losses that may occur. Despite the implementation of network security
measures by us, our servers are vulnerable to computer viruses, physical or
electrical break-ins and similar disruptions, which could lead to interruptions,
delays, loss of data or the inability to accept and confirm customer
reservations.
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OUR INTERNET SOFTWARE DEVELOPMENT EFFORTS MAY NOT SUCCEED.
We are in the process of working to enhance and expand our business and
opportunities through the use of the Internet and we are exposed to various
risks and uncertainties related to our arrangements or agreements with third
parties for the co-development or development of software systems for use in
conjunction with our Internet initiatives. Such risks and uncertainties include
but are not limited to the following: (i) we may expend significant funds for
co-development or development of software that exceed the benefits, if any,
ultimately derived from such software or the benefits that could be derived from
less expensive software available from other sources; (ii) any software
co-developed by us or developed for us may be functionally or technologically
obsolete by the time co-development or development is completed; (iii) the
timetables necessary to attain the advantages anticipated from such
co-development or development may not be achieved; (iv) others may develop
similar software and make such software available to our competitors or our
competitors may develop similar software or the software developed by others may
have features and benefits beyond the capabilities of the software co-developed,
licensed or otherwise utilized by us; (v) our rights with respect to any
co-development or development arrangement may become the subject of disputes and
may result in our not having any rights in or to such software and result in
claims of violations of intellectual property rights which could result in
significant defense cost and the possibility of damages being assessed against
us; and (vi) key individuals involved in connection with any software
co-development arrangement with us could become unable to complete or continue
the co-development, which could cause the co-development to end, or result in
significant delays and increases in costs to continue such co-development
efforts or in maintaining or conducting fundamental daily modifications to our
website and existing co-developed software.
WE MAY BE LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
We may receive in the future, notice of claims of infringement of other
parties' proprietary rights. Infringement or other claims could be asserted or
prosecuted against us in the future and it is possible that past or future
assertions or prosecutions could harm our business. Any such claims, with or
without merit, could be time consuming, resulting in costly litigation and
diversion of technical and management personnel, cause delays in the development
and release of new products or services, or require us to develop non-infringing
technology or enter into royalty or licensing arrangements. Such royalty or
licensing arrangements, if required, may not be available on terms acceptable to
us, or at all. For these reasons, infringement claims could harm our business.
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR
BRAND AND OUR BUSINESS.
We rely on a combination of trademark and copyright law and trademark
protection. Despite our efforts, we cannot be sure that we will be able to
prevent misappropriation of our intellectual property. It is possible that
litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. Litigation could result in substantial costs
and diversion of our resources away from the operation of our business and the
loss of our ability to use certain intellectual property.
DECLINES OR DISRUPTIONS IN THE TRAVEL INDUSTRY GENERALLY COULD REDUCE OUR
REVENUES.
We rely on the health and growth of the travel industry. Travel is
highly sensitive to business and personal discretionary spending levels, and
thus tends to decline during general economic downturns. In addition, other
adverse trends or events that tend to reduce travel are likely to reduce our
revenues. These may include:
o price escalation in the airline industry or other
travel-related industries
o increased occurrence of travel-related accidents
o airline or other travel-related strikes
o political instability
o regional hostilities and terrorism
o bad weather
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REGULATORY AND LEGAL CHANGES MAY IMPOSE TAXES OR OTHER BURDENS ON OUR BUSINESS.
The laws and regulations applicable to the travel industry affect us
and our travel suppliers. We must comply with laws and regulations relating to
the sale of travel services, including those prohibiting unfair and deceptive
practices and those requiring us to register as a seller of travel, comply with
disclosure requirements and participate in state restitution funds. In addition,
many of our travel suppliers and computer reservation systems providers are
heavily regulated by the United States and other governments. Our services are
indirectly affected by regulatory and legal uncertainties affecting the
businesses of our travel suppliers and computer reservation systems providers.
We must also comply with laws and regulations applicable to businesses
generally and online commerce. Currently, few laws and regulations directly
apply to the Internet and commercial online services. Moreover, there is
currently great uncertainty about whether or how existing laws governing issues
such as property ownership, sales and other taxes, libel and personal privacy
apply to the Internet and commercial online services. It is possible that laws
and regulations may be adopted to address these and other issues. Further, the
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws. New laws or different applications of
existing laws would likely impose additional burdens on companies conducting
business online and may decrease the growth of the Internet or commercial online
services. In turn, this could decrease the demand for our products and services
or increase our cost of operations.
