<PAGE>
As filed with the Securities and Exchange Commission on April 27, 2000
Registration No. 333-32352
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------------------
AFFINITY INTERNATIONAL TRAVEL SYSTEMS, INC.
(Exact Name Of Registrant As Specified In Its Charter)
--------------------------
<TABLE>
<S> <C> <C>
Nevada 4724 86-0885559
(State or Other Jurisdiction Of (Primary standard industrial (I.R.S. Employer
Incorporation Or Organization) classification code number) Identification Number)
</TABLE>
100 Second Avenue South, Suite 1100S
St. Petersburg, Florida 33701-4301 (727) 896-1513
(Address, Including Zip Code, And Telephone Number, Including
Area Code, Of Registrant's Principal Executive Offices)
----------------------
Daniel G. Brandano, Jr.
Chief Executive Officer
Affinity International Travel Systems, Inc.
100 Second Avenue South, Suite 1100S
St. Petersburg, Florida 33701-4301
(727) 896-1513
(Name, Address, Including Zip Code, And Telephone Number,
Including Area Code, Of Agent For Service)
--------------------------
Copies to:
John G. Nossiff, Jr., Esq.
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, Massachusetts 02111
Tel: (617) 856-8200
Fax: (617) 856-8201
----------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. |X|
<PAGE>
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Prospectus Subject To Completion, Dated April ___, 2000
AFFINITY INTERNATIONAL TRAVEL SYSTEMS, INC.
20,353,094 Shares of Common Stock
-----------------------
The selling stockholders identified on page 46 of this prospectus
may offer, sell or otherwise transfer under this prospectus up to 20,353,094
shares of our common stock, which includes 9,940,000 shares that are being
registered for resale upon the private exercise of outstanding warrants. We
will not receive any of the proceeds from the sale of shares of common stock
by the selling stockholders.
Our common stock is quoted on the National Association of Securities
Dealers Inc.'s OTC Bulletin Board under the symbol "AFFT." On April 26, 2000,
the last quoted sale price of the common stock was $1.65 per share.
-----------------------
An investment in the common stock offered under this prospectus involves a high
degree of risk. See "Risk Factors" beginning on page 5.
----------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-----------------------
The date of this Prospectus is April ___, 2000.
<PAGE>
Table of Contents
PROSPECTUS SUMMARY.............................................................1
RISK FACTORS...................................................................5
USE OF PROCEEDS...............................................................12
DIVIDEND POLICY...............................................................12
PRICE RANGE OF COMMON STOCK...................................................12
SELECTED CONSOLIDATED FINANCIAL DATA..........................................13
PRO FORMA FINANCIAL DATA......................................................15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.................................................................18
BUSINESS......................................................................29
MANAGEMENT....................................................................40
PRINCIPAL AND SELLING STOCKHOLDERS............................................46
DESCRIPTION OF CAPITAL STOCK AND OTHER MATTERS................................52
SHARES ELIGIBLE FOR FUTURE SALE...............................................54
PLAN OF DISTRIBUTION..........................................................55
LEGAL MATTERS.................................................................55
EXPERTS.......................................................................55
WHERE YOU CAN FIND MORE INFORMATION...........................................55
INDEX TO FINANCIAL STATEMENTS................................................F-1
We maintain world wide web sites at www.affinityinternational.com,
www.sunstyle.com, www.faraway.com, www.affinityrentacar.com and
www.cruiseaffinity.com. Information contained on our web sites does not
constitute part of this prospectus.
ii
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk Factors" and our financial statements and
the notes to the financial statements, before making an investment decision.
About Affinity
Affinity International Travel Systems, Inc. was incorporated in Nevada in
1977 under the name Medanco, Inc. From 1977 through 1997, Medanco had no
revenues and limited operations. In 1997, Medanco changed its name to Pay Dirt,
Inc., which had no operations until it completed the acquisition of SunStyle
International Holidays, Inc. in July 1998, at which point it changed its name to
Affinity International Travel Systems, Inc.
Since 1998, we have been operating primarily through our wholly-owned
subsidiary, SunStyle International Holidays, Inc. Through SunStyle, we are
engaged in the business of marketing, selling and distributing a variety of
wholesale and retail travel related products and services. Specifically, we
market, sell and distribute vacation packages, tours, cruises, domestic and
international airline tickets, car rentals and accommodation products and
services to travel agencies and consumers. During the fiscal year ended June 30,
1999, we had consolidated revenues of $2.3 million, of which approximately
$69,000 were derived from Internet sales. In December 1999 we sold Prestige
Travel Services, II, which accounted for approximately 29.0% of our revenues
during the six months ended December 31, 1999. During the fiscal year ended June
30, 1999, we incurred net losses of $5.0 million. In order to fund our
operations and continue the implementation of our Internet business strategy,
we anticipate the need to raise at least $6.0 million in additional capital
during the calendar year 2000. We will need to raise a portion of that capital
within approximately sixty days to fund negative cash flow from operations
and fund capital expenditures related to the implementation of our Internet
business strategy.
Our wholesale revenue consists principally of the sales activities of
SunStyle, which functions primarily as a tour operator. SunStyle contracts with
airline, hotel and auto suppliers for wholesale purchases and then sells
vacation packages to both travel agents and directly to consumers. In 1998 and
1999, we acquired several retail travel agencies to provide a channel of
distribution for wholesale products.
We also generate revenue from our retail travel services, which consists
primarily of commissions earned from travel service suppliers, such as airlines,
car rental companies, resorts and hotels, for facilitating travel arrangements
for these suppliers' retail customers.
Our Business Strategy
We have recently shifted the focus of our business strategy from
conventional sales of travel services and products to online sales of travel
services and products. We plan to offer wholesale and retail vacation packages
through our web sites and other linked internet web sites.
A key component of our Internet business strategy is to focus our
resources in two segments: the business to consumer and business to business
travel arena. We intend to concentrate our resources on the business to business
online travel arena, where our objective is to sell to other travel providers
leisure travel products that traditionally have had higher margins than airline
ticket sales, including, among others, vacation packages, tours and cruises. We
also intend to continue to sell our leisure travel products directly to
consumers.
We intend to fulfill demand for our travel products, in both the business
to business and business to consumer online travel arenas, by aggregating our
inventory of packaged leisure travel products and using the Internet as the
delivery platform. We believe our Internet business strategy is different from
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current online travel distribution organizations which derive the majority of
their revenue from airline tickets sales, the least profitable but highest
volume product in the travel services industry.
In order to implement our business strategies, we have undertaken the
following strategic initiatives:
o Development and Acquisition of Technologies. We have developed and
acquired technologies and software relating to processing on-line
queries, vacation packaging, booking transactions, and making travel
reservations, all of which are currently available to travel agents
and consumers. Our software systems include TourScape, TourWise,
BookIt! and And BookIt! Pro. Each of these software systems is
designed to assist us in developing and packaging customized travel
plans and reservations. We license these non-proprietary
technologies and software systems on a non-exclusive basis. Some of
our competitors also use these software systems.
o Specialized Knowledge and Expertise in Destination Markets. We have
primarily focused our marketing and selling efforts on the following
destinations: Caribbean, Hawaii, Florida and Mexico. We believe our
knowledge of these markets provides us with the expertise necessary
to provide high-quality service to our clients.
o Strategic Relationships with Suppliers. We have negotiated
arrangements with major hotels and resorts, airlines, cruise and
auto rental companies, which allow us to offer competitive pricing
and give us access to a broader inventory base than suppliers who
lack these relationships. We believe that these arrangements give us
a competitive advantage over suppliers and other travel agencies who
lack these relationships because our experience has shown that
travel providers are increasingly utilizing specialized
distributors, such as Affinity, as a preferred source of
distribution. These arrangements, however, are not exclusive and our
competitors may obtain similar arrangements.
We believe that our current infrastructure should enable us to take
advantage of the projected growth in online travel. Forrester Research reports
that online travel sales are projected to increase from $2.8 billion in 1999 to
$29.5 billion by 2003.
We plan to implement our Internet business strategy through the
development and implementation of our FarAway.com web site, which will utilize
our existing hardware and software infrastructure, strategic partnerships and
existing vendor contracts. This web site will be designed to attract a base of
potential customers in the United States, Europe, Asia and Latin America, and to
convert these potential customers into leisure travel buyers. We plan to
implement our strategy as follows:
o Sale of Specialized Leisure Travel Packages. We plan to have
specialized vacation package inventory available to consumers, which
can be accessed by our web site through the use of our online
software and tools that will help facilitate complex and specialized
leisure travel purchases. We expect that our established vendor
relationships will enable us to provide specialized packages at
rates that customers will find attractive.
o Customer Service. Our customer service will be available to
customers to provide both on and offline assistance to ensure that
the customer is receiving the service that a customer would
generally receive through the use of an 800 number or a conventional
travel agent. We believe that because users of our site will have
access to our travel specialists through real time chat, Internet
telephony, 800 telephone service, and, in the future, Internet based
video communication, customers will begin to feel more comfortable
making online travel purchases.
o Strategic Partnerships and Alliances. In addition to traditional
types of online partnerships, such as those for content and
advertising, we intend to pursue online strategic partnerships and
alliances with other e-commerce companies. These relationships would
allow us to create a link from the online vendor's site to our site.
The online vendor would receive a commission for any
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sales generated on our site as a result of the link. We believe that
relationships with other e-commerce companies should generate
traffic to our web site, increase the number of our customers and
generate revenue.
o Strategic Acquisitions. We plan to seek strategic acquisitions
within the leisure travel industry. We believe the leisure travel
industry is highly fragmented, and includes numerous small,
specialized distributors. We believe growth opportunities are
available through acquisitions. We also believe that we will be able
to broaden our offering of specialized travel services, increase our
level of customer service, and improve our Internet and technology
infrastructure through strategic acquisitions.
o Create FarAway.com Referral Program. We plan to seek referral
relationships with other online vendors to increase our online
traffic and sales.
o Target European and Latin American Geographic Markets. With the
rapid growth in the number of Internet users, especially in Europe
and Latin America, we plan to expand our target market beyond the
United States, to include more countries in Europe and Latin
America. In anticipation of expanding our international operations,
we have opened an office in the United Kingdom which is currently
being connected to our TourScape software system located in Florida.
We anticipate that our online booking engines and our primary web site,
www.faraway.com, will be developed and operational within the next four months.
We believe that we will need to raise $3 million of additional capital during
the next four months to complete the development of our booking engines and our
primary web site. We plan to raise this additional capital through additional
equity or debt financings.
Our principal executive offices are located at 100 Second Avenue South,
Suite 1100S, St. Petersburg, Florida 33701-4301, and our telephone number is
(727) 896-1513. Our web sites are located at www.affinityinternational.com,
www.sunstyle.com, www.faraway.com, www.affinityrentacar.com and
www.cruiseaffinity.com.
The Offering
Common stock offered by the selling stockholders ..... 20,353,094 shares
Use of proceeds ...................................... We will not receive any
proceeds from the sale
of common stock by the
selling stockholders.
OTC Bulletin Board Symbol............................. AFFT
3
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Summary Consolidated Financial Data
<TABLE>
<CAPTION>
Statement of Operations Data: Year ended June 30, (1)
------------------------------------------------------------
1997 1998 1999 1999(3)
------------ ------------ ------------ ------------
(Pro Forma)
<S> <C> <C> <C> <C>
Net sales $ 665,143 $ 1,328,577 $ 2,324,943 $ 1,698,862
Cost of sales 541,751 769,667 1,585,807 1,439,686
------------ ------------ ------------ ------------
Gross profit 123,392 558,910 739,136 259,176
Operating expenses 436,981 1,702,818 3,469,797 2,932,374
------------ ------------ ------------ ------------
Operating loss (313,589) (1,143,908) (2,730,661) (2,673,198)
Interest income (expense), net (785) (40,721) (2,239,795) (2,239,795)
Gain on sale of subsidiary -- -- -- --
Financing charges -- -- -- --
Other income (expense), net (3,451) 16,128 13,374 13,374
------------ ------------ ------------ ------------
Net loss $ (317,825) $ (1,168,501) $ (4,957,082) $ (4,899,619)
============ ============ ============ ============
Net loss per common share:
Basic and diluted $ (.11) $ (.27) $ (.79) $ (.78)
Weighted average common shares outstanding:
Basic and diluted (3) 2,848,718 4,249,506 6,290,174 6,290,174
<CAPTION>
Six Months ended
Statement of Operations Data: December 31, (1)
--------------------------------------------
1998 1999 1999(3)
------------ ------------ ------------
(Unaudited) (Unaudited) (Pro Forma)
<S> <C> <C> <C>
Net sales $ 667,189 $ 2,055,801 $ 1,466,025
Cost of sales 534,403 1,301,176 1,127,066
------------ ------------ ------------
Gross profit 132,786 754,625 338,959
Operating expenses 713,459 3,217,871 2,667,617
------------ ------------ ------------
Operating loss (580,673) (2,463,246) (2,328,658)
Interest income (expense), net 191 8,505 8,505
Gain on sale of subsidiary -- 75,000 --
Financing charges -- (2,466,500) (2,466,500)
Other income (expense), net 1,983 (63,580) (63,580)
------------ ------------ ------------
Net loss $ (578,499) $ (4,909,821) $ (4,850,233)
============ ============ ============
Net loss per common share:
Basic and diluted $ (.11) $ (.36) $ (.39)
Weighted average common shares outstanding:
Basic and diluted (3) 5,383,060 13,556,085 12,558,035
</TABLE>
<TABLE>
<CAPTION>
Six months ended
Balance Sheet Data: Year ended June 30, (1) December 31, (1)
------------------------------------------- ------------------------
1997 1998 1999 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $326,452 $64,061 $1,119,796 $10,697 $57,170
Working capital 193,468 (595,550) 338,369 (541,681) (1,352,721)
Total assets 547,086 395,165 3,664,923 533,654 2,001,964
Long-term debt, less current maturities 9,063 -- -- -- --
Capital lease obligation, less current portion -- 38,334 22,924 29,418 15,933
Convertible debentures 150,000 -- 25,000 -- --
Total liabilities 361,933 834,250 1,359,531 871,634 2,177,827
Stockholders' equity (deficit) 185,153 (439,085) 2,305,392 (337,980) (175,863)
</TABLE>
Footnotes
(1) On July 31, 1998, Affinity acquired SunStyle in a transaction accounted
for as a purchase of Affinity by SunStyle (a reverse acquisition in which
SunStyle is considered the acquirer for accounting purposes). Therefore, the
historical financial statements herein are those of SunStyle. See Note 1 to
the Consolidated Financial Statements for the three years ended June 30,
1999. In December 1999, we disposed of Prestige Travel Services, Inc.
(acquired on January 1, 1999) by selling all of its outstanding common stock
to its original stockholders. Prestige accounted for $626,000 and $590,000 of
our revenues for the year ended June 30, 1999 and the six months ended
December 31, 1999, respectively. Our revenues in future periods will be
substantially less than shown in our Consolidated Financial Statements for
the year ended June 30, 1999 and the six months ended December 31, 1999 if we
are unable to replace the revenues we previously received from Prestige's
operations.
(2) The weighted average common shares outstanding for the year ended June 30,
1997, have been adjusted to reflect additional shares issued to the then
sole stockholder and a stock split which occurred during the year ended June
30, 1997.
(3) The unaudited pro forma combined statement of operations for the year
ended June 30, 1999 and the six months ended December 31, 1999 give effect to
the sale of the subsidiary, Prestige Travel Services, II by reversing the
subsidiary's purchase on January 1, 1999 and eliminating its effect on
operations from January 1 to December 31, 1999 (See Pro Forma Financial Data).
4
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RISK FACTORS
You should carefully consider the following factors before deciding to
invest in the shares of common stock.
We have a history of net losses. If we are unable to become profitable it is
unlikely that we will be able to continue our operations.
We have sustained substantial and recurring losses in each of the last
three fiscal years ended June 30, 1997, 1998 and 1999 and the six months ended
December 31, 1999. For these periods, we had aggregate net losses of
$11,353,000. For the fiscal year ended June 30, 1999, we had a net loss of
$4,957,000, and for the six months ended December 31, 1999, we had a net loss of
$4,910,000.
We expect significant losses and negative cash flow to continue for the
foreseeable future. We anticipate our losses will increase significantly from
current levels due to start-up expenses and cash requirements to fund our
Internet business strategy. If we continue to sustain losses and negative cash
flow, it is unlikely that we will be able to continue our operations.
Our ability to become profitable primarily depends on our ability to
develop and implement our Internet business strategy. Specifically, we must
convert a large number of customers from traditional shopping methods to online
shopping for travel products and services and we must be able to generate
substantial sales from these customers on our web site.
We have been unable to fund our operations with internally generated funds
because our business has generated negative cash flow. We will need to raise
additional capital within sixty days to fund our operations and fund capital
expenditures related to the implementation of our Internet strategy. We will
need to raise approximately $6.0 million during the calendar year 2000.
We have and will continue to require substantial capital to fund our
business operations. Since our inception, we have experienced and expect to
continue to experience for the foreseeable future negative cash flow from
operations. For the fiscal year ended June 30, 1999, we used $1,801,000 of cash
for our operating and investing activities and for the six months ended December
31, 1999 we used $1,452,000 of cash for our operating and investing activities .
As of December 31, 1999, we had a working capital deficit of $1,352,000.
From January to March 2000, we raised additional net proceeds aggregating
approximately $2,433,000. We used a portion of this additional capital to reduce
our working capital deficit and the remainder is being used to fund negative
cash flow from operations and capital expenditures related to the implementation
of our Internet business strategy. In addition, $400,000 of current liabilities
were converted into warrants to purchase shares of our common stock. For more
information regarding our working capital deficiency, please see the liquidity
and capital resources discussion contained in our management's discussion and
analysis of financial condition and results of operations.
In order to fund our operations and continue the implementation of our
Internet business strategy, we anticipate the need to raise at least $6.0
million in additional capital during the calendar year 2000. We will need to
raise a portion of that capital within approximately sixty days to fund
negative cash flow from operations and fund capital expenditures related to
the implementation of our Internet business strategy. If we raise additional
funds through the issuance of equity or debt securities, those securities may
have rights senior to those of our stockholders, and our stockholders may
experience substantial additional dilution. We cannot be certain that
additional financing will be available to us on favorable terms when
required, or at all.
5
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If we are unable to become a reporting company under the Exchange Act by May 3,
2000, we will be removed from the OTC Bulletin Board which would have an adverse
effect on our stock price and our ability to raise additional capital.
Our common stock is currently quoted on the OTC Bulletin Board, which is
administered by the National Association of Securities Dealers, Inc. The Board
of Governors of the NASD recently enacted a rule that provides for the removal
from the OTC Bulletin Board of the stock of any company that does not file
periodic reports with the SEC under the Exchange Act before a specified date. We
do not currently file periodic reports with the SEC because our common stock is
not registered under the Exchange Act. We intend to register our common stock
under the Exchange Act and commence filing periodic reports with the SEC upon
the effectiveness of the registration statement of which this prospectus is a
part. If our common stock is not registered under the Exchange Act prior to May
3, 2000, then our common stock will be removed from the OTC Bulletin Board and
quotations for our common stock would no longer be available on the OTC Bulletin
Board. There is a substantial risk that our common stock will not be registered
under the Exchange Act by May 3, 2000. The removal of our common stock from the
OTC Bulletin Board would have a material adverse effect on the price of and any
trading market for our common stock. In addition, the removal of our common
stock from the OTC Bulletin Board would have a material adverse effect on our
ability to raise additional capital.
We expect that a substantial number of our securities will be sold in the market
in the near future. This could cause our stock price to decline significantly.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of our common stock in the market after this
offering or the perception that such sales could occur. These sales also might
make it more difficult for us to sell equity securities in the future at a time
and at a price that we deem appropriate. As of April 14, 2000, we had
approximately 15,550,210 shares of common stock outstanding, which does not
include the 9,940,000 shares issuable upon exercise of outstanding warrants
which are being registered for resale on the registration statement of which
this prospectus is a part.
Upon the effectiveness of the registration statement of which this
prospectus is a part, assuming the prior exercise of the outstanding warrants
for which the underlying shares of common stock are being registered for resale
hereunder, approximately 24,660,496 shares will be freely tradable without
restriction under the Securities Act of 1933, as amended. In addition, subject
to certain volume and other limitations, approximately 79,156 shares will be
currently eligible for sale under Rule 144, and approximately 750,558 shares
will be eligible for public sale without registration at different times during
the next twelve months, pursuant to Rule 144.
In addition, we also have outstanding warrants to purchase 70,817 shares
of our common stock, which are not being registered on the registration
statement of which this prospectus is a part. The weighted average purchase
price of the outstanding warrants to purchase 10,010,817 shares of our common
stock is $0.33 per share.
We also have outstanding options to purchase 2,165,000 shares of our
common stock at a weighted average exercise price of approximately $0.54 per
share. Further, shortly after the effectiveness of the registration statement,
of which this prospectus is a part, we intend to file a Form S-8 registration
statement under the Securities Act registering 4,000,000 shares of common stock
issuable under our combination stock option plan, including the 2,165,000
options currently outstanding. The sale of even a
6
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small number of the outstanding shares of common stock may have a material
adverse effect on the quoted price of our common stock and on our ability to
raise capital.
Our business is difficult to evaluate because our new Internet business model is
currently in the early stages of development and implementation. If a market for
our products and services does not develop, we may be unable to successfully
implement our business strategy.
Our market may not develop as anticipated, and we may not successfully
execute our Internet business strategy. We have a limited operating history upon
which you can evaluate our business. Our new Internet business model is
currently in the early stages of development and implementation, including our
FarAway.com web site. In 1999, we began transitioning our way of doing business
to online sales of travel related products and services. If we are unable to
develop and upgrade our web sites, transaction-processing systems, fulfillment
infrastructure and inventory management systems, and generate revenues, then our
Internet business strategy may fail.
Our limited operating history makes it difficult to forecast our future
revenues. Accordingly, we may achieve a level of revenues that is lower than we
expect, which would result in greater than expected losses.
As a result of our limited operating history with our current Internet
business model, it is difficult to accurately forecast future revenues. We may
be unable to adjust our spending in a timely manner to adjust for any unexpected
revenue shortfall. Also, we have limited meaningful historical financial data
upon which to base planned operating expenses. We base our current and future
expense levels on our operating plans and estimates of future revenue. Revenue
and operating results are difficult to forecast because they generally depend on
the volume and timing of the orders we receive. As a result, we may be unable to
adjust our spending in a timely manner to adjust for any unexpected revenue
shortfall, which would result in further substantial losses. We may also be
unable to expand our operations in a timely manner to adequately meet customer
demand to the extent it exceeds our expectations.
Our historical financial results are not meaningful to an analysis of our
current business.
The financial data included in this document covers periods prior to the
transition to our current Internet business strategy and is not necessarily
meaningful to an analysis of our current and future business operations. For
example, Prestige Travel Services II, Inc., a business we acquired in January
1999 and subsequently sold in December 1999, accounted for 29% of our total
revenue during the six months ended December 31, 1999. Because we will no longer
receive revenues from the Prestige operations, our revenues in future periods
will be substantially less than prior periods, unless we are able to replace the
lost revenues from the Prestige business with new business.
If our technology or the technology of third parties upon which our systems rely
either fail or malfunction, our ability to process transactions would be harmed,
which would have a material and adverse affect on our business.
We are currently dependent upon a number of different information and
telecommunication technologies which provide us access to information and manage
a high volume of inbound and outbound calls. We are also dependent upon certain
third party vendors, including central reservation systems (also known as global
distribution systems), such as SABRE. Any failure or malfunction of these
systems or technologies or restricted access by us would have a material adverse
effect on our
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business, financial condition and results of operations because we would be
unable to process transactions.
Our new technology may not be successfully developed, installed or implemented
without disrupting our business.
We are currently replacing many of our existing computer systems and web
sites with systems designed to operate with our new web site, FarAway.com. There
can be no assurance that these new systems will be successfully developed,
installed according to the expected time frame or within the anticipated budget,
implemented without any disruption to our business or result in the intended
operational benefits and cost efficiencies.
If we do not respond to rapid technological changes, our services could become
obsolete and we could lose customers.
To be competitive, we must enhance and improve the functionality and
features of our online technology and our web sites. The Internet and the online
commerce industry are rapidly changing. If competitors introduce new products
and services embodying new technologies, or if new industry standards and
practices emerge, our existing web sites, technology and systems may become
obsolete. Ongoing development of our web sites and other technology entails
significant expense and technical risks. We need to raise additional capital
over the next four months in the amount of $3 million to fund the development of
our booking engines and our primary web sites. Our failure to raise additional
capital may render our services and web sites obsolete.
If we fail to compete effectively in our market, we will be unable to generate
sales which will have a material adverse effect on our business, results of
operations and financial condition.
The travel service industry is extremely competitive and has relatively
low barriers to entry. We primarily compete with:
o other distributors of travel services;
o travel providers;
o travel agents;
o tour operators; and
o central reservation service providers.
Many of our competitors have greater experience, brand name recognition
and/or financial resources than we do. Our major competitors include:
Travelocity, Expedia, Preview Travel, Get There.com and Trip.com, Travel
Network, Uniglobe Travel and Lowestfare.com.
There is the risk that our travel providers may decide to compete more
directly with us and restrict the availability of their product
offerings/services and/or preferential pricing. In addition, other distributors
may have relationships with travel providers that enable them to provide better
product offerings or more competitive pricing than that offered by us.
Furthermore, some travel agents have a strong presence in their geographic area
that may make it difficult for us to attract customers in those areas.
Competition within the travel service industry is increasing as some of
our competitors are expanding their size and financial resources through
consolidation. Consolidation among travel suppliers
8
<PAGE>
has left the remaining suppliers in a stronger position relative to providers of
travel products and services such as Affinity.
As a result of competitive pressures, we may suffer reduced revenues and
operating margins, loss of market share and diminished brand awareness.
Our failure to maintain our relationships with travel suppliers would materially
and adversely affect our business.
We are dependent upon travel suppliers for access to their products and
services. Our travel suppliers generally can cancel or modify their agreements
with us upon no or relatively short notice. In addition, any decline in the
quality of travel products and services provided by these suppliers or a
perception by travelers of such a decline could adversely affect our reputation.
The untimely loss of important supplier contracts or a change in any of our
favorable pricing agreements with a supplier would negatively impact the cash
flow we receive from our operations.
If we are unable to manage any future growth and the related expansion in our
operations effectively, our business may be harmed.
We plan to grow internally and through acquisitions. We also plan to spend
significant time, effort and working capital with the objective of expanding our
existing businesses and identifying, completing and integrating acquisitions.
There can be no assurance that our systems, procedures and controls will be
adequate to support any expansion of our operations. Any future growth also will
impose significant added responsibilities on members of our senior management,
including the need to identify, recruit and integrate new senior level managers
and executives. There can be no assurance that such additional management will
be identified or retained by us. To the extent that we are unable to manage our
growth efficiently and effectively, or are unable to attract and retain
qualified management, our business, financial condition and results of
operations could be materially adversely affected.
Factors affecting our ability to grow internally include, but are not
limited to:
o customer acceptance of our travel services and products;
o the ability to expand our customer base;
o the ability to expand the travel services offered;
o continued relationships with certain travel providers and travel
agents;
o the ability to recruit and retain qualified sales personnel;
o the ability to cross-sell services; and
o continued access to capital.
The success of our business depends on the continuing contribution of our key
personnel, including Mr. Daniel Brandano, our president and chief executive
officer, and our other executive officers, whose knowledge of our business would
be difficult to replace in the event we lose their services.
Our operations are dependent on the efforts and relationships of Daniel
Brandano and the other executive officers as well as the senior management of
our organization. We will likely be dependent on the senior management of our
organization for the foreseeable future. If any of these individuals becomes
unable to continue in their role, our business or prospects could be adversely
affected. For example, the loss of Mr. Brandano could inhibit the development
and enhancement of our web sites and could damage customer relations and our
brand and could restrict our ability to raise additional working capital if and
9
<PAGE>
when needed. Although we have entered into an employment agreement with two
of our executive officers, Mr. Brandano and Mr. Mark Mandula, SunStyle's
chief operating officer, there can be no assurance that these individuals
will continue in their present capacity for any particular period of time.
Although we do not maintain key man life insurance covering any of our
executive officers or other members of senior management, we are currently in
the process of securing it for Mr. Brandano.
Our operating results may fluctuate due to seasonality and other factors beyond
our control.
The domestic and international leisure travel industry is seasonal. Our
historical results have been subject to quarterly fluctuations caused primarily
by the seasonal variations in the travel industry, especially the leisure travel
segment. We expect seasonality to continue in the future. Our quarterly results
of operations have also fluctuated and may continue to fluctuate because of fare
wars by travel providers, extreme weather conditions and other factors beyond
our control.
Changes in consumer preferences or discretionary consumer spending could
negatively impact our sales and results of operations.
Our continued success depends, in part, upon the popularity of our
wholesale vacation packages to Hawaii, Mexico, the Caribbean and Florida. For
the fiscal year ended June 30, 1999, we derived approximately 80% our revenues
from products and services associated with vacations to these destinations.
Because vacation packages are a luxury item, a downturn in the overall United
States economy or shifts in consumer vacation preferences could materially and
adversely affect our business, financial condition and results of operations.
Also, our success depends to a significant extent on numerous factors affecting
discretionary consumer spending, including economic conditions, disposable
consumer income and consumer confidence. Adverse changes in these factors could
reduce our sales or impose practical limits on pricing, either of which could
have a material adverse effect on our business and results of operations.
Financing of future acquisitions will dilute existing stockholder ownership.
We intend to finance future acquisitions by using shares of our common
stock or preferred stock for a substantial portion of the consideration to be
paid. This reliance upon the use of common stock or preferred stock as
consideration will dilute shareholders' interest in Affinity.
We have never paid dividends and we do not expect to pay any dividends in the
near future. An investor should not rely on dividends to be paid on the common
stock as a source of income.
We intend to retain any future earnings in order to finance our planned
operations and to implement our business plan. A potential purchaser of the
common stock should not rely on dividends from the common stock offered hereby
as a possible source of income.
The market price of our common stock fluctuates substantially. You may be unable
to sell your common stock quickly at the current market price.
The market price of our common stock has been highly volatile and will
likely fluctuate significantly. Attempts to purchase or sell relatively small
amounts of our common stock could cause the market price of our common stock to
fluctuate significantly. Low trading volume levels may also affect our
stockholders' ability to sell shares of our common stock quickly at the current
market price. In
10
<PAGE>
addition, sales of substantial amounts of our common stock, or the perception
that such sales could occur, would adversely affect the prevailing market prices
for our common stock.
The interests of our controlling stockholder may conflict with your interests.
As of April 25, 2000, Schoemann Venture Capital, LLC, trusts controlled
by Mr. Rodney Schoemann and/or his spouse, and trusts formed by Mr. Schoemann,
beneficially owned approximately 53.6% of our outstanding common stock, which
includes outstanding warrants to purchase 6,450,000 shares of our common stock
at a purchase price of $.25 per share. As a result, in practical effect,
Schoemann Venture Capital, LLC and the trusts control the election of our board
of directors, all matters requiring approval by our stockholders, including
approval of significant corporate transactions, and the direction of our
business. Schoemann Venture Capital, LLC and the trusts could exercise their
voting control in ways that could adversely affect your interests.
Provisions in our articles of incorporation could prevent or delay a change in
control of our company.
Our articles of incorporation may discourage, delay or prevent a merger or
acquisition that a stockholder may consider favorable because the board of
directors alone may, without further stockholder approval, authorize the
issuance of a series of preferred stock that may have more voting power than the
common stock. The issuance of this type of preferred stock would give control of
the company to the holders of preferred stock. Furthermore, an issuance of this
type of preferred stock could make it more difficult for a third party to
acquire, or discourage a third party from attempting to acquire, a majority of
our outstanding voting stock. The existence of this type of preferred stock
could facilitate the issuance of stock which could discourage or delay a merger
or acquisition.
11
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
selling stockholders.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock, and we do not
anticipate paying cash dividends in the foreseeable future. Our current policy
is to retain any earnings to finance our future development and growth. We may
reconsider this policy from time to time in light of conditions then existing,
including our earnings performance, financial condition and capital
requirements. Any future determination to pay cash dividends will be at the
discretion of our Board of Directors and will depend upon our financial
condition, operating results, capital requirements, general business conditions
and other factors that our Board of Directors deems relevant.
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the National Association of Securities
Dealer's OTC Bulletin Board under the symbol "AFFT." The following table sets
forth the range of high and low bid prices as quoted on the OTC Bulletin Board
for the period from September 3, 1998, when public trading for our common stock
commenced under the symbol "TRIP", through April 14, 2000. The over-the-counter
market quotations below reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
Fiscal Year Ending June 30, 1999 High Low
---- ---
First Quarter .............................................. $3.500 $1.250
Second Quarter ............................................. $2.250 $0.500
Third Quarter .............................................. $4.000 $0.875
Fourth Quarter ............................................. $2.000 $0.687
Fiscal Year Ending June 30, 2000
First Quarter .............................................. $1.562 $0.300
Second Quarter ............................................. $2.490 $0.156
Third Quarter .............................................. $7.093 $1.250
Fourth Quarter (through April 14, 2000) .................... $2.937 $1.031
The last reported sale price of our common stock on the OTC Bulletin Board
on April 26, 2000 was $1.65 per share.
For a discussion on shares of our common stock that are or will become
eligible for future sale in the public market, which may impact the trading
price or trading market for our common stock, please see the discussion
contained under the heading "Shares Eligible for Future Sale" beginning on page
53.
Holders. As of April 14, 2000, there were approximately 125 holders of
record of the common stock.
Dividends. We have never declared or paid any dividends on our common
stock and we do not intend to pay dividends on our common stock in the
foreseeable future. We anticipate that we will retain any earnings to finance
the growth and development of our business and for general corporate purposes.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains certain selected consolidated financial data
and it is qualified in its entirety by the more detailed consolidated financial
statements and notes included elsewhere in this prospectus. We derived the
statement of operations data for the years ended June 30, 1999, 1998 and 1997,
and the balance sheet data as of June 30, 1999 and June 30, 1998 from our
consolidated financial statements, which statements have been audited by BDO
Seidman LLP, independent accountants, and are included elsewhere in this
prospectus. The unaudited financial data as of June 30, 1995 and 1996 and as of
December 31, 1998 and 1999 have been prepared on a basis consistent with the
audited consolidated financial statements and, in our opinion, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial condition and results of operations for the periods
presented. The results for the six-month period ended December 31, 1999, are not
necessarily indicative of the results that may be expected for the fiscal year
ending June 30, 2000. You should read this data in conjunction with the
consolidated financial statements and related notes thereto and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Statement of Operations Data: Year ended June 30, (1)
-------------------------------------------------------------------------------------
1995(2) 1996 1997 1998 1999 1999(4)
----------- ----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Pro Forma)
<S> <C> <C> <C> <C> <C> <C>
Net sales $-- $69,291 $665,143 $1,328,577 $2,324,943 $1,698,862
Cost of sales -- 34,722 541,751 769,667 1,585,807 1,439,686
----------- ----------- ----------- ----------- ----------- -----------
Gross profit -- 34,569 123,392 558,910 739,136 259,176
Operating expenses 5 85,999 436,981 1,702,818 3,469,797 2,932,374
----------- ----------- ----------- ----------- ----------- -----------
Operating loss (5) (51,430) (313,589) (1,143,908) (2,730,661) (2,673,198)
Interest income (expense), net -- -- (785) (40,721) (2,239,795) (2,239,795)
Gain on sale of subsidiary -- -- -- -- -- --
Financing charges -- -- -- -- -- --
Other income (expense), net -- -- (3,451) 16,128 13,374 13,374
----------- ----------- ----------- ----------- ----------- -----------
Net loss $(5) $(51,430) $(317,825) $(1,168,501) $(4,957,082) $(4,899,619)
=========== =========== =========== =========== =========== ===========
Net loss per common share:
Basic and diluted $(--) $(.02) $(.11) $(.27) $(.79) $(.78)
Weighted average common shares outstanding:
Basic and diluted (3) 2,800,000 2,800,000 2,848,718 4,249,506 6,290,174 6,290,174
<CAPTION>
Six months ended
Statement of Operations Data: December 31, (1)
-----------------------------------------
1998 1999 1999(4)
----------- ----------- -----------
(Unaudited) (Unaudited) (Pro Forma)
<S> <C> <C> <C>
Net sales $667,189 $2,055,801 $1,466,025
Cost of sales 534,403 1,301,176 1,127,066
----------- ----------- -----------
Gross profit 132,786 754,625 338,959
Operating expenses 713,459 3,217,781 2,667,617
----------- ----------- -----------
Operating loss (580,673) (2,463,246) (2,328,658)
Interest income (expense), net 191 8,505 8,505
Gain on sale of subsidiary -- 75,000 --
Financing charges -- (2,466,500) (2,466,500)
Other income (expense), net 1,983 (63,580) (63,580)
----------- ----------- -----------
Net loss $(578,499) $(4,909,821) $(4,850,233)
=========== =========== ===========
Net loss per common share:
Basic and diluted $(.11) $(.36) $(.39)
Weighted average common shares outstanding:
Basic and diluted (3) 5,383,060 13,556,085 12,558,035
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Balance Sheet Data: Year ended June 30, (1)
-----------------------------------------------------------------------
1995(2) 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents -- $20,913 $326,452 $64,061 $1,119,796
Working capital -- (102,054) 193,468 (595,550) 338,369
Total assets -- 95,472 547,086 395,165 3,664,923
Long-term debt, less current maturities -- -- 9,063 -- --
Capital lease obligation, less current portion -- -- -- 38,334 22,924
Convertible debentures -- -- 150,000 -- 25,000
Total liabilities -- 146,602 361,933 834,250 1,359,531
Stockholder's equity (deficit) -- (51,130) 185,153 (439,085) 2,305,392
<CAPTION>
Six months ended
Balance Sheet Data: December 31, (1)
-------------------------
1998 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash and cash equivalents $10,697 $57,170
Working capital (541,681) (1,352,721)
Total assets 533,654 2,001,964
Long-term debt, less current maturities -- --
Capital lease obligation, less current portion 29,418 15,933
Convertible debentures -- --
Total liabilities 871,634 2,177,827
Stockholder's equity (deficit) (337,980) (175,863)
</TABLE>
Footnotes
(1) On July 31, 1998, Affinity acquired SunStyle in a transaction accounted for
as a purchase of Affinity by SunStyle (a reverse acquisition in which SunStyle
is considered the acquirer for accounting purposes) Therefore, the historical
financial statements herein are those of SunStyle. See Note 1 to the
Consolidated Financial Statements for the three years ending June 30, 1999. In
December 1999, we disposed of Prestige Travel Services, Inc. (acquired on
January 1, 1999) by selling all of its outstanding common stock to its original
stockholders. Prestige accounted for $626,000 and $590,000 of our revenues for
the year ended June 30, 1999 and the six months ended December 31, 1999,
respectively. Our revenues in future periods will be substantially less than
shown in our Consolidated Financial Statements for the year ended June
30, 1999 and the six months ended December 31, 1999 if we are unable to replace
the revenues we previously received from Prestige's operations.
