U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF
1934
For the transition period from _____________ to _______________
Commission File No. 0-25357
TRAVELNOW.COM INC.
------------------
(Name of Small Business Issuer in Its Charter)
Delaware 59-3391244
-------- ----------
(State of Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
318 Park Central East, Suite 418, Springfield, MO 65806
-------------------------------------------------------
(Address of Principal Executive Offices)(Zip Code)
(417) 864-3600
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No ___
State the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date: As of October 31, 2000,
TravelNow.com Inc. had 10,872,909 shares of common stock outstanding, par value
$0.01 per share, excluding 54,503 shares granted for professional services which
have not been issued.
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TRAVELNOW.COM INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
Three Months Ended Sept. 30 Six Months Ended Sept. 30
---------------------------- ----------------------------
1999 1999
2000 As Restated 2000 As Restated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenues $ 2,995,340 $ 1,052,159 $ 5,219,228 $ 1,445,059
Cost of Revenues 1,816,984 545,798 3,442,141 916,264
------------ ------------ ------------ ------------
Gross Profit 1,178,356 506,361 1,777,087 528,795
------------ ------------ ------------ ------------
Operating Expenses
Sales and Marketing 234,920 34,647 425,757 64,166
General and Administrative 1,294,652 431,298 3,118,525 596,165
Stock-Based Compensation 163,281 79,254 326,562 729,254
------------ ------------ ------------ ------------
Total Operating Expenses 1,692,853 545,199 3,870,844 1,389,585
------------ ------------ ------------ ------------
Income/(Loss) From Operations (514,497) (38,838) (2,093,757) (860,790)
Interest Income 30,182 0 74,838 0
------------ ------------ ------------ ------------
Income/(Loss) Before Taxes (484,315) (38,838) (2,018,919) (860,790)
Provision for Income Taxes 0 0 0 0
------------ ------------ ------------ ------------
Net Income/(Loss) (484,315) (38,838) (2,018,919) (860,790)
Cumulative Preferred Stock Dividends (37,143) 0 (126,651) 0
------------ ------------ ------------ ------------
Net Income/(Loss) Applicable To
Common Stockholders ($ 521,458) ($ 38,838) ($ 2,145,570) ($ 860,790)
============ ============ ============ ============
Average Number of Shares
Of Common Stock Outstanding* 10,698,374 9,465,052 10,523,839 8,171,543
Net Income/(Loss) Per Share Net
Basic ($ 0.05) ($ 0.00) ($ 0.20) ($ 0.11)
Diluted ($ 0.05) ($ 0.00) ($ 0.20) ($ 0.11)
*In the three and six-month periods ended September 30, 2000, 919,840
outstanding stock options are excluded because they are antidilutive.
</TABLE>
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<TABLE>
<CAPTION>
TRAVELNOW.COM INC.
OPERATING STATEMENT RATIOS
THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
Three Months Ended Sept. 30 Six Months Ended Sept. 30
--------------------------- --------------------------
1999 1999
As a Percent of Total Revenues 2000 As Restated 2000 As Restated
--------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Revenues 60.7% 51.9% 66.0% 63.4%
------------ ------------ ------------ ------------
Gross Profit 39.3% 48.1% 34.0% 36.6%
------------ ------------ ------------ ------------
Operating Expenses
Sales and Marketing 7.8% 3.3% 8.2% 4.4%
General and Administrative 43.2% 41.0% 59.8% 41.3%
Stock-Based Compensation 5.5% 7.5% 6.3% 50.5%
------------ ------------ ------------ ------------
Total Operating Expenses 56.5% 51.8% 74.2% 96.2%
------------ ------------ ------------ ------------
Income/(Loss) From Operations (17.2%) (3.7%) (40.1%) (59.6%)
Interest Income 1.0% 0.0% 1.4% 0.0%
------------ ------------ ------------ ------------
Income/(Loss) Before Taxes (16.2%) (3.7%) (38.7%) (59.6%)
Provision for Income Taxes 0.0% 0.0% 0.0% 0.0%
------------ ------------ ------------ ------------
Net Income/(Loss) (16.2%) (3.7%) (38.7%) (59.6%)
Cumulative Preferred Stock Dividends (1.2%) 0.0% (2.4%) 0.0%
------------ ------------ ------------ ------------
Net Income/(Loss) Applicable To
Common Stockholders (17.4%) (3.7%) (41.1%) (59.6%)
============ ============ ============ ============
</TABLE>
<PAGE>
TRAVELNOW.COM INC.