Federal legislation imposing limitations on the ability of states to
tax Internet-based sales was enacted in 1998. The Internet Tax Freedom Act, as
this legislation is known, exempts specific types of sales transactions
conducted over the Internet from multiple or discriminatory state and local
taxation through October 21, 2001. It is possible that this legislation will not
be renewed when it terminates in October 2001. Failure to renew this legislation
could allow state and local governments to impose taxes on Internet-based sales,
and these taxes could decrease the demand for our products and services or
increase our costs of operations.
RISKS RELATED TO THE INTERNET INDUSTRY
RAPID TECHNOLOGICAL CHANGES MAY RENDER OUR TECHNOLOGY OBSOLETE OR DECREASE THE
COMPETITIVENESS OF OUR SERVICES.
To remain competitive in the online travel industry, we must continue
to enhance and improve the functionality and features of our websites. The
Internet and the online commerce industry are rapidly changing. In particular,
the online travel industry is characterized by increasingly complex systems and
infrastructures. If competitors introduce new services embodying new
technologies, or if new industry standards and practices emerge, our existing
websites and proprietary technology and systems may become obsolete. Our future
success will depend on our ability to do the following:
o enhance our existing services;
o develop and license new services and technologies that address
the increasingly sophisticated and varied needs of our
prospective customers and suppliers;
o respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis.
Developing our websites and other proprietary technology entails
significant technical and business risks. We may use new technologies
ineffectively or we may fail to adapt our websites, transaction-processing
systems and network infrastructure to customer requirements or emerging industry
standards. If we face material delays in introducing new services, products and
enhancements, our customers and suppliers may forego the use of our services and
use those of our competitors.
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INTERNET RELATED REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS.
There are an increasing number of laws and regulations pertaining to
the Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, domain name registration, online content regulation, user privacy,
taxation and quality of products and services. Moreover, the applicability to
the Internet of existing laws governing issues including intellectual property
ownership and infringement, copyright, patent, trademark, trade secret,
obscenity, libel, employment and personal privacy is uncertain and developing.
Further, the growth and development of the market for online commerce may prompt
calls for more stringent consumer protection laws. New laws or different
applications of existing laws would likely impose additional burdens on
companies conducting business online and may decrease the growth of the Internet
or commercial online services. In turn, this could decrease the demand for our
products and services or increase our cost of operations.
Federal legislation imposing limitations on the ability of states to
impose new state taxes on e-commerce was enacted in 1998. The Internet Tax
Freedom Act, as this legislation is known, exempts specific types of sales
transactions conducted over the Internet from multiple or discriminatory state
and local taxation through October 21, 2001. It is possible that this
legislation will not be renewed when it terminates in October 2001. Failure to
renew this legislation or the enactment of new legislation could allow state and
local governments to impose taxes on Internet-based sales and use. Such taxes
could decrease the demand for our products and services or increase our costs of
operations.
OUR ABILITY TO GENERATE BUSINESS DEPENDS ON CONTINUED GROWTH OF ONLINE COMMERCE.
Our ability to generate business through our web site depends on
continued growth in the use of the Internet and in the acceptance and volume of
commerce transactions on the Internet. Rapid growth in the use of the Internet
and online services is a recent phenomenon. This growth may not continue. A
sufficiently broad base of consumers may not accept, or continue to use, the
Internet as a medium of commerce. We cannot assure you that the number of
Internet users will continue to grow in general or with respect to our site or
that commerce over the Internet will become more widespread or that our sales
will grow at a comparable rate. As is typical in the case of a new and rapidly
evolving industry, demand and market acceptance for recently introduced services
are subject to a high level of uncertainty. The Internet may not prove to be a
viable commercial marketplace for a number of reasons including but not limited
to: (i) the lack of acceptable security technologies; (ii) the lack of access
and ease of use; (iii) congestion of traffic; inconsistent quality of service
and the lack of availability of cost effective, high speed service; (iv)
potentially inadequate development of the necessary infrastructure; (v)
governmental regulation and/or taxation; and (vi) uncertainty regarding
intellectual property ownership or the enforcement of intellectual property
rights.