(2) SunStyle commenced operations in May 1995 and had no revenues, insignificant
operating activity and minimal capitalization for the period from inception to
June 30, 1995.
(3) The weighted average common shares outstanding for the years ended June 30,
1995, 1996 and 1997 have been adjusted to reflect additional shares issued to
the then sole stockholder and a stock split which occurred during the year ended
June 30, 1997.
(4) The unaudited pro forma combined statement of operations for the year
ended June 30, 1999 and the six months ended December 31, 1999 give effect to
the sale of the subsidiary, Prestige Travel Services, II by reversing the
subsidiary's purchase on January 1, 1999 and eliminating its effect on
operations from January 1 to December 31, 1999 (See Pro Forma Financial Data).
14
<PAGE>
PRO FORMA FINANCIAL DATA
Introduction
The following pro forma financial data are based upon the historical
financial statements of Affinity and have been prepared to illustrate the
effects of the Prestige Acquisition on such historical financial data.
The pro forma financial data is provided for comparative purposes only and
does not purport to represent the actual financial position or results of
operations of Affinity that actually would have been obtained if the Prestige
Acquisition had been consummated on the date specified, nor is it necessarily
indicative of the results of operations that may be achieved in the future. In
fact, on December 31, 1999, we sold all of the outstanding capital stock of
Prestige Travel Services II back to the former owners. The unaudited pro forma
combined statement of operations for the year ended June 30, 1999 and the six
months ended December 31, 1999 gives effect to the sale of the subsidiary by
reversing the subsidiary's purchase on January 1, 1999 and eliminating its
effect on operations from January 1, 1999 through December 31, 1999.
The pro forma financial data are based on certain assumptions and
adjustments described in the notes thereto and should be read in conjunction
therewith. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements, including the notes
thereto, appearing elsewhere herein.
15
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Historical Pro Forma
----------- -----------------------------
Disposal
Affinity Adjustments As Adjusted
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $2,324,943 $(626,081)(A) $1,698,862
Cost of sales 1,585,807 (146,121)(B) 1,439,686
----------- ----------- -----------
Gross profit 739,136 (479,960) 259,176
Operating expenses 3,469,797 (537,423)(C) 2,932,374
----------- ----------- -----------
Operating income (loss) (2,730,661) 57,463 (2,673,198)
Interest expense, net (2,239,795) -- (2,239,795)
Other income 13,374 -- 13,374
----------- ----------- -----------
Net income (loss) $(4,957,082) $57,463 $(4,899,619)
=========== =========== ===========
Net loss per common share:
Basic and diluted $(.79) $(.78)
Weighted average common shares outstanding:
Basic and diluted 6,290,174 --(D) 6,290,174
</TABLE>
(A) To eliminate the revenues of Prestige.
(B) To eliminate the cost of sales of Prestige.
(C) To eliminate the selling, general and administrative expenses of Prestige,
including the amortization of goodwill from the acquisition.
(D) As of June 30, 1999, the common stock that was returned to Affinity upon
the sale of Prestige had not been converted from preferred stock. The
preferred stock was considered anti-dilutive as of June 30, 1999.
16
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Historical Pro Forma
----------- -----------------------------
Affinity Disposal
(Unaudited) Adjustments As Adjusted
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $2,055,801 $(589,776)(A) $1,466,025
Cost of sales 1,301,176 (174,110)(B) 1,127,066
----------- ----------- -----------
Gross profit 754,625 (415,666) 338,959
Operating expenses 3,217,871 (550,254)(C) 2,667,617
----------- ----------- -----------
Operating income (loss) (2,463,246) 134,588 (2,328,658)
Interest income, net 8,505 -- 8,505
Gain on sale of subsidiary 75,000 (75,000)(D) --
Financing charges (2,466,500) -- (2,466,500)
Other expense, net (63,580) -- (63,580)
----------- ----------- -----------
Net loss $(4,909,821) $59,588 $(4,850,233)
=========== =========== ===========
Net loss per common share:
Basic and diluted $(.36) $(.39)
Weighted average common shares outstanding:
Basic and diluted 13,556,085 (998,050)(E) 12,558,035
</TABLE>
(A) To eliminate the revenues of Prestige.
(B) To eliminate the cost of sales of Prestige.
(C) To eliminate the selling, general and administrative expenses of Prestige,
including the amortization of goodwill from the acquisition.
(D) To eliminate the gain on the sale of Prestige.
(E) To eliminate the common stock that was returned to Affinity upon the sale
of Prestige.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All statements, trend analysis and other information contained in the
following discussion relative to markets for our services and trends in revenue,
gross margins and anticipated expense levels, as well as other statements,
including the words such as "may," "will," "anticipate," "believe," "plan,"
"estimate," expect," and "intend" and other similar expressions constitute
forward-looking statements. These forward-looking statements are subject to
business and economic risks and uncertainties, and our actual results of
operations may differ materially from those contained in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in "risk factors" as well as other risks
and uncertainties referenced in this prospectus.
The Six Months Ended December 31, 1999 Versus The Six Months Ended December 31,
1998
The discussion that follows is based on the Consolidated Statement of
Operations and compares the results of our operations for the six months ended
December 31, 1999 to our operations for the six months ended December 31, 1998.
Net Loss
During the six months ended December 31, 1999, we had a net loss of
$4,910,000, compared to a $578,000 net loss during the comparable prior period.
Revenues
Revenues increased $ 1,389,000 or 208.1% during the six month period ended
December 31, 1999 compared to the same period in the prior year. Such $1,389,000
increase in revenue is primarily attributable to a $590,000 increase in revenue
related to retail travel business resulting from the acquisition of Prestige
Travel Services II, Inc. (Prestige) in January 1999, and a $799,000 increase in
revenue related to growth in our wholesale travel package business. Because we
sold Prestige in December 1999, we no longer realize revenues from Prestige's
operations. During the six months ended December 31, 1999, Prestige accounted
for 29% of our total revenue. Accordingly, we expect our future revenues to be
lower, unless we are able to replace the lost revenue from the results of our
Internet based strategy implementation.
The domestic and international leisure travel industry is seasonal. We
have not experienced significant seasonality because of our continued growth in
revenues. However, we expect our future results to be subject to quarterly
fluctuations caused primarily by the seasonal variations in the travel industry,
especially the leisure travel segment.
Results of operations may also be subject to fluctuations as a result of a
number of other factors including: the timing and cost of acquisitions; changes
in the mix of services offered by us as a result of acquisitions; internal
growth rates among various travel segments; fare wars by travel providers;
changes in relationships with certain travel providers; the timing of the
payment of additional revenue when certain volumes are reached by travel
providers; extreme weather conditions; and other factors affecting travel.
18
<PAGE>
Gross Profit
Gross profit for the six months ended December 31, 1999 increased $622,000
or 468.3%, compared to the same period in the prior year. $416,000 of the
increase in gross profit was related to retail travel business resulting from
the acquisition of Prestige, and $121,000 of the increase in gross profit
resulted from growth in the wholesale travel package business. As a percentage
of sales, gross profit was 36.7% during the six months ended December 31, 1999,
compared with 19.9%, during the comparable prior period. The increase in the
gross profit percentage was primarily attributable to the increase in retail
travel business. Revenues from retail travel sales have almost no direct costs
of sales and therefore gross profit on retail sales approximately equals the
related revenue. As noted above, since we sold Prestige in December 1999, we
will no longer realize revenue or gross profit from Prestige's operations.
Accordingly, we expect future gross profit to be lower unless we are able to
replace the lost gross profit. Management expects that gross profit on the
wholesale travel package business as a percentage of total gross profit will
increase as the company establishes itself in the wholesale travel package
business. Accordingly, management expects gross profit as a percentage of sales
to decrease in the future.
Operating Expenses
Selling, general and administrative expenses - Selling, general and
administrative expenses increased $ 731,000 or 259.6% during the six month
period ended December 31, 1999, compared to the prior year. The increase in
selling, general and administrative expenses was primarily attributable to the
following: a $104,000 increase in costs relating to audit, legal, and consulting
fees; $176,000 in costs related to the Prestige operation; and $451,000 in
expenses related to investor relations, depreciation and amortization, travel,
printing and brochures, computer expense, trade shows, equipment rental, office
supplies, telephone, director compensation, and other miscellaneous expenses in
support of our expanded operations.
Salaries and wages - Salaries and wages increased $1,597,000 or 464.8% during
the six month period ended December 31, 1999, compared to the same period in the
prior year. Such increase was primarily attributable to an $850,000 increase in
salaries and wages due to the expansion of personnel in both the retail travel
business and the wholesale travel package business, of which $374,000 related to
the Prestige operation, and a $750,000 charge to operations related to stock
options granted to an officer with an exercise price below the trading value on
the date of grant.
Consulting Fees - Consulting fees increased $52,000 or 98.1% during the six
month period ended December 31, 1999, compared to the same period in the prior
year. This increase was principally related to consulting fees paid to a
significant shareholder for financial advisory services.
Rent - Rent expense increased $124,000 or 353.9% during the six month period
ended December 31, 1999, compared to the same period in the prior year. Such
increase was attributable to a $28,000 increase in rent relating to the Prestige
operation, and the balance related principally to the expansion of our office
space during fiscal 2000.
Interest
Interest income, net of interest expense, increased $9,000 because we
carried larger average cash balances in interest bearing accounts during the six
month period ended December 31, 1999 compared to the same period in the prior
year.
19
<PAGE>
Gain on Sale of Subsidiary
We recognized a gain of $75,000 on the sale of Prestige back to its
original owners on December 29, 1999. There were no sales during the comparable
period last year.
Financing Charges
Financing charges increased $2,467,000 during the six month period ended
December 31, 1999, compared to the same period in the prior year. The increase
in financing charges is primarily attributable to a charge of $2,083,000
relating to the re-pricing of existing common stock warrants in connection with
a financing transaction. We also recorded a charge of $384,000 related to the
issuance of common stock for our failure to meet certain provisions of existing
financing agreements and consulting agreement.
For the fiscal quarter ended March 31, 2000, we will also record an
additional charge of $825,000 related to the issuance of common stock because we
failed to meet certain provisions of existing financing agreements and
consulting agreements. We will also record an additional charge of $7,140,000
related to the issuance of new common stock warrants and the re-pricing of
existing common stock warrants.
Provision for Income Taxes
There is no provision for income taxes in the six month periods ended
December 31, 1999 and 1998 due to the net operating loss for those periods
Fiscal 1999 Versus Fiscal 1998
The discussion that follows is based on the Consolidated Statement of
Operations and compares the results of the Company's operations for the year
ended June 30, 1999 to the Company's operations for the year ended June 30,
1998.
Net Loss
During the year ended June 30, 1999, we incurred a net loss of $4,957,082,
compared with a net loss of $1,168,501 for the prior year.
Revenues
Revenues increased $996,000 or 75% during the year ended June 30, 1999,
compared to the prior year. Such increase in revenue was primarily attributable
to a $626,000 increase in our retail travel business which resulted from our
acquisition of Prestige in January, 1999 and a $315,000 increase in our
wholesale travel package business. As we disposed of Prestige in December 1999,
we will no longer realize revenues from Prestige's operations. Accordingly, we
expect our future revenues to be lower, unless we are unable to replace the lost
revenue.
Gross Profit
Gross profit for the year ended June 30, 1999, increased $180,000, or
32.2%, compared to the prior year. During the year ended June 30, 1999, gross
profit, as a percentage of revenue, was 31.8%,
20
<PAGE>
compared with 42.1% during the comparable prior period. The decrease in gross
profit as a percentage of sales was attributable to greater sales of wholesale
travel packages which have lower gross margins than from retail travel sales,
partially offset by an increase in retail travel business. Revenues from retail
travel sales have almost no direct costs of sales and therefore gross profit on
retail sales equals approximately the related revenue. The increase in gross
profit was primarily attributable to a $480,000 increase related to the growth
in our retail travel business which resulted from our acquisition of Prestige.
This increase was partially offset by a $306,000 decrease in gross profit
resulting from the higher costs of travel packages initially purchased during
our expansion into the wholesale travel package business. As noted above, since
we sold Prestige in December 1999, we will no longer realize revenue or gross
profit from Prestige's operations. Accordingly, we expect future gross profit to
be lower unless we are able to replace the lost gross profit. Management expects
that gross profit on the wholesale travel package business as a percentage of
total gross profit will increase as the company establishes itself in the
wholesale travel package business. Accordingly, management expects gross profit
as a percentage of sales to decrease in the future.
Operating Expenses
Selling, general and administrative expenses - Selling, general and
administrative expenses increased slightly during the year ended June 30, 1999,
compared to the prior year. Expenses increased $245,000 related to the Prestige
operation that was acquired in January 1999, offset by a $ 245,000 decrease in
all other selling, general and administrative expenses.
Salaries and wages - Salaries and wages increased $742,000 or 178.2% during the
year ended June 30, 1999, compared to the prior year. The increase in salaries
and wages was primarily attributable to a $292,000 increase related to the
Prestige operation that was acquired in January 1999 and a $450,000 increase
related to expansion of personnel in both the retail and the wholesale travel
package businesses.
Consulting Fees - Consulting fees increased $937,000 during the year ended June
30, 1999, compared to the prior year. This increase was principally related to
consulting fees paid to a significant shareholder for financial advisory
services during fiscal year 1999, which we paid primarily through the issuance
of common stock and warrants.
Rent - Rent expense increased $87,000 or 108.1% during the year ended June 30,
1999, compared to the prior year, of which $31,000 related to the Prestige
operation that was acquired in January 1999, and the balance of the increase
($56,000) related to the expansion of our office space.
Interest
Interest expense, net of interest income, increased $2,199,000 during the year
ended June 30, 1999, compared to the prior year. During fiscal 1999, we recorded
interest expense totaling $2,222,000 resulting from issuance during the year of
certain convertible debentures where the conversion price was below the quoted
market price of our stock on the date of issuance (See Note 6. "Convertible Debt
and Warrants" in the "Notes to the Consolidated Financial Statements" of
Affinity International Travel Systems, Inc. and Subsidiaries). There were no
comparable costs in the prior year.
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Provision for Income Taxes
There is no provision for income taxes in fiscal 1999 or 1998 due to the
net operating loss for those periods (See Note 10 "Income Taxes" in the "Notes
to the Consolidated Financial Statements" of Affinity International Travel
Systems, Inc. and Subsidiaries).
Fiscal 1998 Versus Fiscal 1997
The discussion that follows is based on the Consolidated Statement of
Operations and compares the results of the Company's operations for the year
ended June 30, 1998 to our operations for the year ended June 30, 1997.
Revenues
Revenues increased $663,000 or 99.7% during the year ended June 30, 1998,
compared to the prior year, of which $407,000 related to an increase in revenues
from wholesale travel packages and $256,000 related to revenue from the initial
year of retail travel sales.
Gross Profit
Gross profit for the year ended June 30, 1998 increased $435,000, or
353.0%, compared to the prior year, of which $183,000 related to an increase in
revenues from wholesale travel packages and $252,000 related to gross profit on
retail travel sales. Revenues from retail travel sales have almost no direct
costs of sales and therefore gross profit on retail travel sales equals
approximately the related revenue.
Operating Expenses
Selling, general and administrative expenses - Selling, general and
administrative expenses increased $ 896,000 or 338.5% during the year ended June
30, 1998, compared to the prior year. This increase was primarily attributable
to a $187,000 increase in audit, legal, consulting and director fees, and the
balance of the increase relates to various marketing and operating costs that
increased as a result of the growth in our business and corporate
infrastructure.
Salaries and wages - Salaries and wages increased $274,000 or 191.6% during the
year ended June 30, 1998, compared to the prior year. This increase was due to
the expansion of our personnel in both the retail and the wholesale travel
package businesses.
Consulting Fees - Consulting fees increased $45,000 or 100.0% during the year
ended June 30, 1998, compared to the same prior year. There were no comparable
expenditures during fiscal 1997.
Rent - Rent expense increased $51,000 or 173.9% during the year ended June 30,
1998, compared to the prior year, principally as result of the expansion of our
business during fiscal 1998 compared to the prior year.
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Interest
Interest expense, net of interest income, increased $40,000 during the
year ended June 30, 1998, compared to the prior year, principally as a result of
additional borrowings.
Provision for Income Taxes
There is no provision for income taxes in fiscal 1998 or 1997 due to the
net operating loss for those periods. We elected and filed our corporate tax
returns as a Subchapter S Corporation through June 3, 1997. No pro forma income
tax computation has been included as we incurred a net loss in fiscal year 1997
and there were no material differences between our book and tax net loss. (See
Note 10 "Income Taxes" in the "Notes to the Consolidated Financial Statements"
of Affinity International Travel Systems, Inc. and Subsidiaries).
Pro forma Financial Information
We have included pro forma financial information related to our
acquisition of Prestige in January 1999 and the subsequent sale of Prestige to
its former owners on December 29, 1999.
Further discussion of the effects of the Prestige acquisition and its pro
forma effects on our operations for the years ended June 30, 1998 assuming the
acquisition would have occurred on July 1, 1997, as presented in the pro forma
financial information, has been excluded. There is only one pro forma adjustment
to arrive at combined pro forma financial information which relates to the
amortization of acquisition goodwill. Additionally, Affinity, through SunStyle,
is predominately a wholesale travel package operation and Prestige was
exclusively a retail travel business and all discussion related to the changes
in pro forma revenues and expenses would relate to combination of these two
lines of business.
The effects of the Prestige acquisition on our operations for the year
ended June 30, 1999 and the six months ended December 31, 1999, have been
discussed in the preceding Management's Discussion and Analysis section,
therefore further discussion in this section has been excluded.
Liquidity and Capital Resources
- -------------------------------------------------------------------------------
We have no line of credit or loans for working capital and we have
relied upon proceeds from the sale of our equity securities or debentures to
fund negative cash flow from operations and capital expenditures related to
the implementation of our Internet business strategy.
We have been unable to fund our operations with the cash generated from
our business and currently required substantial capital to fund operations and
our Internet business strategy. Since our inception, we have experienced and
expect to continue to experience, for the foreseeable future, negative cash flow
from operations.
We have had net losses in each of the three fiscal years ending June 30,
1997, 1998 and 1999 that cumulatively total $6,443,000. For the fiscal
year ended June 30, 1999, we had a net loss of $4,900,000, of which $3,337,000
was attributable to non-cash expenses related to the issuance of convertible
debt and equity securities at a discount ($2,222,000) and compensation for
services ($1,115,000). For the six months ended December 31, 1999, we had a net
loss of $4,910,000, of which $3,217,000 was attributable to non-cash expenses
related to the issuance of options to an employee with a below market exercise
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prices ($750,000,) the repricing of warrants ($2,083,000) and the issuance of
common stock as a penalty for not having a registration statement declared
effective by the SEC by certain dates ($384,000).
We have been experiencing and expect to continue to experience significant
negative cash flow. For the year ended June 30, 1999 and the six months ended
December 31, 1999, our operations used $1,515,000 and $652,000 in cash,
respectively, and our investing activities used $286,000 and $799,000 in cash,
respectively. The use of cash for investing activities in fiscal 1999 includes
the purchase of restricted use certificates of deposit and the purchase of
equipment. Cash used for investing activities during the six months ended
December 31, 1999 included the expenditure of $850,000 for computer equipment.
As of December 31, 1999, we had a working capital deficit of $1,353,000,
total stockholders' deficit of $176,000, a total of 13,577,000 shares
outstanding and outstanding warrants and options to purchase 6,670,000 shares of
our common stock with an average exercise price of $.34 per share.
During fiscal 1999, our principal source of cash was $2,857,000 provided
from net financing activities, including proceeds from the issuance of
convertible debentures totaling $2,247,000 and proceeds from the sale of common
stock totaling $672,000. Net cash provided from financing activities for the six
months ended December 31, 1999 of $389,000 related primarily to proceeds from
the issuance of common stock and warrants totaling $410,000 and the repayment of
short-term debt.
We expect net losses and negative cash flow to continue for the
foreseeable future and anticipate our losses and the use of cash will increase
significantly from current levels because we expect to incur significant
expenses and capital expenditures related to:
o brand development, advertising, marketing and promotional activities,
including product discounts;
o expansion of our supplier/distributor relationships;
o expansion of our order fulfillment infrastructure;
o continued development of our web site, transaction-processing systems,
fulfillment capabilities and network infrastructure, most of which are
capital expenditures;
o expansion of our product offerings and web site content; and
o employment of additional personnel as our business expands.
With our intended significant increase in expenditures on marketing and
promotional activities there are no assurances these efforts will be effective
in attracting customers to our on-line method of shopping for travel products
and services via our web site. In addition, we may be obligated to pay
commissions, based on a percentage of revenue, to companies with whom we have
online marketing relationships. These costs will increase as our revenues
increase. If we do achieve profitability, we cannot be certain that we will be
able to sustain or increase profitability on a quarterly or annual basis in the
future.
Our ability to achieve profitability depends on our ability to secure
additional financing, to generate and sustain substantially higher revenues with
high gross margins and control the growth in operating costs. From January to
March 2000, we raised net proceeds totaling $2,433,000 that was used to reduce
our working capital deficit and is being used to fund negative cash flow from
operations and capital expenditures related to the implementation of our
Internet business strategies. In addition, $400,000 of current liabilities were
converted into warrants to purchase shares of our common stock. As of April 14,
2000, we had warrants and options outstanding to purchase 10,010,817 and
2,165,000 shares of our common stock with average per share exercise prices of
$.33 and $.54, respectively. If all currently
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outstanding warrants and options were exercised, we would receive gross proceeds
of $4,512,000. However, there can be no assurance the holders of these warrants
and options will exercise their right under these financial instruments at such
time we are in need of additional capital or before the warrants and options
expire. In addition, in the event that the registration statement, of which this
prospectus is a part, is not declared effective by the SEC by June 20, 2000,
then it is unlikely that we will receive $2,187,500 of proceeds from the
exercise of warrants to purchase an aggregate of 8,750,000 shares of common
stock, because the shares of common stock underlying those warrants may, in such
event, be acquired through a cashless exercise of those warrants.
The following table sets forth the annual amount of proceeds we could
expect to receive in the future if the warrants and options are exercised just
prior to their expiration. In addition, the table sets forth the annual proceeds
we could expect to receive in the future if we do not receive $2,187,000 of
proceeds from the exercise of outstanding warrants because of the cashless
exercise provisions contained in outstanding warrants to purchase 8,750,000
shares.
Total Exercise Price
Fiscal Year Less Options With
Ended June 30, Total Exercise Price Cashless Feature
-------------- -------------------- ----------------
2003 $1,057,500 $1,057,500
2004 $1,125,000 --
2005 $1,329,500 $ 267,000
2010 $1,000,000 $1,000,000
---------- ----------
Total $4,512,000 $2,324,500
========== ==========
In order to fund our operations and continue the implementation of our
Internet business strategy, we anticipate the need to raise at least $6.0
million in additional capital during the calendar year 2000. We will need to
raise a portion of that capital within approximately sixty days to fund negative
cash flow from operations and fund capital expenditures related to the
implementation of our Internet business strategy. If we raise additional funds
through the issuance of equity or debt securities, those securities may have
rights senior to those of our stockholders, and our stockholders will experience
substantial additional dilution. We cannot be certain that additional financing
will be available to us on favorable terms when required, or at all.
Additionally, we cannot be certain that this additional financing will be
sufficient to fund the implementation of our Internet business strategy. Our
failure to obtain sufficient additional funds, either through additional
financing or continuing operations, will have a material adverse effect on our
business and financial condition, our ability to implement our Internet business
strategies and our ability to continue our operations. Additionally, we cannot
be certain that this additional financing will be sufficient to fund the
implementation of our Internet business strategy.
We anticipate incurring capital expenditures of approximately $1.5 million
over the next twelve months as follows: approximately $200,000 for the purchase
of property and equipment, approximately $800,000 for website development, and
approximately $500,000 for software and other capital expenditures.
We have never paid any cash dividends on our common stock, and we do not
anticipate paying cash dividends in the foreseeable future. Our current policy
is to retain all of our earnings to finance our future development and growth.
We may reconsider this policy from time to time in light of conditions then
existing, including our earnings performance, financial condition and capital
requirements. Any future
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determination to pay cash dividends will be at the discretion of our Board of
Directors and will depend upon our financial condition, operating results,
capital requirements, general business conditions and other factors that our
Board of Directors deems relevant.
Other Significant Matters
The travel industry is subject to numerous risks that may also affect our
business, financial condition and result of operations. Our results of
operations will depend upon factors affecting the vacation industry in general.
Our revenues and earnings are especially sensitive to events that affect
domestic and international air travel and the level of car rentals and hotel
reservations. A number of factors could result in a temporary or long-term
overall decline and demand for packaged vacations, including:
o political instability;
o armed hostilities;
o international terrorism;
o labor disturbances;
o a rise in fuel prices or other travel costs, or a surcharge imposed by a
travel provider to offset rising fuel prices;
o excessive inflation;
o currency fluctuations;
o extreme weather conditions; and
o concerns about passenger safety.
We believe that price-based competition will continue for the foreseeable
future. The continuation of such competition and the occurrence of any of the
events mentioned above could have a material adverse effect on our business,
financial condition and results of operations. In addition, demand for our
products and services may be significantly affected by the general level of
economic activity and employment in the United States and key international
markets. Therefore, any significant economic down turn or any recession in the
United States or these other markets could have a material adverse effect on our
business, financial condition in the result operations.
The impact of the recent increase in fuel prices on the travel business,
both directly, in the cost of gasoline, airline tickets, and cruise prices, and
indirectly, as it may impact the general public's disposable income and ability
to take leisure trip packages, is not determinable at this time. The impact will
depend upon the duration and degree of the increases in fuel prices which are
uncertain at this time.
Quantitative and qualitative disclosures about market risk
We are not subject to material market risk exposure due to interest rate
risk, foreign currency exchange rate risk, commodity price risk or other
relevant market risk.
Future accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS
133 requires companies to recognize all derivatives contracts as either assets
or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
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or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS 133, as amended by SFAS 137,
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000.
Historically, we have not entered into derivatives contract either to
hedge existing risks or for speculative purposes. Accordingly, we do not expect
adoption of the new standard on July 1, 2000 to affect our financial statements.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance on accounting for the various types of costs incurred for computer
software developed or obtained for internal use. Also in June 1998, the AICPA
issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5
requires costs of start-up activities and organizational costs, as defined, to
be expensed as incurred. We have elected early adoption of these SOPs, and they
did not materially impact our financial statements.
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BUSINESS
Overview
Affinity International Travel Systems, Inc., operating primarily through
its wholly-owned subsidiary, SunStyle International Holidays, Inc., is engaged
in the business of marketing, selling and distributing a variety of wholesale
and retail travel related products and services. Specifically, we market, sell
and distribute vacation packages, tours, cruises, domestic and international
airline tickets, car rentals and accommodation products and services to travel
agencies and consumers. We are currently implementing a business strategy to
utilize the Internet as a delivery platform for our inventory of travel related
products and services.
We intend to fulfill demand for our travel products in both the
business-to-business and business-to-consumer online travel arenas by
aggregating our inventory of packaged leisure travel products and using the
Internet as the delivery platform.
We believe we have developed and acquired the infrastructure necessary to
implement our Internet business strategy. Specifically, we have:
o developed and acquired technologies;
o developed specialized knowledge and experience concerning certain
geographic destinations; and
o established relationships with travel suppliers that enable us to
offer a large inventory base at competitive prices.
A key component of our Internet business strategy is to focus our
resources in two segments: the business to consumer and business to business
travel arena. We intend to concentrate our resources on the business to business
online travel arena, where our objective is to sell to other travel providers
leisure travel products that traditionally have had higher margins than airline
ticket sales, including, among others, vacation packages, tours and cruises. We
also intend to continue to sell our leisure travel products directly to
consumers.
With our current infrastructure, we believe we are well-positioned to take
advantage of the potential growth in the domestic and international travel
industries and in online travel. Our strategy is to focus on the sale and
distribution of travel products, such as vacation packages, tours and cruises,
which traditionally have had higher margins than airline ticket sales.
Our Internet business strategy is centered on the development and
implementation of our FarAway.com web site. This site, currently in development,
will be designed to attract a loyal customer base in the United States, Europe,
Asia and Latin America, and to convert these potential customers into leisure
travel buyers. We anticipate that our online booking engines and our primary web
site, www.faraway.com, will be developed and operational within the next four
months. We believe that we will need to raise $3 million of additional capital
during the next four months to complete the development of our booking engines
and our primary web site. We plan to raise this additional capital through
additional equity or debt financings.
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History and Background
Affinity International Travel Systems, Inc. was incorporated in Nevada in
1977 under the name Medanco, Inc. From 1977 through 1997, Medanco had no
revenues and limited operations. In 1997, Medanco changed its name to Pay Dirt,
Inc., which had no operations until it completed the acquisition of SunStyle
International Holidays, Inc. in July 1998, at which point it changed its name to
Affinity International Travel Systems, Inc. Since 1998, we have been primarily
engaged in marketing and selling travel products to travel agents and consumers.
Our wholesale revenue consists principally of the sales activities of
SunStyle, which functions primarily as a tour operator. SunStyle contracts with
airline, hotel and auto suppliers for net contracts and then sells vacation
packages to both travel agents and directly to consumers. In 1998 and 1999, we
acquired several retail travel agencies to provide a channel of distribution for
wholesale products. Prestige Travel Services II, Inc. was the largest of these
agencies. In December 1999, we abandoned our agency distribution strategy and
sold Prestige back to its original owners. Prestige accounted for approximately
27.0% of our revenues during fiscal 1999.
We also generate revenue from our retail travel services, which consists
primarily of commissions earned from travel service suppliers, such as airlines,
car rental companies, resorts and hotels, for facilitating travel arrangements
for these suppliers' retail customers.
Recent Acquisitions
In July 1998, we acquired all of the outstanding common stock of SunStyle
International Holidays, Inc. in exchange for 4,902,894 shares of our common
stock. SunStyle is now a wholly-owned subsidiary through which we conduct our
primary business operations. SunStyle is a wholesale tour operator focused on
travel to Hawaii, Florida, Mexico, and the Caribbean. SunStyle vacation packages
include accommodations, airfare, rental cars, and other services such as theme
park vouchers. SunStyle also provides air transportation through contracts with
major airlines such as Northwest Airlines, TWA, and Hawaiian Air Lines and Air
Jamaica and is an official wholesaler for Walt Disney World Attractions and
official tour operator for Universal Studios Escape Vacation Packages.
On January 1, 1999, we acquired all of the outstanding common stock of
Prestige Travel Services II, Inc. for $1,600,000, which we paid for through the
issuance of 800,000 shares of Series A Convertible Preferred Stock. The shares
of preferred stock were subsequently converted into 1,497,076 shares of common
stock in accordance with the terms of the preferred stock. Prestige is a retail
travel agency headquartered in Tampa, Florida. Prestige caters mainly to the
leisure segment of the travel industry. Prestige also operated branch locations
in Ft. Lauderdale and Holiday, Florida. In December 1999, we sold Prestige to
its original owners for a sale price of $75,000 in cash and the surrender of
1,497,076 shares of our common stock. Prestige accounted for approximately 29.0%
of our total revenues for the six months ended December 31, 1999.
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On February 8, 1999, we acquired the assets and operations of
Design-A-Tour, Inc. in exchange for 36,320 shares of our common stock valued at
approximately $2.07 per share, or an aggregate purchase price of approximately
$75,000. Design-A-Tour, established in 1988, specializes in tour programs to
Costa Rica, Belize, Guatemala, Brazil, Argentina, Chile, and Peru. Design-A-Tour
currently operates as a division of SunStyle and operates tour programs to
Aruba, Bonaire, Curacao and Margarita Island and has wholesale air contracts
with Aerolinas Argentinas, TransBrazil, Varig, Aero Peru, Groupo Taca (Taca
Airlines, Aviateca, COPA, Lacasa, NICA), Serviventsa, and ALM.
In July 1999, we acquired the assets and operations of Integrity Credit
Services (d/b/a Intrepid Travel and Goldmark Travel). Intrepid is a retail
travel agency that services clients in the Tampa Bay metropolitan area. On
January 7, 2000, we sold certain assets and the operations of Goldmark Travel to
Skelton's Dolphin Travel, located in St. Petersburg, Florida, for $30,000 in
cash.
Industry Background
Growth of the Internet
Because of the inherent limitations of traditional retail channels of
distribution, the Internet is dramatically affecting the way consumers and
businesses are buying and selling products and services. According to Jupiter
Communications, individual Internet users in the U.S. in 1999 will top the 100
million mark and continue to grow steadily to 157 million users in over 67
million households by 2003. A recent Forrester Research study stated that online
travel sales are expected to eclipse those of every other e-commerce category.
In addition, online use in Europe and Latin America is poised for explosive
growth.
In Europe, the number of Internet users is predicted to grow from 38
million to 150 million by 2003, with online sales to consumers expected to grow
from $5.4 billion in 1999 to more than $115 billion in 2003. In Latin America,
the number of Internet users in the region is expected to grow from 4.8 million
in 1998 to 7.5 million this year and 19 million by 2003, according to
International Data Corporation. During this time, Latin American e-commerce
sales are expected to soar from a mere $167 million in 1998 to $8 billion within
five years.
Growth of Electronic Commerce in Online Travel
To date, the travel industry has been very successful in taking advantage
of the e-commerce trends, particularly in the United States. According to
Forrester Research, during 1999, online travel sales were the single highest
grossing product sold on the Web. Internet analysts at Forrester Research expect
the U.S. online travel marketplace to increase from the current $2.8 billion to
$29.5 billion within the next four years. Similarly, online travel research firm
PhoCusWright expects the online travel market in the U.S. to reach $20 billion
by as early as 2001. Industry analysts see similar online travel growth trends
in both the European and Latin American markets. Specific projections for the
Latin American market have yet to be released. However, by 2002, Data Monitor
predicts the sale of online travel products in Europe will reach $1.7 billion,
an increase from $7.7 million in 1997.
Current Results of Electronic Commerce in Online Travel
According to the 1999 Online Travel Report, the top four online travel
sites are currently generating about $12 to 16 million each in weekly sales.
Despite these impressive sales figures, however, all of
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these sites are losing money. We believe the lack of profit can be attributed
primarily to the reliance of each site on airline ticket sales to generate
revenue. Most major airlines have capped the commissions they pay online travel
agencies at 5 percent, or $10 maximum per ticket. According to the online
agencies, the cost associated with selling the average airline ticket is $21.
Additionally, a typical non-productive session on an online travel site, where a
consumer makes fare inquiries without purchasing any of them online, costs the
agency about $4 in fees it pays to the airline-owned computer reservation
services. Thus, online agencies lose money on virtually all airline-ticket
purchases or queries. We believe that because airline ticket purchases make up
approximately 80% of online travel transactions, online agencies that continue
to operate under their current business models will have a difficult time
generating a profit in today's marketplace. These limitations of traditional
online travel agencies create a significant opportunity for a company like ours
that can combine our existing infrastructure with the Internet.
Our Internet Business Strategy
We believe that in order to become profitable we must begin selling travel
products such as vacation packages, tours and cruises, which traditionally have
had higher margin than airline ticket sales. Our Internet business strategy,
which is centered on the development of our FarAway.com web site and is focused
on the online sale of specialized vacation and tour packages, is designed to
sell such traditionally higher margin products. Specifically, our strategy is
designed to:
o Attract and acquire a substantial base of travel customers in the
U.S., Europe and Latin America, by developing a compelling and
functional web presence, launching the appropriate marketing and
strategic partnership initiatives and offering the necessary
customer service mechanisms; and
o Convert customers into leisure travel buyers by offering attractive
prices on personalized vacation packages, tours and cruises
utilizing our TourScape operating system.
To achieve the goals of our business strategy, however, we need to
successfully develop our web site, FarAway.com, into a full-service web site
that will use our existing hardware and software infrastructure, as well as our
strategic partnerships and existing vendor contracts.
Our Infrastructure
We believe we are acquiring and developing the infrastructure necessary to
effectively carry out our Internet business strategy. This infrastructure is
comprised of our network architecture, Internet-enabled software engines,
back-end operations and strategic and contract-based relationships.
Network Architecture. We are developing and implementing a network
architecture designed to support our Internet and enterprise-based activities.
This architecture takes advantage of, and builds upon, our existing
technologies. Our systems are being designed and developed by a series of
vendors, including: Quest Technologies, Inc, Datalex, Convergent Technologies,
SABRE and Logibro, and with our internal technology staff. We believe that our
systems will be capable of supporting all of our internal operations and
Internet-related initiatives, including:
o A hosting environment for our web site, FarAway.com, and any other
of our web properties;
o A processing capability for online users' query and booking
transactions;
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o A platform for multimedia intensive technologies, such as live agent
video-conferencing, voice-over-IP (Internet telephony) and video
streaming;
o An ability to provide on and off-site agents with the tools and
resources necessary to deliver superior customer service; and
o A means to support expansion that meets growing corporate needs and
consumer demands.
Internet-Enabled SoftwareSystems. We have made significant investments in
the software infrastructure that will be integrated into the FarAway.com web
site. Our software systems include the following:
o TourScape: TourScape is a tour/wholesale reservation software
system. TourScape, developed by The SABRE Group, improves
productivity, efficiency, record keeping and business tracking, as
well as reducing operator training and booking time. It also
supports multiple product lines, unlimited packaging capabilities,
numerous pricing and costing methods and various commission levels.
o TourPath: TourPath is a system interface that delivers single-source
connectivity to land and air reservation information. Additionally,
it delivers the ability to interface with multiple airline
reservation systems. These software applications are currently in
full use by our reservations agents in their day-to-day operations.
o BookIt!: BookIt! is an online booking engine that allows users to
book air, car and hotel reservations using inventory managed by a
computer reservation system.
o BookIt! Pro: BookIt! Pro provides outside agents affiliated with us
access to our in-house reservation system so that they may process
their own bookings from any remote location through the Internet.
We license each of these software systems on a non-exclusive basis. These
software systems are not proprietary to us and some of our competitors also use
these systems.
Internal Operations. Despite the automation of the real-time booking
processes, travel reservations still require some human interaction for
completion. At a minimum, this involves physically handling and mailing paper
airline tickets to customers, where applicable, and manually reviewing tour
package transactions for accuracy and completeness. Under our Internet business
strategy, we plan to provide live agent customer support to those customers
requiring it. Because of our expertise as a wholesale distributor as well as a
telephone-based travel operator, we believe we are well-positioned to expand
these operational capabilities to our Internet activities.