CONDENSED BALANCE SHEETS
SEPTEMBER 30 AND MARCH 31, 2000
Sept. 30, 2000 March 31,
ASSETS (Unaudited) 2000
---------------------------------- ----------- -----------
Cash and Cash Equivalents $ 1,372,297 $ 3,654,281
Accounts Receivable 1,415,356 729,467
Other Current Assets 162,439 128,273
----------- -----------
Current Assets 2,950,092 4,512,021
Property and Equipment - Net 799,000 420,970
Capitalized Software - Net 671,315 770,255
----------- -----------
Total Assets $ 4,420,407 $ 5,703,246
=========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY/(DEFICIT)
----------------------------------
Accounts Payable $ 1,240,269 $ 1,098,071
Accrued Liabilities 598,028 279,947
Cumulative Preferred Stock Dividends 0 85,808
Deferred Revenue 4,552 14,052
----------- -----------
Current and Total Liabilities 1,842,849 1,477,878
----------- -----------
Redeemable Convertible Preferred Stock 0 4,340,694
Common Stock 108,729 103,493
Additional Paid-In Capital 6,603,498 1,896,931
Accumulated Deficit (4,134,669) (2,115,750)
----------- -----------
Stockholders' Equity/(Deficit) 2,577,558 (115,326)
----------- -----------
Total Liabilities and Equity $ 4,420,407 $ 5,703,246
=========== ===========
<PAGE>
<TABLE>
<CAPTION>
TRAVELNOW.COM INC.
STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)
SIX MONTH PERIOD ENDED SEPTEMBER 30, 2000
(Unaudited)
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY/(DEFICIT)
----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE - MARCH 31, 2000 10,349,304 $ 103,493 $ 1,896,931 ($2,115,750) ($ 115,326)
Net Loss 0 0 0 (2,018,919) (2,018,919)
Cumulative Preferred Stock Dividends 0 0 (126,651) 0 (126,651)
Conversion of Preferred Dividends 23,605 236 212,208 0 212,444
Stock Compensation 0 0 326,562 0 326,562
Conversion of Preferred Stock 500,000 5,000 4,294,448 0 4,299,448
----------- ----------- ----------- ----------- -----------
BALANCE - SEPTEMBER 30, 2000 10,872,909 $ 108,729 $ 6,603,498 ($4,134,669) $ 2,577,558
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRAVELNOW.COM INC.
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
Six Months Ended Sept. 30
--------------------------
1999
2000 As Restated
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss ($2,018,919) ($ 860,790)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock-based compensation 326,562 729,254
Depreciation and amortization 208,276 9,472
Changes in Operating Assets and Liabilities:
Accounts receivable (685,889) (355,960)
Other current assets (34,166) 0
Accounts payable 142,198 330,424
Accrued liabilities 308,581 68,661
----------- -----------
Net Cash Used In Operating Activities (1,753,357) (78,939)
----------- -----------
INVESTING ACTIVITIES:
Acquisition of Property, Equipment
and Capitalized Software (487,366) (81,974)
Investment In Nippon TravelNow, K.K 0 (42,468)
----------- -----------
Net Cash Used In Investing Activities (487,366) (124,442)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from capital contributions 0 499,985
Proceeds from sale of common stock 0 180
Expenses related to sale of preferred stock (41,246) 0
Preferred stock dividends paid in cash (15) 0
Repayments of notes payable to stockholders 0 (10,000)
Repayments of notes payable 0 (58,538)
----------- -----------
Net Cash Provided By/(Used In) Financing Activities (41,261) 431,627
----------- -----------
Net Increase/(Decrease) In Cash and Cash Equivalents (2,281,984) 228,246
CASH AND CASH EQUIVALENTS:
Beginning of Period 3,654,281 6,227
----------- -----------
End of Period $ 1,372,297 $ 234,473
=========== ===========
NON-CASH TRANSACTIONS:
Cumulative Preferred Stock Dividends $ 126,636 $ 0
Acquisition of Software In Accounts Payable $ 0 $ 136,210
</TABLE>
<PAGE>
TRAVELNOW.COM INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying condensed financial statements of TravelNow.com Inc.
("TravelNow" or "the Company") are unaudited, but in the opinion of
management, reflect all adjustments which are necessary for a fair
presentation of our operating results for the periods shown. These
statements should be read in conjunction with our Form 10-KSB for the year
ended March 31, 2000.
2. Merger with Sentry Accounting, Inc.
Pursuant to an Agreement and Plan of Reorganization consummated on July 23,
1999 between TravelNow.com Inc., a Missouri corporation ("TravelNow of
Missouri"), and Sentry Accounting, Inc., a Florida corporation ("Old
Sentry"), Old Sentry acquired 100% of the issued and outstanding stock of
TravelNow of Missouri for 1,475,533 shares of restricted common stock of
Old Sentry. The stock exchange ratio was one share of Old Sentry stock for
each 1.97 shares of TravelNow of Missouri stock outstanding.