DUE TO OUR ANTICIPATED GROWTH, WE MAY BE UNABLE TO PLAN OR MANAGE OUR OPERATIONS
AND GROWTH EFFECTIVELY.
Our growth to date has placed, and our anticipated future operations
will continue to place, a significant strain on our management, systems and
resources. We continue to increase the scope of our operations and the size of
our workforce. In addition to needing to train and manage our workforce, we will
need to continue to improve and develop our financial and managerial controls
and our reporting systems and procedures. A failure to plan, implement and
integrate these systems successfully could adversely affect our business.
We cannot assure you that the Internet will support increasing use or
will prove to be a viable commercial marketplace.
The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of traffic. Our
success will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a reliable
network backbone with the necessary speed, data capacity and security and the
timely development of complementary products for providing reliable Internet
access and services. Major online service providers and the Internet itself have
experienced outages and other delays as a result of software and hardware
failures and could face such outages and delays in the future. Outages and
delays are likely to affect the level of Internet usage and the processing of
transactions on our websites. In addition, the Internet could lose its viability
because of delays in the development or adoption of new standards to handle
increased levels of activity or of increased government regulation. The adoption
of new standards or government regulation may require us to incur substantial
compliance costs.
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INFORMATION DISPLAYED ON OUR WEB SITE MAY SUBJECT US TO LITIGATION AND THE
RELATED COSTS.
We may be subject to claims for defamation, libel, copyright or
trademark infringement or based on other theories relating to information
published or contained on our web site. We could also be subject to claims based
upon the content that is accessible from our web site through links to or from
other web sites. Defending against any such claims could be costly and divert
resources and the attention of management from the operation of our business.
ADDITIONAL RISKS
OUR REVENUES ARE UNPREDICTABLE AND ARE SUBJECT TO FLUCTUATION.
As a result of our limited operating history and the recent addition of
our online operations, we are unable to accurately forecast our revenues. Our
current and future expense levels are based on our operating plans and estimates
of future revenues and are subject to increase as we implement our strategy. We
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 our business,
operating results and financial condition. Further, if we should substantially
increase our operating expenses to offer expanded services, to increase sales
and marketing or to develop our technology and transaction processing systems,
and such expenses are not subsequently followed by increased revenues, our
operating performance and results would be adversely effected and if sustained
could have a material adverse effect on our business.
We will experience seasonality in our business, reflecting seasonal
fluctuations in the travel industry. Seasonality in the travel industry is
likely to cause quarterly fluctuations in our operating results and could have a
material adverse effect on our business, operating results and financial
condition.
OUR BUSINESS IS EXPOSED TO RISKS ASSOCIATED WITH ONLINE COMMERCE SECURITY AND
CREDIT CARD FRAUD.
Consumer concerns over the security of transactions conducted on the
Internet or the privacy of users may inhibit the growth of the Internet and
online commerce. To transmit confidential information such as customer credit
card numbers securely, we rely on encryption and authentication technology.
Unanticipated events or developments could result in a compromise or breach of
the systems we use to protect customer transaction data. Furthermore, our
servers may also be vulnerable to viruses transmitted via the Internet. While we
proactively check for intrusions into our infrastructure, a new and undetected
virus could cause a service disruption.
OUR SUCCESS IS SUBSTANTIALLY DEPENDENT UPON CERTAIN KEY PERSONNEL.
Our success is substantially dependent upon the continuing services of
certain key personnel. While we have employed a number of executives with
industry experience, the loss of any significant member of management could have
a material adverse effect on our business, financial condition and results of
operations.
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY IMPACT THE MARKET PRICE OF THE
COMMON STOCK.
We are unable to predict the effect, if any, that future sales of
Common Stock (or the potential for such sales) 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, including those obtained from the
exercise of the Warrants, could impair our ability to raise capital through an
offering of securities and may adversely affect the market price of the Common
Stock.
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THE COMPANY MUST MAINTAIN A CURRENT PROSPECTUS AND REGISTRATION STATEMENT IN
ORDER FOR WARRANTS TO BE EXERCISED BY THEIR HOLDERS.