Contractual Relationships. The leisure tours and packages we currently
market, which are a critical component to the overall success of our Internet
initiatives, are the result of contracts we have secured with travel industry
vendors. As a travel wholesaler, we believe we have a competitive advantage over
suppliers and other online travel agencies that lack such relationships. These
contractual relationships, along with the other relationships we have created
with others in the Internet and travel industries help lay the foundation for
our Internet initiatives. These contracts can be canceled or modified by the
supplier upon no or relatively short notice.
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Our Marketing Strategy
We are employing the following marketing strategies:
Focusing on the Sale of Specialized Leisure Travel Packages. As noted by
industry analysts from Jupiter Communications and Forrester Research, it is
imperative that online travel agencies begin selling products that traditionally
have had higher margins than airline ticket sales, such as vacation packages,
tours and cruises in order to generate profitable operations. We believe that,
in order to be profitable, online agencies, must:
o have specialized vacation package inventory available to consumers;
o utilize online tools that help facilitate complex leisure travel
purchases; and
o provide the customer service, both online and off, that is necessary
to make the customer feel comfortable booking these types of
transactions online.
We believe we are well positioned to compete in the online travel business
for the following reasons:
o Our TourScape booking technology will provide consumers with a
user-friendly mechanism for booking complex and specialized travel
packages. We expect to have this technology operational for online
travel around August 1, 2000.
o Our existing base of travel specialists can provide the requisite
e-travel personal assistance through real-time chat, Internet
telephony, 800 telephone service, and, in the near future,
Internet-based video communication.
o Finally, because of our status as a travel wholesaler and
distributor, with established travel vendor relationships, we expect
that FarAway.com will offer a wide variety of specialized packages
at rates that travel consumers will find attractive. We expect that
our Faraway.com web site will be operational by August 1, 2000.
Combat the Traditionally High "Look-To-Book" Ratio. According to research
from PhoCusWright, approximately 57 percent of online travel visitors have
looked, but not booked, online. Of those, approximately 70 percent have bought
their tickets through an 800 number or conventional travel agent after
researching online. Therefore, as a means of capturing maximum revenue,
FarAway.com customers will be encouraged to utilize the services of our travel
agent staff through live chat, Internet call button, or an 800 number if, for
some reason, they are not inclined to purchase online. To further combat this
trend, personalization technology, which will store a customer's travel
preferences, will be implemented into the FarAway.com site. By combining our
agent-based customer service and personalization technology, we believe
FarAway.com will be positioned to improve on the industry's current
"look-to-book" ratio.
Foster Strategic Partnerships and Private Label Programs. We believe that
one of the most important aspects of developing a successful online travel web
site is the process of creating and managing the requisite strategic
partnerships and alliances. Strategic partnerships with web portals, e-commerce
companies and content providers have the potential to generate revenue from
transactions and advertisements, and also places the brand in front of Internet
users.
We intend to pursue these types of strategic online partnerships as a
means to generate traffic, customer acquisition and revenue. We intend to enter
into private label agreements to provide fulfillment on all travel purchased on
several heavily trafficked e-commerce web sites. To date we have established two
strategic partnerships with e-commerce companies.
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In a less conventional effort, we also plan to work with large
corporations to establish programs that provide incentives for the corporation's
employees to book travel through the FarAway.com Web site or through our network
of travel agents. Employees of each corporation will be issued a member ID
number that, when entered from the FarAway.com home page, will take them to a
customized page within FarAway.com offering special travel discounts and
incentives. This customized home page may alternatively be accessed directly
from the employer's corporate intranet. Corporate members will also have full
access to our travel specialists through special 800 numbers, where the same
discounts and incentives will be available. A goal of this effort is to utilize
the corporate communication infrastructure to promote and market these programs,
which are, in effect, employee benefits programs. To date, we negotiated one of
these programs. We are currently implementing this program.
Establish a FarAway.com Affiliate Program. Thousands of Web sites are
currently utilizing the affiliate (also known as associate or referral) programs
of online vendors such as CDNOW, Amazon.com, BarnesandNoble.com,
LendingTree.com, FogDog.com and CarPrices.com, to offer their visitors the
opportunity to buy everything from books to sporting goods to cars. These
programs allow any web site owner to create banner links that transport visitors
to the affiliated e-commerce web site in the hope they will make a purchase,
thereby entitling the web site owner to a commission.
By establishing and promoting a FarAway.com affiliate program, we believe
we will create an opportunity to sell travel products in appropriate contextual
settings on complementary web sites. We are currently identifying e-commerce
companies to establish our affiliate program.
Target Untapped International Markets. We believe online travel agencies
have, up to now, virtually ignored the non-U.S. travel market. Recognizing the
opportunities presented by rapid growth in use of the Internet abroad, we have
formed Affinity International Travel Systems, Ltd., a wholly-owned subsidiary
located in London, England, in an effort to expand our target market. We believe
the European market is a potentially large source of business for the U.S.
vacation accommodation product and that our presence in the market provides a
base for potential expansion and a hub for customer service in the European
online and offline market. We expect our United Kingdom office will become fully
functional once it is linked to the TourScape software system, which is expected
to occur by September 1, 2000.
Competition
Our competitors in the online travel industry include travel suppliers and
travel agencies. Each of these types of competitors and factors upon which we
compete are described below. Many of our competitors have greater experience,
brand name recognition and/or financial resources than we do. We may be unable
to compete successfully and our failure to compete successfully may have a
material adverse effect on our business, financial condition and results of
operation.
Suppliers. Suppliers primarily encompass airlines, hotels, car rental
agencies and some cruise lines. Among the suppliers, airlines are expanding
their Internet presence the most. This includes not only enhancing their web
sites and adding the Internet as a significant distribution channel to
consumers, but also expanding their marketing efforts and forming new strategic
alliances with other key online players.
Advantages of suppliers over their agency counterparts include, among
others:
o Well-established brands and consumer confidence in those brands;
o Customer loyalty;
o Existing operational infrastructure and fulfillment capabilities;
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o Access to additional inventories and pricing incentives;
o Other incentives such as frequent flyer miles programs; and
o Availability of extensive financial resources to invest in Internet
initiatives.
Travel Agencies. Travel agencies with an online presence are comprised of
both the online companies and established brick-and-mortar operations. According
to studies of online travel, such as the Jupiter Analyst Report, some of the
leaders in online travel include, among others:
o Travelocity
o Expedia
o Preview Travel
o GetThere.com
o Trip.com
o Travel Network
o Uniglobe Travel
o Lowestfare.com
All of the leaders mentioned above offer price and availability search
capabilities for air, hotel and car rental and allow the user to book directly
online without human intervention. Most of the agencies also offer special deals
and discounted offerings. Some provide destination content. One of the areas
some agencies are endeavoring to enhance is their offering of tour packages and
cruises.
Intellectual Property
We regard the protection of our intellectual property as important to our
future success and rely on a combination of copyright, trademark, service mark
and trade secret laws, license agreements and contractual restrictions to
establish and protect intellectual property rights in our web site architecture
and technology, products, content and services. We plan to enter into
confidentiality and invention assignment agreements with our employees and
contractors in order to limit disclosure of our confidential information and to
protect our ownership interest in our web site architecture and technology. We
cannot assure you that these contractual arrangements or the other steps taken
by us to protect our intellectual property will prove sufficient to prevent
misappropriation of our technology or deter independent third-party development
of similar technologies.
We have filed an application to register our trademark for Faraway.com.
There are a number of other trademarks and domain names that may be similar to
ours. An infringement action could be brought against us at any time by the
holders of these marks. There is a substantial risk that the owner of other
marks would overcome any defenses that we could raise. If the owner of such
marks were to prevail in such an action, we could lose the ability to use the
Faraway.com name and domain name and could be subject to substantial damages.
Such adverse outcomes could adversely affect our business. If we are required to
change our domain name, we could lose customers and brand equity which would
have a material adverse effect on our business and financial condition. Although
we may attempt to acquire or license the right to use potentially relevant
third-party trademarks and domain names, we may not be successful.
We have licensed in the past, and expect that we may license in the
future, certain of our intellectual property rights, such as trademarks or
copyrighted material, to third parties. While we attempt to ensure that the
quality of the our brand is maintained by such licensees, we cannot assure you
that such
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licensees will not take actions that might materially adversely affect the value
of our intellectual property rights or reputation, which could harm our
business.
Regulatory Environment
Regulation of the Travel Industry
Many travel suppliers, particularly airlines, are subject to extensive
regulation by federal, state and foreign governments. In addition, the travel
services industry is subject to certain special taxes by federal, state, local
and foreign governments, including hotel bed taxes, car rental taxes, airline
excise taxes and airport taxes and fees. New or different regulatory schemes and
changes in tax policy could have an adverse impact on the travel service
industry in general and could have a material adverse affect on our business,
financial condition, and results of operations. Changes in tax policy for online
purchases, including travel purchases, could also have a material adverse affect
on our business, financial condition and results of operations.
Regulation of the Internet
At the present time the amount of state and federal governmental
regulation applicable to the Internet is relatively small when compared to other
areas of communication and commerce. As the size, use and popularity of the
Internet increases, it is possible that laws and regulations may be enacted with
respect to the Internet, covering issues such as user privacy, pricing,
taxation, content, copyrights, distribution, antitrust and quality of products
and services. Additionally, the rapid growth of electronic commerce may trigger
the development of tougher consumer protection laws. The adoption of such laws
or regulations could reduce the rate of growth of the Internet and could make it
more difficult and expensive for us to carry on our planned business activities.
Due to the increasing use of the Internet and the burden it has placed on
the current telecommunications infrastructure, telephone carriers have requested
the Federal Communications Commission, the FCC, to regulate Internet service
providers and online service providers and impose access fees on those
providers. If the FCC imposes access fees, the costs of using the Internet could
increase dramatically. These regulations, if promulgated, could result in the
reduced use of the Internet as a medium for commerce, which could have a
material adverse effect on our business, financial condition and results of
operations.
Regulation Concerning Privacy
Specific laws and regulations concerning the use of the Internet have been
enacted. In particular, as directed by Congress in the Children's Online Privacy
Protection Act, also known as COPPA, the Federal Trade Commission recently
adopted regulations, effective April 21, 2000, prohibiting unfair and deceptive
acts and practices in connection with the collection and use of personal
information obtained from children under 13 years old on the Internet. Because
our web site is not directed at children and we do not anticipate its widespread
use by children, COPPA and the FTC's regulations should not have a significant
effect upon our business.
The European Union has adopted a directive that imposes restrictions on
the collection and use of personal data. Under the directive, EU citizens are
guaranteed rights to access their data, rights to know where the data
originated, rights to have inaccurate data rectified, rights to recourse in the
event of unlawful processing and rights to withhold permission to use their data
for direct marketing. The directive could, among other things, adversely affect
U.S. companies that collect information over the Internet from individuals in EU
member countries, and may impose restrictions that are more stringent
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than current Internet privacy standards in the United States. We may ultimately
engage in data collection from users in EU member countries. If we do, we would
be subject to the EU directive.
While we expect to have a privacy policy designed to ensure the protection
of the privacy of our users, there can be no assurance that these programs will
conform with any regulations which have been adopted by the FTC or the European
Union directive.
It is also possible that cookies, or information keyed to a specific
server, file pathway or directory location that is stored on a user's hard
drive, which are used to track demographic information and to target
advertising, may become subject to laws limiting or prohibiting their use.
Limitations on or elimination of our use of cookies could limit the
effectiveness of our ability to market to certain users, which could have a
material adverse effect on our business, results of operations and financial
condition.
We intend to take the necessary measures to ensure that our web site
complies with industry standards relating to user privacy.
Employees
As of March 7, 2000, we had 42 full-time employees, including 20 in the
reservation and customer service departments, and 22 serving in operations,
sales and marketing, information systems, management, accounting and
administration. Our employees are not represented by a union, and we believe our
employee relations are good.
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Facilities
Our headquarters are located in City Center, St. Petersburg, Florida,
where we lease an office with approximately 10,815 square feet of space. This
lease expires in June 2004. We have also entered into a sublease agreement with
an adjacent tenant for an additional 5,683 square feet of office space to
accommodate our Internet expansion strategy.
Our Design-A-Tour division leases office space in Atlanta, Georgia, and
our Intrepid Travel division leases office space in a suburban office complex
located in Seminole, Florida. We believe that our facilities are adequate to
meet our current requirements and that suitable additional or substitute space
will be available as needed.
Legal Proceedings
As of the date of this prospectus, we are not party to any material
proceedings.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information about our executive
officers and directors.
Name Age Position
- ---- --- --------
Daniel G. Brandano 50 President, Chief Executive Officer and Director
Joan C. Brandano 49 Secretary and Director
John E. Vahl 64 Vice President and Director
Gerard J. LaMontagne 52 Chief Financial Officer
Mark S. Mandula 42 Chief Operating Officer of SunStyle International
Holidays
Daniel G. Brandano has served as our President, Chief Executive Officer and
Chairman of the Board since August 1998. Prior to joining us, Mr. Brandano
served as a consultant to HARS Systems, Inc. d/b/a VIP Reservations, a Canadian
hotel reservation-processing firm, from May 1994 to May 1995. Mr. Brandano
founded SunStyle International Holidays, Inc., a wholly-owned subsidiary of
Affinity, and has served as chief executive officer and director of SunStyle
International Holidays from May 1995 through July 1998. Mr. Brandano founded USA
Rent-A-Car in June 1985 and was a co-founder Affinity International Rent-A-Car
in May 1995. USA Rent-A-Car and Affinity International Rent-A-Car are rental car
businesses. Mr. Brandano is married to Joan Brandano, our secretary and a
director.
Joan C. Brandano has served as our Secretary and a Director since August 1998.
Prior to joining us, Ms. Brandano co-founded the business of Affinity
International Rent-A-Car. She served as vice president of Affinity International
Rent-A-Car from May 1995 to May 1998. Prior thereto, she served as a senior
manager at USA Rent-A-Car and as a customer service manager for Crew Gear, a
large wholesale supplier of airline crew equipment and supplies. Ms. Brandano is
married to Daniel G. Brandano, our president and chief executive officer and a
director
John E. Vahl has been a Director of Affinity since August 1998. Prior to joining
us, Mr. Vahl served as a director of SunStyle International Holidays, Inc. from
August 1996 through July 1998. Mr. Vahl served as president of Payless
Rent-A-Car System, an international rental car-franchising firm, from June 1990
to April 1991. Mr. Vahl has extensive international business experience with
particular emphasis in the emerging Asian markets. From April 1993 to the
present, he has been serving as a liaison between Rover Motor Cars, a major
European automobile manufacturer and representatives of Beijing Lu Hua Auto
Sales Company, a Rover Distributor.
Gerard J. LaMontagne has served as our Chief Financial Officer since October
1998. Prior to joining us, he served as vice president and chief financial
officer of Goddard Medical Associates, a multi-specialty health care provider,
in southeastern Massachusetts from February 1984 to September 1998. Mr.
LaMontagne is a certified public accountant.
Mark S. Mandula has served as Chief Operating Officer of SunStyle International
Holidays, Inc. since July 1999. Since 1995, Mr. Mandula has also served as chief
executive officer of Integrity Credit Services, Inc., a professional service
corporation. Prior thereto, from 1988 to 1994, Mr. Mandula served as chief
executive officer of MWN Corp. and CCB Services, financial services
institutions. Mr. Mandula has extensive experience in the credit, investment
banking and travel industries.
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Election of Officers and Directors
Our Board of Directors currently consists of three members. Each director
is serving as a director until the next annual meeting of stockholders and until
his successor is elected and qualified or until his earlier resignation or
removal. Each of our executive officers has been chosen for a term which
continues until the meeting of the Board of Directors which follows the next
annual meeting of stockholders and until his successor is chosen and qualified.
Committees of the Board of Directors
We currently do not have any committees of the Board of Directors.
Director Compensation
In December 1999, we granted each of our three directors options to
purchase 50,000 shares of our common stock at an exercise price of $1.00 per
share as compensation for services provided and to be provided from May 1999
through July 2000. The exercise price of these options on the date of grant was
greater than the last sale price of our common stock as quoted on the OTC
Bulletin Board. All of the options granted are immediately exercisable and
expire three years from the date of grant. Our directors do not receive any
monetary compensation for acting as a director of Affinity.
Compensation Committee Interlocks and Insider Participation
We do not have a formal compensation committee. Executive compensation
matters are determined by the Board of Directors as a group. Mr. Brandano, our
President and Chief Executive Officer, does not, however, participate in
discussions concerning his compensation.
Executive Compensation
The following summary compensation table sets forth certain information
concerning the compensation awarded to, earned by or paid to our Chief Executive
Officer and each of our other executive officers whose total annual salary and
bonuses exceeded $100,000 for all services rendered in all capacities to us for
each of our last three fiscal years. The officers listed in the table below are
sometimes referred to as the named executive officers.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
------------------------------------------- --------------
Fiscal Other Securities
Name and Year Annual Underlying All Other
Principal Ended Salary Bonus Compensation Options Compensation
Position 6/30 ($) ($) ($) (#) ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Daniel G. Brandano 1999 $62,000 --- --- --- ---
President and Chief 1998 52,500 --- --- --- ---
Executive Officer(1) 1997 36,479 --- --- --- ---
Gerard J. LaMontagne 1999 $48,500 --- $66,563(3) --- ---
Chief Financial Officer(2)
</TABLE>
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- ------------------------------
(1) The compensation shown for the fiscal years ended June 30, 1998 and June
30, 1997 includes amounts paid to Mr. Brandano for services rendered in
his capacity as chief executive officer of SunStyle International
Holidays, Inc., prior to the SunStyle acquisition in July 1998.
(2) Mr. LaMontagne began serving as our chief financial officer in October,
1998.
(3) Represents the fair market value of 55,000 shares of common stock of
Affinity that were issued as part of Mr. LaMontagne's compensation during
fiscal 1999. Such shares were valued at the closing price of our common
stock as quoted on the OTC Bulletin Board on the last day of each month,
the date on which such shares are earned by Mr. LaMontagne.
Option Grants In Last Fiscal Year
No named executive officer was granted options during the fiscal year
ended June 30, 1999. In July 1999, we granted Mr. Brandano, our chief executive
officer, an option to purchase 2,000,000 shares of our common stock at an
exercise price of $0.50 per share. These options are immediately exercisable and
expire 10 years from the date of grant. In August 1999, we also granted Mr.
LaMontagne, our chief financial officer, an option to purchase 15,000 shares of
our common stock at an exercise price of $1.00 per share. Mr. LaMontagne's
options expire 3 years from the date of grant.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
No named executive officer had any options through the fiscal year ended
June 30, 1999.
Employment Contracts, Termination of Employment Agreements and Change in Control
Arrangements
Mr. Daniel G. Brandano, our president and chief executive officer, has an
employment agreement with us dated July 1, 1999. The term of Mr. Brandano's
agreement ends on June 30, 2006 and may be extended for additional one year
periods thereafter. Mr. Brandano's base salary is $120,000 for fiscal 2000 and
increases each year of his term. Mr. Brandano is also eligible to receive a
bonus and fringe benefits, such as a monthly payment for an automobile. In the
event we terminate Mr. Brandano without cause or if Mr. Brandano terminates his
employment for good reason, we must pay him an amount equal to his base salary
payable during the term of his agreement and we must continue to pay the cost of
his participation in our health and dental plans. In the event of Mr. Brandano's
death, resignation, disability, termination for cause, we must pay him an amount
equal to base salary and bonus or incentive pay earned and unpaid as of the date
of termination.
Mr. Mark S. Mandula, chief operating officer of SunStyle International
Holidays, Inc., also has an employment agreement with us dated July 1, 1999. The
term of Mr. Mandula's agreement ends on July 31, 2002 and it continues on a
month to month basis thereafter. Mr. Mandula's base salary was originally
$58,000. In February 2000, we amended his base salary to $78,000. Mr. Mandula's
base salary increases each year of the agreement, and he is eligible to
participate in an annual bonus for each year of the agreement. We also pay for
Mr. Mandula's fringe benefits, such as a monthly payment for an automobile and
insurance.
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Mr. Gerard J. LaMontagne, our chief financial officer, has an arrangement
with us pursuant to which he receives $6,500 in cash and 5,000 shares of our
common stock each month for services rendered. The shares we issue to Mr.
LaMontagne are valued at the closing price of our common stock as quoted on the
OTC Bulletin Board on the last day of each month for which he provides services.
Stock Option Plan
We have adopted the 1999 Combination Stock Option Plan. Under the 1999
Combination Stock Option Plan, both non-qualified and incentive stock options to
purchase shares of our common stock may be granted to key employees and other
persons who are in a position to contribute to our long-term success and growth.
The Board of Directors currently administers the stock option plan and has the
authority to, among other things, determine those persons who are eligible to
participate; determine the size of the grant; establish the terms and conditions
of the options granted; make or alter restrictions and conditions on the
options; and adopt rules and regulations and interpret the stock option plan. A
total of 4,000,000 shares have been reserved for issuance under the stock option
plan. As of April 14, 2000, options to purchase 2,165,000 shares of common stock
were outstanding or committed for issuance under the stock option plan.
CERTAIN TRANSACTIONS
In July 1998, we entered into an acquisition agreement with all of the
stockholders of SunStyle International Holidays, Inc. pursuant to which we
purchased 4,902,894 shares of SunStyle International Holidays, which represented
all of the issued and outstanding shares of SunStyle, in exchange for 4,902,894
shares of our common stock. Although we acquired SunStyle, the transaction was
accounted for as a purchase of Affinity by SunStyle (a reverse acquisition in
which SunStyle is considered the acquirer for accounting purposes) since the
previous stockholders of SunStyle obtained a majority of the voting rights of
Affinity as a result of this transaction. For accounting purposes, the reverse
acquisition is treated as a recapitalization of SunStyle and not as a business
combination, therefore, no value was allocated to the common stock issued for
the acquisition. Mr. Brandano, our President and a Director, was a principal
stockholder and the founder of SunStyle International Holidays, Inc. Following
the acquisition, Mr. Brandano became an officer and director of Affinity.
Between December 1998 and January 2000, we entered into a series of
agreements with Schoemann Venture Capital, LLC, a five percent beneficial
holder of our securities, pursuant to which Schoemann Venture Capital, LLC
purchased or received as penalty shares in connection with such financings an
aggregate of 7,357,143 shares of our common stock and warrants to purchase
6,450,000 shares of our common stock at a current exercise price of $.25 per
share, for an aggregate purchase price of $2,872,000. These transactions are
as follows:
o In December 1998, Schoemann Venture Capital, LLC, purchased for an
aggregate consideration of $400,000, 1,142,857 shares of our common stock
and warrants to purchase an additional 200,000 shares of our common stock
at an exercise price of $0.35 per share. In January 1999, Schoemann
Venture Capital, LLC acquired the 200,000 shares under its warrant
agreement for $70,000. The shares acquired in this transaction are not
being registered in the registration statement, of which this prospectus
is a part;
o In January 1999, Schoemann Venture Capital, LLC, purchased for an
aggregate consideration of $222,000, a convertible note in the principal
amount of $222,000 and warrants to purchase 250,000
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shares of our common stock at an exercise price of $.35 per share.
Schoemann Venture Capital, LLC subsequently converted its note into
634,286 shares of our common stock;
o In April 1999, Schoemann Venture Capital, LLC, purchased for an aggregate
consideration of $1,000,000, a convertible note in the principal amount of
$1,000,000 and warrants to purchase 750,000 shares of our common stock at
an exercise price of $1.75 per share. Schoemann Venture Capital, LLC
subsequently converted its note into 2,300,000 shares of our common stock;
o In April 1999, we entered into a consulting agreement with Schoemann
Venture Capital, LLC, pursuant to which Schoemann Venture Capital, LLC was
entitled to receive a monthly consulting fee of $6,666 for business and
financial advisory services and a 5% commission on gross proceeds we
received from the sale of our securities resulting from introductions
Schoemann Venture Capital, LLC made to us. This agreement was amended in
June 1999 to provide that Schoemann Venture Capital, LLC is entitled to
receive a monthly consulting fee of $13,333 and warrants to purchase
750,000 shares of our common stock at an exercise price of $2.00;
o In June 1999, Schoemann Venture Capital, LLC, purchased for an aggregate
consideration of $1,000,000, a convertible note in the principal amount of
$1,000,000 and warrants to purchase 2,750,000 shares of our common stock
at an exercise price of $2.00 per share. Schoemann Venture Capital, LLC
subsequently converted its note into 2,000,000 shares of our common stock;
o In December 1999, we issued 840,000 shares to Schoemann Venture Capital,
LLC, in payment of penalties to Schoemann Venture Capital, LLC resulting
from our failure to have a registration statement declared effective by
the SEC prior to a specified date in our then existing agreements with
Schoemann Venture Capital, LLC;
o In December 1999, Schoemann Venture Capital, LLC and GCD Investments, LLC,
an unrelated third party, purchased, for an aggregate consideration of
$250,000 and $500,000, respectively, 714,286 and 1,458,571 shares of
common stock, respectively, at a price of $0.35 per share. In connection
with this transaction, we repriced outstanding warrants to purchase
4,250,000 shares of our common stock. The last sale price of our common
stock on December 20, 1999 as quoted on the OTC Bulletin Board was $0.50
per share. These agreements were terminated in January 2000, as described
below;
o In January 2000, we issued an additional 240,000 shares to Schoemann
Venture Capital, LLC in payment of penalties to Schoemann Venture Capital,
LLC resulting from our failure to have a registration statement declared
effective by the SEC prior to a specified date in our then existing
agreements with Schoemann Venture Capital, LLC;
o In January 2000, we terminated the December agreements and entered into an
agreement with Schoemann Venture Capital, LLC, pursuant to which we agreed
to sell for $250,000 (less certain costs) warrants to purchase 1,150,000
shares of our common stock at an exercise price of $0.25 per share; and
o In January 2000, we also agreed to issue warrants to purchase an aggregate
of 800,000 shares of our common stock at an exercise price of $0.25 per
share in payment of penalties to Schoemann Venture Capital, LLC resulting
from our failure to have a registration statement declared effective by
the SEC prior to a specified date in the prior agreements with Schoemann
Venture Capital, LLC. We also agreed that the exercise price for all
outstanding warrants to purchase 4,500,000 shares of our common stock that
were previously sold to Schoemann Venture Capital, LLC would be further
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reduced to $0.25 per share. Finally, we agreed that all rights and
obligations of the parties under the earlier agreements with Schoemann
Venture Capital, LLC, aside from certain registration rights and rights to
receive a 5% commission on certain sales of our securities, were
terminated in all respects.
In January 2000, as part of the same financing with Schoemann Venture
Capital, LLC in January 2000, we entered into an agreement with GCD Investments,
LLC, a five percent beneficial owner, which replaced an existing agreement dated
December 20, 1999, pursuant to which we agreed to sell warrants to 2,300,000
shares of our common stock at an exercise price of $0.25 per share. GCD
Investments paid us $500,000, less certain costs, in consideration of the
issuance of the warrants. GCD Investments became a five percent beneficial owner
as a result of this transaction.
On January 1, 1999, we acquired all of the outstanding capital stock of
Prestige Travel Services II, Inc., a retail travel agency with an independent
agent sales program and an internet cruise brokerage operation, for $1,600,000,
which we paid through the issuance of 800,000 shares of Series A Convertible
Preferred Stock. The conversion price of the Series A Convertible Preferred
Stock was $1.06875 per share based on the 20 day average trading price preceding
August 1, 1999 as provided for in the purchase agreement. The holders of the
Series A Convertible Preferred Stock subsequently converted their shares of
preferred stock into 1,497,076 shares of common stock, thereby resulting in
their becoming a greater than five percent owner of our company.
In December 1999, we entered into an agreement with the former owners of
Prestige Travel Services II, who were then five percent beneficial owners of our
stock, pursuant to which the former owners repurchased all of the outstanding
capital stock of Prestige Travel Services from us. The former owners paid us a
purchase price of $75,000 in cash and transferred to us the 1,497,076 shares of
our common stock which the owners received upon conversion of the Series A
Convertible Preferred Stock issued to them in the acquisition.
In July 1999, we entered into an employment agreement with Daniel
Brandano, our president and chief executive officer. The term of Mr. Brandano's
agreement ends on June 30, 2006 and may be extended for additional one year
periods thereafter. Mr. Brandano's base salary is $120,000 for fiscal 2000 and
increases each year of his term. For a more detailed description of Mr.
Brandano's employment agreement, please see the section entitled "Employment
Contracts, Termination of Employment Agreements and Change in Control
Arrangements".
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to us regarding
beneficial ownership of our common stock as of February 25, 2000 by:
o The named executive officers;
o Each of our directors;
o Each person, other than those officers or directors who are 5%
holders who are listed elsewhere in the table, known by us to be the
beneficial owner of more than 5% of our common stock;
o All executive officers and directors as a group; and
o Each selling stockholder, other than those officers or directors or
5% holders who are listed elsewhere in the table, who is offering
shares of our common stock under this prospectus.
Unless otherwise noted below, the address of each person listed in the
table is c/o Affinity International Travel Systems, Inc., 100 Second Avenue
South, 1100S, St. Petersburg, Florida 33701-4301, and each person has the sole
voting and investment power over the shares as beneficially owned except to the
extent authority is shared by spouses under applicable law and except as set
forth in the footnotes to the table.
We have determined beneficial ownership in accordance with the rules of
the SEC. Shares of common stock subject to warrants or options that are either
currently exercisable or exercisable within 60 days of February 25, 2000 are
treated as outstanding and beneficially owned by the warrant or option holder
for the purpose of computing the percentage ownership of the option/warrant
holder. However, these shares are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. For purposes of
determining beneficial ownership after the offering, we have assumed that each
selling stockholder will sell all shares they are offering.
All shares of common stock being offered by selling stockholders are being
registered by this prospectus pursuant to contractual registration rights or
similar obligations on behalf of Affinity or are being registered voluntarily by
Affinity.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering After Offering
----------------- --------------
Name and Address Number of Percentage of Number of Shares Number of Percentage of
Of Beneficial Owner Shares Ownership Being Offered Shares Ownership
------------------- ------ --------- ------------- ------ ---------
<S> <C> <C> <C> <C> <C>
Directors and Officers
Daniel G. Brandano (1) 4,950,000 28.60% 25,000 2,100,000 7.70%
Joan C. Brandano(2) 4,950,000 28.60% 2,825,000 2,100,000 7.70%
John E. Vahl(3) 50,000 0.30% -0- 50,000 0.20%
Gerard J. LaMontagne(4) 100,000 0.66% 85,000 15,000 0.06%
Mark S. Mandula 140,000 0.90% 140,000 -0- 0.00%
All executive officers and 5,240,000 30.20% 3,075,000 2,165,000 7.90%
directors as a group
(5 persons) (5)
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
5% Beneficial Owners
Gordon Dumont, Manager(6) 2,300,000 13.20% 2,300,000 -0- 0.00%
4821 Sheridan
Metairie, LA 70002
Bradley S. Johnson (7) 2,550,000 14.90% 2,550,000 -0- 0.00%
c/o David Lukinovich
3333 W. Napoleon Ave.
Suite 101
Metairie, LA 70001
Gina M. Music (8) 2,856,706 17.10% 2,856,706 -0- 0.00%
c/o David Lukinovich
3333 W. Napoleon Ave.
Suite 101
Metairie, LA 70001
Claire M. Olivier (9) 320,000 0.20% 320,000 -0- 0.00%
2401 Jay St.
New Orleans, LA 70122
Marcus A. Pelletteri (10) 2,750,000 15.30% 2,750,000 -0- 0.00%
c/o David Lukinovich
3333 W. Napoleon Ave.
Suite 101
Metairie, Louisiana 70001
Florence M. Schoemann (11) 3,103,294 20.40% 3,103,294 -0- 0.00%
3904 Wheat Dr.
Metairie, Louisiana 70002
Rodney R. Schoemann, Sr. (12) 1,092,205 6.91% 884,286 207,919 1.32%
3904 Wheat Dr.
Metairie, Louisiana 70002
Selling Stockholders
Cliff Barnett(13) 40,000 0.26% 40,000 -0- 0.00%
Linster E. Brinkley, Jr. 74,854 0.50% 74,854 -0- 0.00%
Carrollton Golf Partners(14) 330,000 2.15% 330,000 -0- 0.00%
David Comstock(15) 100,000 0.66% 100,000 -0- 0.00%
Peter Thomas Dazzio, Jr.(16) 50,000 0.30% 50,000 -0- 0.00%
Dan T. Dickerson (17) 50,000 0.30% 50,000 -0- 0.00%
Kim and Maria Greene(18) 20,000 0.13% 20,000 -0- 0.00%
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
James Hanner (19) 40,000 0.26% 40,000 -0- 0.00%
David Heideman(20) 100,000 0.66% 100,000 -0- 0.00%
George B. Juneman (21) 150,000 1.00% 150,000 -0- 0.00%
Brian Kessler 168,954 1.17% 168,954 -0- 0.00%
Charles Kessler(22) 65,000 0.40% 65,000 -0- 0.00%
David Matheny (23) 30,000 0.20% 30,000 -0- 0.00%
John Rasmussen(24) 50,000 0.30% 50,000 -0- 0.00%
Charles Schwab f/b/o Robert 100,000 0.66% 100,000 -0- 0.00%
Clayton Pritchard and Beth
Pritchard (25)
Charles Schwab f/b/o 615,000 3.95% 615,000 -0- 0.00%
Howard R. Pritchard (26)
Gary M. Smith(27) 70,000 0.46% 70,000 -0- 0.00%
Mark and Cathy Sommer(28) 180,000 1.20% 180,000 -0- 0.00%
Neal Tourdo(29) 60,000 0.40% 60,000 -0- 0.00%
Dennis Travis(30) 50,000 0.30% 50,000 -0- 0.00%
G.K. Ulrich(31) 115,000 0.75% 115,000 -0- 0.00%
R. Trent Ulrich(32) 30,000 0.20% 30,000 -0- 0.00%
Mark Young 25,000 0.16% 25,000 -0- 0.00%
</TABLE>
- ---------------------------
* Less than 1% of the outstanding common stock.
(1) Includes 2,050,000 shares issuable upon the exercise of options
exercisable within 60 days of February 25, 2000. Also includes 2,875,000
held of record by Mr. Brandano's spouse, Joan Brandano, our secretary and
a director. Mr. Brandano disclaims beneficial ownership of the shares held
by Ms. Brandano.
(2) Includes 50,000 shares issuable upon the exercise of options exercisable
within 60 days of February 25, 2000. Also includes 2,075,000 shares held
of record by Ms. Brandano's spouse, Daniel Brandano, our chief executive
officer and president. Ms. Brandano disclaims beneficial ownership of the
shares held by Mr. Brandano.
(3) Includes 50,000 shares issuable upon the exercise of options exercisable
within 60 days of February 25, 2000.
47
<PAGE>
(4) Includes 15,000 shares issuable upon the exercise of options exercisable
within 60 days of February 25, 2000.
(5) Includes 2,140,000 shares issuable upon the exercise of options
exercisable within 60 days of February 25, 2000.
(6) Includes 2,300,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 2,300,000 shares of our common stock.
(7) Includes 600,000 shares of common stock held in the Affinity 5R Trust;
650,000 shares of common stock held in the Affinity 5K Trust; 650,000
shares of common stock held in the Affinity 6R Trust and 650,000 shares of
common stock held in the Affinity 6K Trust. Mr. Johnson serves as the
trustee for each of these trusts. Of the amounts beneficially owned by Mr.
Johnson, 1,950,000 shares are issuable upon the exercise of immediately
exercisable warrants to purchase 1,950,000 shares of our common stock.
(8) Includes 750,000 shares of common stock held in the Affinity 1R Trust;
678,353 shares of common stock held in the Affinity 1K Trust; 678,353
shares of common stock held in the Affinity 2R Trust; and 750,000 shares
of common stock held in the Affinity 2K Trust. Ms. Music serves as the
trustee for each of these trusts. Of the amounts beneficially owned by Ms.
Music, 1,500,000 shares are issuable upon the exercise of immediately
exercisable warrants to purchase 1,500,000 shares of our common stock.
(9) Includes 160,000 shares of common stock held in the Rodney Ryan Schoemann,
Sr. Grantor Retained Annuity Trust UAD 6/20/97; and 160,000 shares of
common stock held in the Carol Lynn Henry Schoemann Grantor Retained
Annuity Trust UAD 6/20/97. Ms. Olivier serves as the trustee for such
trusts.
(10) Includes 690,000 shares of common stock held in the Affinity 3R Trust;
690,000 shares of common stock held in the Affinity 3K Trust; 690,000
shares of common stock held in the Affinity 4R Trust; and 680,000 shares
of common stock held in the Affinity 4K Trust. Mr. Pelletteri serves as
the trustee for such trusts. Of the amounts beneficially owned by Mr.
Pelletteri, 2,750,000 shares are issuable upon the exercise of immediately
exercisable warrants to purchase 2,750,000 shares of our common stock.
(11) Includes 465,824 shares of common stock held in the Rodney Ryan Schoemann
Sr. Family Trust No. 1; 465,823 shares of common stock held in the Rodney
Ryan Schoemann Sr. Family Trust No. 2; 705,823 shares of common stock held
in the Carol Lynn Henry Schoemann Family Trust No. 1; 705,824 shares of
common stock held in the Carol Lynn Henry Schoemann Family Trust No. 2;
380,000 shares of common stock held in the Rodney Ryan Schoemann, Jr.
Intervivos Trust of 1998 UAD 12/10/97; and 380,000 shares of common stock
held in the Kristina Marie Schoemann Intervivos Trust of 1998 UAD
12/10/97. Ms. Schoemann serves as trustee for each of these trusts..
(12) Includes 160,000 shares of common stock held in the Ryan Schoemann, Sr.
Foundation. Mr. Schoemann serves as director of the foundation. Of the
amounts beneficially owned by Mr. Schoemann, 250,000 shares are issuable
upon the exercise of immediately exercisable warrants to purchase 250,000
shares of our common stock. Mr. Schoemann's beneficial ownership has been
calculated as of April 25, 2000.
48
<PAGE>
(13) Includes 20,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 20,000 shares of our common stock.
(14) Includes 165,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 165,000 shares of our common stock.
(15) Includes 50,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 50,000 shares of our common stock.
(16) Includes 25,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 25,000 shares of our common stock.
(17) Includes 25,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 25,000 shares of our common stock.
(18) Includes 10,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 10,000 shares of our common stock.
(19) Includes 20,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 20,000 shares of our common stock.
(20) Includes 50,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 50,000 shares of our common stock.
(21) Includes 25,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 25,000 shares of our common stock which
are held in the Frances B. Juneman Trust, a trust for which Mr. Juneman
serves as trustee. Also includes 50,000 shares issuable upon the exercise
of immediately exercisable warrants to purchase 50,000 of our common stock
which are held in Mr. Juneman's name.
(22) Includes 5,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 5,000 shares of our common stock.
(23) Includes 15,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 15,000 shares of our common stock.
(24) Includes 25,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 25,000 shares of our common stock.
(25) Includes 50,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 50,000 shares of our common stock.
(26) Includes 365,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 365,000 shares of our common stock.