The acquisition became effective as of July 27, 1999 and TravelNow of
Missouri was merged into Old Sentry as of that date. Old Sentry then
changed its name to TravelNow.com Inc.
At the time of the merger, 491,000 shares of Old Sentry common stock were
freely transferable or unrestricted and held by Old Sentry shareholders.
The total shares outstanding at that point were 1,966,533. On July 28,
1999, we issued a stock dividend of approximately 4.25 shares for each
share outstanding, increasing the total shares from 1,966,533 to 10,324,304
shares issued and outstanding.
The former shareholders of TravelNow of Missouri received approximately 75%
of the common shares of the combined entity. TravelNow of Missouri is
considered the "acquiring" corporation from an accounting standpoint.
TravelNow's March 31 fiscal year-end was adopted for the combined company.
3. Restatement of Common Shares Outstanding
The number of common stock shares outstanding for all periods has been
restated on an equivalent basis.
4. Sale of Stock
On January 5, 2000, we issued 500,000 shares of Class A Convertible
Preferred Stock at $9.00 per share. These shares of convertible preferred
stock automatically converted into 500,000 shares of our common stock as of
August 8, 2000 when the two pre-conditions for such conversion were met.
First, our stock was approved for listing on the Nasdaq SmallCap Market
effective May 25, 2000. Second, the Securities and Exchange Commission
declared our Form SB-2 registration statement covering up to 527,000 common
shares for conversion of the convertible preferred stock effective as of
August 9, 2000.
The Class A Convertible Preferred Stock accrued dividends at 8% per annum
until the conversion into our common stock. As of August 8, 2000 when the
conversion was effective, $212,459 had been accrued for such dividends. The
holders of the convertible preferred stock elected to receive these
dividends in the form of additional shares of our common stock instead of
cash. Therefore, all of the convertible preferred stock, plus all accrued
and unpaid dividends, were converted into a total of 523,605 shares of our
common stock. In addition, $15 in dividends was paid in cash in lieu of
fractional shares.
<PAGE>
In connection with the sale of the convertible preferred stock, we incurred
certain professional fees related to the sale transaction, the listing of
our common stock on the Nasdaq Small Cap Market, and the registration of
common stock for conversion of the convertible preferred stock. Through
September 30, 2000, these costs have been approximately $200,000. We expect
to incur additional professional fees to maintain an effective registration
statement for the 523,605 shares of common stock issued in conjunction with
this transaction for a period of two years as required by the terms of the
convertible preferred stock sale. We anticipate that these costs will be
less than $100,000.
5. Capitalization of Software Development Costs
The American Institute of Certified Public Accountants issued Statement of
Position No. 98-1 ("SOP No. 98-1"), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, which requires that
certain direct costs associated with such software be capitalized and
amortized over an appropriate time period. Prior to the effective date of
SOP 98-1 and the beginning of our most recent fiscal year on April 1, 1999,
we expensed all costs of computer software developed or acquired for
internal use.
During August 1999, we began the development of a second generation
proprietary software platform for our online reservations systems. This new
system has been completed at a cost of approximately $746,000, including
the direct costs of our personnel devoted to the project, outside
consulting fees and purchased software. These costs are being amortized
over five years.
6. Stock Options and Common Stock-Based Compensation
During the year ended March 31, 2000, we granted options on 530,000 shares
of TravelNow common stock to three employees. The options have exercise
prices ranging from $1.50 per share to $65.00 per share and exercise dates
from July 2000 to August 2004 for 500,000 of the shares and September 2000
to September 2006 for 30,000 shares.
We account for stock options on an intrinsic value basis under the
provisions of APB Opinion No. 25. The 530,000 stock options granted had an
intrinsic value at the dates of the grants of $1,068,750. Accordingly, for
the three and six month periods ended September 30, 2000, stock-based
compensation costs of $163,281 and $326,562, respectively, were recognized
in our financial statements.
In addition, a total of 60,000 options are outstanding that were granted to
two employees and one director. All of these options were granted at prices
equal to or above fair market value at the dates of grant. As a result,
these options had no "intrinsic" value at the grant dates and no
compensation expense has been recognized in our financial statements.
The Company's Board of Directors has granted approximately 54,053 shares of
our common stock to one employee, our public and investor relations firm,
and outside consultants for services rendered principally subsequent to
March 31, 2000.
