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 December 31, 1999
[ ] 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)
Florida 59-3391244
------- ----------
(State of Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
318 Park Central East, Suite 306, 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 January 31, 2000
TravelNow.com Inc. had 10,349,304 shares of common stock outstanding, no par
value.
<PAGE>
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
TRAVELNOW.COM INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 1999 AND 1998
(Unaudited)
Three Months Ended Nine Months Ended
December 31 December 31
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenues $ 1,008,161 $ 218,791 $ 2,413,062 $ 626,963
Cost of Revenues 588,575 152,223 1,383,909 317,793
------------ ------------ ------------ ------------
Gross Profit 419,586 66,568 1,029,153 309,170
------------ ------------ ------------ ------------
Operating Expenses
Sales and Marketing 54,325 2,357 118,491 10,097
General and Administrative 440,296 81,876 1,036,461 187,155
Stock-Based Compensation 0 0 650,000 0
------------ ------------ ------------ ------------
Total Operating Expenses 494,621 84,233 1,804,952 197,252
------------ ------------ ------------ ------------
Income/(Loss) From Operations (75,035) (17,665) (775,799) 111,918
Loss From Unconsolidated Subsidiary (42,468) 0 (42,468) 0
------------ ------------ ------------ ------------
Income/(Loss) Before Taxes (117,503) (17,665) (818,267) 111,918
Provision for Income Taxes 0 0 0 0
============ ============ ============ ============
Net Income/(Loss) ($ 117,503) ($ 17,665) ($ 818,267) $ 111,918
============ ============ ============ ============
Average Number of Shares
Of Common Stock Outstanding 10,336,804 6,009,518 8,893,296 6,009,518
Earnings/(Loss) Per Share
- -------------------------
Basic ($ 0.01) ($ 0.00) ($ 0.09) $ 0.02
Diluted ($ 0.01) ($ 0.00) ($ 0.09) $ 0.02
See notes to condensed financial statements.
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<CAPTION>
TRAVELNOW.COM INC.
OPERATING STATEMENT RATIOS
THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 1999 AND 1998
(Unaudited)
Three Months Ended Nine Months Ended
December 31 December 31
------------------ ---------------------
As a Percent of Total Revenues 1999 1998 1999 1998
- ----------------------------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
Total Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Revenues 58.4% 69.6% 57.3% 50.7%
-------- -------- --------- ---------
Gross Profit 41.6% 30.4% 42.7% 49.3%
-------- -------- --------- ---------
Operating Expenses
Sales and Marketing 5.4% 1.1% 4.9% 1.6%
General and Administrative 43.7% 37.4% 43.0% 29.9%
Stock-Based Compensation 0.0% 0.0% 26.9% 0.0%
-------- -------- --------- ---------
Total Operating Expenses 49.1% 38.5% 74.8% 31.5%
-------- -------- --------- ---------
Income/(Loss) From Operations (7.5%) (8.1%) (32.1%) 17.8%
Loss From Unconsolidated Subsidiary (4.2%) 0.0% (1.8%) 0.0%
-------- -------- --------- ---------
Income/(Loss) Before Taxes (11.7%) (8.1%) (33.9%) 17.8%
Provision for Income Taxes 0.0% 0.0% 0.0% 0.0%
======== ======== ========= =========
Net Income/(Loss) (11.7%) (8.1%) (33.9%) 17.8%
======== ======== ========= =========
</TABLE>
<PAGE>
TRAVELNOW.COM INC.
CONDENSED BALANCE SHEETS
DECEMBER 31 AND MARCH 31, 1999
Unaudited
ASSETS 12/31/99 3/31/99
- ------------------------------- ----------- -----------
Cash and Cash Equivalents $ 334,672 $ 6,227
Accounts Receivable 533,926 106,562
----------- -----------
Current Assets 868,598 112,789
Property and Equipment - Net 142,804 46,345
Software Under Development 558,780 0
=========== ===========
Total Assets $ 1,570,182 $ 159,134
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY/(DEFICIT)
- -------------------------------
Accounts Payable $ 835,655 $ 83,066
Accrued Liabilities 189,695 44,596
Notes Payable - Current Portion 0 58,538
Notes Payable to Stockholders 0 10,000
----------- -----------
Current and Total Liabilities 1,025,350 196,200
----------- -----------
Common Stock 0 22,550
Additional Paid-In Capital 1,680,416 257,701
Accumulated Deficit (1,135,584) (317,317)
----------- -----------
Stockholders' Equity/(Deficit) 544,832 (37,066)
----------- -----------
Total Liabilities and Equity $ 1,570,182 $ 159,134
=========== ===========
See notes to condensed financial statements.