(27) Includes 35,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 35,000 shares of our common stock.
49
<PAGE>
(28) Includes 90,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 90,000 shares of our common stock.
(29) Includes 30,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 30,000 shares of our common stock.
(30) Includes 25,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 25,000 shares of our common stock.
(31) Includes 100,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 100,000 shares of our common stock.
(32) Includes 15,000 shares issuable upon the exercise of immediately
exercisable warrants to purchase 15,000 shares of our common stock.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK AND OTHER MATTERS
Our authorized capital stock consists of 100,000,000 shares of common
stock, $.001 par value, and 100,000,000 shares of preferred stock, $.001 par
value per share.
Common Stock
As of April 14, 2000, there were 15,550,210 shares of common stock
outstanding, held of record by approximately 125 stockholders.
Holders of common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Directors are elected by a plurality of the votes of the shares
present in person or by proxy at the meeting and entitled to vote in such
election. Holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, after provision has been made for any preferential
dividend rights of outstanding preferred stock. Upon our liquidation,
dissolution or winding up, the holders of common stock are entitled to receive
ratably the net assets available after the payment of all of our debts and other
liabilities, and after the satisfaction of the rights of any outstanding
preferred stock. Holders of the common stock have no preemptive, subscription,
redemption or conversion rights, nor are they entitled to the benefit of any
sinking fund. The outstanding shares of common stock are validly issued, fully
paid and non-assessable. The rights, powers, preferences and privileges of
holders of common stock are subordinate to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred stock which we
may designate and issue in the future.
Preferred Stock
The Board of Directors has the authority, without action by the
stockholders, to create one or more series of preferred stock and determine the
number of shares, designation, price, redemption terms, conversion and voting
rights with respect to any such series.
Our stockholders have granted the Board of Directors authority to issue
the preferred stock and to determine the rights and preferences of the preferred
stock in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of common stock will be
subordinate to the rights of holders of any preferred stock issued in the
future. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power or other rights of the holders of common
stock, and could make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, a majority of our
outstanding voting stock. We have previously issued shares of Series A
Convertible Preferred Stock, but such shares have since been converted into
common stock and the shares of Series A Convertible Preferred Stock have been
canceled and are not subject to reissuance. Accordingly, to date, there are no
shares of preferred stock outstanding and we have no present plans to issue any
shares of preferred stock.
Warrants
As of April 14, 2000, there were outstanding warrants to purchase an
aggregate of 10,010,817 shares of our common stock, of which 9,940,000 shares
underlying such warrants are being registered for resale by the registration
statement of which this prospectus is a part.
51
<PAGE>
Registration Rights
All of the shares being registered for resale by the selling stockholders,
including the 9,940,000 shares issuable upon exercise of the warrants which are
being registered for resale by certain stockholders, are being registered ,
pursuant to contractual obligations and registration rights granted to such
selling stockholders.
Limitation of Our Officers' and Directors' Liability
Our articles of incorporation, as amended, and by-laws include provisions
to eliminate the personal liability of our directors for monetary damages
resulting from breaches of their fiduciary duty and require us to indemnify our
directors and officers to the fullest extent permitted by law.
Additional Provisions in Our Charter and Bylaws
Our articles of incorporation may discourage, delay or prevent a merger or
acquisition that a stockholder may consider favorable because the board of
directors alone may, without further stockholder approval, authorize the
issuance of a series of preferred stock that may have more voting power than the
common stock. The issuance of this type of preferred stock would give control of
the company to the holders of preferred stock. Furthermore, an issuance of this
type of preferred stock could make it more difficult for a third party to
acquire, or discourage a third party from attempting to acquire, a majority of
our outstanding voting stock. The existence of this type of preferred stock
could facilitate the issuance of stock which could discourage or delay a merger
or acquisition.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Interwest
Transfer, Inc. located in Salt Lake City, Utah.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of April 14, 2000, we had approximately 15,550,210 shares of common
stock outstanding, which does not include the 9,940,000 shares issuable upon
exercise of outstanding warrants which are being registered for resale pursuant
to the registration statement of which this prospectus is a part.
Upon the effectiveness of the registration statement of which this
prospectus is a part, assuming the prior exercise of all outstanding warrants
for which the underlying shares of common stock are being registered for resale
hereunder, approximately 24,660,496 shares will be freely tradable without
restriction under the Securities Act of 1933, as amended. Subject to certain
volume and other limitations, approximately 79,156 shares are currently eligible
for sale under Rule 144, and approximately 750,558 shares will be eligible for
public sale without registration at different times during the next twelve
months, pursuant to Rule 144.
In addition to the shares issuable upon exercise of outstanding warrants
for which we are registering for resale, we also have outstanding warrants to
purchase 70,817 shares of our common stock, which are not being registered under
the registration statement of which this prospectus is a part. The weighted
average purchase price of the outstanding warrants to purchase 10,010,817 shares
of our common stock is $0.33 per share.
We also have outstanding options to purchase 2,165,000 shares of our
common stock at a weighted average exercise price of $0.54 per share. Further,
shortly after the effectiveness of the registration statement, of which this
prospectus is a part, we intend to file a Form S-8 registration statement under
the Securities Act registering 4,000,000 shares of common stock issuable under
our combination stock option plan, including the 2,165,000 options currently
outstanding. The sale of even a small number of the outstanding shares of common
stock may have a material adverse effect on the quoted price of our common
stock. The sale of any such shares may also have a material adverse effect on
our ability to raise capital and/or materially adversely affect the quoted price
of our common stock.
In general, under Rule 144, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
o one percent of the number of shares of common stock then outstanding; or
o the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice and the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
53
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders are selling an aggregate of 19,158,09420,353,094
shares, which includes 9,940,000 shares of common stock being registered for
resale upon the prior exercise of outstanding warrants to purchase 9,940,000
shares of common stock. The price and manner of sale of the shares of common
stock offered by the selling stockholders hereunder by this prospectus are in
the sole discretion of the selling stockholders. The shares of common stock
offered by this prospectus may be offered through any of several methods, such
as ordinary brokerage transactions at market prices or in privately negotiated
transactions at prices agreed upon by the parties. We do not have, nor, to our
knowledge, do the selling stockholders have, any agreement, arrangement or
understanding with any broker or dealer entered into prior to the effective date
of the registration statement of which this prospectus is a part with respect to
the sale of the common stock offered by this prospectus.
LEGAL MATTERS
Brown Rudnick Freed & Gesmer, Boston, Massachusetts will pass upon certain
legal matters in connection with this offering for us.
EXPERTS
The consolidated financial statements of Affinity International Travel
Systems, Inc. and subsidiaries as of June 30, 1999 and 1998 and for the three
years then ended, included in this prospectus and in the registration statement
have been audited by BDO Seidman, LLP, independent certified public accountants,
to the extent and for the periods set forth in their reports appearing elsewhere
herein and in the registration statement, and are included in reliance upon such
reports given upon the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act registering the common stock to be sold in this offering. As
permitted by the rules and regulations of the SEC, this prospectus omits certain
information contained in the registration statement and the exhibits and
schedules filed as a part of the registration statement. For further information
concerning us and the common stock to be sold in this offering, you should refer
to the registration statement and to the exhibits and schedules filed as part of
the registration statement. Statements contained in this prospectus regarding
the contents of any agreement or other document filed as an exhibit to the
registration statement are not necessarily complete, and in each instance
reference is made to the copy of the agreement filed as an exhibit to the
registration statement, each statement being qualified by this reference. The
registration statement, including the exhibits and schedules filed as a part of
the registration statement, may be inspected at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices located at Seven World Trade
Center, New York, New York 10007 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of all or any part thereof may be obtained
from such offices upon payment of the prescribed fees.
54
<PAGE>
Upon effectiveness of the registration statement, we will become subject
to the reporting requirements of the Exchange Act of 1934, as amended. As a
reporting company, we will be filing quarterly, annual and other periodic and
current reports and proxy statements with the SEC. You may call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms, and you can request copies of the documents upon payment of a duplicating
fee by writing to the SEC. In addition, the SEC maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants (including us) that file electronically with the SEC which
can be accessed at http://www.sec.gov.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Affinity International Travel Systems, Inc. and Subsidiaries
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and June 30, 1999 F-3
Consolidated Statements of Operations for the years ended June 30, 1997,
June 30, 1998 and June 30, 1999 F-5
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1997, June 30, 1998 and June 30, 1999 F-6
Consolidated Statements of Cash Flows for the years ended June 30, 1997,
June 30, 1998 and June 30, 1999 F-7
Notes to consolidated financial statements F-8
Affinity International Travel Systems, Inc. and Subsidiaries
Financial Statements
Unaudited Consolidated Balance Sheets as of December 31, 1999 F-28
Unaudited Consolidated Statements of Operations for the periods
ended December 31, 1998 and December 31, 1999 F-30
Unaudited Consolidated Statements of Stockholders' Equity for the periods
ended December 31, 1998 and December 31, 1999 F-31
Unaudited Consolidated Statements of Cash Flows for the periods
ended December 31, 1998 and December 31, 1999 F-32
Notes to consolidated financial statements F-33
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Affinity International Travel Systems, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Affinity
International Travel Systems, Inc. and subsidiaries as of June 30, 1999 and 1998
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended June
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Affinity
International Travel Systems, Inc. and subsidiaries as of June 30, 1999 and 1998
and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1999 in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Orlando, Florida
September 3, 1999, except for Note 12,
as to which the date is September 15, 1999
F-3
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
June 30, 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current:
Cash and cash equivalents $ 1,119,796 $ 64,061
Restricted certificates of deposit (Note 8) 195,280 32,132
Accounts receivable 158,156 35,403
Prepaid accommodations 128,471 31,520
Prepaid expenses 48,273 37,250
- ----------------------------------------------------------------------------------------
Total current assets 1,649,976 200,366
Property and equipment, net (Note 4) 268,464 139,395
Goodwill, net of accumulated amortization of $90,210 1,688,309 -
Deposits 40,230 29,180
Other assets 17,944 26,224
- ----------------------------------------------------------------------------------------
Total assets $ 3,664,923 $ 395,165
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
June 30, 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Notes payable $ 27,000 $ --
Accounts payable 621,227 543,474
Accrued expenses 339,152 92,405
Deferred revenue 294,953 65,539
Due to customers 13,865 68,066
Current portion of long-term debt (Note 5) -- 13,984
Current portion of capital lease obligations (Note 8) 15,410 12,448
- ---------------------------------------------------------------------------------------------------
Total current liabilities 1,311,607 795,916
Capital lease obligations, less current portion (Note 8) 22,924 38,334
Convertible debenture (Note 6) 25,000 --
- ---------------------------------------------------------------------------------------------------
Total liabilities 1,359,531 834,250
- ---------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 7 and 8)
Stockholders' equity (deficit) (Notes 1, 6, 7, 8, 9 and 11):
Common stock, $.001 par value, shares authorized 100,000,000, issued
and outstanding 12,263,165 and 4,902,894 12,263 4,903
Convertible preferred stock, $.001 par value, shares authorized
100,000,000, issued and outstanding 800,000 and -0- 800 --
Additional paid-in capital 8,791,913 1,098,514
Accumulated deficit (6,499,584) (1,542,502)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 2,305,392 (439,085)
- ---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $ 3,664,923 $ 395,165
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Consolidated Statements of Operations
================================================================================
<TABLE>
<CAPTION>
Year ended June 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 2,324,943 $ 1,328,577 $ 665,143
Cost of sales 1,585,807 769,667 541,751
- ------------------------------------------------------------------------------------------------
Gross profit 739,136 558,910 123,392
- ------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative 1,160,678 1,160,623 264,682
Salaries and wages 1,159,709 416,917 142,986
Consulting fees 276,670 44,997 --
Consulting fees to related party (Note 7) 705,682 -- --
Rent 167,058 80,281 29,313
- ------------------------------------------------------------------------------------------------
Total operating expenses 3,469,797 1,702,818 436,981
- ------------------------------------------------------------------------------------------------
Operating loss (2,730,661) (1,143,908) (313,589)
- ------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 1,775 6,221 1,440
Interest expense (Note 11) (19,570) (46,942) (2,225)
Interest expense to related party (Notes 6 and 11) (2,222,000) -- --
Other income (expense) 13,374 16,128 (3,451)
- ------------------------------------------------------------------------------------------------
Total other expense (2,226,421) (24,593) (4,236)
- ------------------------------------------------------------------------------------------------
Net loss $(4,957,082) $(1,168,501) $ (317,825)
================================================================================================
Net loss per common share $ (.79) $ (.27) $ (.11)
================================================================================================
Weighted average shares outstanding 6,290,174 4,249,506 2,848,718
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
================================================================================
<TABLE>
<CAPTION>
Convertible
Common Stock Preferred Stock
-------------------- ----------------- Additional
Par Par Paid-in
Shares Value Shares Value Capital
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1996 187 $ -- -- $ -- $ 5,046
Advances from stockholder converted to common stock 2,799,813 2,800 -- -- 12,199
Advances from related party contributed to capital -- -- -- -- 68,859
Sale of common stock 1,400,003 1,400 -- -- 468,850
Net loss -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 4,200,003 4,200 -- -- 554,954
Issuance of common stock for acquisition 6,667 7 -- -- 19,993
Issuance of common stock for compensation 75,000 75 -- -- 74,925
Issuance of common stock for conversion of debentures 371,224 371 -- -- 198,892
Sale of common stock 250,000 250 -- -- 249,750
Net loss -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 4,902,894 4,903 -- -- 1,098,514
Record issuance of common stock related to reverse acquisition 330,840 331 -- -- (331)
Beneficial conversion feature in convertible debentures and
common stock warrants to related party -- -- -- -- 2,222,000
Issuance of common stock for conversion of debentures to related
party 4,934,286 4,934 -- -- 2,217,066
Issuance of preferred stock for acquisition -- -- 800,000 800 1,599,200
Issuance of common stock for acquisition 36,320 36 -- -- 74,964
Issuance of common stock for warrants 200,000 200 -- -- 69,800
Issuance of common stock for compensation and services 182,433 182 -- -- 228,348
Issuance of common stock warrants for services to related party -- -- -- -- 682,500
Sale of common stock 1,676,392 1,677 -- -- 599,852
Net loss -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 12,263,165 $12,263 800,000 $800 $ 8,791,913
===============================================================================================================================
<CAPTION>
Total
Stockholders'
Accumulated Equity
Deficit (Deficit)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, July 1, 1996 $ (56,176) $ (51,130)
Advances from stockholder converted to common stock -- 14,999
Advances from related party contributed to capital -- 68,859
Sale of common stock -- 470,250
Net loss (317,825) (317,825)
- --------------------------------------------------------------------------------------------------
Balance, June 30, 1997 (374,001) 185,153
Issuance of common stock for acquisition -- 20,000
Issuance of common stock for compensation -- 75,000
Issuance of common stock for conversion of debentures -- 199,263
Sale of common stock -- 250,000
Net loss (1,168,501) (1,168,501)
- --------------------------------------------------------------------------------------------------
Balance, June 30, 1998 (1,542,502) (439,085)
Record issuance of common stock related to reverse acquisition -- --
Beneficial conversion feature in convertible debentures and
common stock warrants to related party -- 2,222,000
Issuance of common stock for conversion of debentures to related
party -- 2,222,000
Issuance of preferred stock for acquisition -- 1,600,000
Issuance of common stock for acquisition -- 75,000
Issuance of common stock for warrants -- 70,000
Issuance of common stock for compensation and services -- 228,530
Issuance of common stock warrants for services to related party -- 682,500
Sale of common stock -- 601,529
Net loss (4,957,082) (4,957,082)
- --------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $(6,499,584) $ 2,305,392
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Year ended June 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconciliation of net loss to net cash used for operating activities:
Net loss $(4,957,082) $(1,168,501) $ (317,825)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 151,613 47,926 10,368
Loss on disposals of property and equipment 3,623 -- 4,000
Write off of notes receivable 10,000 9,896 --
Write off of goodwill -- 66,681 --
Write off of organization costs -- 30,246 --
Issuance of common stock for interest -- 44,263 --
Issuance of common stock for compensation and services 206,655 43,750 --
Issuance of common stock warrants for services to related party 682,500 -- --
Issuance of convertible debt and common stock warrants at a discount to a
related party 2,222,000 -- --
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (59,838) (14,993) (4,049)
Prepaid accommodations (96,951) (4,719) --
Prepaid expenses 10,852 (6,000) (14,526)
Note receivable -- 3,887 (13,783)
Accounts payable 35,767 458,719 20,811
Accrued expenses 132,478 43,527 48,878
Deferred revenue 197,570 7,239 21,303
Due to customers (54,201) 68,066 --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities (1,515,014) (370,013) (244,823)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of restricted certificate of deposit (163,148) (12,132) (20,000)
Purchase of property and equipment (87,696) (38,589) (50,820)
Cash paid for acquisition of SunStyle (28,558) -- --
Cash paid for acquisition of Ritter-Witt -- (55,000) --
Cash paid for acquisition of Prestige Travel (6,185) -- --
Cash obtained from acquisition of Prestige Travel 33,428 -- --
Increase in organizational costs -- -- (13,872)
Increase (decease) in deposits (11,050) 9,126 (21,806)
Net increase in other assets (23,250) (21,495) (1,487)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (286,459) (118,090) (107,985)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Advances from stockholder -- -- 38,097
Principal payments of notes payable (34,889) -- --
Principal payments of long-term debt (13,984) (23,295) --
Principal payments of capital lease obligations (12,448) (5,993) --
Proceeds from issuance of convertible debentures 25,000 5,000 150,000
Proceeds from issuance of convertible debentures to related party 2,222,000 -- --
Net proceeds from sale of common stock 671,529 250,000 470,250
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,857,208 225,712 658,347
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 1,055,735 (262,391) 305,539
Cash and cash equivalents, beginning of year 64,061 326,452 20,913
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 1,119,796 $ 64,061 $ 326,452
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
===============================================================================
1. Nature of Nature of Organization
Organization
Affinity International Travel Services, Inc., formerly
Medanco, Inc. ("Medanco"), through its wholly-owned
subsidiaries, currently provides packaged vacation
programs, as well as airline, car rental, hotel and
cruise ship reservations for both retail travel agents
and direct consumers.
The consolidated financial statements include the
accounts of Affinity International Travel Systems, Inc.
("Affinity" or collectively the "Company") and its
wholly-owned subsidiaries, Affinity International Travel
Services, Ltd.; Prestige Travel Services II, Inc.; and
SunStyle International Holidays, Inc. ("SunStyle") and
its wholly-owned subsidiaries, SunStyle International
Holidays, Ltd.; SunStyle International Holidays of
California, Inc.; and Air Travel Trust, Inc. All material
intercompany accounts and transactions have been
eliminated.
(A) Acquisition of Sunstyle International Holidays,
Inc.
On July 31, 1998, Affinity acquired SunStyle,
and SunStyle became a wholly-owned subsidiary
of Affinity. Pursuant to the acquisition
agreement, all the outstanding common stock of
SunStyle was acquired by Affinity and the
following occurred:
1. Affinity effected a 1.75-to-1 reverse
stock split, after which it had 330,840 of
its 100,000,000 authorized shares of $.001
par value common stock outstanding.
2. The holders of SunStyle common stock
received one common share of Affinity for
each common share held of SunStyle, which
represented 4,902,894 shares or
approximately 94% of the 5,233,734 shares
of common stock of Affinity outstanding
after the acquisition.
3. The officers and director of Affinity
resigned, and the former officers and
directors of SunStyle were appointed
officers and directors of Affinity.
Although SunStyle was acquired by Affinity, the
transaction was accounted for as a purchase of
Affinity by SunStyle (a reverse acquisition in
which SunStyle is considered the acquirer for
accounting purposes) since the previous
stockholders of SunStyle obtained a majority of
the voting rights of Affinity as a result of
this transaction. Therefore, the historical
financial statements herein are those of
SunStyle up to July 31, 1998, the acquisition
date. Immediately after the acquisition, the
F-9
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Company's balance sheet included the accounts
of Affinity and SunStyle. The historical
operations and related financial statements of
Affinity prior to the acquisition were
insignificant, and therefore, the pro forma
information assuming the acquisition had taken
place at the beginning of the respective
periods is not presented.
The purchase price for Affinity consisted
solely of the acquisition costs incurred of
$28,558. As the common stock of Affinity had no
recent activity and Affinity had no operations
or net book value, no value was allocated to
the common stock issued for the acquisition.
(B) Acquisition of Ritter-Witt, Inc.
On October 10, 1997 the Company purchased
certain assets of Ritter-Witt, Inc. d/b/a
Mariner's Travel, a retail travel agency
located in Newport Beach, California, with
$55,000 in cash, 6,667 shares of the Company's
common stock valued at $20,000 ($3.00 per share
based on the value negotiated between the
Company and Ritter-Witt, Inc.) and promissory
notes of $105,000 for a total purchase price of
$180,000. The transaction was accounted for as
a purchase, and the purchase price was
allocated to the assets acquired based on their
estimated fair market values on the date of the
transaction. The excess of the purchase price
over the fair value of the net assets acquired
was $159,402 and was recorded as goodwill.
In July 1998, a key employee of this operation
resigned, and as a result, a lawsuit was filed
by the Company that alleged the employee
breached her employment and non-compete
agreements. The lawsuit was settled in February
1999 and resulted in the outstanding debt
payable to the former owners that arose through
the acquisition of approximately $93,000 being
forgiven and recorded as a purchase price
adjustment, along with a $5,000 judgment
against the employee's new employer. The
remaining goodwill of approximately $67,000 was
charged to operations for the year ended June
30, 1998 as it was determined to be impaired as
a result of the breached employment agreement
and its related effect on the acquired
business. The California operation continued on
a limited basis until it was relocated in July
1999 to Marietta, Georgia, where its operations
were consolidated with Design-A-Tour, Inc. (see
Note 1[D]).
(C) Acquisition of Prestige Travel Services II, Inc.
On January 1, 1999, the Company acquired all of
the outstanding stock of Prestige Travel
Services II, Inc., a retail travel agency with
an independent
F-10
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
agent sales program and an internet cruise
brokerage operation known as Cruise Brokers.com.,
for $1,600,000, paid through the issuance of
800,000 shares of Series A convertible preferred
stock. Prestige operates offices in Tampa and Ft.
Lauderdale, Florida. The transaction was accounted
for as a purchase. The agreement provided for the
measurement of the conversion price to be made on
August 1, 1999 based on the average trading price
of the Company's common stock for the preceding 20
days' average trading price. The conversion price
on August 1, 1999 was determined to be $1.06875
per share of common stock, resulting in 1,497,076
shares of common stock. The excess of the purchase
price, including acquisition costs of $107,715,
plus the excess of the liabilities assumed over
the fair market value of the assets acquired of
$1,746,828, was recorded as goodwill and is being
amortized on a straight-line basis over ten years.
Acquisition costs included $85,000 payable to an
unrelated third party as a finder's fee, of which
$5,000 had been paid as of June 30, 1999. The
remaining $80,000 was accrued as of June 30, 1999
and was converted into 74,854 shares of the
Company's common stock after June 30, 1999. The
conversion price was determined at August 1, 1999
based on the average trading price of the
Company's common stock for the preceding 20 days.
(D) Acquisition of Design-A-Tour, Inc.
On February 8, 1999, the Company entered into
an asset purchase agreement in which it
acquired the assets of Design-A-Tour, Inc. in
exchange for $75,000 of the Company's
convertible preferred stock in a transaction
accounted for under the purchase method of
accounting. The purchase agreement was amended
to provide for the issuance of 36,320 shares of
the Company's common stock valued at
approximately $2.07 per share (the quoted
market value on the acquisition date) in lieu
of the convertible preferred stock. The
Company's financial statements reflect the
issuance of these shares although the
certificate had not been released to the seller
pending the execution of the amendment to the
purchase agreement which occurred in August
1999.
The entire purchase price was allocated to the
assets acquired based on their estimated fair
market value. The assets included furniture and
equipment, an internet web site, rights to use
a search engine on that web site and the rights
to make airline reservations under a related
servicing agreement. The acquired tangible and
intangible assets are being depreciated and
amortized over their estimated useful lives of
three to five years.
F-11
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The operating results of the significant acquired
businesses have been included in the consolidated
statement of operations from the dates of
acquisition. The following pro forma information has
been prepared assuming certain of the acquisitions
above, which were deemed to be significant
acquisitions, had taken place at the beginning of the
respective periods. The pro forma information
includes adjustments for interest expense that would
have been incurred to finance the purchases,
additional depreciation based on the fair value of
property acquired and the amortization of intangibles
arising from the transactions. The pro forma
financial information is not necessarily indicative
of the results of operations as they would have been
had the transactions been effected on the assumed
dates.
<TABLE>
<CAPTION>
Unaudited
----------------------------------------
Year ended June 30, 1999 1998 1997
------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues $ 3,588,584 $ 2,416,290 $1,597,208
Net loss applicable to common stock (5,089,932) (1,229,808) (483,772)
Net loss per common share (.81) (.29) (.29)
==============================================================================
</TABLE>
The results of operations of the insignificant
acquisitions were not material to the Company's
consolidated results of operations.
2. Summary of (A) Revenue Recognition
Significant
Accounting The Company sells travel packages through both
Policies wholesale and retail operations. The revenues and
cost of sales from wholesale operations are
recorded at the gross amounts received from
customers and the amounts paid to vendors. The
Company negotiates the prices it pays to its
vendors and sets the prices that it sells to
customers and therefore bears the financial
risks of the transactions. The revenues and cost
of sales from the retail operations are recorded
on a net basis. The revenues consist primarily
of commissions earned by travel agents on the
sales of products and the cost of sales consist
primarily of commissions paid to independent
travel agents. For these transactions, the
travel agents merely act as intermediaries for
the customers and vendors thereby earning a
commission.
Advance payments made by customers are recorded
as deferred revenue and advance payments made to
vendors are recorded as prepaid accommodations.
Revenues and related expenses are recognized
when the revenue is earned, which varies by the
type of product. Revenues from airline ticket
sales are recorded when the tickets are issued.
Revenues from cruise and tour sales are
recognized at the time that the amounts paid are
no
F-12
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
longer refundable to the customer. Revenues from
hotel sales and auto rentals are not recognized
until the customer utilizes them. The related
commissions due to travel agents are recorded as a
cost of sales and a payable at the same time the
underlying revenue is recognized.
(B) Property, Equipment and Depreciation
Property and equipment are stated at cost.
Depreciation is computed over the estimated useful
lives of the assets by the straight-line method
for financial statement purposes and by
accelerated methods for income tax purposes.
(C) Advertising Costs
The Company expenses advertising costs as
incurred. The total advertising costs charged to
expense were approximately $44,000, $31,000 and
$36,000 for the years ended June 30, 1999, 1998
and 1997, respectively.
(D) Income Taxes
The Company accounts for income taxes on the
liability method. Under this method, deferred
tax assets and liabilities are determined based
on differences between financial reporting and
tax bases of assets and liabilities.
Measurement of deferred income tax is based on
enacted tax rates and laws that will be in
effect when the differences are expected to
reverse, with the measurement of deferred
income tax assets being reduced by available
tax benefits not expected to be realized.
(E) Net Loss per Share
Potential common shares are not considered in
the calculation of loss per share because their
inclusion would be antidilutive. Potential
common shares consist of 4,505,000 common stock
warrants and 800,000 shares of convertible
preferred stock. The 74,854 shares of common
stock to be issued as finder's fees (see Note
1[C]) and 40,000 shares of common stock to be
issued as employee compensation (see Note 8)
have been included in the calculation of loss
per share since their issuance is not dependent
upon a future contingency.
(F) Use of Estimates
The preparation of financial statements in
conformity with generally
F-13
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
accepted accounting principles requires management
to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ from
those estimates.
(G) Financial Instruments
Statement of Financial Accounting Standards No.
107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value
information about financial instruments. Fair
value estimates discussed herein are based upon
certain market assumptions and pertinent
information available to management as of June 30,
1999.
The respective carrying value of certain
on-balance-sheet financial instruments
approximated their fair values. These financial
instruments include cash and cash equivalents,
accounts receivable, notes payable, accounts
payable, accrued expenses, long-term debt and
capital lease obligations. Fair values were
assumed to approximate carrying values for these
financial instruments since they are short term in
nature and their carrying amounts approximate fair
values or they are receivable or payable on
demand.
(H) Impairment of Long-Lived Assets
Assets are evaluated for impairment when events
or changes in circumstances indicate that the
carrying amounts of the assets may not be
recoverable. When any such impairment exists,
the related assets will be written down to fair
value. As discussed in Note 1(B), the Company
recorded a write-down of goodwill of
approximately $67,000 during the year ended
June 30, 1998.
(I) Stock-Based Compensation
Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation,"
issued by the Financial Accounting Standards
Board, encourages a fair value method of
accounting for stock-based compensation plans.
This statement provides a choice to either
adopt the fair value based method of accounting
or continue to apply APB Opinion No. 25, which
would require only disclosure of the pro forma
net income and earnings per share, determined
as if the fair value based method has been
applied. The Company continued to apply APB
Opinion No. 25 when adopting this statement,
and accordingly, this statement did
F-14
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
not have a material impact on the Company.
(J) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards
Board issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133).
SFAS 133 requires companies to recognize all
derivatives contracts as either assets or
liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met,
a derivative may be specifically designated as a
hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability
that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted
transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized
in income in the period of change. SFAS 133, as
amended by SFAS 137, is effective for all fiscal
quarters of fiscal years beginning after June 15,
2000.
Historically, the Company has not entered into
derivatives contracts either to hedge existing
risks or for speculative purposes. Accordingly,
the Company does not expect adoption of the new
standard on July 1, 2000 to affect its financial
statements.
In March 1998, the American Institute of Certified
Public Accountants ("AICPA") issued Statement of
Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 provides guidance on
accounting for the various types of costs incurred
for computer software developed or obtained for
internal use. Also in June 1998, the AICPA issued
SOP 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires costs of start-up
activities and organizational costs, as defined,
to be expensed as incurred. The Company has
elected early adoption of these SOPs, and they did
not materially impact the Company's financial
statements.
3. Note In July 1996, the Company sold a license for $22,406 to a
Receivable Canadian corporation to allow that corporation to use one
of its trade names. The Company had recorded this
note using an imputed interest rate of 10%. Under the
terms of the agreement, the Company is to receive
monthly installment payments of $741 for 35 months.
The unpaid balance on this note of $9,896 was written
off due to uncollectibility during the year ended
June 30, 1998.
F-15
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
4. Property and Property and equipment are summarized as follows:
Equipment
<TABLE>
<CAPTION>
Useful
June 30, Lives 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C>
Leasehold improvements 3-5 yrs. $ 4,100 $ 5,435
Furniture and equipment 5-7 yrs. 242,728 129,583
Computer software 3 yrs. 152,270 60,930
-------------------------------------------------------------------
399,098 195,948
Less accumulated depreciation (130,634) (56,553)
-------------------------------------------------------------------
$ 268,464 $139,395
===================================================================
</TABLE>
5. Long-Term Long-term debt at June 30, 1998 consists of a note
Debt payable to Sabre Group, Inc. related to a licensing
agreement under which the Company acquired the right
to use certain reservation software. The note was
payable in monthly installments of $970 including
principal and interest at 15% and was paid off in
March 1999.
F-16
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
6. Convertible The Company issued $150,000 of 8% subordinated
Debt and convertible debentures during 1997 with a conversion
Warrants price of $.5357 per share. These debentures had a term of
18 months and matured from July to November 1998. The
Company issued an additional 5,000 of these
debentures in May 1998 with essentially the same
terms. On June 30, 1998, the debentures, including
approximately $44,000 of accrued interest, were
converted into 371,224 shares of common stock.
On January 15, 1999, the Company issued a convertible
note to a significant shareholder in the amount of
$222,000. The note was immediately convertible into
634,286 shares of the Company's common stock at a
conversion price of $.35 per share, which was below
the quoted market price of the Company's common
stock. The value of the beneficial conversion feature
was approximately $1,522,000, of which $222,000 was
immediately charged to interest expense as the debt
discount related to the beneficial conversion feature
is limited to the original balance of the note. The
note was converted into common stock on February 1,
1999.
The Company granted warrants to purchase 250,000
shares of its common stock at $.35 per share in
connection with the convertible note issued on
January 15, 1999. The warrants were immediately
exercisable and expire two years from the date of
grant. The value of these warrants were not recorded
as the maximum debt discount related to the
convertible note had previously been recorded. These
warrants were outstanding as of June 30, 1999.
On April 14, 1999, the Company issued a convertible
debenture to an individual in the amount of $25,000.
The debenture was immediately convertible into 25,000
shares of the Company's common stock at a conversion
price of $1.00 per share, which approximated the
quoted market price for the Company's common stock on
the date of issuance. In connection with this
debenture, the Company also issued a warrant to
purchase 5,000 shares of the Company's common stock
with an exercise price of $1.00 per share. The value
of these warrants was approximately $4,000 determined
using the Black-Scholes option-pricing model at the
date of grant with the following assumptions: 0%
dividend yield, an expected life of two years;
expected volatility of 140% and a risk-free interest
rate of 5.8% and has been charged to interest expense
for the year ended June 30, 1999. As of June 30,
1999, the debenture had not been converted and the
warrants had not been exercised.
On April 23, 1999, the Company issued a convertible
note to a significant stockholder in amount of
$1,000,000. The note was immediately convertible into
2,300,000 shares of the Company's common stock at a
conversion price of $.43 per share, which was below
the quoted market price of the Company's
F-17
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
common stock. The value of the beneficial conversion
feature was approximately $1,084,000, of which
$1,000,000 was immediately charged to interest expense
as the debt discount related to the beneficial
conversion feature is limited to the original balance of
the note. The note was converted into common stock on
May 6, 1999.
The Company granted warrants to purchase 750,000
shares of its common stock at $1.75 per share in
connection with the convertible note issued on April
23, 1999. The warrants were immediately exercisable
and expire five years from the date of grant. The
value of these warrants was not recorded as the
maximum debt discount related to the convertible note
had previously been recorded. These warrants were
outstanding as of June 30, 1999.
On June 10, 1999, the Company issued a convertible
note to a significant stockholder in the amount of
$1,000,000. The note was immediately convertible into
2,000,000 shares of the Company's common stock at
$.50 per share, which was below the quoted market
price of the Company's common stock. The value of the
beneficial conversion feature was approximately
$1,250,000, of which $1,000,000 was immediately
charged to interest expense as the debt discount
related to the beneficial conversion feature is
limited to the original balance of the note on the
date the note was issued. The note was converted into
common stock on June 15, 1999.
The Company granted warrants to purchase 2,750,000
shares of its common stock at $2.00 per share in
connection with the convertible note issued June 10,
1999. The warrants were immediately exercisable and
expire five years from the date of grant. The value
of these warrants was not recorded as the maximum
debt discount related to the convertible note had
previously been recorded. These warrants were
outstanding as of June 30, 1999.
7. Related Party
Transactions Sale of Debentures
During 1997, the Company sold $35,000 of debentures
to an officer of the Company and $5,000 of debentures
to a relative of a director of the Company.
Consulting Agreement
On April 23, 1999, the Company executed a consulting
agreement with a company (the "Consultant") owned by
a significant stockholder of the
F-18
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Company. Under the terms of the agreement, the
Consultant is to provide business and financial advisory
services in exchange for monthly consulting fees of
$6,666. The Consultant is also to receive a 5%
commission on gross proceeds received by the Company
from the sale of the Company's securities resulting from
introductions made by the Consultant and from related
transactions in which the Consultant's efforts were
instrumental in negotiating and closing a transaction on
behalf of the Company. This agreement remains in effect
until such time as either party terminates it with 10
days' written notice.
On June 1, 1999, the consulting agreement was amended
providing for a monthly consulting fee of $13,333 and
the granting of warrants to purchase 750,000 shares
of the Company's common stock with an exercise price
of $2.00 per share. The warrants were immediately
exercisable and expire five years from the date of
the amendment. The warrants were valued at $682,500
using the Black-Scholes option-pricing model at the
date of grant with the following assumptions: 0%
dividend yield, an expected life of five years;
expected volatility of 140% and a risk-free interest
rate of 5.7%. The Company charged the value of the
warrants to operations in June 1999.
8. Commitments and Letters of Credit
Contingencies
The Company has three letters of credit which total
$42,400 in connection with the certifications
enabling the Company to issue airline tickets. Each
letter of credit is secured by restricted
certificates of deposit which total $45,280 as of
June 30, 1999 and mature from September 1999 to June
2000. As of June 30, 1999, there were no outstanding
balances under these lines of credit.
The Company also has a $150,000 letter of credit in
connection with the lease for its corporate office
space. The letter of credit is secured by a $150,000
restricted certificate of deposit as of June 30, 1999
which matures in May 2000. As of June 30, 1999, there
was no outstanding balance under this line of credit.
Leases
The Company leases various equipment under lease
agreements which are classified as capital leases.
Total monthly payments under these capital leases was
$1,472, which includes interest at rates ranging from
11% to 14%. The equipment was recorded at a cost of
$57,334 and had accumulated depreciation of $24,259
as of June 30, 1999.
The Company leases various equipment and office space
under leases classified as operating leases. Rental
expense under all operating leases amounted to
F-19
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
approximately $158,000, $137,000, and $47,000 for the
years ended June 30, 1999, 1998 and 1997,
respectively.
As of June 30, 1999, future minimum rental payments
required under capital and operating leases that have
initial or remaining noncancelable lease terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-----------------------------------------------------------------------
<S> <C> <C>
1999 $ 17,664 $ 294,042
2000 11,784 301,072
2001 10,836 195,385
2002 4,428 193,376
-----------------------------------------------------------------------
Total net minimum lease payments 44,712 $ 983,875
==========
Less amount representing interest (6,378)
------------
Present value of net minimum lease payments $ 38,334
============
</TABLE>
Service Agreement with Weblink Communications, Inc.
On October 26, 1998, the Company entered into an
agreement to pay $250,000 to receive electronic media
consulting services from Weblink Communications, Inc.
("Weblink"), an unrelated third party. The Company
paid $25,000 in cash and issued 25,000 shares of
common stock valued at $21,875 (the quoted market
price on the date of the agreement) upon the
execution of the agreement. Weblink has to assist the
Company in the design, implementation and marketing
of an internet web site that would be affiliated with
other web sites maintained by Weblink. As of June 30,
1999, services under this agreement had not commenced
pending resolution of the payment terms for the
balance due Weblink under the service agreement, and
the Company had recorded the advance payments to
Weblink as a prepaid expense. The service agreement
expires three years from the date that the web site
is launched on the Internet.
As of September 3, 1999, a tentative agreement had
been reached which provided for the issuance of an
additional 257,143 shares of the Company's common
stock to Weblink in full satisfaction of amounts due
under the terms of the agreement.
F-20
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Management Agreement with Travel Systems, Inc.
On April 5, 1999, the Company entered into a
management agreement with an option to purchase the
assets of Travel Systems International, Inc. ("TSI").