On May 3, 2000, we granted to all current employees of the Company, except
the CEO, stock options equal to the employees' annual salary. Each employee
is required to execute a non-compete agreement with the Company prior to
being awarded these stock options. The number of stock options was
determined by dividing the closing market price of the Company's common
stock on May 3, 2000 by the employees' annual salary. This grant and
subsequent quarterly grants for eligible employees resulted in stock
options for the purchase of approximately 329,840 shares being granted that
are currently outstanding. These options have a contractual life of three
years and 90 days from their respective grant dates and vest in equal
amounts over three years. No compensation expense has been recognized for
these options in our financial statements because the options were issued
at the market value of our common stock as of the grant dates and as a
result had no "intrinsic" value at those grant dates.
<PAGE>
Had compensation expense been determined based on the fair value at grant
dates, as prescribed in SFAS No. 123, our stock-based compensation for the
three and six month periods ended September 30, 2000, would have been
$363,956 and $615,012, respectively. The effect on our net loss would have
been an increase of $200,675 and $288,450 in the three and six month
periods ended September 30, 2000, respectively. Loss per share for the
three and six month periods would have increased by $0.02 and $0.03,
respectively.
Separately, on May 18, 1999, we granted stock bonuses to certain employees.
Compensation expense of $650,000 was recognized in our statement of
operations for the twelve-month period ended March 31, 2000. These bonuses
were initially reported in our Form 10-KSB filed on October 12, 1999 as
650,000 shares of common stock, restated for events through June 30, 1999.
Subsequent to the merger with Old Sentry and the 4.25 to 1.0 stock dividend
described above, the bonuses represent 1,732,233 shares of the 10,872,909
TravelNow common shares outstanding as of September 30, 2000 and October
31, 2000.
7. Income Taxes
No provision for income taxes has been recorded in our financial
statements. The Company has predominantly incurred net losses and to date
we have not received a tax benefit for such losses. In the opinion of
management, the realizability of our deferred tax assets is sufficiently
uncertain that a full valuation allowance has been recorded.
8. Derivative Instruments and Hedging Activities
The Company is in the process of evaluating the effect, if any, that
Statement of Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"), will have on its
financial position and results of operations.
9. Restatement of Unaudited Financial Statements
Subsequent to the issuance of the Company's unaudited financial statements
for the three and six month periods ending September 30, 1999, management
has determined that the liability for commission payments to affiliates was
under accrued. In addition, certain commission revenues from hotels which
are received through a third party commission processing company were
previously recognized on a "net" basis, i.e., net of the charges from the
processing company. These charges have been reclassified as an expense and
the revenue is now recognized on a "gross" basis. This reclassification has
no effect on income and is immaterial for all previous periods not
restated. The impact of the restatements and the reclassification are shown
on the following tables.
Management has also determined that stock-based compensation cost for the
three and six-month periods ended September 30, 1999 was under accrued. The
adjustment related to stock options for restricted common stock granted in
August and September 1999 with exercise prices less than the market price
of the Company's registered common stock.
<PAGE>
Three Months Ended 9/30/1999
-----------------------------------------
As Previously Increase/
Statements of Operations Data Restated Reported (Decrease)
---------------------------------- ----------- ----------- ------------
Total Revenues $ 1,052,159 $ 1,023,452 $ 28,707
Cost of Revenues 545,798 511,120 34,678
----------- ----------- -----------
Gross Profit 506,361 512,332 (5,971)
----------- ----------- -----------
Operating Expenses
Sales and Marketing 34,647 34,647 0
General and Administrative 431,298 431,298 0
Stock-Based Compensation 79,254 0 79,254
----------- ----------- -----------
Total Operating Expenses 545,199 465,945 79,254
----------- ----------- -----------
Income/(Loss) Before Taxes (38,838) 46,387 (85,225)
Provision for Income Taxes 0 0 0
----------- ----------- -----------
Net Income/(Loss) ($ 38,838) $ 46,387 ($ 85,225)
=========== =========== ===========
Average Number of Shares
Of Common Stock Outstanding 9,465,052 9,465,052 0
Net Income/(Loss) Per Share
Basic ($ 0.004) $ 0.005 ($ 0.009)
Diluted ($ 0.004) $ 0.005 ($ 0.009)
Six Months Ended 9/30/1999
------------------------------------------
As Previously Increase/
Statements of Operations Data Restated Reported (Decrease)
---------------------------------- ----------- ----------- -----------
Total Revenues $ 1,445,059 $ 1,404,901 $ 40,158
Cost of Revenues 916,264 795,334 120,930
----------- ----------- -----------