We must maintain an effective registration statement on file with the
Commission before the holder of any of the Warrants may be redeemed or
exercised. It is possible that we 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 where we are 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. There can be no
assurance that we will be able to maintain an effective registration statement
covering the issuance of Common Stock upon redemption or exercise of the
Warrants. If we are unable to maintain an effective registration for the
issuance of Common Stock upon redemption of exercise of the Warrants, we may be
subject to claims by the Warrant holders.
OUR COMMON STOCK PRICE AND WARRANT PRICE MAY BE VOLATILE.
The market price for our Common Stock and Warrants are likely to be
highly volatile and are likely to experience wide fluctuations in response to
factors including the following:
o actual or anticipated variations in our quarterly operating
results
o announcements of technological innovations or new services by
us or our competitors
o changes in financial estimates by securities analysts
o conditions or trends in the Internet or online commerce
industries
o changes in the economic performance or market valuations of
other Internet, online commerce or travel companies
o announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures or
capital commitments
o additions or departures of key personnel
o release of lock-up or other transfer restrictions on our
outstanding shares of common stock or sales of additional
shares of common stock
o potential litigation
The market prices of the securities of Internet-related and online
commerce companies have been especially volatile. Broad market and industry
factors may adversely affect the market price of our Common Stock and Warrants,
regardless of our actual operating performance. In the past, following periods
of volatility in the market price of their stock, many companies have been the
subject of securities class action litigation. If we were sued in a securities
class action, it could result in substantial costs and a diversion of
management's attention and resources and would adversely affect our stock price.
WE MAY NOT BE ABLE TO MAINTAIN THE LISTING OF OUR COMMON STOCK ON THE NASDAQ
SMALL CAP MARKET WHICH WOULD MAKE IT MORE DIFFICULT FOR YOU TO DISPOSE OF YOUR
COMMON STOCK.
Our common stock is listed on the Nasdaq Small Cap Market. We cannot
guarantee that it will always be listed. The Nasdaq Small Cap Market rules for
continual listing include minimum stock price and other requirements, which we
may not meet in the future, particularly if the price of our common stock
declines.
If our common stock is delisted from the Nasdaq Small Cap Market,
trading in our common stock would be conducted, if at all, on the NASD's OTC
Bulletin Board. This would make it more difficult for stockholders to dispose of
their common stock and more difficult to obtain accurate quotations on our
common stock. This could have an adverse effect on the price of the common
stock.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Incorporated by reference herein to Part I, Item 1, Note C, Legal Proceedings.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of 800 Travel Services, Inc. was held on July
10, 2000. Each share of Common Stock entitled its holder to one vote on the
matters considered by stockholders at the annual meeting. Stockholders present
in person, or by proxy, representing 6,220,322 shares of common stock vote on
the matters described below.
(1) The following directors were elected to the Company to hold
office until their term expires or until their successors have
been duly elected and qualified, pursuant to the vote
indicated:
FOR WITHHELD
L. Douglas Bailey 6,149,626 70,696
Peter M. Sontag 6,162,601 57,721
(2) The stockholders approved the adoption of the Company's 2000
Stock Incentive Plan. The Plan received 763,377 votes for,
688,759 votes against and 35,540 votes abstained.
(3) The stockholders approved the proposal to ratify the
appointment of Grant Thornton LLP as the Company's independent
auditors for the fiscal year 2001. Grant Thornton LLP received
5,755,681 votes for, 50,296 votes against and 414,345 votes
abstained.
ITEM 6. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibit Index:
Exhibit Description
------- -----------
2.1 -- Agreement and Plan of Reorganization between 800 Travel
Systems, Inc., 800 Travel Acquisition Sub, Inc., Prestige
Travel Systems, Inc., Anita K. Lascala, Ron Lascala and
Kimberly D. Lascala, dated August 21, 2000. (Schedules (or
similar attachments) have been omitted and the Registrant
agrees to furnish supplementally a copy of any omitted
schedule to the Securities and Exchange Commission upon
request.) (7)
3.1 -- Amended and Restated Certificate of Incorporation (1)
3.2 -- Amended and Restated Bylaws (1)
4.1 -- 1997 Stock Option Plan (1)
4.2 -- 1998 Stock Option Plan (2)
4.3 -- 2000 Stock Option Plan (7)
10.1 -- Lease dated February 10, 1996 between JFJ Real Estate L.P.