Under the terms of the agreement, the Company
advanced TSI $10,000 under a promissory note. The
Company subsequently terminated its management
agreement and agreed to a termination fee equal to
the balance on the outstanding promissory note. As a
result, the Company charged the $10,000 promissory
note to operations during the year ended June 30,
1999.
Reservation Systems Agreements
The Company has agreements with reservation systems
providers that require the Company to pay monthly
fees equal to the larger of certain flat monthly fees
or fees based on the number of bookings recorded each
month. All such contracts are cancellable upon short
notice and minimum payments are immaterial.
Employment Agreements
As of June 30, 1999, accrued compensation of $40,000
is recorded pursuant to an employment agreement with
an officer of the Company. Under the terms of this
agreement, the officer is to receive 5,000 shares of
common stock per month. The employment agreement is
on a month-to-month basis. The amount accrued
represents 40,000 shares of common stock based on the
estimated market value of $1.00 per share.
On July 1, 1999, the Company entered into an
employment agreement with its President. The
agreement provides for payment of salary through June
2006 and the establishment of a bonus program.
9. Stockholders' Common Stock
Equity
In February 1997, the Company converted advances from
its sole stockholder into 2,799,813 shares of common
stock at a price of $.01 per share, and subsequently,
the stockholder contributed an additional $68,859 to
capital.
During 1997, the Company issued a total of 1,400,003
shares of its common stock in connection with two
private placements for net proceeds of $470,250 at
prices per share ranging from $.35 to $1.00 (the
estimated fair market values on the dates of
issuance). The Company paid $62,250 in cash and
granted 250,000
F-21
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
shares of common stock included in the above total
shares issued for offering costs related to these
private placements.
In December 1998, the Company sold 1,142,857 shares
of its common stock at a price of $.35 per share for
net proceeds of $354,869 to a significant
stockholder. The Company recorded offering costs of
$45,131 related to this stock issuance. In connection
with this sale of common stock, the Company granted
warrants to purchase 200,000 shares of its common
stock at $.35 per share. The warrants were
immediately exercisable and expired two years from
the date of the agreement. These warrants were
exercised on January 25, 1999.
Convertible Preferred Stock
In September 1998, the Company authorized 100,000,000
shares of $.001 par value convertible preferred
stock. In January 1999, the Company issued 800,000
shares of convertible preferred stock in connection
with the acquisition of Prestige Travel Services II,
Inc. (see Note 1[C]).
Stock Option Plan
On July 1, 1999, The Company adopted a stock option
plan which authorizes the issuance of up to 4,000,000
shares of its common stock in the form of incentive
stock options to employees and nonqualified stock
options to nonemployees. Upon the plan's adoption,
the Company granted its President incentive stock
options to purchase 2,000,000 shares of its common
stock with an exercise price of $.50 per share which
expire ten years from the date of grant. The Company
will account for these options in fiscal year 2000.
Reserved Shares
The Company has reserved 4,505,000 shares of common
stock as of June 30, 1999 for issuance in connection
with the convertible debt and common stock warrants
(see Note 6).
F-22
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
10. Income From the Company's inception through June 3, 1997, the
Taxes Company, with the consent of its stockholders, was
treated as an S Corporation, and the results of
operations were included in the tax returns of the
stockholders. On June 3, 1997, the Company terminated
its S Corporation election and became a C
Corporation. In addition, the Company has changed its
tax year end from December 31 to June 30. Therefore,
the Company filed an S Corporation income tax return
for the year ended December 31, 1996 and for the
short period from January 1, 1997 to June 2, 1997.
The absence of a pro forma provision for income taxes
for the period prior to June 3, 1997 and a provision
for income taxes for the period subsequent to June 2,
1997 is due to net operating losses.
The components of the net deferred income tax assets
consist of the following:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,179,000 $ 437,000
Warrants issued 257,000 -
Other 10,000 13,000
----------------------------------------------------------------
Gross deferred income tax assets 1,446,000 450,000
Valuation allowance (1,432,000) (444,000)
----------------------------------------------------------------
Total deferred income tax assets 14,000 6,000
----------------------------------------------------------------
Deferred income tax liabilities:
Depreciation (14,000) (6,000)
----------------------------------------------------------------
Net deferred income tax assets $ -- $ --
================================================================
</TABLE>
The change in the valuation allowance for deferred
tax assets was an increase of $988,000 and $413,800
during 1999 and 1998, respectively.
The amounts shown for income taxes in the statements
of operations differ from amounts that would be
derived from computing income taxes at federal
statutory rates. The following is a reconciliation of
those differences:
F-23
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<CAPTION>
Year ended June 30, 1999 1998 1997
-------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at federal statutory rates (34%) (34%) (34%)
Discount on convertible debt 15 -- --
Amortization of goodwill 1 2 --
Net operating loss with no tax benefit 18 32 34
-------------------------------------------------------------------------
Income taxes at effective rates --% --% --%
=========================================================================
</TABLE>
The Company had unused net operating losses for
income tax purposes, expiring in various amounts from
2012 through 2018, of approximately $3,132,000 at
June 30, 1999 for carryforward against future years'
taxable income.
11. Interest Interest expense consists of the following:
Expense
<TABLE>
<CAPTION>
Year ended June 30, 1999 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C>
Discount on convertible debt
to related party $2,222,000 $ -- $ --
Interest on debentures -- 42,038 2,225
Other 19,570 4,904 --
-------------------------------------------------------------------
$2,241,570 $46,942 $2,225
===================================================================
</TABLE>
12. Subsequent Acquisition of Integrity Credit Services, Inc.
Event
On July 5, 1999, the Company entered into an asset
purchase agreement in which it acquired certain
assets of Integrity Credit Services, Inc.
("Integrity") in exchange for 140,000 shares of the
Company's common stock. Integrity operates a series
of travel agencies located in Seminole and St.
Petersburg, Florida under the trade names Intrepid
Travel and Goldmark Travel. The Company also entered
into an employment agreement with the seller of
Integrity which provides for payment of salary
through July 2002.
Equipment under Capital Lease Obligation
On September 15, 1999, the Company entered into a
lease agreement for certain computer equipment. The
terms of the lease provide for monthly lease payments
of $16,451 for a five-year period. The lease will be
accounted for as a capital lease.
F-24
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
13. Supplemental Supplemental cash flow information is as follows:
Cash Flow
Information
<TABLE>
<CAPTION>
Year ended June 30, 1999 1998 1997
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for interest $ 19,570 $ 5,149 $ --
Noncash financing and investing activities:
Conversion of debentures into common
stock -- 155,000 --
Conversion of debentures into common
stock to related party 2,222,000 --
Common stock issued in connection with
service agreement 21,875 -- --
Capital lease obligation incurred in
connection with the acquisition of
equipment -- 56,775 --
Purchase of software license with debt -- -- 20,000
Advances from stockholder converted to
common stock -- -- 14,999
Amounts due to related party contributed
to capital -- -- 68,859
Common stock issued as offering costs -- -- 56,875
====================================================================================
</TABLE>
The following is a summary of noncash transactions
related to the acquisition of Ritter-Witt, Inc. disclosed
in Note 1 (B):
Year ended June 30, 1998
--------------------------------------------------------
Common stock issued $ (20,000)
Property, plant and equipment acquired 20,598
Goodwill acquired 159,402
--------------------------------------------------------
Total noncash acquisition of assets 160,000
Long-term debt issued (105,000)
--------------------------------------------------------
Net cash paid $ 55,000
========================================================
F-25
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The following is a summary of noncash transactions
related to the Prestige acquisition disclosed in Note
1 (C):
<TABLE>
<CAPTION>
Year ended June 30, 1999
-------------------------------------------------------------
<S> <C>
Convertible preferred stock issued $(1,600,000)
Accounts receivable acquired 62,915
Property, plant and equipment acquired 30,999
Goodwill acquired 1,750,361
Acquisition costs capitalized (21,530)
-------------------------------------------------------------
Total noncash acquisition of assets 222,745
-------------------------------------------------------------
Notes payable assumed (61,889)
Accounts payable assumed (41,986)
Accrued expenses assumed (114,269)
Deferred revenue assumed (31,844)
-------------------------------------------------------------
Total noncash assumption of liabilities (249,988)
-------------------------------------------------------------
Net cash acquired (net of cash paid of $6,185) $ 27,243
=============================================================
</TABLE>
14. Segment During 1999, the Company adopted Statement of Financial
Information Accounting Standards No. 131 (SFAS 131), "Disclosures
about Segments of an Enterprise and Related
Information." SFAS 131 requires that public
enterprises report certain information about
reporting segments in financial statements. It also
requires the disclosure of certain information
regarding services provided, geographic areas of
operation and major customers.
The accounting policies of the segments are the same
as those described in the summary of significant
accounting policies. Intercompany revenues are market
based. The Company evaluates performance based on
operating earnings of the respective business units.
The Company's continuing operations are classified
into three reportable segments. The wholesale
segments sell the Company's travel products to retail
travel agents and consumers from its corporate
offices in Florida. The retail segment consists of
travel agencies who sell the travel products directly
to the consumer in Florida, Georgia and California.
The following table shows certain financial
information by reportable segment as of and for the
years ended June 30, 1999, 1998 and 1997:
F-26
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<CAPTION>
Corporate
Wholesale Retail and Other Combined
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenue from external customers $ 1,363,300 $ 961,643 $ -- $ 2,324,943
Net income (loss) (1,493,827) 28,371 (3,491,626) (4,957,082)
Depreciation and amortization 38,325 22,678 90,610 151,613
Compensation and service expense related to common
stock issued 140,250 -- 66,405 206,655
Services expense related to common stock warrants
to related party -- -- 682,500 682,500
Interest income 1,775 -- -- 1,775
Interest expense 15,792 570 3,208 19,570
Interest expense to related party -- -- 2,222,000 2,222,000
Total assets 421,546 298,516 2,944,861 3,664,923
Capital expenditures 82,086 3,210 2,400 87,696
1998
Revenue from external customers $ 1,071,833 $ 256,744 $ -- $ 1,328,577
Net loss (836,362) (53,951) (278,188) (1,168,501)
Depreciation and amortization 45,238 2,688 -- 47,926
Compensation and service expense related to common
stock issued -- -- 43,750 43,750
Interest income 6,221 -- -- 6,221
Interest expense 4,486 418 42,038 46,942
Total assets 317,670 77,495 -- 395,165
Capital expenditures (exclusive of acquisitions) 38,589 -- -- 38,589
1997
Revenue from external customers $ 665,143 $ -- $ -- $ 665,143
Net loss (269,864) -- (47,961) (317,825)
Depreciation and amortization 10,638 -- -- 10,638
Interest income 1,440 -- -- 1,440
Interest expense 2,225 -- -- 2,225
Total assets 547,086 -- -- 547,086
Capital expenditures 50,820 -- -- 50,820
=====================================================================================================================
</TABLE>
F-27
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Consolidated Balance Sheets (Unaudited)
================================================================================
December 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
Assets
Current:
Cash and cash equivalents $ 57,170
Restricted certificates of deposit 183,652
Accounts receivable 121,166
Prepaid accommodations 48,852
Prepaid expenses (Note 7) 398,333
- --------------------------------------------------------------------------------
Total current assets 809,173
Property and equipment, net 1,048,262
Goodwill, net of accumulated amortization of $9,181 71,627
Deposits 58,770
Other assets 14,132
- --------------------------------------------------------------------------------
Total assets $2,001,964
================================================================================
See accompanying notes to unaudited consolidated financial statements.
F-28
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Consolidated Balance Sheets (Unaudited)
================================================================================
December 31, 1999
- -------------------------------------------------------------------------------
(unaudited)
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 1,460,706
Accrued expenses 134,097
Deferred revenue 147,417
Due to customers 6,140
Advances for common stock subscriptions (Note 7) 400,049
Current portion of capital lease obligations 13,485
- -------------------------------------------------------------------------------
Total current liabilities 2,161,894
Capital lease obligations, less current portion 15,933
- -------------------------------------------------------------------------------
Total liabilities 2,177,827
- -------------------------------------------------------------------------------
Commitments and contingencies (Note 8)
Stockholders' deficit (Notes 1, 4, 5, 6 and 7):
Common stock, $.001 par value, shares authorized
100,000,000, issued and outstanding 13,576,973 13,577
Additional paid-in capital 11,219,965
Accumulated deficit (11,409,405)
- -------------------------------------------------------------------------------
Total stockholders' deficit (175,863)
- -------------------------------------------------------------------------------
Total liabilities and stockholders' deficit $ 2,001,964
===============================================================================
See accompanying notes to unaudited consolidated financial statements.
F-29
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Consolidated Statements of Operations (Unaudited)
================================================================================
Six months ended December 31, 1999 1998
- --------------------------------------------------------------------------------
(unaudited) (unaudited)
Net sales $ 2,055,801 $ 667,189
Cost of sales 1,301,176 534,403
- -------------------------------------------------------------------------------
Gross profit 754,625 132,786
- -------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative 1,012,969 281,678
Salaries and wages 1,940,760 343,569
Consulting fees 25,523 53,269
Consulting fees to related parties 80,000 --
Rent 158,619 34,943
- -------------------------------------------------------------------------------
Total operating expenses 3,217,871 713,459
- -------------------------------------------------------------------------------
Operating loss (2,463,246) (580,673)
- -------------------------------------------------------------------------------
Other income (expense):
Interest income 12,311 995
Interest expense (3,806) (804)
Gain on sale of subsidiary (Note 5) 75,000 --
Financing charges to related party (Note 7) (2,466,500) --
Other income (expense), net (63,580) 1,983
- -------------------------------------------------------------------------------
Total other income (expense) (2,446,575) 2,174
- -------------------------------------------------------------------------------
Net loss $ (4,909,821) $ (578,499)
===============================================================================
Net loss per common share $ (.36) $ (.11)
===============================================================================
Weighted average shares outstanding 13,556,085 5,383,060
===============================================================================
See accompanying notes to unaudited consolidated financial statements.
F-30
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Deficit (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Convertible
Common Stock Preferred Stock Additional
--------------------- --------------------
Par Par Paid-in
Shares Value Shares Value Capital
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1999 12,263,165 $12,263 800,000 $ 800 $ 8,791,913
Issuance of common stock for acquisition 140,000 140 -- -- 117,992
Issuance of common stock options as compensation -- -- -- -- 750,000
Issuance of common stock for conversion of preferred stock 1,497,076 1,497 (800,000) (800) (697)
Sale of common stock 25,000 25 -- -- 9,975
Issuance of common stock for compensation and services 283,808 284 -- -- 238,427
Issuance and repricing of common stock warrants to related
party -- -- -- -- 2,082,500
Issuance of common stock for conversion of debentures 25,000 25 -- -- 24,975
Return of common stock through disposal of subsidiary (1,497,076) (1,497) -- -- (1,553,280)
Issuance of common stock for financing charges to related
party 840,000 840 -- -- 758,160
Net loss -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 13,576,973 $13,577 -- $ -- $ 11,219,965
=================================================================================================================================
<CAPTION>
Total
Stockholders
Accumulated Equity'
Deficit (Deficit)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, June 30, 1999 $ (6,499,584) $ 2,305,392
Issuance of common stock for acquisition -- 118,132
Issuance of common stock options as compensation -- 750,000
Issuance of common stock for conversion of preferred stock -- --
Sale of common stock -- 10,000
Issuance of common stock for compensation and services -- 238,711
Issuance and repricing of common stock warrants to related
party -- 2,082,500
Issuance of common stock for conversion of debentures -- 25,000
Return of common stock through disposal of subsidiary -- (1,554,777)
Issuance of common stock for financing charges to related
party -- 759,000
Net loss (4,909,821) (4,909,821)
- ---------------------------------------------------------------------------------------------
Balance, December 31, 1999 $(11,409,405) $ (175,863)
=============================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-31
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six months ended December 31, 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Reconciliation of net loss to net cash used for operating activities:
Net loss $(4,909,821) $ (578,499)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 188,086 13,757
Loss on disposals of property and equipment 18,639 --
Gain on sale of Prestige Travel (75,000) --
Write off of investments 48,273 --
Issuance of common stock options for compensation 750,000 --
Repricing of common stock warrants per warrant agreements to related party 2,082,500 --
Issuance of common stock for financing charges to related party 384,000 --
Issuance of common stock for compensation and services 238,711 --
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Accounts receivable (8,262) (127,367)
Prepaid accommodations 79,619 10,001
Prepaid expenses (23,333) (36,201)
Accounts payable 853,115 66,101
Accrued expenses (170,384) (8,399)
Deferred revenue (100,770) (12,911)
Due to customers (7,725) (58,103)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities (652,352) (731,621)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Redemption of restricted certificate of deposit 11,628 --
Purchase of property and equipment (849,966) --
Proceeds from sale of property and equipment 1,020 --
Net proceeds from sale of Prestige Travel 56,390 --
Cash paid for acquisition of Intrepid (1,018) --
Increase in deposits (18,540) (8,386)
Increase (decease) in other assets 1,079 (43,657)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (799,407) (52,043)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from notes payable -- 65,319
Principal payments of notes payable (12,000) (13,984)
Principal payments of capital lease obligations (8,916) (639)
Advances for common stock subscriptions 400,049 --
Sale of common stock 10,000 679,604
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 389,133 730,300
- -------------------------------------------------------------------------------------------------------------------------
Net decrease in cash (1,062,626) (53,364)
Cash and cash equivalents, beginning of period 1,119,796 64,061
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 57,170 $ 10,697
=========================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-32
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
1. Financial The financial statements included herein have been
Statements prepared without audit, pursuant to the rules and
regulations of the Securities and Exchange
Commission. Certain information and footnote
disclosures normally included in financial statements
prepared in accordance with generally accepted
accounting principles have been condensed or omitted
pursuant to such rules and regulations; however,
management believes that the disclosures are adequate
to make the information presented not misleading.
The financial statements for the interim periods
included herein, which are unaudited, include, in the
opinion of management, all adjustments (consisting
only of normal recurring adjustments) necessary to
present fairly the financial statements and results
of operations of Affinity International Travel
Systems, Inc. and Subsidiaries for the periods
presented. The results of operations for interim
periods should not be considered indicative of
results to be expected for the full year.
2. Nature of Affinity International Travel Services, Inc., formerly
Organization Medanco, Inc. ("Medanco"), through its wholly-owned
subsidiaries, currently provides packaged vacation
programs, as well as airline, car rental, hotel and
cruise ship reservations for both retail travel
agents and direct consumers.
3. Liquidity The Company has no line of credit or loans for working
capital and it relies upon proceeds from the sale
of our equity securities or debentures to fund
negative cash flow from operations and its capital
expenditures related to the implementation of its
Internet strategies.
The Company has had net losses in each of the three
fiscal years ending June 30, 1997, 1998 and 1999 and
the six months ended December 31, 1999 that
cumulatively total $11,353,000. For the six months
ended December 31, 1999, the Company had a net loss of
$4,910,000, of which $3,217,000 was attributable to
non-cash expenses related to the issuance of options
to an employee with a below market exercise prices
($750,000,) the repricing of warrants ($2,083,000)
and the issuance of common stock as a penalty for not
having a registration statement declared effective by
the SEC by certain dates ($384,000).
For the six months ended December 31, 1999, the
Company's operations used $652,000 and the Company's
investing activities used $799,000 in cash. Cash
used for investing activities during the six months
ended December 31, 1999 included the expenditure of
$850,000 for computer equipment. Net cash provided
from financing activities for the six months ended
December 31, 1999 of $389,000 related primarily to
proceeds from the issuance of common stock and
warrants totaling $410,000 and the repayment of
short-term debt.
As of December 31, 1999, the Company had a working
capital deficit of $1,353,000, total stockholders'
deficit of $176,000, a total of 13,577,000 shares
outstanding and outstanding warrants and options to
purchase 6,670,000 shares of our common stock with
an average exercise price of $.34 per share.
The Company expects net losses and negative cash
flow to continue for the foreseeable future and
anticipate losses and the use of cash will increase
significantly from current levels because the
Company expects to incur significant expenses and
capital expenditures related to the implementation of
the Company's Internet strategies.
The Company's ability to continue its operations and
achieve profitability depends on its ability to
secure additional financing, to generate and sustain
substantially higher revenues with high gross
margins and control the growth in operating costs.
However, from January to March 2000, we raised net
proceeds totaling approximately $2,433,000 that was used
to reduce our working capital deficit and is being used
to fund negative cash flow from operations and
capital expenditures related to the implementation
of the Company's Internet business strategies (See
Note 9). In addition, $400,000 of current
liabilities were converted into warrants to purchase
shares of our common stock.
As of April 14, 2000, we had warrants and options
outstanding to purchase 10,010,817 and 2,165,000
shares of our common stock with average per share
exercise prices of $.33 and $.54, respectively.
If all currently outstanding warrants and options
were exercised, the Company would receive gross
proceeds of approximately $4,512,000. However, there
can be no assurance the holders of these warrants
and options will exercise their right under these
financial instruments at such time we are in need of
additional capital or before the warrants and options
expire.
In addition, in the event that a registration statement
filed by the Company is not declared effective by the
SEC by June 20, 2000, then it is unlikely that the
Company will receive $2,187,500 of proceeds from the
exercise of warrants to purchase an aggregate of
8,750,000 shares of common stock, because the shares
of common stock underlying those warrants may, in
such event, be acquired through a cashless exercise
of those warrants.
In order to fund our operations and continue the
implementation of our Internet business strategies,
the Company anticipates the need to raise at least
$6.0 million in additional capital during the remainder
of calendar year 2000. The Company anticipates that its
online booking engines and primary web site,
www.faraway.com, will be developed and operational
within the next four months. The Company believes
that it will need to raise $3 million of additional
capital during the next four months to complete the
development of the booking engines and our primary
web site. In addition, the Company will need to
raise a portion of the additional capital within
approximately sixty days to fund negative cash flow
from operations and fund capital expenditures
related to the implementation of our Internet
business strategies. There is no assurance that
additional financing will be available on favorable
terms when required, or at all.
The consolidated financial statements include the
accounts of Affinity International Travel Systems, Inc.
("Affinity" or collectively the "Company") and its
wholly-owned subsidiaries, Affinity International Travel
Services, Ltd.; Prestige Travel Services II, Inc.; and
SunStyle International Holidays, Inc. ("SunStyle") and
its wholly-owned subsidiaries, SunStyle International
Holidays, Ltd.; SunStyle International Holidays of
California, Inc.; and Air Travel Trust, Inc. All material
intercompany accounts and transactions have been
eliminated.
4. Acquisition On July 5, 1999, the Company acquired certain assets of
Integrity Credit Services, Inc. ("Integrity") in exchange
for 140,000 shares of the Company's common stock.
Integrity operates a series of travel agencies located in
Seminole and St. Petersburg, Florida under the trade
names Intrepid Travel and Goldmark Travel. The Company
also entered into an employment agreement with the seller
of Integrity which provides for payment of salary through
July 2002.
5. Sale of On January 1, 1999, the Company acquired all of the
Subsidiary outstanding stock of Prestige Travel Services II, Inc., a
retail travel agency, for $1,600,000, paid through
the issuance of 800,000 shares of Series A
convertible preferred stock. The transaction was
accounted for as a purchase. On August 1, 1999, the
preferred shares were converted to 1,497,076 shares
of common stock based on the average trading price of
the Company's common stock for the preceding 20 days'
average trading price in accordance with the purchase
agreement.
F-33
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
On December 29, 1999, the Company sold all the
outstanding common stock of Prestige Travel Services
II, Inc. to its original owners for $75,000 in cash
plus the return of 1,497,076 shares of the Company's
common stock valued at $1,554,777 (based on the net
assets of Prestige on the date of sale), or
approximately $1.04 per share. The Company recorded a
gain of $75,000 on the transaction.
The operating results of Prestige Travel Services II,
Inc. have been included in the consolidated statement
of operations from the date of acquisition through
the date of its disposal. The following pro forma
information has been prepared assuming the sale of
Prestige Travel Services II, Inc., which was deemed
to be a significant disposal of assets, had taken
place immediately prior to the six-month period
ending December 31, 1999. The pro forma information
includes adjustments to remove the operating results
of the subsidiary, related amortization of goodwill
arising from the initial acquisition and the gain on
disposal. The pro forma financial information is not
necessarily indicative of the results of operations
as they would have been had the transaction been
effected on the assumed date.
Six months ended December 31, 1999
---------------------------------------------------------
(unaudited)
Total revenues $ 1,466,025
Net loss (4,850,233)
Net loss per common share (.39)
---------------------------------------------------------
6. Stock Options On July 1, 1999, the Company adopted a stock option plan
which authorizes the issuance of up to 4,000,000 shares
of its common stock in the form of incentive stock
options to employees and nonqualified stock options to
nonemployees. Upon the plan's adoption, the Company
granted its President incentive stock options to purchase
2,000,000 shares of its common stock with an exercise
price of $.50 per share which expire ten years from the
date of grant. The Company recorded compensation expense
of $750,000 related to the difference between the
exercise price of $.50 per share and the market price of
$.88 per share on the date of grant.
On August 17, 1999, the Company granted incentive
stock options to an employee to purchase 15,000
shares of the Company's common stock with an exercise
price of $1.00 per share or market value at the date
of grant. These options expire three years from the
grant date.
On December 20, 1999, the Company granted incentive
stock options and nonqualified stock options to two
employee/directors and an outside director to
purchase a total of 100,000 and 50,000 shares of the
Company's common stock, respectively. These options
were granted with an exercise price of $1.00 per
share when the market value of the Company's common
stock was $.50 per share. The fair market value of
the nonqualified stock options was insignificant on
the date of grant, and all options granted expire
three years from the grant date.
F-34
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
7. Equity In December 1999, the Company sold 25,000 shares of
common stock for $10,000, or $.40 per share, to an
unrelated investor.
In December 1999, the Company issued 840,000 shares
of common stock valued at $759,000, or approximately
$.90 per share for the Company's failure to have a
registration statement declared effective by the SEC
prior to a specified date. Of this amount, $384,000
was charged to financing charges and $375,000 was
recorded as prepaid expenses and will be charged to
operations in January 2000. On January 15, 2000, the
stockholder was entitled to receive an additional
240,000 shares of common stock valued at $450,000, or
$1.88 per share, pursuant to these agreements, which
will be charged to operations in January 2000.
On December 20, 1999, the Company entered into
agreements (that were later terminated on January 26,
2000) to receive gross proceeds of $250,000 and
$500,000 from the majority stockholder and another
investor in exchange for 714,286 and 1,458,571 shares
of common stock, respectively, at a price of $.35 per
share. The majority stockholder also agreed to the
repricing of 4,250,000 common stock warrants to $.50
per share. The fair market value of the Company's
common stock on December 20, 1999 was $.50 per share.
The Company recorded a charge of $2,082,500 to
financing charges related to the repricing of these
warrants. As a result of the January 26, 2000
termination, the Company recorded the net proceeds it
received as of December 31, 1999 as a current
liability.
On January 26, 2000, the Company terminated the
December 20, 1999 agreements and entered into new
agreements to sell 1,150,000 and 2,300,000 common
stock warrants for $250,000 and $500,000,
respectively. All warrants have an exercise price of
$.25 per share and an expiration date of December 20,
2004. The Company received net proceeds from these
transactions of $650,049, of which $400,049 was
collected as of December 31, 1999. The remaining
$250,000 was received in January 2000.
On January 26, 2000, the majority stockholder also
agreed to terminate the provisions of all previously
issued financing agreements and a consulting
agreement in exchange for 800,000 common stock
warrants with an exercise price of $.25 per share
that expire in five years and the repricing of
4,500,000 common stock warrants to an exercise price
of $.25 per share. The market value of the Company's
common stock on January 26, 2000 was $1.75 per share.
Therefore, the Company will record an additional
charge of $7,139,500 to financing charges relating to
the issuance and repricing of these warrants in
January 2000.
The Company would receive proceeds of approximately
$2,188,000 if the above warrants, representing
8,750,000 shares of the Company's common stock, were
exercised. If the Company does not have a
registration statement declared effective by the SEC
prior to June 20, 2000, all of these warrants can be
exercised using a cashless exercise feature.
F-35
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
8. Commitments Service Agreement with Weblink Communications, Inc.
On October 26, 1998, the Company entered into an
agreement to pay $250,000 to receive electronic media
consulting services from Weblink Communications, Inc.
("Weblink"), an unrelated third party. The Company
paid $25,000 in cash and issued 25,000 shares of
common stock valued at $21,875 (the quoted market
price on the date of the agreement) upon the
execution of the agreement. Weblink has to assist the
Company in the design, implementation and marketing
of an internet web site that would be affiliated with
other web sites maintained by Weblink. As of June 30,
1999, services under this agreement had not commenced
pending resolution of the payment terms for the
balance due Weblink under the service agreement, and
the Company had recorded the advance payments to
Weblink as a prepaid expense.
As of September 3, 1999, a tentative agreement had
been reached which provided for the issuance of an
additional 257,143 shares of the Company's common
stock to Weblink in full satisfaction of amounts due
under the terms of the agreement. However, in January
2000, the consulting agreement was terminated, and
therefore, the Company did not issue any additional
shares and wrote off its advance payments under the
contract.
Faraway.com Web Site Development
In December 1999, the Company entered into two
software development and integration agreements for
the design of their Faraway.com web site and related
software. The agreements provide for total payments
of approximately $873,000 to be paid as work
progresses on the web site. A $25,000 advance deposit
was paid prior to December 31, 1999.
Employment Agreement
On July 1, 1999, the Company entered into an
employment agreement with its President. The
agreement provides for payment of salary through June
2006 and the establishment of a bonus program.
9. Subsequent Sale of Business Unit
Events
On January 7, 2000, the Company sold certain assets
and related operations of a business unit that was
acquired on July 5, 1999 as part of the Integrity
acquisition (Note 3) for $30,000 in cash and
recognized a gain of approximately $25,000 on the
transaction. Revenues and related expenses from this
business unit were insignificant to the Company's
consolidated operations during the six months ended
December 31, 1999.
Sales of Common Stock
During January the Company sold 345,401 shares of
common stock for proceeds of $454,345, net of
offering costs of $53,155, or an average price of
$1.47 per share. In connection with this offering,
34,535 common stock warrants were issued at exercise
prices from $2.50 to $3.00, which expire five years
from the date of issuance.
In February 2000, 990,000 shares of common stock were
sold for proceeds of
F-36
<PAGE>
Affinity International Travel Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
$990,000, or $1.00 per share. In connection with this
offering, 1,190,000 common stock warrants were issued at
an exercise price of $.75, which expire three years from
the date of issuance.
In March 2000, the Company sold 362,836 shares of
stock for proceeds of $733,552, net of offering costs
of $93,773, or an average price of $2.02 per share.
In connection with this offering, 36,282 common stock
warrants were issued at exercise prices from $4.00 to
$5.50 which expire 5 years from the date of issuance.
10. Supplemental Supplemental cash flow information is as follows:
Cash Flow
Information
<TABLE>
<CAPTION>
Six months ended December 31, 1999 1998
----------------------------------------------------------------------------------
<S> <C> <C>
Cash paid for interest $ 3,806 $ 3,029
Noncash financing and investing activities:
Common stock issued as prepaid financing charges to
related party 375,000 --
Conversion of debentures into common stock 25,000 --
==================================================================================
</TABLE>
The following is a summary of noncash transactions
related to the sale of Prestige disclosed in Note 4:
<TABLE>
<CAPTION>
Six Months Ended December 31, , 1999
----------------------------------------------------------------------------------
<S> <C>
Value of common stock returned $ 1,554,777
----------------------------------------------------------------------------------
Accounts receivable 45,252
Property, plant and equipment 23,874
Goodwill 1,577,114
Notes payable (15,000)
Accounts payable (13,636)
Accrued expenses (34,671)
Deferred revenue (46,766)
----------------------------------------------------------------------------------
Net noncash assets surrendered 1,536,167
----------------------------------------------------------------------------------
Gain on sale recognized 75,000
----------------------------------------------------------------------------------
Net cash received (net of cash surrendered of $18,610) $ 56,390
==================================================================================
</TABLE>
F-37
<PAGE>
F-38
<PAGE>
======================================== ====================================
You should rely only on the
information contained in this
prospectus. No dealer, salesperson or
other person is authorized to give
information that is not contained in
this prospectus. This prospectus is not
an offer to sell nor is it seeking an
offer to buy these securities in any
jurisdiction where the offer or sale is
not permitted. The information contained
in this prospectus is correct only as of
the date of this prospectus, regardless
of the time of the delivery of this
prospectus or any sale of the
securities.
AFFINITY INTERNATIONAL
TRAVEL SYSTEMS, INC.
20,353,094 Shares
Common Stock
------------------
PROSPECTUS
------------------
April ___, 2000
======================================== ====================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Total Expenses
--------------
SEC Registration Fee............................ 36,972
Blue Sky Fees and Expenses...................... NA
Transfer Agent and Registrar Fees .............. NA
Accounting Fees and Expenses.................... 75,000*
Legal Fees and Expenses......................... 150,000*
Printing and Engraving ......................... 10,000*
Miscellaneous................................... 30,000*
TOTAL..................................... $301,972*
=========
* Estimated
Item 14. Indemnification of Directors and Officers
The corporation law of the State of Nevada and our articles of
incorporation, as amended, and by-laws provide for indemnification of our
directors and officers for liabilities and expenses that they may incur in such
capacities. In general, directors and officers are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, our best interests and, with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe were
unlawful. Reference is made to our articles and bylaws filed as Exhibits 3.1 and
3.2 to this registration statement, respectively.
In addition, we intend to apply for directors and officers liability
insurance policy.
Item 15. Recent Sales of Unregistered Securities
The following information is furnished with regard to all securities that
we issued within the past three years which were not registered under the
Securities Act.
From 1997 through July 1998, we had no issuances of unregistered
securities.
In July 1998, we entered into an acquisition agreement with all of the
stockholders of SunStyle International Holidays, Inc. pursuant to which we
purchased 4,902,894 shares of SunStyle International Holidays, which represented
all of the issued and outstanding shares of SunStyle, in exchange for 4,902,894
shares of our common stock. Although we acquired SunStyle, the transaction was
accounted for as a purchase of Affinity by SunStyle, because the previous
stockholders of SunStyle obtained a majority of our voting rights as a result of
the acquisition. For accounting purposes, the reverse acquisition is treated as
a recapitalization of SunStyle and not as a business combination, therefore, no
value was allocated to the common stock issued in connection with the
acquisition. The issuance of the shares was effected without registration under
the Securities Act of 1933, as amended, in reliance upon
II-1
<PAGE>
the exemption from registration contained in Rule 504 of Regulation D
promulgated under the Securities Act.
In July 1998 and August 1998 we sold an aggregate of 35,000 shares of our
common stock to two investors for an aggregate purchase price of $35,000.
In October 1998, we issued 25,000 shares of our common stock to a
consulting services firm in consideration of services to be rendered by such
firm. Such services were valued at $25,000. The issuance of the shares was
effected without registration under the Securities Act of 1933, as amended, in
reliance upon the exemption from registration contained in Rule 504 of
Regulation D promulgated under the Securities Act.
In November 1998, we sold an aggregate of 10,000 shares of our common
stock to one investor for an aggregate purchase price of $10,000.
Between October 1998 and January 1999, we sold an aggregate of 1,621,392
shares of our common stock in a private placement for an aggregate consideration
of $657,000. In connection with this private placement, in December 1998,
Schoemann Venture Capital, LLC purchased, for an aggregate consideration of
$400,000, 1,142,857 shares of our common stock and received warrants to purchase
an additional 200,000 shares of our common stock at an exercise price of $0.35
per share. In January 1999, Schoemann Venture Capital, LLC acquired the 200,000
shares under its warrant agreement for an aggregate consideration of $70,000.
The issuance of the shares was effected without registration under the
Securities Act of 1933, as amended, in reliance upon the exemption from
registration contained in Rule 504 of Regulation D promulgated under the
Securities Act.
In January 1999, we issued 94,286 shares of our common stock in
consideration of services rendered, such services were valued at approximately
$33,000. The issuance of the shares was effected without registration under the
Securities Act of 1933, as amended, in reliance upon the exemption from
registration contained in Rule 504 of Regulation D promulgated under the
Securities Act.
With respect to the foregoing transactions made in reliance upon the
exemption contained in Rule 504 of Regulation D, it has since come to our
attention that such transactions may not have been made in compliance with Rule
504. We are currently evaluating the matter, and if we determine that the
transactions were not in compliance with Rule 504, we intend to take appropriate
corrective action, including possibly offering recission rights to the investors
in such transactions.
In January 1999, we acquired all of the outstanding capital stock of
Prestige Travel Services II, Inc., a retail travel agency with an independent
agent sales program and an internet cruise brokerage operation, for $1,600,000,
which we paid through the issuance of 800,000 shares of Series A Convertible
Preferred Stock, or $2.00 per share of preferred stock. The conversion price of
the Series A Convertible Preferred Stock was $1.06875 per share. In August 1999,
the holders of the Series A Convertible Preferred Stock converted their shares
of preferred stock into 1,497,076 shares of common stock. In connection with
this acquisition, we issued 74,854 shares of common stock in payment of a
finder's fee to a third party.
In January 1999, Schoemann Venture Capital, LLC, purchased a convertible
note in the principal amount of $222,000 and warrants to purchase 250,000 shares
of our common stock at an exercise price of $.35 per share, for an aggregate
consideration of $222,000. In February 1999, Schoemann Venture Capital, LLC
subsequently converted its note into 634,286 shares of our common stock.
II-2
<PAGE>
In January 1999, we issued an aggregate of 51,000 shares of our common
stock to employees and consultants in full and complete satisfaction and in
payment of services rendered. The fair market value of the common stock on the
date of issuance was $140,250.
In January 1999, we issued an aggregate of 12,147 shares of our common
stock to four vendors in full and complete satisfaction of accounts payable to
such vendors. The fair market value of the common stock on the date of issuance
was $33,404.
In February 1999, we sold an aggregate of 10,000 shares of our common
stock to one investor for an aggregate purchase price of $10,000.
In February 1999, we entered into an asset purchase agreement with
Design-A-Tour pursuant to which we acquired certain assets of Design-A-Tour
valued at approximately $75,000. We issued an aggregate of 36,320 shares of our
common stock as payment for the acquired assets.
In April 1999, we sold, for an aggregate consideration of $25,000, a
convertible debenture in the principal amount of $25,000 and warrants to
purchase 5,000 shares of our common stock at a purchase price of $1.00 per
share. The holder of the convertible note converted its note into 25,000 shares
of our common stock in December 1999. In March 2000, the investor exercised the
warrant to purchase 5,000 shares of our common stock.
In April 1999, Schoemann Venture Capital, LLC, purchased, for an aggregate
consideration of $1,000,000, a convertible note in the principal amount of
$1,000,000 and warrants to purchase 750,000 shares of our common stock at a
purchase price of $1.75 per share. In May 1999, Schoemann Venture Capital, LLC
converted its note into 2,300,000 shares of our common stock.