Gross Profit 528,795 609,567 (80,772)
----------- ----------- -----------
Operating Expenses
Sales and Marketing 64,166 64,166 0
General and Administrative 596,165 596,165 0
Stock-Based Compensation 729,254 650,000 79,254
----------- ----------- -----------
Total Operating Expenses 1,389,585 1,310,331 79,254
----------- ----------- -----------
Income/(Loss) Before Taxes (860,790) (700,764) (160,026)
Provision for Income Taxes 0 0 0
----------- ----------- -----------
Net Income/(Loss) ($ 860,790) ($ 700,764) ($ 160,026)
=========== =========== ===========
Average Number of Shares
Of Common Stock Outstanding 8,171,543 8,171,543 0
Net Income/(Loss) Per Share
Basic ($ 0.11) ($ 0.09) ($ 0.02)
Diluted ($ 0.11) ($ 0.09) ($ 0.02)
<PAGE>
September 30, 1999
---------------------------------
As Previously Increase/
Balance Sheet Data Restated Reported (Decrease)
---------------------------------- -------- -------- ----------
Cash and Cash Equivalents $234,473 $234,473 $ 0
Accounts Receivable 462,522 462,522 0
-------- -------- --------
Current Assets 696,995 696,995 0
Property and Equipment - Net 90,602 90,602 0
Software Under Development 164,455 164,455
Investment - Nippon TravelNow, K.K 42,468 42,468 0
-------- -------- --------
Total Assets $994,520 $994,520 $ 0
======== ======== ========
Accounts Payable $549,700 $468,928 $ 80,772
Accrued Liabilities 113,257 113,257 0
-------- -------- --------
Current and Total Liabilities 662,957 582,185 80,772
Stockholders' Equity 331,563 412,335 (80,772)
-------- -------- --------
Total Liabilities and Equity $994,520 $994,520 $ 0
======== ======== ========
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
The following discussion and analysis should be read in conjunction with
our condensed financial statements and the notes to the statements contained in
this 10-QSB.
Introduction.
-------------
Our revenues are comprised principally of commissions paid by travel
suppliers related to the online booking of travel reservations for our
customers. Commissions earned are recognized for hotel bookings as of the
customer's departure date, for car rentals as of the return date, and for
airline tickets as of the reservation date, all net of allowances for
cancellations and credit risk. Revenues for advertisements on our web site are
recognized over the period the advertisements are displayed.
Cost of revenues includes the expenses of operating our travel reservation
systems, web site and customer service operations. It also includes commission
sharing payments to affiliated web sites that generate customer reservations
through the use of the TravelNow reservation systems. These affiliated web sites
have been the primary contributors to our revenue growth. Facilities expense,
depreciation and other indirect items related to the generation of revenue are
included in general and administrative expense.
Results of Operations and Comparison of Operating Results.
----------------------------------------------------------
Total revenues for the three-month period ended September 30, 2000 were
$2,995,340, which was more than 2.8 times the $1,052,159 of revenues for
three-month period ended September 30, 1999. Net loss for the quarter ended
September 30, 2000 was $484,315, due in part to $163,281 of non-cash charges for
stock-based compensation. The stock-based compensation was for employee stock
options granted in 1999. In the quarter ended September 30, 1999, net loss was
$38,838, which included non-cash stock-based compensation of $79,254.
Total revenues for the six-month period ended September 30, 2000 were
$5,219,228, which was 3.6 times the $1,445,059 of revenues for the comparable
six-month period of 1999. Net loss for the six-month period ended September 30,
2000 was $2,018,919, which included $326,562 in non-cash charges for stock-based
compensation and $267,000 of severance charges related to a former officer and
director of the Company. Net loss for the comparable six-month period of 1999
was $860,790, which was due substantially to $729,254 in stock-based
compensation charges. These non-cash charges were comprised of $650,000 related
to an employee stock bonus paid on May 18, 1999 and $79,254 related to stock
options granted in 1999.
<PAGE>
Revenues.
---------
Our principal source of revenue is commissions related to hotel bookings.
The level of confirmed hotel bookings has increased from an average of
approximately 5,400 per week during the three-months ending September 30, 1999,
to an average of approximately 11,000 per week during the three months ended
September 30, 2000. Confirmed hotel bookings for the month of September 2000
declined seasonally to approximately 9,350 per week and then increased to
approximately 10,180 per week during October. Much of the year-over-year growth
is attributable to the expansion of our affiliate program through which
affiliated web sites are dynamically linked to our reservation systems.
When a hotel booking is confirmed, we do not automatically receive revenue.
However, hotel bookings are an indicator of the anticipated level of customer
hotel stays which ultimately will result in revenues for the Company.
In January 1999, we implemented our own car reservation system on the
TravelNow web site and began providing links to this system for our affiliates.