and 800 Travel Systems (1)
10.2 -- Airlines Reporting Corporation ("ARC") Agent Reporting
Agreement (1)
10.3 -- Letter dated March 6, 1996 from ARC approving change of
ownership (1)
10.4 -- Subscriber Service Agreement dated November 27, 1995
between 800 Travel Systems and Payroll Transfers Interstate,
Inc. (1)
10.5 -- Form of Employment Agreement between 800 Travel Systems and
Mark D. Mastrini (1)
10.6 -- Form of Employment Agreement between 800 Travel Systems and
Biagio Bellizzi (1)
10.7 -- Agreement of March 1, 1997 between 800 Travel Systems and
Global Discount Travel Services (1)
10.8 -- SABRE Subscriber Agreement dated May 1, 1999 between 800
Travel Systems and SABRE, Inc.(3)
10.9 -- Loan and Pledge Agreement dated April 1, 1999 between 800
Travel Systems and Mark D. Mastrini (3)
10.10 -- Deferred Compensation Agreement dated April 20, 1999
between 800 Travel Systems and Mark D. Mastrini (3)
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10.11* -- Phone Agreement dated August 24, 1999 between 800 Travel
Systems and AT&T (4)
10.12 -- Employment agreement dated September 16, 1999 between 800
Travel Systems and Robert B. Morgan (4) 10.13* -- Amendment to
SABRE Subscriber Agreement dated November 5, 1999 between 800
Travel Systems and SABRE, Inc. (5)
10.14* -- Software Development Agreement dated November 5, 1999
between 800 Travel Systems and SABRE, Inc. (5)
10.15 -- Employment agreement dated November 22, 1999 between 800
Travel Systems and Peter M. Sontag (5)
10.16 -- Employment agreement dated November 5, 1999 between 800
Travel Systems and Michael Gaggi (5)
10.17 -- Amendment to Employment Agreement dated November 23, 1999
between 800 Travel Systems and Mark D. Mastrini (5)
10.18 -- Agreement of Separation and Release dated June 5, 2000
between 800 Travel Systems and Mark D. Mastrini (6)
10.19 -- Consulting agreement dated June 5, 2000 between 800 Travel
Systems and Mark D. Mastrini (6)
27.1 -- Financial Data Schedule (for SEC use only)
(1) Incorporated by reference to 800 Travel Systems' Registration
Statement on Form SB-2 No. 333-28237. (2) Incorporated by reference to
800 Travel Systems' Registration Statement on Form S-8 filed December
15, 1998. (3) Incorporated by reference to 800 Travel Systems' Report
on Form 10-QSB filed August 14, 1999. (4) Incorporated by reference to
800 Travel Systems' Report on Form 10-QSB filed November 11, 1999. (5)
Incorporated by reference to 800 Travel Systems' Report on Form 10-KSB
filed March 27, 2000. (6) Incorporated by reference to 800 Travel
Systems' Report on Form 10-QSB filed August 14, 2000. (7) Attached
herein.
* Portions of this exhibit are the subject of a confidential treatment
request.
(b) Reports on Form 8-K:
During the quarterly period ended September 30, 2000, the Company filed a Report
on Form 8-K announcing the filing of press releases by the Company regarding the
departure from the Company of Mark Mastrini and appointment of Peter Sontag to
the office of Chief Executive Officer. The Company filed a Report on Form 8-K on
July 24, 2000 announcing the filing of press releases by the Company regarding
(i) the First Internet Travel, L.L.C. marketing alliance, (ii) the appointment
of a chief technology officer and Director of E-Commerce Marketing, and (iii)
the election of Vince Vitti and Antoine Toffa to the Board of Directors. The
Company also filed a Report on Form 8-K on August 18, 2000 relating to the
Company's filing of a press release announcing the acquisition of Prestige
Travel Systems, Inc. through merger into the Company's newly formed wholly owned
subsidiary.
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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: November 13, 2000
800 TRAVEL SYSTEMS, INC.
(Registrant)
By: /s/ Peter M. Sontag
----------------------------------------------
Peter M. Sontag, Chief Executive Officer
By: /s/ Robert B. Morgan
----------------------------------------------
Robert B. Morgan, Chief Financial Officer
28