In April 1999, we entered into a consulting agreement with Schoemann
Venture Capital, LLC. This agreement was amended in June 1999 to provide, among
other things, that Schoemann Venture Capital, LLC is entitled to receive a
monthly consulting fee of $13,333 and warrants to purchase 750,000 shares of our
common stock at an exercise price of $2.00.
In June 1999, Schoemann Venture Capital, LLC purchased, for an aggregate
consideration of $1,000,000, a convertible note in the principal amount of
$1,000,000 and warrants to purchase 2,750,000 shares of our common stock at an
exercise price of $2.00 per share. In June 1999, Schoemann Venture Capital, LLC
converted its note into 2,000,000 shares of our common stock. The convertible
note, the warrants and the shares issued upon conversion of the convertible note
were issued in connection with a private placement in reliance upon the
exemption from registration contained in Rule 506 of Regulation D promulgated
under the Securities Act of 1933, as amended.
In July 1999, we entered into an asset purchase agreement pursuant to
which we acquired certain assets of Integrity Credit Services, an entity doing
business under the names Intrepid Travel and Goldmark Travel. We issued an
aggregate of 140,000 shares of our common stock in payment for the assets we
acquired. The assets were valued at approximately $67,000.
In July 1999, we issued incentive stock options to purchase an aggregate
of 2,000,000 shares of our common stock at an exercise price of $.50 per share
to our chief executive officer in consideration of services provided and to be
provided. These options expire ten years from the date of grant.
II-3
<PAGE>
In August 1999, we issued an aggregate of 40,000 shares of our common
stock in consideration of services provided by an employee. The fair market
value of the common stock on the date of issuance was $66,563.
In August 1999, we issued incentive stock options to an employee to
purchase 15,000 shares of our common stock at an exercise price of $1.00 per
share. These options expire three years from the date of grant.
In October 1999, we issued an aggregate of 168,954 shares of our common
stock to a consultant in consideration and in payment for expenses and services
rendered. Such expenses and services were valued at approximately $134,000.
In December 1999, we sold 25,000 shares of our common stock to one
investor for a purchase price of $.40 per share, or an aggregate consideration
of $10,000.
In December 1999, we issued 840,000 shares of our common stock to
Schoemann Venture Capital, LLC in consideration of the payment of penalties
resulting from not having a registration statement declared effective by the SEC
prior to a specified date in the prior financing agreements with Schoemann
Venture Capital, LLC.
In December 1999, we granted incentive stock options to purchase 50,000
shares of our common stock at an exercise price of $1.00 per share to one of our
employee/directors. These options expire three years from the date of grant. We
also granted nonqualified stock options to purchase 50,000 shares of our common
stock to a non-employee director and to an employee/director at an exercise
price of $1.00 per share. These options also expire three years from the date of
grant.
In December 1999, Schoemann Venture Capital, LLC and GCD Investments, LLC,
an unrelated third party, purchased, for an aggregate consideration of $250,000
and $500,000, respectively, 714,286 and 1,458,571 shares of common stock,
respectively, at a price of $0.35 per share. In connection with this
transaction, we repriced outstanding warrants to purchase 4,250,000 shares of
our common stock. The last sale price of our common stock on December 20, 1999
as quoted on the OTC Bulletin Board was $0.50 per share. These agreements were
terminated in January 2000, as described below.
In January 2000, we issued 240,000 shares of our common stock to Schoemann
Venture Capital, LLC in consideration of the payment of penalties resulting from
not having a registration statement declared effective by the SEC prior to a
specified date in the prior financing agreements with Schoemann Venture Capital,
LLC.
In January 2000, we terminated the December agreements with Schoemann
Venture Capital, LLC and GCD Investments, LLC and entered into an agreement with
Schoemann Venture Capital, LLC, pursuant to which we sold warrants to purchase
1,150,000 shares of our common stock at an exercise price of $0.25 per share,
for an aggregate consideration of $250,000. In addition, we also agreed to issue
warrants to purchase an aggregate of 800,000 shares of our common stock at an
exercise price of $0.25 per share in payment of penalties to Schoemann Venture
Capital, LLC resulting from not having a registration statement declared
effective by the SEC prior to a specified date in the prior agreements with
Schoemann Venture Capital, LLC. We also agreed that the exercise price for all
outstanding warrants to purchase 4,500,000 shares of our common stock that were
previously sold to Schoemann Venture Capital, LLC would be further reduced to
$0.25 per share. Finally, we agreed that all rights and obligations of the
parties under the earlier agreements with Schoemann Venture Capital, LLC, aside
from
II-4
<PAGE>
certain registration rights and rights to receive a 5% commission on certain
sales of our securities, were terminated in all respects.
In January 2000, we entered into an agreement with GCD Investments, LLC,
which replaced an existing agreement dated December 20, 1999, pursuant to which
we sold warrants to purchase 2,300,000 shares of our common stock at an exercise
price of $0.25 per share, for an aggregate consideration of $500,000.
In January 2000, we issued warrants to purchase 200,000 shares of our
common stock at an exercise price of $0.75 per share to three consultants for
services provided and to be provided by such consultants.
In January 2000, we issued an aggregate of 30,000 shares of our common
stock in consideration of services provided by an employee.
In January and February 2000, we issued an aggregate of 1,335,401
shares of our common stock for net proceeds of $1,444,345 in a private
placement. In addition, in connection with the private placement, we issued
warrants to purchase an aggregate of 1,024,535 shares of our common stock at
a weighted average exercise price of $0.82 per share.
In March 2000, we issued an aggregate of 362,836 shares of common stock
for net proceeds of $733,552 in private placement. In addition, in connection
with the private placement, we issued warrants to purchase an aggregate of
36,282 shares of our common stock as a weighted average exercise price of $4.56
per share.
Except as otherwise specified, to the extent that the foregoing
transactions constituted "sales" within the meaning of the Securities Act, the
securities issued in such transactions were not registered under the Securities
Act in reliance upon the exemption from registration set forth in Section 4(2)
thereof, relating to sales by an issuer not involving any public offering. Each
of the foregoing transactions, to the extent constituting "sales" within the
meaning of the Securities Act, were exempt under the applicable exemption based
on the following facts: to our knowledge, there was no general solicitation,
there were a limited number of purchasers, the purchasers were provided with or
had access to information about our company, and either the purchasers or their
respective representatives were sophisticated about business and financial
matters; and, as applicable, the purchasers were "accredited investors" within
the meaning of Rule 501 under the Securities Act and the Company took reasonable
steps to assure that the purchasers were not underwriters within the meaning of
Section 2(11) under the Securities Act.
None of the foregoing transactions, either individually or in the
aggregate, involved a public offering.
Item 16(a). Exhibits
- --------------------------------------------------------------------------------
Exhibit No. Description
- --------------------------------------------------------------------------------
2.1 Agreement and Plan of Acquisition Agreement dated July 14,
1999 between Affinity International Systems, Inc.
("Affinity") and SunStyle International Holidays, Inc.*
- --------------------------------------------------------------------------------
2.2 Affinity/Prestige Acquisition Agreement dated January 1,
1999*
- --------------------------------------------------------------------------------
2.3 Asset Purchase Agreement between Affinity Design-A-Tour,
Inc. dated February 3, 1999*
- --------------------------------------------------------------------------------
II-5
<PAGE>
- --------------------------------------------------------------------------------
2.4 Asset Purchase Agreement between Affinity and Integrity
Credit Services, Inc. (d/b/a Intrepid Travel and/or
Goldmark Travel) dated July 15, 1999*
- --------------------------------------------------------------------------------
2.5 Agreement dated December 29, 1999 between Affinity,
Prestige Travel Services II, Anita LaScala, Ron LaScala,
Kimberly LaScala and Prestige Travel Systems*
- --------------------------------------------------------------------------------
3.1 Articles of Incorporation, as amended*
- --------------------------------------------------------------------------------
3.2 Bylaws of Affinity International Travel Systems, Inc. **
- --------------------------------------------------------------------------------
4.1 Specimen Certificate of Common Stock*
- --------------------------------------------------------------------------------
4.2 Subscription Agreement between Affinity and Schoemann
Venture Capital, LLC dated December 2, 1998*
- --------------------------------------------------------------------------------
4.3 Warrant Subscription Agreement between Affinity and
Schoemann Venture Capital, LLC dated December 2, 1998*
- --------------------------------------------------------------------------------
4.4 Amendment to Subscription Agreement between Affinity and
Schoemann Venture Capital, LLC dated January 21, 1999*
- --------------------------------------------------------------------------------
4.5 Warrant Subscription Agreement between Affinity and
Schoemann Venture Capital, LLC dated January 15, 1999*
- --------------------------------------------------------------------------------
4.6 Restatement of Subscription Agreement between Affinity and
Schoemann Venture Capital, LLC dated January 31, 1999*
- --------------------------------------------------------------------------------
4.7 Subscription Agreement between Affinity and Schoemann
Venture Capital, LLC dated April 23, 1999*
- --------------------------------------------------------------------------------
4.8 Warrant Subscription Agreement between Affinity and
Schoemann Venture Capital, LLC dated April 23, 1999*
- --------------------------------------------------------------------------------
4.9 Consulting Agreement between Affinity and Schoemann Venture
Capital, LLC dated April 23, 1999*
- --------------------------------------------------------------------------------
4.10 Subscription Agreement between Affinity and Schoemann
Venture Capital, LLC dated June 10, 1999*
- --------------------------------------------------------------------------------
4.11 Warrant Subscription Agreement between Affinity and
Schoemann Venture Capital, LLC dated June 10, 1999*
- --------------------------------------------------------------------------------
4.12 Subscription Agreement between Affinity and Schoemann
Venture Capital, LLC dated December 20, 1999*
- --------------------------------------------------------------------------------
4.13 Letter Agreement between Affinity and Schoemann Venture
Capital, LLC effective date as of September 1, 1999*
- --------------------------------------------------------------------------------
4.14 First Amended and Restated Consulting Agreement between
Schoemann Venture Capital, LLC dated June 1, 1999*
- --------------------------------------------------------------------------------
4.15 Termination of Agreements by and between Affinity and
Schoemann Venture Capital, LLC dated January 26, 2000*
- --------------------------------------------------------------------------------
4.16 Warrant Subscription Agreement dated January 26, 2000 which
amends and restates the Warrant Subscription Agreement dated
January 15, 1999, as amended on January 31, 1999*
- --------------------------------------------------------------------------------
4.17 Warrant Subscription Agreement dated January 26, 2000 which
amends and restates the Warrant Subscription Agreement
dated April 23, 1999*
- --------------------------------------------------------------------------------
4.18 Warrant Subscription Agreement dated January 26, 2000 which
amends and restates the Warrant Subscription Agreement
dated June 1, 1999*
- --------------------------------------------------------------------------------
4.19 Warrant Subscription Agreement dated January 26, 2000 which
amends and restates the Warrant Subscription Agreement
dated June 10, 1999*
- --------------------------------------------------------------------------------
4.20 Warrant Subscription Agreement between Affinity and Schoemann
Venture Capital, LLC dated January 26, 2000 regarding an
Amendment and Restatement of the Subscription Agreement dated
December 20, 1999*
- --------------------------------------------------------------------------------
4.21 Subscription Agreement between Affinity and GCD
Investments, LLC dated December
- --------------------------------------------------------------------------------
II-6
<PAGE>
- --------------------------------------------------------------------------------
20, 1999*
- --------------------------------------------------------------------------------
4.22 Termination of Agreements between Affinity and GCD
Investments, LLC dated January 26, 1999*
- --------------------------------------------------------------------------------
4.23 Warrant Subscription Agreement between Affinity and GCD
Investments, LLC dated January 26, 2000 regarding an
Amendment and Restatement of the Subscription Agreement
dated December 20, 1999*
- --------------------------------------------------------------------------------
4.24 Amended and Restated Stock Purchase Warrant dated January
26, 2000 and regarding the shares issued to Schoemann
Venture Capital, LLC on January 15, 1999*
- --------------------------------------------------------------------------------
4.25 Amended and Restated Stock Purchase Warrant dated January
26, 2000 and regarding the shares issued to Schoemann
Venture Capital, LLC on April 23, 1999*
- --------------------------------------------------------------------------------
4.26 Amended and Restated Stock Purchase dated January 26, 2000
and regarding the shares issued to Schoemann Venture
Capital, LLC on June 1, 1999*
- --------------------------------------------------------------------------------
4.27 Amended and Restated Stock Purchase Warrant dated January
26, 2000 and regarding the shares issued to Schoemann
Venture Capital, LLC on June 10, 1999*
- --------------------------------------------------------------------------------
4.28 Stock Purchase Warrant issued to Schoemann Venture Capital,
LLC dated December 20, 1999*
- --------------------------------------------------------------------------------
4.29 Stock Purchase Warrant issued to GCD Investments, LLC dated
December 20, 1999*
- --------------------------------------------------------------------------------
4.30 Form of Subscription Agreement used in connection with
Affinity's Private Placement in January 2000*
- --------------------------------------------------------------------------------
4.31 Form of Warrant used in connection with Affinity's Private
Placement in January 2000*
- --------------------------------------------------------------------------------
4.32 Incentive Stock Option Agreement between Affinity and
Daniel G. Brandano dated July 1, 1999.*
- --------------------------------------------------------------------------------
5.1 Opinion of Brown, Rudnick, Freed & Gesmer**
- --------------------------------------------------------------------------------
10.1 Lease Agreement Between Affinity and City Center
Associates, Ltd. dated May 27, 1999*
- --------------------------------------------------------------------------------
10.2 Employment Agreement dated July 1, 1999 between Affinity
and Daniel Brandano*
- --------------------------------------------------------------------------------
10.3 Employment Agreement dated July 1, 1999 between SunStyle
International Holidays, Inc. and Mark S. Mandula, as
amended*
- --------------------------------------------------------------------------------
10.4 1999 Combination Stock Option Plan*
- --------------------------------------------------------------------------------
10.5 Management Agreement and Option to Purchase effective as of
April 5, 1999*
- --------------------------------------------------------------------------------
10.6 Termination and Settlement Agreement between Affinity,
Prestige Travel Services II and Kenneth Wiggins effective
as of April 5, 1999*
- --------------------------------------------------------------------------------
10.7 Software License Agreement between SunStyle International
Holidays City and The SABRE Group, Inc. dated April 26,
1997**
- --------------------------------------------------------------------------------
10.8 Amendment No. 1 effective June 1, 1999 of Software License
Agreement dated April 26, 1997**
- --------------------------------------------------------------------------------
10.9 Consulting Agreement between Affinity and James E. Hicks
dated December 20, 1999.*
- --------------------------------------------------------------------------------
10.10 Sabre Tourguide Agreement between the Sabre Group, Inc. and
SunStyle International Holidays, Inc.**
- --------------------------------------------------------------------------------
21.1 Subsidiaries of Affinity International Travel Systems, Inc.*
- --------------------------------------------------------------------------------
23.1 Consent of BDO Seidman LLP, independent auditors**
- --------------------------------------------------------------------------------
24.1 Power of Attorney (contained on signature page of
registration statement)*
- --------------------------------------------------------------------------------
27.1 Financial Data Schedule*
- --------------------------------------------------------------------------------
* Previously filed.
** Filed herewith.
Item 17. Undertakings
II-7
<PAGE>
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in this Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the Registrant's By-Laws, the Underwriting
Agreement relating to this offering, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.
II-8
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Petersburg, State of
Florida, on April 27, 2000
AFFINITY INTERNATIONAL TRAVEL
SYSTEMS, INC.
By: /s/ Daniel G. Brandano, Jr.
------------------------------------------------
Daniel G. Brandano, Jr., Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Daniel G. Brandano, Jr. President, Chief Executive Officer April 27, 2000
- ----------------------------- and Director
Daniel G. Brandano, Jr.
* Chief Financial Officer, (Principal April 27, 2000
- ----------------------------- Financial and Accounting Officer)
Gerard LaMontagne
* Secretary and Director April 27, 2000
- -----------------------------
Joan Brandano
* Director April 27, 2000
- -----------------------------
John Vahl
*By: /s/ Daniel G. Brandano, Jr. April 27, 2000
- -------------------------------
Daniel G. Brandano, Jr.
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Exhibit No. Description
- --------------------------------------------------------------------------------
2.1 Agreement and Plan of Acquisition Agreement dated
July 14, 1999 between Affinity International Systems,
Inc. ("Affinity") and SunStyle International
Holidays, Inc.*
- --------------------------------------------------------------------------------
2.2 Affinity/Prestige Acquisition Agreement dated January 1,
1999*
- --------------------------------------------------------------------------------
2.3 Asset Purchase Agreement between Affinity
Design-A-Tour, Inc. dated February 3, 1999*
- --------------------------------------------------------------------------------
2.4 Asset Purchase Agreement between Affinity and
Integrity Credit Services, Inc. (d/b/a Intrepid
Travel and/or Goldmark Travel) dated July 15, 1999*
- --------------------------------------------------------------------------------
2.5 Agreement dated December 29, 1999 between Affinity,
Prestige Travel Services II, Anita LaScala, Ron
LaScala, Kimberly LaScala and Prestige Travel Systems*
- --------------------------------------------------------------------------------
3.1 Articles of Incorporation, as amended*
- --------------------------------------------------------------------------------
3.2 Bylaws of Affinity International Travel Systems, Inc. **
- --------------------------------------------------------------------------------
4.1 Specimen Certificate of Common Stock*
- --------------------------------------------------------------------------------
4.2 Subscription Agreement between Affinity and Schoemann
Venture Capital, LLC dated December 2, 1998*
- --------------------------------------------------------------------------------
4.3 Warrant Subscription Agreement between Affinity and
Schoemann Venture Capital, LLC dated December 2, 1998*
- --------------------------------------------------------------------------------
4.4 Amendment to Subscription Agreement between Affinity
and Schoemann Venture Capital, LLC dated January 21,
1999*
- --------------------------------------------------------------------------------
4.5 Warrant Subscription Agreement between Affinity and
Schoemann Venture Capital, LLC dated January 15, 1999*
- --------------------------------------------------------------------------------
4.6 Restatement of Subscription Agreement between
Affinity and Schoemann Venture Capital, LLC dated
January 31, 1999*
- --------------------------------------------------------------------------------
4.7 Subscription Agreement between Affinity and Schoemann
Venture Capital, LLC dated April 23, 1999*
- --------------------------------------------------------------------------------
4.8 Warrant Subscription Agreement between Affinity and
Schoemann Venture Capital, LLC dated April 23, 1999*
- --------------------------------------------------------------------------------
4.9 Consulting Agreement between Affinity and Schoemann
Venture Capital, LLC dated April 23, 1999*
- --------------------------------------------------------------------------------
4.10 Subscription Agreement between Affinity and Schoemann
Venture Capital, LLC dated June 10, 1999*
- --------------------------------------------------------------------------------
4.11 Warrant Subscription Agreement between Affinity and
Schoemann Venture Capital, LLC dated June 10, 1999*
- --------------------------------------------------------------------------------
4.12 Subscription Agreement between Affinity and Schoemann
Venture Capital, LLC dated December 20, 1999*
- --------------------------------------------------------------------------------
4.13 Letter Agreement between Affinity and Schoemann
Venture Capital, LLC effective date as of September 1,
1999*
- --------------------------------------------------------------------------------
4.14 First Amended and Restated Consulting Agreement
between Schoemann Venture Capital, LLC dated June 1,
1999*
- --------------------------------------------------------------------------------
4.15 Termination of Agreements by and between Affinity and
Schoemann Venture Capital, LLC dated January 26, 2000*
- --------------------------------------------------------------------------------
4.16 Warrant Subscription Agreement dated January 26, 2000 which
amends and restates the Warrant Subscription Agreement dated
January 15, 1999, as amended on January 31, 1999*
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
4.17 Warrant Subscription Agreement dated January 26, 2000 which
amends and restates the Warrant Subscription Agreement dated
April 23, 1999*
- --------------------------------------------------------------------------------
4.18 Warrant Subscription Agreement dated January 26, 2000 which
amends and restates the Warrant Subscription Agreement dated
June 1, 1999*
- --------------------------------------------------------------------------------
4.19 Warrant Subscription Agreement dated January 26, 2000 which
amends and restates the Warrant Subscription Agreement dated
June 10, 1999*
- --------------------------------------------------------------------------------
4.20 Warrant Subscription Agreement between Affinity and
Schoemann Venture Capital, LLC dated January 26, 2000
regarding an Amendment and Restatement of the Subscription
Agreement dated December 20, 1999*
- --------------------------------------------------------------------------------
4.21 Subscription Agreement between Affinity and GCD
Investments, LLC dated December 20, 1999*
- --------------------------------------------------------------------------------
4.22 Termination of Agreements between Affinity and GCD
Investments, LLC dated January 26, 1999*
- --------------------------------------------------------------------------------
4.23 Warrant Subscription Agreement between Affinity and GCD
Investments, LLC dated January 26, 2000 regarding an
Amendment and Restatement of the Subscription Agreement
dated December 20, 1999*
- --------------------------------------------------------------------------------
4.24 Amended and Restated Stock Purchase Warrant dated January
26, 2000 and regarding the shares issued to Schoemann
Venture Capital, LLC on January 15, 1999*
- --------------------------------------------------------------------------------
4.25 Amended and Restated Stock Purchase Warrant dated January
26, 2000 and regarding the shares issued to Schoemann
Venture Capital, LLC on April 23, 1999*
- --------------------------------------------------------------------------------
4.26 Amended and Restated Stock Purchase dated January 26,
2000 and regarding the shares issued to Schoemann
Venture Capital, LLC on June 1, 1999*
- --------------------------------------------------------------------------------
4.27 Amended and Restated Stock Purchase Warrant dated January
26, 2000 and regarding the shares issued to Schoemann
Venture Capital, LLC on June 10, 1999*
- --------------------------------------------------------------------------------
4.28 Stock Purchase Warrant issued to Schoemann Venture
Capital, LLC dated December 20, 1999*
- --------------------------------------------------------------------------------
4.29 Stock Purchase Warrant issued to GCD Investments, LLC
dated December 20, 1999*
- --------------------------------------------------------------------------------
4.30 Form of Subscription Agreement used in connection
with Affinity's Private Placement in January 2000*
- --------------------------------------------------------------------------------
4.31 Form of Warrant used in connection with Affinity's
Private Placement in January 2000*
- --------------------------------------------------------------------------------
4.32 Incentive Stock Option Agreement between Affinity and
Daniel G. Brandano dated July 1, 1999.*
- --------------------------------------------------------------------------------
5.1 Opinion of Brown, Rudnick, Freed & Gesmer**
- --------------------------------------------------------------------------------
10.1 Lease Agreement Between Affinity and City Center
Associates, Ltd. dated May 27, 1999*
- --------------------------------------------------------------------------------
10.2 Employment Agreement dated July 1, 1999 between
Affinity and Daniel Brandano*
- --------------------------------------------------------------------------------
10.3 Employment Agreement dated July 1, 1999 between
SunStyle International Holidays, Inc. and Mark S.
Mandula, as amended*
- --------------------------------------------------------------------------------
10.4 1999 Combination Stock Option Plan*
- --------------------------------------------------------------------------------
10.5 Management Agreement and Option to Purchase effective
as of April 5, 1999*
- --------------------------------------------------------------------------------
10.6 Termination and Settlement Agreement between
Affinity, Prestige Travel Services II and Kenneth
Wiggins effective as of April 5, 1999*
- --------------------------------------------------------------------------------
10.7 Software License Agreement between SunStyle
International Holidays City and The SABRE Group, Inc.
dated April 26, 1997**
- --------------------------------------------------------------------------------
10.8 Amendment No. 1 effective June 1, 1999 of Software
License Agreement dated April 26, 1997** 10.9 Consulting
Agreement between Affinity and James E.
Hicks dated December 20, 1999.*
- --------------------------------------------------------------------------------
10.10 Sabre Tourguide Agreement between the Sabre Group,
Inc. and SunStyle International
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Holidays, Inc.**
- --------------------------------------------------------------------------------
21.1 Subsidiaries of Affinity International Travel
Systems, Inc.*
- --------------------------------------------------------------------------------
23.1 Consent of BDO Seidman LLP, independent auditors**
- --------------------------------------------------------------------------------
24.1 Power of Attorney (contained on signature page of
registration statement)*
- --------------------------------------------------------------------------------
27.1 Financial Data Schedule*
- --------------------------------------------------------------------------------
* Previously filed.
** Filed herewith.
</TABLE>
<PAGE>
EXHIBIT 3.2
BYLAWS OF
AFFINITY INTERNATIONAL
TRAVEL SYSTEMS, INC.,
a Nevada Corporation
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The principal office for the
transaction of the business of the corporation is fixed and located at 806
Clover Drive, Boise, Idaho 83703. The Board of Directors may change the
principal office from one location to another as from time to time may be
necessary. Any change of this location shall be noted by the Secretary on
these Bylaws opposite this section, or this section may be amended to state
the new location.
Section 2. OTHER OFFICES. The Board of Directors may, at any time,
establish branch or subordinate offices at any place or places.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of shareholders may be
held on the first Saturday of September of each year at 11:00 a.m. or at such
other date and time which may be scheduled by the Board of Directors to the
extent that such scheduling is in compliance with the laws of the state of
incorporation of the Company. At this meeting, Directors shall be elected, and
any other proper business within the power of the shareholders may be
transacted. In the event that an annual meeting is not held in any year, the
Board of Directors, as then constituted, shall continue to perform their duties
until such annual or special meeting is properly called and they, or any of
them, are re-elected or replaced.
Section 2. PLACE OF MEETINGS. All annual shareholders meetings shall
be held at the corporation's principal office, or a location selected by the
Board of Directors and notice to the shareholders as required by Section 4 of
these Articles, and all other shareholders meetings shall be held either at
the principal office or any other place within or outside the State of Idaho
that may be designated either by the Board of Directors in accordance with
these Bylaws, or by the written consent of all persons entitled to vote at the
meeting, given either before or after the meeting and filed with the Secretary
of the Corporation.
Section 3. SHAREHOLDER ACTION WITHOUT MEETING. Pursuant to Nevada law,
any action which could be taken at a meeting of the shareholders may be taken
without a
<PAGE>
meeting, if a written consent thereto is signed by shareholders holding at
least a majority of the voting power of the corporation, except that if a
different proportion of voting power is required for such action at a
meeting, then that proportion of written consent shall be required.
Section 4. SPECIAL MEETINGS. A Special shareholders meeting for any
purpose whatsoever may be called at any time by the President, any
Vice-President, the Board of Directors, or one or more shareholders holding not
less than fifty - one percent (51%) of the voting power of the Corporation.
Section 5. NOTICE OF MEETINGS. Written notices specifying the place,
day, and hour of the meeting and, in the case of a special meeting, . the
general nature of the business to be transacted, shall be given not less than
ten (10) days, nor more than fifty (50) days before the date of the meeting.
Such notice must be given personally or by mail or by other means of written
communication, addressed to the shareholder at the address appearing on the
books of the corporation or given by the shareholder to the corporation for the
purpose of notice. If no such address appears or is given by a shareholder of
record entitled to vote at the meeting, notice is o given at the place where the
principal executive office of the corporation is located, or by publication at
least once in a newspaper of general circulation in the county where the
principal executive office is located.
The notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of written
communication. An affidavit of mailing of any notice in accordance with the
provisions of this section executed by the Secretary shall be prima facie
evidence of the giving of notice.
Section 6. WAIVER OF NOTICE. A shareholder may waive notice of any
annual or special meeting by signing a written notice of waiver either before
or after the date of such meeting.
Section 7. QUORUM. The presence in person or by proxy of the holders of
at least fifty-one percent (5 l%)-of the outstanding shares entitled to vote at
any meeting of the shareholders shall constitute a quorum for the transaction of
business. The shareholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum, any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
Section 8. PROXIES. Every person entitled to vote at a shareholders
meeting of the corporation, or entitled to execute written consent authorizing
action in lieu of a meeting, may do so either in person or by proxy executed in
writing by shareholder or by his duly authorized attorney-in-fact. No proxy
shall be valid after eleven (11) months from the date of its execution unless
otherwise provided in the proxy.
Section 9. VOTING. Except as otherwise provided in the Articles of
Incorporation or by agreement or by the general corporation law, shareholders
at the close of business on the record date are entitled to notice and to vote.
<PAGE>
Section 10. LIST OF HOLDERS. The Secretary shall prepare, at least ten
(10) days before every meeting of shareholders, a complete list of the
shareholders entitled to vote at the meeting, arranged in alphabetical order,
showing the address of each shareholder and the number of shares registered in
the name of each shareholder. Such list shall be open to the examination of any
shareholder, for any purpose germane to the meeting. This list shall be produced
and kept at the time and place of the meeting during the whole time thereof and
may be inspected by any shareholder present.
Section 11. INSPECTORS. At each meeting of shareholders, the chairman
of the meeting may appoint one or more inspectors of voting, whose duty it shall
be to receive and count the ballots and make a written report showing the result
of the balloting. The Secretary of the Corporation may perform this function.
Section 12. ELECTION BY BALLOT. Election for directors need not be
by ballot at the meeting and before the voting begins. The candidates
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected. No cumulative voting shall be allowed.
Section 13. ORDER OF BUSINESS. The order of business at the annual,
meeting of the shareholders insofar as possible, and at all other meetings of
shareholders, shall be as follows:
1. Call to order.
2. Proof of notice of meeting.
3. Reading and disposing of any unapproved minutes.
4. Reports of officers.
5. Reports of committees.
6. Election of Directors.
7. Disposition of unfinished business.
8. Disposition of new business.
9. Adjournment.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. Subject to the provisions of the Geneva
Corporation Act, and any limitations in the Articles of Incorporation and these
Bylaws relating to actions required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the Corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
Section 2. ENUMERATION OF DIRECTORS POWER. Without prejudice to
these general rules, and subject to the same limitation, the Board of
Directors shall have the power to
(a) Select and remove all officers, agents and employees of the
Corporation;
<PAGE>
prescribe any powers and duties for them that are consistent with law, with
the Articles of Incorporation, and these Bylaws; fix their compensation; and
require from them security for faithful service.
(b) Change the principal executive office or the principal
business office from one location to another; cause the Corporation to be
qualified to do business in any other state, territory, dependency, or country
and conduct business within or outside the State of Idaho; and designate any
place within or outside the State of Idaho for the holding of any shareholders
meetings, including annual meetings.
(c) Adopt, make, or use a corporate seal; prescribe the forms
of certificates of stock; and alter the form of the seal and certificate.
(d) Authorize the issuance of shares of stock of the
Corporation on any lawful terms, in consideration of money paid, labor done,
services actually rendered, debts or securities canceled, or tangible or
intangible property actually received.
(e) Borrow money and incur indebtedness on behalf of the
Corporation, and cause to be executed and delivered for the Corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, and other evidences of debt and
securities.
(f) Engage in and/or adopt employment agreements, contracts,
or other employment contracts with independent contractors, companies,
government agencies, or individuals.
Section 3. NUMBER TENURE, QUALIFICATION AND ELECTIONS. To the extent
allowed by the Articles of Incorporation, the Board of Directors shall be
fixed from time to time by resolution of the Board, but shall not be less
than two (2), nor shall it exceed five (5). Directors need not be
shareholders of the Corporation. The number of Directors may be increased
beyond five (5) only by approval of the outstanding shares of the
Corporation. The Directors of the Corporation shall be elected at the annual
meeting of the shareholders and shall serve until the next annual or special
meeting is properly called and they, or any of them, are re-elected and until
their successors have been elected and qualified.
Section 4. VACANCIES. A vacancy or vacancies on the Board of Directors
shall be deemed exist in the event of the death, resignation, or removal of any
Director, or if the Board of Directors by resolution declares vacant that office
of a Director who has been declared of unsound mind by an order of court or
convicted of a felony, or if the authorized number of Directors is increased,
the shareholders fail at any meeting of shareholders at which any Director of
Directors are elected, to elect the number of Directors to be voted for at that
meeting.
Any Director may resign effective on giving written notice to the
Chairman of the Board, the President, the Secretary, or the Board of Directors,
unless a notice specifies a later time for that resignation to become effective.
If the resignation of a Director is effective at a furore time, the Board of
Directors may elect a successor to take office when the resignation becomes
effective.
<PAGE>
Vacancies on the Board of Directors may be filled by a majority of
the remaining Directors, whether or not less than a quorum, or by a sole
remaining Director, except that a vacancy created by the removal of a
Director by the vote or written consent of the shareholders or by court order
may be files only by the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present, or by the
unanimous written consent of the shareholders of the outstanding shares
entitles to vote. The shareholders may elect a Director or Directors at any
time to fill any vacancy or vacancies not filled by the Directors, but any
such election by written consent shall require the consent of a majority of
the outstanding shares entitled to vote, except that filling a vacancy
created by a removal of a Director shall require the written consent of the
holders of all outstanding shares entitled to vote.
Each Director so elected shall hold office until the next annual
meeting of the shareholders and until a successor has been elected and
qualified.
Section 5. ANNUAL MEETING. Immediately following each annual meeting of
shareholders, the Board of Directors may hold a regular meeting at the place
that the annual meeting of shareholders was held or at any other place that
shall have been designated by the Board of Directors for the purpose of
organization, any desired election of officers, and the transaction of other
business. Notice of this meeting shall not be required.
Section 6. NOTICE MEETING. Notice need not be given of regular meetings
of the Board of Directors nor is it necessary to give notice of adjourned
meetings. Notice of special meetings shall be in writing by mail at least four
(4) days prior to the date of the meeting or forty-eight (48) hours' notice
delivered personally or by telephone or telegraph or telecopier. Neither the
business to be transacted at, nor the purpose of any such meeting need be
specified in the notice. Attendance of a Director at a meeting shall constitute
a waiver of notice of that meeting except when the Director attends for the
express purpose of objecting to the transaction of any business in that meeting
is not lawfully called or conveyed.
Section 7. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular and
special meetings of the Board of Directors may be held at any place within or
outside the State of Idaho that has been designated from time by the Board.
In the absence of such designation, meetings shall be at the principal
executive office of the Corporation. Any meeting, regular or special, may be
held by conference telephone, or similar communication equipment, as long as
all Directors participating in the meeting can hear one another, and all such
Directors shall be deemed to be present in person at the meeting.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose or purposes may be called at any time by the
Chairman of the Board or the President, any Vice President, or the Secretary.
Section 9. MAJORITY OR QUORUM. A majority of the authorized number
of Directors constitutes a quorum of the Board for the transaction of
business except as hereinafter provided.
<PAGE>
Section 10. TRANSACTIONS OF BOARD. Except as otherwise provided in the
Articles or these Bylaws, or by law, every act or decision done or made by a
majority of the Directors present at a duly held meeting at which a quorum is
present, is the act of the Board, provided, however, that any meeting at which a
quorum was initially present may continue to transact business notwithstanding
the withdrawal of Directors if any action taken is approved by at least a
majority of the required quorum for such meeting.
Section 11. ADJOURNMENT. A majority of Directors present at any
meeting, whether or not a quorum is present, may adjourn the meeting to another
time and place. If the meeting is adjourned for more than twenty-four (24)
hours, notice of the adjournment to another time and place must be given prior
to the time of the adjourned meeting to the Directors who were present at the
time of the adjournment.
Section 12. CONDUCT OF MEETINGS. The Chairman of the Board, or if there
is no such officer, the President, or in his absence, any Director selected by
the Director present shall preside at the meeting of the Board of Directors. The
Secretary of the Corporation or, in the Secretary's absence any person appointed
by the presiding officer, shall act as Secretary of the Board.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board of Directors may be taken without a meeting, if all
members of the Board shall individually or collectively consent in writing to
such action. Such action by written consent shall have the same force and effect
as a unanimous vote of the Board of Directors. Such written consent (s) shall be
files with the minutes of the proceedings of the Board.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and members
of committees may receive such compensation, if any, for their services, and
such reimbursement of expenses, as may be fixed or determined by resolution of
the Board of Directors. Nothing herein contained shall be construed to preclude
any Director from serving the corporation in any other capacities an officer,
agent, employee, or otherwise, and receiving compensation for such services.
Section 15. APPROVAL OF BONUSES FOR DIRECTORS AND OFFICERS. No
bonuses or share in the earnings or profits of the Corporation shall be paid
to any of the officers, Directors, or employees of the Corporation except as
approved by the Board of Directors.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of the Corporation shall be a
President, a Vice-President, a Secretary, and a Chief Financial Officer
(Treasurer). The Corporation may also have, at the discretion of the Board of
Directors, a Chairman of the Board, one or more Assistant Secretaries, one or
more Assistant Treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article IV. Any number of
offices may be held by the same person, except the offices of President and
Secretary.
<PAGE>
Section 2. ELECTION OFFICER. The officers of the Corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article IV shall be chosen by the Board of Directors, and
each shall serve at the pleasure of the Board, subject to the rights, if any, of
an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint,
and may empower the President to appoint, such other officers as the business of
the corporation may require. Each of them shall hold office for such period,
have such authority and perform such duties as are provided in the Bylaws, or as
the Board of Directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights;
if any, of an officer under a contract of employment, any officer may be
removed, either with or without cause, by the Board of Directors, at any regular
or special meeting of the Board, or, except in case of an officer chosen by the
Board of Directors, by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect on the date of receipt of that
notice or at any later time specified in that notice; unless otherwise specified
in that notice. Any resignation is without prejudice to the rights, if any, of
the corporation under any contract for which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in Any office because of
death, resignation, removal, disqualification, or any other cause, shall be
filled in the manner prescribed in these Bylaws for regular appointments to that
office.
Section 6. PRESIDENT. Subject to such powers, if any, as may be given
by the Bylaws or Board of Directors to other officers of the Corporation, the
President shall be the General Manager and Chief Executive Officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and the officers of
the Corporation. He shall preside at all meetings of the shareholders and at all
meetings of the Board of Directors. He shall have the general powers and duties
of management usually vested in the office of President of a corporation, and
shall have such other powers and duties as may be prescribed by the Board of
Directors or the Bylaws.
Section 7. VICE-PRESIDENT. In the absence or disability of the
President, the Vice-President designated by the Board of Directors shall perform
all the duties of the President, and when so acting shall have all the powers of
and be subject to all of the restrictions upon, the President. The sole duty of
the Vice-President of this Corporation shall be to function as a representative
of the President in such case as the President may by absent or disabled. The
Vice-President may, when not acting in the representative capacity of the
President, hold other positions and be assigned other duties within the
Corporation.
Section 8. SECRETARY. The Secretary shall keep or cause to be kept at
the principal executive office or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
of Directors and shareholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the
<PAGE>
notice given, the names of those present at Director meetings or committee
meetings, the number of shares present or represented at shareholders
meetings, and the proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a record of
shareholders, or a duplicate record of shareholders showing the names of all
shareholders and their addresses, the number of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary or Assistant Secretary, if they are absent or unable to
act or refuse to act, any other officer of the Corporation shall give, or cause
to be given, notice of all meetings of the shareholders, of the Board of
Directors, and of committees of the Board of Directors required by the Bylaws or
by law to be given. The Secretary shall keep the seal of the Corporation, if one
is adopted, in safe custody and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by the Bylaws.