Car reservations have grown progressively since January 1999 to an average of
approximately 3,400 confirmed reservations per week during the month of October
2000. Historically, we have outsourced our airline reservations to another
company and commissions from airline bookings have not been a significant
portion of total revenues. In November 1999, we began to introduce our own
airline system on selected web sites. This system accounted for more than 8% of
our revenues in the quarter ended September 30, 2000 and is expected to further
increase our revenues in the future.
Cost of Revenues.
-----------------
Our cost of revenues as a percent of revenues increased from 51.9% to 60.7%
in the three-month periods ended September 30, 1999 and 2000, respectively. This
change in the cost of revenues as a percent of revenues was due primarily to an
increase in commission payments to affiliated web sites. Beginning in the spring
of 1999, commissions to affiliated web sites were generally increased to 50% of
collected commissions related to those affiliates. Since that time, the number
of affiliates has expanded rapidly and the proportion of our business generated
by these affiliates has increased substantially.
In addition, our cost of revenue has increased on an absolute basis because
we significantly expanded our personnel and other infrastructure costs to
support the requirements of anticipated revenue growth. In particular, personnel
were added to the software development and customer service staffs.
In the six-month periods ended September 30, 1999 and 2000, the cost of
revenues as a percent of revenues increased from 63.4% to 66.0%, respectively.
This increase was also the result of higher commission payments to affiliates,
partially offset by reductions in purchases of outside services.
Although our existing staff and facilities are generally adequate to
support higher levels of revenues, we may further expand our personnel and
facilities to prepare for future growth. As a result, the cost of revenues as a
percent of revenues will fluctuate on a cyclical basis until the anticipated
revenue increases are realized.
<PAGE>
Sales and Marketing Expenses.
-----------------------------
Sales and marketing expenses include payroll and other costs associated
with developing and managing our affiliate program as well as direct advertising
expenditures. Sales and marketing expenses were 7.8% and 3.3% of revenues in the
three-month periods ended September 30, 2000 and 1999, respectively. We have
increased our staff in this area to generate additional revenue growth. In the
six-month periods ended September 30, 2000 and 1999, sales and marketing
expenses were 8.2% and 4.4% of revenues, respectively.
We intend to further increase our sales and marketing activities with the
purpose of generating additional revenue growth. Sales and marketing expenses as
a percent of revenues are expected to fluctuate until such additional revenues
are realized.
General and Administrative Expenses.
------------------------------------
General and administrative costs increased from $431,298 in the three-month
period ended September 30, 1999 to $1,294,652 in the three-month period ended
September 30, 2000. As a percent of revenues, general and administrative
expenses increased from 41.0% to 43.2%. In the six-month periods ended September
30, 1999 and 2000, general and administrative expenses increased as a percent of
revenues from 41.3% to 59.8%, respectively, and increased from $596,165 to
$3,118,525.
These increases in general and administrative expense, both on an absolute
and a percent of revenues basis, in the six-month period ended September 30,
2000 relative to the comparable six months of the prior year are due to three
primary factors: (1) expansion of staff and other activities (principally travel
related) to support our growth, (2) professional fees associated with becoming a
public company, and, (3) the $267,000 of severance costs mentioned above. In
particular, we have incurred substantial audit, accounting and legal fees
related to corporate matters and transactions. We have also invested in
professional services pursuant to the development of strategic initiatives in
Europe and other international markets. We expect professional fees to decline
as a percent of revenue during the remaining quarters of the fiscal year ending
March 31, 2001.
Fluctuations in general and administrative expenses as a percent of
revenues can be expected to continue as we expand our staff to generate and
support higher levels of revenues even though an overall declining trend is
anticipated.
Commitments.
------------
On March 15, 2000, we entered into a consulting agreement for certain
public relations services in exchange for consideration totaling $180,000. Half
of such consideration is to be paid with restricted shares of our common stock.
For purposes of determining the number of shares to be issued, the last quoted
sale price of our common shares on March 30, 2000, was used. As of the date of
this report, no shares have been issued pursuant to such agreement.
On March 21, 2000, we entered into a consulting agreement for certain
consulting services in exchange for 2,000 restricted shares of our common stock.
As of the date of this report, no shares have been issued pursuant to such
agreement.
Beginning June 1, 2000, we engaged the services of a consulting
organization for certain investor relation services in exchange for 10,000
shares of our restricted common stock and the payment of $8,000 per month. As of
the date of this report, no shares have been issued pursuant to this
arrangement.