Section 9. FINANCIAL OFFICER. The Chief Financial Officer (Treasurer)
shall keep and maintain, or cause to be dept and maintained, adequate and
correct books and records of accounts of the properties and business
transactions of the Corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained earnings, and shares.
The book of accounts shall at all reasonable times be opened to inspection by
any Director.
The Chief Financial Officer shall deposit all monies and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the corporation as may be ordered by the Board of Directors, shall
render to the President and Directors, whenever they request it, an account of
all of his transactions as Chief Financial Officer and of the financial
condition of the Corporation, and shall have other powers and perform other such
duties as may be prescribed by the Board of Directors or the Bylaws.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
Section 1. AGENTS EXPENSES. For the purpose of this Article, "agent"
means any person who is or was a Director, officer, employee, or other agent of
this Corporation, or is or was serving at the request of this Corporation as a
Director, officer, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, or was a
Director, officer, employee, or agent of a foreign or domestic corporation which
was a predecessor corporation of this corporation or of another enterprise at
the request of such predecessor corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative, or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under Section 4 or Section 5 (c) of this Article.
<PAGE>
Section 2. ACTIONS OTHER THAN BY THE CORPORATION. This Corporation
shall defend and indemnify any person who was or is a party, or is threatened
to be made a party, to any proceeding (other than an action by or in the
fight of this Corporation) by reason of the fact that such person is or was
an agent of this Corporation, against expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with such
proceeding if that person acted in good faith and in a manner that that
person reasonably believed to be in the best interests of this corporation
and, in the case of a criminal proceeding, had no reasonable cause to believe
the conduct of that person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction, or upon a pleas of nolo contendere
or its equivalent shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which the person reasonably
believed to be in the best interest of this Corporation or that the person
had reasonable cause to believe that the person's conduct was lawful.
Section 3. ACTIONS BY THE CORPORATION. This Corporation shall indemnify
any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the fight of this Corporation
to procure a judgment in its favor by reason of the fact that said. person is or
was an agent, counsel to the Corporation, officer or director of this
Corporation, against expenses actually and reasonably incurred by that person in
connection with the defense or settlement of that action if that person acted in
good faith in a manner that that person believed to be in the best interests of
this Corporation and with such care, including reasonably inquiry,, that such
action would not be deemed grossly negligent on the part of such agent (for the
purposes of this Article V, the term "agent" shall mean and include all
officers, directors, counsel, and employees). Indemnification shall be available
under this Section 3, conditioned only upon the following:
(a) In respect of any claim, issue or matter as to which that
person may be liable to this Corporation, the duty and obligation of the
Corporation to defend and indemnify such agent shall be absolute unless and only
to the extent that the court in which that action was brought shall determine,
upon application, that in view of all the circumstances of the case, said person
acted with reckless disregard equated to gross negligence with regard to the
specific claims made against said person;
(b) The indemnification provisions set-forth herein are to be
interpreted as broadly as possible in their application to any officer,
director, counsel or agent of the corporation, to include accountants and
counsel for the corporation. Such interpretation shall treat these provisions as
continuing contractual obligations of the corporation and subsequent
modification shall not limit the effect of these provisions as applied to the
covered classes who were so covered, at any time following adoption hereof.
Section 4. SUCCESSFUL DEFENSE BY AGENTS. To the extent that an agent of
this corporation has been successful on the merits or otherwise in defense of
any proceeding referred to in Section 2 or 3 of this Article, or in defense of
any claim, issue, or matter therein, the agent shall be indemnified against
expenses actually and reasonably incurred by the agent in connection therewith.
An agent shall be deemed successful if the Court fails to make a specific
finding regarding the degree of fault as set forth in Section 3, herein above.
<PAGE>
Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of this
Article, any indemnification under (his Article shall be made by this
Corporation only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of this
Article, by:
(a) A majority of a quorum consisting of Directors who are
not parties to the proceeding;
(b) Approval by the affirmative vote of a majority of the
shares of this corporation entitled to vote represented at a duly held meeting
at which a quorum is present or by written consent of holders of a majority of
the outstanding shares entitled to vote; or
(c) The court in which the proceeding is or was pending, on
application made by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by this
Corporation.
Section 6. ADVANCE OF OFFENSES. Expenses incurred in defending any
proceeding may be advanced by this Corporation before the final disposition of
the proceeding on receipt of an undertaking by or on behalf of the agent to
repay the amount of the advance unless it shall be determined ultimately that
the agent is entitled to be indemnified as authorized in this Article.
Section 7. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any fight to indemnification to which persons other than Directors
and officers of this Corporation or any subsidiary hereof may be entitled to
contract or otherwise.
Section 8. INSURANCE. Upon and in the event of a determination by the
Board of Directors of this Corporation to purchase such insurance, this
Corporation shall purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether or not this
corporation would have the power to indemnify the agent against that liability
under the provisions of this section.
Section 9. FIDUCIARIES OF CORPORATE EMPLOYEE. This Article does not
apply to any proceeding against any trustee, investment manager, or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of the Corporation as defined in
Section 1 of this Article. Nothing contained in this Article shall limit any
fight to indemnification to which such trustee, investment manager, or other
fiduciary may be entitled by contract or otherwise, which shall be
enforceable to the extent permitted by applicable law other than this Article.
<PAGE>
EXHIBIT 5.1
April 27, 2000
Affinity International Travel Systems, Inc.
100 Second Avenue South
Suite 1100S
St. Petersburg, FL 33701-4301
RE: REGISTRATION STATEMENT ON FORM S-1 OF AFFINITY INTERNATIONAL TRAVEL SYSTEMS,
INC.
Ladies and Gentlemen:
We have acted as counsel to Affinity International Travel Systems,
Inc., a Nevada corporation (the "Company"), in connection with the
preparation and filing with the Securities and Exchange Commission of a
Registration Statement on Form S-1 (the "Registration Statement") pursuant to
which the Company is registering for resale by certain of the Company's
stockholders (the "Selling Stockholders") under the Securities Act of 1933,
as amended (the "Act"), a total of 20,353,094 shares of common stock, $.001
par value, of the Company (the "Common Stock"). Of the 20,353,094 shares of
Common Stock being registered for resale by the Selling Stockholders,
10,413,094 shares are currently outstanding (the "Shares") and 9,940,000
shares are being registered for resale by the Selling Stockholders upon the
exercise of outstanding warrants to purchase 9,940,000 shares of the
Company's Common Stock in private transactions. This opinion is being
rendered in connection with the filing of the Registration Statement.
This firm, in rendering legal opinions, customarily makes certain
assumptions which are described in Schedule A hereto. In the course of our
representation of the Company in connection with preparation of the Registration
Statement, nothing has come to our attention which causes us to believe reliance
upon any of those assumptions is inappropriate, and the opinions hereafter
expressed are based upon those assumptions.
In connection with this opinion, we have examined only the following
documents (collectively, the "Documents"):
(i) the Registration Statement;
(ii) the Articles of Incorporation of the Company, as amended,
incorporated by reference as Exhibit 3.1 to the Registration
Statement;
(iii) Certificate of the Secretary of the State of Nevada dated April
19, 2000, as to the good standing of the Company, as to which we
relied exclusively;
(iv) the Bylaws of the Company incorporated by reference as Exhibit
3.2 to the Registration Statement;
(v) the corporate minute books and other records of the Company;
(vi) certain proceedings of the directors of the Company and other
records of the Company pertaining to the Shares;
<PAGE>
Affinity International Travel Systems, Inc.
April 27, 2000
Page 2
(vii) a specimen certificate for the Common Stock incorporated by
reference as Exhibit 4.1 to the Registration Statement;
(viii) a form of common stock purchase warrant;
(ix) a certificate of the Secretary of the Company; and
(x) a letter from Interwest Transfer, Inc., the Company's transfer
agent, dated April 27, 2000, as to the number of issued and
outstanding shares of the Company as of the date of the letter.
The opinions expressed herein are based solely upon (i) our review of
the Documents, (ii) discussions with Daniel G. Brandano, the Chief Executive
Officer and President of the Company, Gerard J. LaMontagne, the Chief Financial
Officer of the Company, and Mark S. Mandula, the Chief Operating Officer of the
Company, (iii) discussions with those of our attorneys who have devoted
substantive attention to the matters contained herein, and (iv) such review of
published sources of law as we have deemed necessary.
Our opinions contained herein are limited to the laws of the
Commonwealth of Massachusetts and the federal law of the United States of
America and are being rendered as if only the internal laws of the Commonwealth
of Massachusetts were applicable thereto, notwithstanding that the Company is a
Nevada corporation.
Based upon and subject to the foregoing, we are of the opinion that the
Shares are and the Warrant Shares, when issued and paid for in accordance with
the applicable common stock purchase warrant, will be duly authorized, validly
issued, fully paid and nonassessable.
We understand that this opinion is to be used in connection with the
Registration Statement. We consent to the filing of this opinion as an Exhibit
to said Registration Statement and to the reference to our firm wherever it
appears in the Registration Statement, including the prospectus constituting a
part thereof and any amendments thereto. This opinion may be used in connection
with the offering of the Common Stock only while the Registration Statement, as
it may be amended from time to time, remains in effect.
Very truly yours,
BROWN, RUDNICK, FREED & GESMER
By: BROWN, RUDNICK, FREED & GESMER, P.C.
By: /s/ John G. Nossiff, Jr.
------------------------------------
John G. Nossiff, Jr., A Member
Duly Authorized
<PAGE>
Affinity International Travel Systems, Inc.
April 27, 2000
Page 3
SCHEDULE A
BROWN, RUDNICK, FREED & GESMER
STANDARD ASSUMPTIONS
For purposes of this opinion, Brown, Rudnick, Freed & Gesmer makes the
following customary assumptions, without any investigation:
1. each natural person executing any of the Documents has sufficient
legal capacity to enter into such Documents and perform the
transactions contemplated thereby;
2. the Company holds requisite title and rights to any property
involved in the transactions described in the Documents and
purported to be owned by it;
3. the full power and authority of each entity and person other than
the Company to execute, deliver and perform each document
heretofore executed and delivered or hereafter to be executed and
delivered and to do each other act heretofore done or hereafter to
be done by such entity or person;
4. the due execution and delivery by each entity or person other than
the Company of each document heretofore executed and delivered or
hereafter to be executed and delivered by such entity or person;
5. the legality, validity, binding effect and enforceability as to
each entity or person other than the Company of each document
heretofore executed and delivered or hereafter to be executed and
delivered and of each other act heretofore done or hereafter to be
done by such entity or person;
6. the genuineness of each signature on, and the completeness,
accuracy, and authenticity of each document submitted to us as an
original;
7. the conformity to the original, completeness, accuracy, and
authenticity of each document submitted to us as a copy;
8. the completeness, accuracy and proper indexing of all governmental
and judicial records searched;
9. no modification of any provision of any document, no waiver of any
right or remedy and no exercise of any right or remedy other than
in a commercially reasonable and conscionable manner and in good
faith;
<PAGE>
Affinity International Travel Systems, Inc.
April 27, 2000
Page 4
10. the conduct of the parties to the transactions described in the
Documents has complied in the past and will comply in the future
with any requirement of good faith, fair dealing and
conscionability;
11. each person other than the Company has acted in good faith and
without notice of any defense against the enforcement of any
rights created by, or adverse claim to any property or security
interest transferred or created as part of, the transactions
described in the Documents; and
12. there has not been any mutual mistake of fact or misunderstanding,
fraud, duress, or undue influence by or among any of the parties
to the Documents.
<PAGE>
EXHIBIT 10.7
SOFTWARE LICENSE AGREEMENT
TOURSCAPE
This License Agreement ("the Agreement") is entered into by and between
SABRE Decision Technologies, a division of The SABRE Group, Inc., ("SDT") and
SunStyle International Holidays ("Customer").
RECITALS
A. Customer desires to obtain a reservation scheduling system owned by
SDT known as TOURSCAPE (the "Software") via a limited executable code license.
B. Customer desires to obtain from SDT services in connection with the
Software.
C. SDT desires to provide the Software and services pursuant to the
terms and conditions stated in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
ARTICLE I
SOFTWARE LICENSE
1.1. GRANT. Effective upon final execution of this Agreement, and provided
that Customer remains in compliance with its obligations herein, SDT grants to
Customer, a non-exclusive and non-transferable limited right and license to use
the Software executable code as well as the accompanying User Manual
("Documentation") solely in strict accordance with the terms of this Agreement.
The rights hereby granted are limited to Customer's use of the Software and
Documentation in the internal operations of Customer and for no other use. It is
understood that the license granted to Customer shall include only the Software
executable code.
1.2. SOFTWARE COPIES. Customer may make copies of the Software solely for
use on its computers in connection with its internal operations and for back-up
purposes. Customer shall reproduce and include on each copy and on each partial
copy of the Software any copyright notice and proprietary rights legend
contained on or in the Software, as such notice and legend appear on or in the
original.
1.3. MODIFICATIONS. Customer shall not modify, reverse engineer,
disassemble, compile, reverse compile, or decompile the Software.
1.4. SITE. SDT shall deliver the Software for installation in St.
Petersburg, Florida (the "Site"). Customer will perform all preparatory work
and install the Software at the Site. Any re-exporting or re-use of the
Software by Customer outside of the United States of America
-1-
<PAGE>
shall be done strictly pursuant to the U.S. Department of Commerce
Regulations and with SDT's prior written consent.
1.5. NO ASSIGNMENT. Customer shall not transfer, assign, or sublicense the
license of the Software or any component thereof to any other person or entity,
whether by operation of law or otherwise, without the prior written consent of
SDT.
1.6. TERM. The Software license granted to Customer hereunder for the
Software shall commence upon final execution of this Agreement and shall
continue thereafter for 99 years unless terminated as provided in this
Agreement.
ARTICLE II
IMPLEMENTATION
2.1. DEVELOPMENT AND DELIVERY. SDT has previously Delivered the Software to
the Site ("Delivery"). Customer agrees the Software has been installed on
Customer's system and contains the functionality described in Exhibit A.
2.2. PROJECT MANAGEMENT. SDT shall be responsible for allocation of its
personnel and other resources in connection with the project. Customer will
provide, at its own expense, all hardware, database and systems software
required for operation, modification and maintenance of the Software, as well
as telecommunications access to Customer's TOURSCAPE operational systems,
Software Deliverable and communications environment. Customer represents
that the Site shall be prepared according to SDT's and manufacturer's
specifications. Customer shall provide SDT, upon request, all necessary data,
resources, personnel and facilities to support SDT's services provided
hereunder. Any delay in the provision of such support which increases costs
or efforts of SDT hereunder, shall result in commensurably increased charges
to Customer.
ARTICLE III
MAINTENANCE AND SUPPORT
3.1. MAINTENANCE SERVICES. In consideration for payment of fees identified
in Article 4.4, SDT shall perform maintenance services ("Maintenance Services")
on the Software and as updated with improvements or modifications furnished to
Customer under this Agreement pursuant to the terms and conditions contained
herein. Commencing upon execution of this Agreement, SDT shall provide Software
Maintenance Services as follows:
(a) CORRECTION OR REPLACEMENT. SDT shall provide the services
necessary to remedy any programming error which is attributed to SDT
and which affects the productive use of the Software. Such
correction, replacement or services shall be accomplished after
Customer has identified and notified SDT of any such error in
accordance with SDT's reporting procedures. Labor hours may also be
applied to, among other things:
(i) General consulting and technical services.
(ii) Additional training.
-2-
<PAGE>
(iii) Development of Enhancements.
(b) SDT COORDINATOR. Customer shall have telephone access to an
SDT project manager ("SDT Coordinator") located at SDT offices in
Dallas/Fort Worth during SDT's normal business hours, Dallas/Fort
Worth local time. The SDT Coordinator will be responsible for
facilitating Customer's support for Software problem resolution,
including difficulties with Software functionality, as well as
general consulting and technical services. The SDT Coordinator will
be responsible for logging and tracking problems after they have
been reported by Customer, contacting the Customer Technical
Coordinator (as defined below) to confirm receipt of the problem
report and jointly determining with the SDT Coordinator the priority
level of the problem. Priority levels will be determined as follows:
(i) Level 1 problems. These are problems with Software
functionality which are significant in terms of potential impact on
Customer's operations. Customer will be advised at least every
twenty-four (24) hours by the SDT Coordinator as to the status of
efforts to resolve the Level 1 problem. One or more members of SDT
senior management will be informed on a weekly basis of all Level 1
problems.
(ii) Level 2 problems. These are Software problems, which are
not significant to the productive use of the Software. These
problems will be addressed in a reasonable time after any Level 1
problem has been resolved.
(iii) Level 3 problems. These are low priority problems that
shall be addressed in the next scheduled Software update.
SDT Coordinator will provide Customer a monthly report showing a summary of all
problems reported during the previous month, and a status of all outstanding
problem logs.
(c) UPDATES AND ENHANCEMENTS. SDT will provide, during the term
of Maintenance Services, at least one Software Update per annum, "AS
IS" WITH NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Customer shall have the right to obtain access to Software
Enhancements developed by SDT for third parties at the prevailing
rates on an "AS IS" basis WITH NO WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. SDT shall be available to provide consulting,
professional and technical services in connection with the
integration of Enhancements and Updates on a time and material basis
(at SDT Standard Rates plus Travel Expenses) or for a fixed fee as
negotiated between the parties in a separate agreement. For the
purposes of this Article 3.01, (a) "Updates" shall mean Software
versions produced to correct errors or "bugs", to accommodate
upgraded versions of operating environments, or to include minor
modifications
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or improvements made to the Software which SDT makes generally
available to other licensees of the Software, and (b) "Enhancements"
shall mean Software versions produced which add new functionality
to existing Software.
(d) REMEDIES. In the event that SDT notifies Customer that it is
unable to remedy the error or defect, Customer shall have the right,
as its sole and exclusive remedy, to terminate the Maintenance
Services, and Customer agrees to pay for all Maintenance Fees up to
and including the date of such termination. Neither party shall have
any other obligations or liability to the other in connection with
the Maintenance Services.
(e) INCLUSION. Updates, Enhancements, and modifications obtained
from SDT by Customer herein shall be governed by the terms of this
Agreement and shall be included within the term "Software" for all
purposes.
3.2. MODIFICATIONS BY CUSTOMER. Customer shall inform SDT in writing of any
modifications made by Customer to the hardware or operating software
configuration.
3.3. RESPONSIBILITIES OF CUSTOMER. Customer agrees to:
(a) During normal business hours provide on-site, a technical
coordinator trained in Software administration, operations and
preventative maintenance procedures (the "Technical Coordinator").
(b) Promptly communicate to SDT all Software malfunctions and
errors by telephoning or by telecopying a Problem Report from
Customer's Technical Coordinator. Prior to the communication, the
Technical Coordinator shall coordinate with the Software user,
hardware and operating system vendors, and the qualified LAN
administrator to confirm the problem as originating from the Software.
(c) Operate the Software in environments as mutually agreed
upon.
(d) Promptly install solutions sent by SDT to remedy
malfunctions.
(e) Promptly install, or assist in installing, such Updates as
SDT may release during the term of this Agreement, as directed by SDT.
(f) Provide a telephone near the equipment to be used by
Customer while a joint effort is being made to diagnose and remedy
problems via telephone communication.
(g) Allow SDT full and free access to the Software for on-site
maintenance and repairs.
(h) Advise SDT of any change of location of the Software as
permitted under this Agreement.
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(i) Be responsible for maintaining a procedure for
reconstruction of lost or altered files, data, or programs, and for
actually reconstructing any lost or altered files, data or programs.
(j) Provide SDT with sufficient support and test time on
Customer's computer system to duplicate the problem, certify that the
problem is with the Software, and certify that the problem has been
corrected.
(k) Comply with any other reasonable request of SDT in
connection with the performance of services hereunder.
3.4. MODIFICATIONS. SDT may, at its discretion, with no additional charge
to Customer, make modifications to the Software. Such modifications shall not
jeopardize the functionality of the Software or coverage of the Software under
this Article III.
3.5. TERM. The term of the provision of Maintenance Services shall commence
upon the execution of this Agreement and shall continue for three years
("Initial Term"), after which it shall be extended for additional one year terms
unless either party gives the other written notice of termination of Maintenance
Services no less than sixty (60) days prior to the commencement of any such one
(1) year term.
ARTICLE IV
FEES AND CHARGES
4.1. LICENSE FEES. Customer shall pay to SDT the sum of Twenty Thousand
Dollars (US$20,000.00) for the executable code Software license. Customer may
choose one of the following options for payment of license fees for up to ten
users of the Software:
(a) 80% upon execution of this Agreement and 20% upon the 90th
day after execution of this Agreement, or
(b) US$969.73 per month for a period of twenty-four (24) months,
which includes a 15% interest rate, commencing upon execution of this
Agreement.
4.2. TRAVEL EXPENSES. Customer agrees to pay the sum of US$119.00 per
person per day to cover meals, lodging and incidental expenses for each SDT
employee assigned to work on the Project in St. Petersburg, Florida ("Per
Diem"). The Per Diem charge will be adjusted from time to time in accordance
with the rates published by the U.S. government for federal employees
traveling on government business in the city where the work is performed
("CONUS"). Local transportation will be in addition to the above cost. With
respect to air transportation Customer shall reimburse SDT for actual costs
incurred by SDT in connection with this Agreement. Customer shall pay the
expenses identified in this Article 4.2 ("Travel Expenses") within thirty
(30) days after receipt of an invoice from SDT.
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4.3. CONSULTING/TECHNICAL/PROFESSIONAL PROJECT MANAGEMENT SERVICES. SDT has
provided previous training to Customer and Customer agrees to pay SDT the sum of
US$295.12 per month for a period of twenty-four (24) months, which includes a
15% interest rate, commencing upon execution of this Agreement. Upon request of
Customer, SDT shall provide additional Consulting/Technical/Professional
Services and training in connection with the Software at the Standard Rates
identified in Exhibit B plus Travel Expenses. Such fees shall be paid within
thirty (30) days of receipt of SDT's invoice.
4.4. MAINTENANCE FEE. Customer shall pay SDT US$125.00 per hour per SDT
Representative for all Maintenance Services rendered. Customer agrees to pay all
Travel Expenses incurred in connection with Maintenance Services. The
Maintenance Fees shall be paid within thirty (30) days after receipt of an
invoice from SDT. During the Initial Term of Maintenance Services, such rates
are subject to adjustment from time to time by no more than 10% per annum.
Thereafter Maintenance Fees shall be subject to negotiation.
4.5. TAXES. Customer shall reimburse SDT as additional fees for (i) all
taxes, duties and like charges, including any interest and penalties assessed by
the taxing authorities, imposed on SDT arising from this Agreement, excluding
U.S. income taxes and, (ii) any additional taxes, including taxes imposed on SDT
as a result of any reimbursement of taxes under clause (i) or (ii) of this
Article 4.5.
4.6. INCIDENTAL EXPENSES. Customer agrees to pay the actual costs incurred
by SDT for any incidental expenses incurred for consulting, professional and
technical services rendered to Customer. All such expenses shall be incurred
upon the mutual agreement of the parties.
4.7. INTEREST. Interest on late payments shall accrue at the rate of 15%
per annum or the highest rate permitted by Texas law, whichever is less, from
the date such amount is due until finally paid.
ARTICLE V
MARKETING RIGHTS
5.1. OWNERSHIP. SDT shall retain ownership rights in the Software,
including any derivative, modification, adaptation, or enhancement to the
Software. All right to patents, copyrights, trade secrets and other proprietary
rights associated with the Software, and any derivative, enhancement,
adaptation, or modification thereto shall be the exclusive property of SDT.
5.2. MARKETING RIGHTS. SDT shall have the exclusive right to market, sell,
distribute and license all or any portion of the Software (including any
derivative, enhancement, adaptation, or modification thereto or any variant
thereof) to third parties.
5.3. DEMONSTRATION. Upon prior consent of Customer, SDT may demonstrate the
Software at any Customer site at a mutually agreeable time to any SDT client or
prospective client. The parties shall take all reasonable measures to protect
the confidentiality of Customer data during such demonstration.
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5.4. PROMOTIONS. SDT may disclose to prospective or existing clients that
Customer has licensed the Software from SDT. Promptly after execution of this
Agreement, the parties may issue a mutually acceptable press release related to
this Agreement.
5.5. OTHER PRODUCTS. Nothing herein shall prohibit, or in any way limit,
SDT's rights to use, develop or market existing or subsequently developed or
modified software, technology or concepts, or to use its expertise, skills or
knowledge acquired in the performance of services rendered under this Agreement
in any current or subsequent endeavors. Customer shall have no right or interest
in such endeavors.
ARTICLE VI
CONFIDENTIALITY
6.1. CONFIDENTIALITY.
(a) Customer shall maintain the confidentiality of the Software
and the Documentation, using the highest degree of care. Except as
specifically permitted in this Agreement, Customer shall not use,
sell, transfer, publish, disclose, display, or otherwise make
available to others the Software, Documentation, or any derivative,
enhancement or modification thereto, or any information, material,
idea, concept, method or technique relating to or embodied in the
Software, Documentation or any derivative, enhancement or modification
thereto ("SDT Confidential Information") at any time before or after
the termination of this Agreement. Customer shall limit access to the
Software and Documentation to employees with a need to know.
(b) Except in connection with a mutually agreeable demonstration
as identified in Article 5.3, SDT shall maintain all confidential and
proprietary data relating to Customer's reservation scheduling system
("Customer Confidential Information") obtained through the provision
of services under this Agreement.
(c) Notwithstanding the foregoing, either party may release the
Confidential Information of the other, upon prior notification to the
other that is subject to subpoena, court order, or other governmental
order or regulation.
6.2. ASSISTANCE. Each party shall use its best efforts in assisting the
other in identifying and preventing any unauthorized use or disclosure of SDT
Confidential Information or Customer Confidential Information, as applicable.
ARTICLE VII
DEFAULT AND TERMINATION
7.1. PAYMENT. In the event Customer fails to pay any amount due hereunder,
and such failure continues for a period of thirty (30) days after notice from
SDT, SDT may terminate this Agreement immediately upon notice.
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7.2. OTHER BREACHES. In the event that either party breaches any other
material term or condition of this Agreement, and such breach continues for a
period of sixty (60) days after notice from the other party, the other party may
terminate this Agreement immediately upon notice.
7.3. PAYMENTS DUE SDT. All amounts due and owing to SDT up to the date of
termination shall be tendered immediately to SDT upon termination.
7.4. RETURN OF SOFTWARE. In the event of termination for any reason, any
license granted hereunder shall immediately cease and Customer shall return to
SDT the Software, Documentation and all copies thereof at its cost.
ARTICLE VIII
LIMITATION OF WARRANTIES
8.1. The parties understand that, considering the current state of the art,
it is not possible to exclude technical software problems, to manufacture
faultless software and to cure all defects. SDT does not warrant the absence of
any defects, operation without any interruption or the possibility of combining
the Software with other programs. No specific characteristics or functions are
to be provided except as set forth in the system description outlined in Exhibit
A.
8.2. THE SOFTWARE AND ALL SERVICES HEREUNDER ARE PROVIDED "AS IS" WITH ALL
ITS FAULTS AND WITHOUT ANY WARRANTY, CONDITION OR REPRESENTATION WHATSOEVER. SDT
DISCLAIMS ALL WARRANTIES, CONDITIONS OR REPRESENTATIONS OF THE SOFTWARE AND
SERVICES PROVIDED BY SDT HEREUNDER, WHETHER EXPRESS OR IMPLIED, INCLUDING ANY
WARRANTIES, CONDITIONS OR REPRESENTATIONS OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OF THE SOFTWARE AND SERVICES OR THOSE IMPLIED WARRANTIES,
CONDITIONS OR REPRESENTATIONS ARISING OUT OF COURSE OF PERFORMANCE, COURSE OF
DEALING, USAGE OR TRADE OR ANY OTHER WARRANTY, CONDITION OR REPRESENTATION. NO
REPRESENTATION OR OTHER AFFIRMATION OF FACT, INCLUDING, WITHOUT LIMITATION,
STATEMENTS REGARDING CAPACITY, SUITABILITY FOR USE, OR PERFORMANCE OF THE
SOFTWARE OR SERVICES SHALL BE DEEMED A WARRANTY, CONDITION OR REPRESENTATION FOR
ANY PURPOSE OR GIVE RISE TO ANY LIABILITY OF SDT WHATSOEVER.
ARTICLE IX
LIMITATION OF LIABILITY
(A) CUSTOMER WAIVES ALL LIABILITY OF SDT FROM NEGLIGENCE, WHETHER
CONTRIBUTORY, SOLE OR JOINT, EXCEPT LIABILITY FOR PERSONAL INJURY AND TANGIBLE
PERSONAL PROPERTY DAMAGE.
(B) UNDER NO CIRCUMSTANCES SHALL SDT BE LIABLE TO CUSTOMER FOR INDIRECT,
SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST DATA,
PROFITS OR REVENUES.
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(C) THE MAXIMUM LIABILITY OF SDT SHALL NOT IN ANY CASE EXCEED THE AMOUNT
ACTUALLY PAID TO SDT HEREUNDER FOR THE PRODUCT OR SERVICE WHICH FORMS THE BASIS
OF THE CLAIM.
ARTICLE X
DISPUTE RESOLUTION AND GOVERNING LAW
10.1. All disputes between the parties in connection with this Agreement
shall first be discussed in good faith between the parties to try to find an
amicable solution. Any disputes not so resolved shall be resolved by arbitration
pursuant to the terms below.
10.2. If no further agreement has been reached after such good faith
discussions, then either party, upon thirty (30) days notice to the other party
identifying with particularity those areas in dispute, may submit such dispute
to arbitration. Any such arbitration shall be held at Dallas, Texas under the
Rules of Commercial Arbitration of the American Arbitration Association, and
shall be conducted in English. The arbitration panel shall consist of three
arbitrators. The parties shall each nominate an arbitrator within thirty (30)
days of the notice submitting the dispute to arbitration and the nominated
arbitrators shall agree on the third arbitrator within thirty (30) days after
the both of them have been nominated.
10.3. The parties agree that the award of the arbitration shall be the sole
and exclusive remedy between the parties regarding any claims, counterclaims,
issues or accounting presented or pled to the arbitrators; that the award must
be consistent with terms and conditions of this Agreement; that it shall be made
and shall be payable in accordance with the award in US Dollars free of any tax,
deduction or offset; and that any costs, fees or taxes incident to enforcing the
award shall, to the maximum extent permitted by law, be charged against the
party resisting such enforcement.
10.4. This Agreement shall be deemed to have been entered into and shall be
construed and interpreted in accordance with the laws of Texas regardless of
conflict of laws rules.
ARTICLE XI
NOTICES
All notices required to be made under this Agreement shall be effective
upon receipt, delivered in person, by registered mail or sent by telecopy
transmission to the following persons:
<TABLE>
<S> <C>
If to SDT: If to Customer:
President SunStyle International Holidays
SDT City Center, Suite 303N
MD 4462 100 Second Avenue South
P.O. Box 619616 St. Petersburg, FL 33701-4301
DFW Airport, TX 75261-9616
Telecopy No: (817)967-9763
</TABLE>
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ARTICLE XII
NON-SOLICITATION
Customer shall not solicit for employment or otherwise retain the services
of the employees or contractors of SDT from the execution of this Agreement and
for a period of two (2) years thereafter.
ARTICLE XIII
FORCE MAJEURE
Except for the obligations to make payments hereunder, each party shall be
relieved of the obligations hereunder to the extent that performance is delayed
or prevented by any cause beyond its reasonable control, including without
limitation, acts of God, public enemies, war, civil disorder, fire, flood,
explosion, labor disputes or strikes or any acts or orders of any governmental
authority.
ARTICLE XIV
INDEMNITY
14.1. SDT will defend, at its expense, any action brought against Customer,
to the extent that such action is based on a claim of direct infringement of any
duly issued United States patent, or infringement of any copyright established
in the United States resulting from the use by Customer, of the Software as
Delivered ("Infringement"). SDT shall pay all damages and costs finally awarded
against Customer which are attributable to such Infringement, provided that SDT
is promptly informed in writing and furnished a copy of each communication,
notice or other action relating to the alleged Infringement and is given
authority, information and assistance necessary to defend or settle such claim.
14.2. Should the Software as Delivered by SDT hereunder become, or in SDT's
opinion be likely to become the subject of a claim of Infringement, then SDT
may, at its option and expense; (a) procure for Customer the right to use the
Software free of any liability for Infringement; (b) replace the Software with a
non-Infringing substitute otherwise complying substantially with all the
requirements of this Agreement, or (c) repurchase the Infringing Software for
its depreciated value, and thereby be released from all liabilities with respect
thereto under this Article XIV.
14.3. If any action is brought against SDT based on a claim that (a)
documentation written by Customer or any data or information added to the
Software by Customer or by any other person or entity at Customer's request; (b)
Software used in combination with or in addition to equipment or computer
programs not licensed or developed by SDT; or (c) any breach of this Agreement
by Customer; constitutes an Infringement, then the indemnity obligation stated
in this Article XIV with respect to SDT shall reciprocally apply to Customer.
14.4. Except as expressly provided for in this Article XIV, Customer shall
defend, indemnify and hold harmless SDT from any and all claims or causes of
action arising out of Customer's use of the Software, and pay any and all
damages and expenses (including
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reasonable attorneys fees incurred by SDT) in connection therewith, regardless
of the circumstances of the claim or damage, including those circumstances
arising out of SDT's negligence.
ARTICLE XV
MISCELLANEOUS
This Agreement and the Exhibits hereto constitute the full and complete
agreement and supersedes all prior agreements, oral or written, of the parties
with respect to the subject matter hereof, and may be modified only by a written
agreement signed by an officer of both parties. In the event any provision of
this Agreement is held to be invalid or unenforceable, such provision shall be
deemed modified to the extent necessary to become valid and enforceable. Any
rights and obligations which expressly or by their nature are intended to
survive termination of this Agreement, including without limitation, Articles
V-X, XII, XIV, and XV shall so survive and bind the parties, their successors
and assigns. Each party represents and warrants that it has full authority to
enter into this Agreement and acknowledges that this Agreement is binding upon
itself and permitted successors and assigns.
<TABLE>
<CAPTION>
SUNSTYLE INTERNATIONAL THE SABRE GROUP, INC.
HOLIDAYS
<S> <C>
By: /s/ D.G. BRANDANO By: /s/ THOMAS M. COOK
----------------------------- ------------------------------------
Name: /S/ D.G. BRANDANO Thomas M. Cook, President
Title: VICE PRESIDENT SABRE Decision Technologies
Date: APRIL 26, 1997 Date: MAY 7, 1997
</TABLE>
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EXHIBIT A
FUNCTIONALITY
TOURSCAPE FUNCTIONAL DESCRIPTION
There are five basic modules: System Administration, Sales and Marketing,
Operations, Accounting, and Reservations.
A. SYSTEM ADMINISTRATION
ENTITY
This record contains information regarding the accounting office taxing
entity of the tour operator.
OFFICE BUSINESS DAYS
The office business days function defines the office schedule.
OFFICE MASTER
The office master record contains address, phone number and general
operational restrictions of the tour operator.
PRODUCT LINE
The product line record contains default deposit, final due dates
amounts and booking requirements of the product. The default values in
the product line record may be overridden at the tour package level.
DESTINATION
The destination function contains country codes, state codes and
airport codes.
SECURITY
The security record defines workgroups and allows access to the tasks
that are valid for each workgroup. The user profile defines each user,
and validates the workgroups and tasks that are accessible.
SYSTEM CONTROLS
The booking function within the system control specifies to the
operator how various functions are to be performed. For example, any
system-wide messages that are to appear on the invoice are entered in
this area.
The general ledger function defines the structure of the general ledger
codes and tells the system how to construct certain types of accounts,
i.e., where is the company number, division locators, account or sub
account number located.
The control parameters set up the auto queue invoices from the booking,
the booking request queue and the general ledger masks.
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SERVICE TYPES
The service types defines the codes that represent the types of
services provided by vendors.
B. SALES AND MARKETING
Each time a booking is filed, it is associated with an agency record.
Bookings made directly with the customer are associated to an internal
agency. The agency information includes agency header, and branch
groups. Sales category commissions may be entered from the agency
header or branch groups header menus.
SALES CATEGORIES
The system ships a sales category labeled "normal".
RETAIL AGENCY COMMISSION
The commission record of "normal" is edited to reflect your standard
commission level.
INTERNAL AGENT COMMISSION
The system allows for a record that indicates the commission for
internal sales agents.
SALES REPRESENTATIVE
If you have sales representatives, the codes that represent each sales
representative need to be defined. Sales representatives may be
assigned to each agency master record.
AGENCY - BRANCH GROUPS
Agency branch groups must be defined if you plan to do reporting for
groups of agencies or if you pay override commissions to agencies based
on their affiliation to each other.
AGENCY - MASTER
Enter agency codes into the system. If you plan to convert your agency
codes to IATA codes, you may purchase the ARC tape and use the ARC load
utility in system administration to load ARC numbers into TOURSCAPE.
AGENCY - COMMISSION
If an override commission is paid to an individual agency, you must
create a commission record for that agency.
BRANCH GROUP - COMMISSION
If an override commission is paid to a group of agencies, establish a
branch group code to represent these agencies, assign the branch group
code to the appropriate agency records and create a branch group
commission record. This eliminates the need to create an agency
commission record for each agency associated to the branch group.
C. OPERATIONS
VENDOR
The vendor record stores basic information for each vendor.
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VENDOR SERVICE
The vendor service record contains information that is specific for
each type of service offered by an established vendor.
VENDOR SERVICE UNITS
The vendor service unit associates valid service units to an
established vendor service.
VENDOR TRAVEL VOUCHER TEXT
If the text that is to appear on the travel vouchers is the same for
all services offered by a vendor, it may be added to the vendor record,
otherwise, it should be added at the vendor service level.
NON-TRANSPORTATION CONTRACTS
The non-transportation contract area is designed to store the costs,
terms and conditions of a vendor contract. It also allows you to
determine selling prices for all services. The system uses the
information stored in this area to price services and to calculate
deposit and final payment requirements both to the vendor and from the
client.
TRANSPORTATION CONTRACT
The transportation contract area is designed to store the costs, terms
and conditions of a vendor contract. The system uses the information
stored to price services and to calculate required payments both to the
vendor and from the client.
INVENTORY
If inventory is to be managed in the system, the inventory limits must
be entered in this area.
PRODUCT DISPLAY
The product display area controls the format of how products are
displayed in the reservation area of the system.
DOCUMENT PRINTING
The printing area allows for the ability to print invoices and travel
vouchers.