In September 2000, we engaged the services of a second investor relations
organization in exchange for the sale of 30,000 shares of our restricted common
stock at a $0.01 per share and the issuance of a total of 50,000 warrants to
purchase an equal number of our restricted shares. One-half of the warrants are
exercisable at a price of $12.50 and one-half are exercisable at a price of
$15.00. These warrants expire on December 31, 2001.
<PAGE>
Pursuant to an agreement with a marketing consulting company we will issue
a total of 6,000 shares of our restricted common stock upon the completion of
services related to corporate identification and marketing in partial payment
for those services. As of the date of this report, no shares have been issued
pursuant to this agreement.
Liquidity and Capital Resources.
--------------------------------
On January 5, 2000, we sold 500,000 new restricted convertible preferred
shares of stock to an institutional investor at $9.00 per share for a total of
$4.5 million. These convertible preferred shares earned dividends at a rate of
8.0% per annum. The convertible preferred stock and all accrued and unpaid
dividends were converted into 523,605 shares of our common stock on August 8,
2000 pursuant to the terms of the convertible preferred stock. After the
conversion, $15 in dividends was paid in cash in lieu of fractional shares. The
conversion into common stock was automatic when two pre-conditions were met: (1)
the listing of our common stock on the Nasdaq SmallCap Market (which became
effective on May 25, 2000), and (2) a Securities and Exchange Commission
declaration of an effective Form SB-2 registration statement covering the common
shares for conversion (which occurred on August 9, 2000).
The $4.5 million sale of convertible preferred stock has been included in
our financial statements as of September 30, 2000 net of approximately $200,000
of expenses related to the sale, our Nasdaq SmallCap Market listing, and the
registration of the common stock for conversion of the preferred shares.
Additional expenses to maintain the registration of the common shares for a
period of two years as required by the terms of the preferred stock sale are
expected to be less than $100,000.
Effective March 27, 2000, our common and preferred stock was changed from
no par value to $0.01 par value per share. This change had no effect on total
Stockholders' Equity.
We had a net loss of $484,315 for the three months ended September 30,
2000. Non-cash charges of $163,281 for stock-based compensation were included in
this loss. Our net loss for the six months ended September 30, 2000 was
$2,018,919, including $326,562 of non-cash charges for stock-based compensation
and $267,000 of severance expense. Net cash used in operating activities for the
six month period ended September 30, 2000 was $1,753,357. Of this amount,
$1,240,269 was used in operating activities during the three months ended June
30, 2000 and $513,088 was used in operating activities during the three months
ended September 30, 2000.
Cash used in investing activities during the six-month period ended
September 30, 2000, was $487,366. This amount included $511,715 for the
acquisition of property and equipment and a $24,349 net credit in capitalized
software.
During the six months, the only financing activities were $41,246 of
expense related to the sale and registration of preferred stock and $15 of
preferred stock dividends paid in cash.
We believe that our current cash resources in combination with the
anticipated levels of operating revenues are sufficient to meet our cash
requirements in the foreseeable future. Nevertheless, additional financing will
probably be required to fund our longer-term growth. There is no assurance that
such capital will be available to us at that time in sufficient amounts or on
acceptable terms. We do not have any specific plans to raise additional debt or
equity capital.
<PAGE>
The infusion of nearly $5.1 million in capital into TravelNow during 1999
and 2000 from the sale of common and preferred stock and from capital
contributions has provided us with the funds to pursue our strategy of continued
technical development, product line expansion and customer growth. During the
fiscal year ending March 31, 2001, we have plans to make additional investments
to implement our strategy. However, the rate of investment spending on software
development will decline because the underlying platform of our new reservation
system has been completed and is in service. We are evaluating international
market opportunities and will continue to invest in market growth as well as
enhanced capabilities and capacities. Since many of these expenses will be
incurred in advance of the anticipated revenue growth, management is projecting
that we will operate at a net loss during fiscal year 2001.
Other Items.
------------
Except for historical information contained herein, certain of the matters
discussed above are forward-looking statements. These statements are based on
assumptions about a number of important factors and involve risks and
uncertainties that could cause actual results to be different from what is
stated herein. These risk factors include: dependence on key personnel, lack of
commission payments, system failure, reliance on internally developed systems
and other risks and uncertainties.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Certain individual holders of the Company's stock entered into a Standstill
Agreement with the Company, effective July 13, 2000 (the "Agreement"). In
previous Securities and Exchange Commission filings, the Company incorrectly
indicated that a certain individual was a party to the Agreement. In this Form
10-QSB, the Agreement, attached hereto as Exhibit 10.2, correctly reflects the
individuals who have executed the Agreement.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On September 26, 2000, the Company held its annual shareholders meeting, at
which there were four proposals presented for voting. The first proposal was the
election of directors. All five of the Company's directors were up for
re-election. Incumbent directors Jeffrey A. Wasson, H. Whit Ehrler, Bill Perkin,
Jerry Rutherford and Antoine Toffa were elected to serve as directors of the
Company until the 2001 annual meeting. Each director had 6,181,111 votes for
re-election, no votes against and no abstentions. The second proposal was the
ratification of Deloitte & Touche, LLP as the Company's independent auditors.
The proposal received 6,179,594 votes for, 250 votes against and 2,667
abstentions. The third proposal, the ratification of the Company's 2000 Omnibus
Stock Incentive Plan, received 5,866,577 votes for, 312,117 votes against and
3,817 abstentions. The fourth and final proposal presented was the approval of
the change of the Company's state of incorporation from Florida to Delaware, by
merging with and into a Delaware corporation, which was a wholly-owned
subsidiary of the Company. This proposal received 6,177,739 votes for, 1,905
votes against and 2,867 abstentions.
<PAGE>
Item 5. Other Information
On March 15, 2000, we entered into a consulting agreement for certain
public relations services in exchange for consideration totaling $180,000. Half
of such consideration is to be paid with restricted shares of our common stock.
For purposes of determining the number of shares to be issued, the last quoted
sale price of our common shares on March 30, 2000, was used. As of the date of
this report, no shares have been issued pursuant to such agreement.
On March 21, 2000, we entered into a consulting agreement for certain
consulting services in exchange for 2,000 restricted shares of our common stock.
As of the date of this report, no shares have been issued pursuant to such
agreement.
Beginning June 1, 2000, we engaged the services of a consulting
organization for certain investor relation services in exchange for 10,000
shares of our restricted common stock and the payment of $8,000 per month. As of
the date of this report, no shares have been issued pursuant to this
arrangement.
In September 2000, we engaged the services of a second investor relations
organization in exchange for the sale of 30,000 shares of our restricted common
stock at $0.01 per share and the issuance of a total of 50,000 warrants to
purchase an equal number of our restricted shares. One-half of the warrants are
exercisable at a price of $12.50 and one-half are exercisable at a price of
$15.00. These warrants expire on December 31, 2001. As of the date of this
report, no shares have been issued pursuant to such arrangement.
Pursuant to an agreement with a marketing consulting company we will issue
a total of 6,000 shares of our restricted common stock in partial payment for
the completion of services related to corporate identification and marketing. As
of the date of this report, no shares have been issued pursuant to this
agreement.
All of the above transactions were made pursuant to an exemption from the
registration requirement of the Securities Act of 1933, as amended (the "Act"),
found in Section 4(2). All of the recipients, for purposes of the exemption
provided by Section 4(2) of the Act, had adequate access to the information
necessary to evaluate the risks attendant to acquiring those shares and
represented that they would acquire the securities for investment only and not
with a view to or for sale in connection with any distribution thereof; as
reflected by appropriate legends that will be affixed to the securities issued
in such transactions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<PAGE>
Exhibit
Number Document Name and Location
------ --------------------------
2.0 Plan of acquisition, reorganization, arrangement, liquidation or
succession.
2.1 Agreement and Plan of Merger by and between TravelNow.com Inc., a
Florida corporation and TravelNow.com Inc., a Delaware corporation,
dated October 19, 2000.
3.0 Articles and Bylaws.
3.1 Certificate of Incorporation filed October 3, 2000.
3.2 Bylaws of the Company.
4.0 Instruments defining the rights of security holders including
indentures.
4.1 Form of the Company's common stock certificate.
4.2 Certificate of Incorporation and Bylaws of the Company.
10 Material Contracts.
10.1 Employment Agreement between the Company and Michael Bauer dated
April 11, 2000.
10.2 Standstill Agreement between the Company and Eighteen holders of
TravelNow.com Inc.'s common stock dated July 13, 2000.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
1. A current report on Form 8-K was filed on September 15, 2000, to
report the terms of resignation upon which the Company and John
Christopher Noble, the former Co-CEO and a director of the
Company had agreed, as set forth in the Mutual Settlement and
Termination Agreement, dated August 23, 2000.
2. A current report on Form 8-K was filed on November 11, 2000, to
report the actions taken at the Company's annual shareholders
meeting and to report the completion of the change of the
Company's state of incorporation from Florida to Delaware.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: November 14, 2000
TRAVELNOW.COM INC.
By: /s/ Jeffrey A. Wasson
-------------------------
Jeffrey A. Wasson
Chief Executive Officer
Date: November 14, 2000
By: /s/ H. Whit Ehrler
----------------------
H. Whit Ehrler
Vice President & CFO
Date: November 14, 2000