D. ACCOUNTING
The system contains functions to automate the following accounting
processes:
General Ledger Code Format Bank Accounts
Currency Conversion Form of Payment Overhead
General Ledger Chart of Accounts Cash Receipts
Beginning General Ledger Balances Accounts Payable
Cash Disbursements Sales Journal
Reports
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E. RESERVATIONS
The reservation and booking process includes:
PACKAGE
The package area enables the user to display a product and its
associated services.
AVAILABILITY
The availability area displays the services which were selected from
the package screen and the available services are priced from this
screen.
ITINERARY
The itinerary area contains the booking agent information, deposit,
final payment and financial information related to the booking. It also
displays the list of all services associated with the booking.
CLIENTS
The client area is used to enter the names of clients, modify names,
add addresses and phone information, cancel services or the entire
booking and assign and unassign clients to specific services.
SUMMARY
The summary displays financial information for categories of services
associated to the booking.
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EXHIBIT B
STANDARD RATES
<TABLE>
<CAPTION>
JOB TITLE 1997 RATE (USD/HR.)
<S> <C>
Technical Writer US$ 88
Consultant US$120
Senior Consultant US$156
Principal US$193
Senior Principal - US$239
Vice President US$468
</TABLE>
Such rates are subject to modification each calendar year.
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EXHIBIT 10.8
AMENDMENT NO. 1
TO SOFTWARE LICENSE AGREEMENT
Tourscape
This AMENDMENT NO. 1 ("Amendment") to the SOFTWARE LICENSE AGREEMENT
(TOURSCAPE), dated April 26, 1997 (the "Agreement") by and between SunStyle
International Holidays City Center, Suite 303n, 100 Second Avenue South, St.
Petersburg, FL 33701-4301 ("Company"), and The SABRE Group, Inc., a Delaware
corporation located at 4255 Amon Carter Blvd., Fort Worth, Texas 76155
("Sabre"), is entered into effective as of June 1, 1999 (the "Effective Date").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Sabre and Company hereby agree as follows:
WHEREAS, Sabre and Company have entered into this Agreement and have
agreed the rates for services should be increased,
WHEREAS, it is in the best interest of the parties to modify certain
provisions of the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Sabre and Company hereby agree as follows:
1. MAINTENANCE FEE. The "Maintenance Fee" as defined in the Agreement shall be
changed to US $150.00 per hour per Sabre representative performing the
Services. In addition, the parties agree that the Maintenance Fee may be
adjusted by Sabre each calendar year either in accordance with the
Agreement or as otherwise agreed to by the parties.
2. DEFINED TERMS. The defined terms used in this Amendment shall have the same
meaning assigned to such terms in the Agreement.
3. FULL FORCE AND EFFECT. Except as otherwise expressly modified herein, all
other terms and conditions of the Agreement shall remain in full force and
effect and are hereby ratified and confirmed as it set forth herein
verbatim.
IN WITNESS WHEREOF, Company and Sabre have executed this Amendment as
of the Effective Date.
<TABLE>
<S> <C>
SUNSTYLE INTERNATIONAL HOLIDAYS, LTD. THE SABRE GROUP, INC.
By: /s/ D.G. Brandano By:
------------------------------------- --------------------
Name: D.G. Brandano Name:
----------------------------------- -----------------
Title: C.E.O. Title:
---------------------------------- -----------------
</TABLE>
<PAGE>
EXHIBIT 10.10
SABRE ASSOCIATE DISTRIBUTION
SABRE TOURGUIDE AGREEMENT
This Agreement is made as of the date set forth below between SABRE Travel
Information Network, a division of THE SABRE GROUP, INC., a Delaware
corporation, having its principal place of business at 4255 Amon Carter
Boulevard, Fort Worth, Texas 76155 ("SABRE") and Capital Program Marketing, Inc.
d/b/a SunStyle International Holidays, having its principal place of business at
City Center, Suite 303N, 100 Second Avenue South, St. Petersburg, FL 33701-4301
("Host").
WHEREAS, The SABRE Group provides, through its SABRE Travel Information Network
Division ("S.T.I.N."), computerized reservations services with related data
processing activities;
WHEREAS, Host provides travel related services at one or more
locations/facilities;
WHEREAS, SABRE and Host desire to enter into an agreement concerning the booking
of reservations and the sale of the Host's services through SABRE;
NOW THEREFORE, in consideration of the mutual covenants and promises set forth
in this Agreement, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS:
For the purposes of this Agreement, the following words shall have the meanings
set forth below:
A. Affiliate shall mean with respect to any person, any other person
directly indirectly controlling, controlled by, or under common control
with such person. For purposes of this definition, "control" shall mean
the power to direct or cause the direction of the management and
policies of such person whether through the ownership of voting
interests or by contract or otherwise.
B. "Agreement" shall mean this SABRE Associate Distribution SABRE Tourguide
Agreement.
C. "Associate SABRE Equipment Lease Agreement" shall mean an agreement
entered into by Host with SABRE for use of SABRE Equipment.
D. "Authorized SABRE User" shall mean any SABRE Subscriber who is
authorized by SABRE and Host to access SABRE Tourguide and sell Host's
tour products.
E. "Booking" shall mean any unduplicated completion of a sales transaction
of up to ten passengers stipulated therein, requested and effected by a
SABRE Subscriber
<PAGE>
through SABRE Tourguide in the Host's system for any Product during any
one calendar month. Multiple tour segments within the same booking
record shall be counted as separate bookings.
F. "Booking Fee" shall mean the fees set out in Schedule D, attached
hereto.
G. "Cancellation" shall mean only those segments canceled by a SABRE
Subscriber through SABRE.
H. "Competent Authority" shall mean any national, federal, state, county,
local or municipal government body, bureau, commission, board, board of
arbitration, instrumentality, authority, agency, court, department,
inspector, minister, ministry, official or public or statutory person
(whether autonomous or not) having jurisdiction over this Agreement or
any of the parties to this Agreement.
I. "Effective Date" shall mean the date upon which both parties have signed
this Agreement.
J. "GDS" shall mean a Global Distribution System (commonly referred to as a
computer reservation system). A GDS collects, stores, processes,
displays and distributes information through computer terminals
concerning air and ground transportation, lodging and other travel
related products and services offered by travel suppliers and which
enables Subscribers to (i) reserve or otherwise confirm the use of, or
make inquiries or obtain information in relation to, such products and
services and/or (ii) issue documents for the acquisition or use of such
products and services.
K. "Host System" shall mean the computer processing system and inventory
control system created by Host for the purpose of creating, storing and
processing information related to pricing, availability and product
information for the Products as such system may be modified from time to
time.
L. "Implementation Date" shall mean that date upon which successful testing
as described in Article 5.3 is completed.
M. "Minimum Monthly Fee" shall mean the minimum monthly fee set out in
Schedule D, attached hereto.
N. "Non-Standard Device" shall mean any computer hardware equipment which
Host desires to connect to the SABRE System but for which SABRE does not
make maintenance services available.
O. "Optional Services" shall mean any service offered by SABRE other than
the specific services referred to in this Agreement. SABRE may make
available additional Optional Services at any time. Host may elect to
purchase an Optional Service by executing an addendum to this Agreement.
P. "PNR" shall mean a passenger name record created in SABRE.
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Q. "Product" means the products and services listed in Schedule A hereto.
R. "Professional SABRE" shall mean a version of the SABRE System primarily
marketed to travel agencies and used by personnel of SABRE through the
course of their employment.
S. "Purged Bookings" shall mean a travel service segment existing in the
itinerary portion of the customer's PNR on the day following the date in
the tour segment in the PNR.
T. "SABRE Equipment" shall mean any computer hardware connected to the
SABRE System, whether furnished by Host or leased to Host by SABRE.
U. "SABRE Licensee" shall mean a person or entity licensed to market SABRE
in a designated area of the world.
V. "SABRE System" shall mean SABRE's GDS which has electronic facilities
able to provide, store, communicate, distribute, process and document
such information as is from time to time stored in the database.
W. "SABRE Subscriber" shall mean a person or entity which utilizes SABRE to
make reservations. The term "SABRE Subscriber" shall include any person
or entity, including SABRE, but excluding any other airline that uses
SABRE as its internal reservations system, that uses SABRE for making
reservations for Product(s) through one of the versions of SABRE,
including, but not limited to, Professional SABRE, EAASY SABRE,
Commercial SABRE, or any other version of SABRE marketed by a SABRE
licensee.
X. "SABRE Tourguide" shall mean the total-access system, common user
interface, developed as a function of SABRE under which SABRE
Subscribers are able to query the data base within Host's System and
make reservations for the Products offered by Host via a set of
standardized messages.
Y. "S.T.I.N." shall mean SABRE Travel Information Network.
Z. "Terminal" shall include all input-output devices, such as CRTS and
printers.
AA. "Tour Reservation" shall mean the travel offering of a Host which may
include some or all of the following components which the Host has
purchased and pre-arranged and is selling under a single contract: air
transportation, ground transportation, overnight accommodations, and
other travel related features.
ARTICLE II
EQUIPMENT:
2.1. If Host is not on the date hereof a party to an agreement with either
SABRE or a third party approved by SABRE, pursuant to which it can
receive data from and transmit data
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to the SABRE System, Host shall enter into such agreement in order to
enable it to receive the benefits of the System.
2.2. Host may elect to operate SABRE Equipment thereby affording Host access
to the SABRE System. In that event, Host may enter into a separate
Associate SABRE Equipment Lease Agreement with SABRE. SABRE agrees that
the SABRE Equipment and access to the SABRE System will be afforded
Host at SABRE's prevailing rates and charges. Host agrees that its use
of the SABRE Equipment and its access to the SABRE System will be
governed by the terms and conditions defined in the Associate SABRE
Equipment Lease Agreement.
2.3. Host agrees to only access the SABRE System via SABRE Equipment or
SABRE certified devices and applications as from time to time are
approved by SABRE. Host agrees to provide SABRE prior written
notification of its intent to utilize any SABRE certified device and
application.
2.4. Host may furnish its own computer hardware, as long as it is approved
in advance by SABRE for use with the SABRE System. Host acknowledges
that any computer hardware it purchases from another source may be
subject to an existing security interest or other ownership rights of
SABRE.
2.5. In the event Host desires to connect a Non-Standard Device to the SABRE
System, for which device SABRE does not make maintenance services
available, Host shall contact SABRE to ascertain SABRE's procedures and
fees for approving Non-Standard Devices. Any such Non-Standard Device
subsequently approved by SABRE at its sole discretion for connection to
the SABRE System shall be subject to Host's execution of SABRE's
written agreement covering such Non-Standard Device.
2.6. Notwithstanding anything to the contrary contained either in this
Agreement or in the Associate SABRE Equipment Lease Agreement, should
either SABRE or Host terminate this Agreement, then the Associate SABRE
Equipment Lease Agreement will be deemed to have been terminated
simultaneously.
ARTICLE III
RESPONSIBILITIES OF HOST:
3.1. Host shall be responsible for maintaining the timeliness and the
accuracy of all data supplied hereunder and for maintenance and
effecting changes in the availability status of its travel services. In
so doing, Host shall comply with all applicable laws and regulations
relative to the display of Host's data.
3.2. Host shall provide the Product to SABRE Subscribers through SABRE
Tourguide. Host will not discriminate in any manner, whatsoever,
against any SABRE Subscriber on account of the Subscriber's selection,
possession, or use of SABRE Tourguide. Host may refuse to provide to
any particular SABRE Subscriber through SABRE Tourguide the ability to
access or book the Product, provided that such decision by Host is part
of a termination of such Subscriber's ability to book the Product in
any manner, whatsoever,
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and, furthermore, that such decision is applied in a manner that is
consistent with Host's treatment, in similar circumstances, of travel
agencies regardless of GDS subscription.
3.3. The functions of Host's System that shall be made available through
SABRE Tourguide to SABRE Subscribers shall be those listed in Schedule
B.
3.4. Host shall not be obligated to provide electronic access to the Product
to SABRE Subscribers outside the United States; however, if the Host
does provide electronic access to the Product to any third party via a
GDS in a country outside the United States, then the Host shall also
make access to the Product available to SABRE for use by SABRE
Subscribers in such country, in accordance with the terms of this
Agreement. If Host offers access outside the United States, Host agrees
to initially provide electronic access to the Product through SABRE to
all SABRE Subscribers in the United States. The provisions of this
section are subject to the following: if Host provides electronic
access to its Products to any third party via a GDS in a country
outside the United States, then, as soon as reasonably possible, Host
shall also make access to the Products available to SABRE for use by
SABRE Subscribers in such country, in accordance with the terms of this
Agreement.
3.5. Host agrees to guarantee to SABRE Subscribers and clients of SABRE
Subscribers the accuracy of Host's policies, rates, and availability
data as displayed in the Host System on the date of booking of Host's
services by the SABRE Subscriber. Host will be responsible directly to
SABRE Subscribers and clients of SABRE Subscribers for providing Host's
travel services as displayed in the Host System.
3.6. Host agrees to transmit promptly confirmation numbers for all
reservations to SABRE Tourguide.
3.7. Host acknowledges and agrees that SABRE has not undertaken to perform
any verification of any sort of data to be available through the SABRE
System.
3.8. Host may use the name "SABRE" in any promotional material, subject to
SABRE's prior written approval, provided that SABRE's registered
service mark in the name is fully protected. SABRE's approval shall not
be unreasonably withheld. Host may not use any other trademark, service
mark, or trade name in any promotional material.
3.9. Host acknowledges that it may be necessary for S.T.I.N to change the
three-letter alpha code assigned to Host due to operational
necessities. S.T.I.N. may withdraw Host's right to use its three letter
code upon ten (10) days' prior written notice. Host acknowledges that
S.T.I.N. shall not be liable to it for any costs or expenses incurred
by Host as a result of the change in such alpha code.
3.10. At its own expense, Host shall have responsibility for the technical
aspects relating to the Host System and for implementation,
maintenance, and support of capabilities described herein, including
language translation for products offered via electronic access to
SABRE Subscribers via SABRE Tourguide in countries outside the United
States.
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3.11. At its own expense, Host shall provide a direct telecommunications link
(the "Line") between Host's System and the hardware composing the
total-access message transfer mechanism of SABRE Tourguide, provide
information to SABRE, and make modifications to Host's System, as
described in Schedule B, to ensure connections are maintained and
operational. Host will ensure that Host's System, and the Lines linking
it to SABRE Tourguide are operable at least 95% of the time from 8:00
a.m. to 9:00 p.m. (U.S. Eastern Time) Monday through Saturday.
3.12. Host shall make available five (5) simultaneous accesses in Host's
System, for support of SABRE Tourguide. Host shall add additional
Terminal addresses as reasonably required by SABRE to ensure sufficient
access to Host's System, without delay, for SABRE Subscribers.
3.13. Host shall provide help desk support in each market where SABRE
Subscribers have access to the Host's System, to assist SABRE
Subscribers with format and Product questions. Host shall maintain a
toll-free telephone support service available daily from 8:00 a.m.
until 9:00 p.m. U.S. Eastern Time, for SABRE Subscribers in the United
States, and during normal business hours for SABRE Subscribers outside
the United States as set out in Schedule C, except for local holidays.
Should SABRE determine that SABRE Subscribers require additional
service support, Host shall promptly provide all such reasonable
service support needs.
3.14. Host is authorized to provide only the Products listed in Schedule A
hereto through SABRE Tourguide. Host shall not provide any other
services or products through the SABRE Tourguide System without first
obtaining the prior written consent of SABRE.
3.15. Host agrees to honor reservations, prices, and sales made through SABRE
Tourguide, subject to Host's standard non-discriminatory policies. Host
agrees that it will not close for sale the Products through SABRE
unless such Products are closed for sale in Host's System and other
GDSs.
3.16. Host shall promptly advise SABRE, in writing, of any and all planned
changes to Host's formats, entries, and responses that will affect
SABRE at least sixty (60) days prior to the planned or actual
implementation of such changes whichever is to occur earlier. If Host
fails to give the notice required in this section, SABRE shall have the
right to restrict access to Host's System if the changes either, i)
have an adverse effect on the operation of SABRE; or ii) require
additional training for SABRE's support personnel, until Host complies
with the notice required herein.
ARTICLE IV
RESPONSIBILITIES OF SABRE:
4.1. SABRE shall maintain and operate SABRE Tourguide, and shall cooperate
with Host in resolving any problems encountered in the maintenance of
the telecommunications lines between SABRE Tourguide and Host's
internal Tour Reservation System.
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4.2. SABRE will provide access to as many SABRE Subscribers as is practical.
Given the technical and capacity restraints of the SABRE System, SABRE
shall retain the right in its sole discretion, to limit the number of
SABRE Subscribers that may be authorized to access Host. Such
limitation is to be solely based on SABRE's determination that
authorizing such SABRE Subscribers to access the System under the
circumstances may result in an inability to effectively access the
SABRE System or SABRE Tourguide. Such limitation shall be
non-discriminatorily applied to all Hosts. SABRE will provide to SABRE
Subscribers the necessary technical services and support to allow them
to utilize Host's System.
4.3. SABRE retains the right, in its sole discretion, to modify or alter the
operation of the SABRE System at any time it deems such modification or
alteration to be desirable; provided, however, that SABRE shall provide
Host sixty (60) days prior written notice of such modifications or
alterations, other than those corrective in nature, which would
materially affect the services provided to Host under this Agreement.
Any and all costs incurred by Host or any third party in connection
with or as a result of non-corrective alterations or modifications
shall be borne by Host or such other party as the case may be, provided
that Host elects to participate in such alterations or modifications.
4.4. Upon receipt of documented evidence from Host of a history of instances
of speculative Bookings or other related abusive practices by a SABRE
Subscriber involving the sale of Host's travel services, SABRE shall,
if warranted after reasonable investigation, assist Host by initiating
appropriate, timely and reasonable remedial procedures against such
SABRE Subscriber.
ARTICLE V
JOINT RESPONSIBILITIES:
5.1. Unless otherwise stated in this Agreement, Host and SABRE will each be
responsible for its own costs and expenses incurred in connection with
introducing and expanding the distribution of the System to
Subscribers.
5.2. SABRE and Host shall cooperate with each other to develop, implement,
maintain and operate the SABRE Tourguide link between the Host System
and the SABRE System. This link will provide SABRE Subscribers, among
other things, with the capability to obtain information regarding the
Products and to sell and book the Product.
5.3. Upon successful completion of the SABRE Tourguide implementation, for a
period of no longer than sixty (60) days ("Beta Test Period"), the
parties may conduct, either jointly or independently, a beta test, by
providing a selected group of SABRE Subscribers with real time access
to the Product, for the purpose of (i) confirming and validating the
capability for the SABRE Subscriber to successfully perform the
specifications criteria contained in Schedule B and (ii) determining
whether the electronic transmission of traffic to SABRE Tourguide will
adversely affect other functions, databases, application programs
and/or communication facilities of either Host's System or SABRE.
Testing shall be deemed successful when the parties agree in writing
that no deficiencies or adverse effects in the
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items described in (i) and (ii) have occurred. The parties shall work
in good faith and with reasonable speed to remedy any problems,
provided that each party has the responsibility to remedy defects
contained in its own System. Notwithstanding the foregoing, in the
event that either party reasonably determines during the Beta Test
Period that remedy of problems, as described in (i) or (ii) above,
cannot be achieved at a reasonable cost, it may terminate this
Agreement on written notice to the other party. Additionally, either
party may terminate this Agreement in the event that successful testing
is not accomplished within the Beta Test Period. Any termination
provided in this paragraph shall be without liability to the other
party and each party shall bear all costs incurred during the Beta Test
Period.
ARTICLE VI
OPTIONAL SERVICES:
Host may elect at anytime to participate in any Optional Service(s) offered by
SABRE. Unless otherwise specified in an Addendum hereto, all terms and
conditions of this Agreement will apply to the Optional Services selected by
Host. Fees for Optional Services are subject to change upon thirty (30) days'
prior written notice from SABRE. If Host does not agree to pay any such revised
fee, it may terminate the Optional Services Addendum(s) by giving written notice
to SABRE at least five (5) days prior to the effective date of the price change.
SABRE reserves the right to change Optional Service offerings from time to time.
ARTICLE VII
TERM OF AGREEMENT:
This Agreement shall become effective when signed by both of the parties hereto,
("Effective Date") and shall continue in effect for an initial term of thirty
six (36) full calendar months after the Implementation Date. This Agreement
shall automatically renew for successive one year periods unless either party
gives written notice to the other, at least sixty (60) days prior to the end of
the then-current term, of its intention to terminate this Agreement.
Implementation shall proceed when SABRE Subscribers obtain access to the Product
via SABRE Tourguide and in accordance with a phase-in of SABRE Subscribers, as
agreed by the parties. Upon termination or expiration of this Agreement, the
Lease Agreement referred to in Section II hereof shall be deemed to have
terminated simultaneously, and any fees and charges which Host owes to SABRE
hereunder or under the Lease Agreement shall become immediately due and payable
in accordance with the terms hereof and thereof.
ARTICLE VIII
CHARGES:
8.1. In consideration of the services to be provided by SABRE hereunder,
Host agrees to pay SABRE the following fees and charges:
8.2. A Five Thousand Dollar ($5,000.00 USD) deposit fee will accompany this
Agreement when implementation into Tourguide occurs, this deposit will
be held by SABRE.
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SABRE may, at its option, apply any portion or all these funds towards
any balance due SABRE by Host for booking fees as defined in Article
8.5 below. This does not eliminate Host's obligation under Article 9 of
this Agreement. SABRE agrees to return the Five Thousand Dollar
($5,000.00 USD) deposit, or balance if any, without interest, to Host
after three (3) years from the date of this Agreement should Host's
payments for booking fees remain current for the duration of this
Agreement.
8.3. Host shall pay to SABRE a non-refundable implementation fee of Ten
Thousand Dollars ($10,000.00) to cover programming and other costs
incurred by SABRE in establishing the connection between the SABRE
System and the Host System. A payment of Five Thousand Dollars
($5,000.00) will be due upon contract signature, with the remaining
Five Thousand Dollars ($5,000.00) due when Capital Program Marketing,
Inc., d/b/a SunStyle International Holidays is implemented into SABRE
Tourguide.
8.4. Host will assume responsibility to pay the costs associated with the
Line, as defined in Section 3.11 above, between Host's system and SABRE
Tourguide.
8.5. Fees. The fees for Host are set out in Schedule D, attached hereto.
8.6. SABRE may increase the Booking Fee at any time after December 31, 1996.
Such increases will be effective upon thirty (30) days' written notice
to Host and will not exceed ten percent (10%) in any twelve (12) month
period.
8.7. At the completion of the initial thirty six (36) month term, SABRE may
increase applicable Monthly Minimum Fees, and such increase will not
exceed a One Thousand Dollar ($1,000.00 USD) per month increase in any
twelve (12) month period. SABRE will provide Host a thirty(30) day
written notice of any intention to increase such fees.
ARTICLE IX
PAYMENT:
9.1. Payments due to SABRE pursuant to the charges described in Section 8
shall be made within thirty (30) days of Host's receipt of the monthly
invoice from SABRE. Late payments on amounts due shall accrue interest
at eighteen percent (18%) per annum or the highest rate permitted by
law, whichever is lower. In the event amounts were paid to SABRE which
subsequently were determined not to be due, such amounts including
accrued interest, if any, shall be credited to the Host on the next
invoice. Any disputes arising from such invoice shall not delay payment
as described hereto. Such payments should be forwarded directly to:
SABRE Group, Inc.
P.O. Box 672047
Dallas, Texas 75267-2047
9.2. Upon termination of this Agreement, all unpaid charges owed by Host
shall become immediately due and payable, and Host shall forthwith
remit payment thereof with no right of set off or deduction whatsoever.
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ARTICLE X
BOOKS AND RECORDS:
SABRE, or its designated representative, shall have the right, during regular
business hours, to audit and inspect the books and records of Host which relate
to Host's transactions through the SABRE System upon five (5) days written
notice.
ARTICLE XI
TAXES:
In addition to any other charges set forth in the Agreement, Host shall pay to
SABRE any and all license fees, sales, use, excise, personal property, or other
taxes and any and all domestic and foreign duties, import and export fees and
licenses, howsoever designated, now or hereafter imposed by any Federal, state
or local taxing authority or any foreign government or agency thereof, arising
in connection with this Agreement, other than taxes assessed on the income or
property of SABRE.
ARTICLE XII
PROMOTION:
12.1. At its own cost and expense, Host shall be responsible for marketing
and promoting the Products in the manner and to the extent it deems
appropriate and for encouraging the travel agency community to book the
Product. Host shall obtain the prior written approval of SABRE for the
use of any of SABRE's registered trade marks or service marks in any
such communications, and Host shall also obtain the prior written
approval of SABRE to the extent that any communications undertake to
instruct SABRE Subscribers on the technical use of SABRE or SABRE
Tourguide.
12.2. At its own cost and expense, SABRE shall be responsible for marketing
and promoting Host's Product in the manner and to the extent it deems
appropriate for encouraging SABRE Subscribers to book the Product.
SABRE shall obtain the prior written approval of Host for the use of
any of Host's registered trademarks or service marks in any such
communications. SABRE shall also obtain the prior written approval of
Host to the extent that such communications undertake to instruct SABRE
Subscribers on the technical use of Host's System.
ARTICLE XIII
INDEMNIFICATION:
Each of Host and SABRE (each, individually, "lndemnitor") hereby agree to
indemnify defend and hold harmless each other, their affiliates, subsidiaries,
successors and assigns and their respective officers, directors, agents and
employees ("lndemnitees") from and against all liabilities, losses, damages,
claims, suits, recoveries, awards, judgments, executions, fines, penalties or
other costs and expenses of any nature or kind whatsoever (including, without
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limitation, costs of investigation, litigation costs, court costs, expert
witness fees, litigation support services costs, settlement costs and reasonable
attorneys' fees) which may be made, asserted, had, brought or recovered by any
third-party against Indemnitees by reason of, or on account of, Indemnitor's
performance, failure to perform, or improper performance of the provisions of
this Agreement, or any breach of any representation or warranty of Indemnitor
contained herein. Indemnitors shall also agree to indemnify, defend and hold
harmless each other against suits proceedings at law, and any and all liability
or expense arising out of or in connection with any claim that any permitted use
hereunder by the Indemnitor of the other Indemnitor's trademarks, service marks,
patents or copyright or property right infringes any existing trademark, service
mark, patent, copyright or property right of any third party.
ARTICLE XIV
FAILURE OR DELAY OF SERVICE:
SABRE shall not be liable to Host, nor deemed to be in default under .this
Agreement on account of any delays, errors, malfunctions, or breakdowns with
respect to the equipment, data or services provided hereunder, regardless of its
negligence.
ARTICLE XV
DISCLAIMER OF WARRANTIES:
SABRE MAKES NO REPRESENTATION OR WARRANTY AS TO THE DATA OR SERVICES PROVIDED
THEREIN, AND HOST HEREBY WAIVES, RELEASES AND RENOUNCES ALL CLAIMS AND REMEDIES
HOST HAS OR MAY HAVE AGAINST SABRE ARISING FROM ANY ACTUAL OR ALLEGED WARRANTY.
HOST ALSO WAIVES ALL WARRANTIES, EXPRESS OR IMPLIED, RELATING TO SUCH DATA OR
SERVICES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, OR FITNESS, OR OTHERWISE. HOST AGREES THAT SABRE'S SOLE
RESPONSIBILITY AND LIABILITY FOR ANY ERRORS IN THE FUNCTIONALITY OF THE SYSTEM
IS LIMITED TO THE CORRECTION OF THE CAUSE(S) THEREOF, AND ONLY IF DUE TO
CIRCUMSTANCES UNDER SABRE'S DIRECT CONTROL, AND IN NO EVENT SHALL SABRE BE
LIABLE FOR ANY CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES OR PROFITS.
ARTICLE XVI
TITLE:
Title and full and complete ownership rights to all SABRE owned or developed
software used in the performance of this Agreement shall remain with SABRE. Host
acknowledges and agrees that the SABRE System is SABRE's proprietary information
and trade secret, whether or not any portion thereof is or may be validly
copyrighted or patented. Any manuals and other documentation in any form and any
and all copies thereof, and any and all parts or abstracts thereof, are for the
exclusive use of SABRE, and as such shall not be disclosed, copied, reproduced
or otherwise made available in any form whatsoever to any person, firm,
corporation or governmental entity not authorized under this Agreement, without
the prior written consent of
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SABRE; provided, however, that this restriction shall not apply to information
previously known to Host, legally acquired from third parties, independently
developed or subsequently publicly disclosed by SABRE.
ARTICLE XVII
ASSIGNMENT:
No party shall assign, transfer, license, franchise or otherwise convey this
Agreement or any rights hereunder or delegate any obligations hereunder to any
third person without the prior written consent of the other party, which consent
shall not be unreasonably conditioned, delayed or withheld, any attempted
assignment without consent shall be void ab initio; except that SABRE may from
time to time without consent assign this Agreement and all of its rights and
obligations hereunder to: (i) any Affiliate of SABRE; or (ii) to any third
person with which SABRE is amalgamated, merged or consolidated; or (iii) to any
third person that directly or indirectly acquires all or substantially all of
the business or assets of SABRE to which this Agreement relates; and upon any
such assignment the transferee shall be substituted for SABRE for all liability
under this Agreement. Any assignment of this Agreement shall be effective only
if (i) the assignee has the financial and technical capacity to perform the
obligations being assumed and (ii) the assignee shall assume in writing all
terms and conditions of this Agreement.
ARTICLE XVIII
NON-EXCLUSIVITY:
This is a non-exclusive Agreement and similar agreements may be entered into by
SABRE or Host with any other party.
ARTICLE XIX
TERMINATION:
SABRE and Host shall be entitled to terminate immediately this Agreement upon
any of the following events:
A. In the event SABRE or Host breaches any of the terms of this Agreement;
and SABRE or Host fails to cure such default within fifteen (15) days
after receipt of written notice from the other party; or
B. In the event Host fails to pay any amount due hereunder; and Host fails
to cure such default within fifteen (15) days after receipt of written
notice; or
C. In the event SABRE or Host becomes insolvent; makes any assignment for
the benefit of creditors; calls a meeting of creditors; offers a
composition or extension to creditors; suspends payment; consents to or
suffers the appointment of a receiver, a trustee, a committee of
creditors or a liquidation agent; files a petition or answer in
bankruptcy seeking reorganization, arrangement or readjustment of
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its debt, or its dissolution or liquidation; request any other relief
under any bankruptcy or insolvency law; or
D. In the event SABRE or Host has entered against it a judgment or decree
for dissolution which remains undismissed or undischarged or unbonded
for a period of thirty (30) days; or
E. In the event that SABRE determines that Host's use of the System as to
any one or more travel services covered by this Agreement is
insufficient to justify SABRE's continuing to provide the System as to
such travel service, or any one or more of the Host's
facilities/locations fail to honor items contained in this Agreement,
and Host fails to cure such default or sufficiently increase its use of
the System within fifteen (15) days after receipt of written notice;
SABRE may elect to eliminate such travel service from SABRE and cease
to provide services hereunder; or
F. In the event either party gives sixty (60) day written notice to the
other, after the initial thirty six (36) month term as described in
Article VII.
ARTICLE XX
CONFIDENTIALITY:
For purposes of this Agreement, confidential information shall mean any and all
trade secrets or other proprietary information of a party concerning past,
present or future research, development, business activities or affairs,
finances, properties, methods of operation, processes and systems, whether
written, oral or contained in any magnetic, electronic or other media. SABRE and
Host expressly acknowledge and agree that the terms of this Agreement constitute
confidential information of both parties. Each party shall at all times remain
the owner of its confidential information. The party which receives confidential
information from the other party agrees to maintain such information in secrecy
at all times, using the same degree of care with respect to such confidential
information as its uses in protecting its own proprietary information and trade
secrets. Neither SABRE nor Host shall sell, transfer, publish, disclose, display
or otherwise make available the confidential information of the other party to
any third person, except as may be required by applicable law. The provisions of
this Article XX shall survive for a period of three (3) years after termination
or expiration of this Agreement.
ARTICLE XXI
INDEPENDENT CONTRACTORS:
SABRE and Host shall be deemed independent contractors with respect to each
other, and nothing in this Agreement is intended nor shall be construed to
create or establish the relationship of principal and agent, partners or joint
venturers between the parties hereto.
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ARTICLE XXII
GOVERNING LAW:
This Agreement and any disputes arising hereunder shall be governed by the laws
of the United States and the State of Texas without regard to its conflict of
laws rules. Each party hereby consents to the non-exclusive jurisdiction of the
courts of the State of Texas in any dispute arising out of this Agreement.
ARTICLE XXIII
FORCE MAJEURE:
Except for Host's obligations to make payments hereunder, neither party shall be
deemed in default under the Agreement as a result of a failure to perform its
obligations under this Agreement, if such failure is caused by acts of God, war
or the public enemy, strike, labor stoppage, fire, flood, weather, mechanical
difficulty, power shortage or any other cause beyond the reasonable control of
that party. The party unable to perform for such reason shall notify the other
party without delay.
ARTICLE XXIV
WAIVER:
No waiver of a breach of any provision of this Agreement by either party shall
constitute a waiver of any subsequent breach of the same or any other provisions
hereof and no waiver shall be effective unless made in writing.
ARTICLE XXV
CAPTIONS:
The captions appearing in this Agreement have been inserted as a matter of
convenience and in no way define, limit or enlarge the scope of this Agreement
or any of the provisions.
ARTICLE XXVI
NOTICES:
All notices, requests, and releases hereunder shall be in writing and shall be
sent to the address indicated below (or to such other addresses as may hereafter
be designated in writing):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
If to SABRE: If to Capital Program Marketing, Inc:
- -----------------------------------------------------------------------------------------------------
<S> <C>
The SABRE Group, Inc. Capital Program Marketing, Inc.
SABRE Travel Information Network dba SunStyle International Holidays
P.O. Box 619616, MD 3112 100 Second Ave. South, Suite 303N
DFW Airport, TX 75261-9616 St. Petersburg, FL 33701-4301
Attn: Manager, Leisure Distribution Attn: Dan Brandano
Telephone: 817-963-4569 Telephone: 813-896-1513
Fax: 817-963-4658 Fax: 813-896-1403
- -----------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
ARTICLE XXVII
SEVERABILITY:
If any indication is received in writing by either party from any Competent
Authority to the effect that any part of this Agreement contravenes any
applicable law and cannot qualify for any applicable clearance or exemption, or
if any part of this Agreement is, or shall become, or shall be declared illegal,
invalid or unenforceable in any jurisdiction for any reason whatsoever
(including both by reason of the provisions of any legislation and also by
reason of any decision of any Competent Authority, either having jurisdiction
over this Agreement or having jurisdiction over any party to this Agreement),
such part shall be severed from this Agreement in the jurisdiction in question
and such contravention, illegality, invalidity or unenforceability shall not in
any way whatsoever prejudice or affect the remaining pads of this Agreement
which shall continue in full force and effect; provided, always, that if, in the
reasonable opinion of any party to this Agreement, such severance affects the
commercial basis of this Agreement, such party shall so inform the other party,
whereupon the parties will attempt to negotiate an amendment to the Agreement
which will maintain the balance of the commercial interests of the parties under
this Agreement. If, however, such negotiations shall not be successfully
concluded within ninety (90) days from the date the one party so informs the
other party that the commercial basis has been affected, either party shall have
the right to terminate this Agreement upon giving thirty (30) days prior written
notice to the other party.
ARTICLE XXVIII
ENTIRE AGREEMENT:
This Agreement and all schedules attached hereto, constitutes the entire
agreement and supersede any previous agreements, modifications, amendments or
waivers and contains the entire agreement between the parties with respect to
the subject matter hereof and no amendment or modification shall be effective
unless made in writing and duly executed by both parties.
15
<PAGE>
ARTICLE XXIX
COUNTERPARTS:
This Agreement may be executed by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, SABRE and Host have caused this Agreement to be executed by
their duly authorized representatives as of this ____ day of _____________, 1997
<TABLE>
<S> <C>
Capital Program Marketing, Inc. THE SABRE GROUP, INC.
d/b/a SunStyle International Holidays
By: By:
-------------------------------------- ----------------------------
Name:
------------------------------------ Barbara A. Buckridge
Title:
---------------------------------- Manager
Leisure Marketing
Date: SABRE Travel Information Network
----------------------------------
Date:
--------------------------
</TABLE>
16
<PAGE>
SCHEDULE A
Products and services offered through the System shall consist of the following:
Host's travel packages involving air, land and tour options.
17
<PAGE>
SCHEDULE B
FUNCTIONS OF HOST'S COMPUTERIZED RESERVATION SYSTEM
Upon the Implementation Date of the Agreement, the following capabilities and
features for the use of the SABRE Subscribers shall be available:
1. DISPLAY/AVAILABILITY. The SABRE Subscriber shall have the capability to
request all travel package departures, all categories by specific departure
date, hotel availability.
2. PRICING. The SABRE Subscriber shall have the capability to inquire prices
for a specific travel package, and promotional travel packages.
3. BOOKING. The SABRE Subscriber shall have the capability to book Host's
travel packages.
4. CHANGES AND CANCELLATIONS. The SABRE Subscriber shall have the following
capabilities:
a. Modify Bookings made through the System.
b. Cancel Bookings made through the System.
c. View Bookings made through the System.
5. REQUEST. The SABRE Subscriber shall have the capability to request
brochures through the System.
6. QUEUE. The SABRE Subscriber shall have the following capability:
a. for SABRE Subscribers to queue messages from SABRE to the Host.
b. for the Host to queue messages from SABRE to SABRE Subscribers.
7. POST PAYMENT. The SABRE Subscriber shall have the ability to update the
booking record to post payments.
8. MERGE SEGMENTS. SABRE will merge the SABRE Tourguide booked segments from
the Host System into a SABRE PNR.
18
<PAGE>
SCHEDULE C
As of the Implementation Date, SABRE Subscribers in the following
regions/countries will have access to Host's System:
a. Worldwide
19
<PAGE>
SCHEDULE D
With respect to each calendar month beginning with Implementation Date, Host
shall pay to SABRE the greater of (i) a per Tour Booking fee as defined below or
the applicable monthly minimum amount, as follows:
a) Each of Months One (1) through Three (3): The greater of $10.00 per
Booking fee; monthly minimum fee waived;
b) Each of Months Four (4) through Twelve (12): The greater of $10.00 per
Booking fee; or a $600.00 monthly minimum fee;
c) Each of Months Thirteen (13) through Twenty Four (24): the greater of
$11.00 per Booking fee; or a $1,200.00 monthly minimum fee;
d) Each of Months Twenty Five (25) through Thirty-Six (36): The greater of
$12.00 per Booking fee; or a $1,800.00 monthly minimum fee;
20
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of
this Form S-1 Registration Statement of our report dated September 3, 1999,
except for Note 12, as to which the date is September 15, 1999, relating to the
consolidated financial statements of Affinity International Travel Systems, Inc.
and subsidiaries, which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
/s/ BDO Seidman, LLP
Orlando, Florida
April 27, 2000