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<CAPTION>
TRAVELNOW.COM INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)
NINE MONTH PERIOD ENDED DECEMBER 31, 1999
(Unaudited)
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY/(DEFICIT)
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE - MARCH 31, 1999 6,009,518 22,550 257,701 (317,317) (37,066)
Net Loss 0 0 0 (818,267) (818,267)
Capital Contributions 0 0 499,985 0 499,985
Stock Compensation 1,732,233 6,500 643,500 0 650,000
Sale of Stock 29,797 18 250,162 0 250,180
Acquisition by Sentry Accounting, Inc. 0 (29,068) 29,068 0 0
Merger Into Sentry Accounting, Inc. 2,577,756 0 0 0 0
----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1999 10,349,304 $ 0 $ 1,680,416 ($1,135,584) $ 544,832
=========== =========== =========== =========== ===========
See notes to condensed financial statements.
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<CAPTION>
TRAVELNOW.COM INC.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTH PERIODS ENDED DECEMBER 31, 1999 AND 1998
(Unaudited)
NINE MONTH PERIODS ENDED
DECEMBER 31
---------------------
1999 1998
-------- ---------
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income/(Loss) ($818,267) $ 111,918
Adjustments to reconcile net income/(loss) to
net cash provided by/(used in) operating activities:
Stock-based compensation 650,000 0
Depreciation and amortization 24,207 15,386
Loss From Unconsolidated Subsidiary 42,468 0
Changes in Operating Assets and Liabilities:
Accounts receivable (427,364) (77,003)
Accounts payable 333,017 (4,962)
Accrued liabilities 145,099 (1,519)
--------- ---------
Net Cash Provided By/(Used In) Operating Activities (50,840) 43,820
--------- ---------
INVESTING ACTIVITIES:
Acquisition of property and equipment (120,666) (21,643)
Software Development (139,208) 0
Investment in Unconsolidated Subsidiary (42,468) 0
--------- ---------
Net Cash Used In Investing Activities (302,342) (21,643)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from capital contributions 499,985 0
Proceeds from sale of stock 250,180 0
Repayments of notes payable to stockholders (10,000) (11,600)
Proceeds from notes payable 0 10,000
Repayments of notes payable (58,538) (14,518)
--------- ---------
Net Cash Provided By/(Used In) Financing Activities 681,627 (16,118)
--------- ---------
Net Increase In Cash and Cash Equivalents 328,445 6,059
CASH AND CASH EQUIVALENTS:
Beginning of Period 6,227 3,849
========= =========
End of Period $ 334,672 $ 9,908
========= =========
NON-CASH TRANSACTIONS:
Software Development in Accounts Payable $ 419,572 $ 0
========= =========
See notes to condensed financial statements.
</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 the Company's operating results for the periods shown.
These statements should be read in conjunction with the Company's Form
10-KSB for the year ended March 31, 1999.
The Company's revenues are comprised principally of commissions paid by
travel suppliers related to the online booking of travel reservations for
the Company's 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 the Company's web site are recognized during the period the
advertisements are displayed.
Cost of revenues includes the expenses of operating the Company's 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.
Facilities expense and other indirect items related to the generation of
revenue are included in general and administrative expense.
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, the Company 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.
<PAGE>
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 and
for SEC reporting purposes. 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. Capital Contributions and Sale of Stock
Pursuant to the acquisition of TravelNow of Missouri by Old Sentry, certain
stockholders of Old Sentry agreed to make capital contributions to the
Company of approximately $500,000. During the period from April 1999
through August 1999, such contributions were received.
On November 17, 1999, TravelNow issued 25,000 shares of its common stock
for $250,000.
5. Capitalization of Software Development Costs
The American Institute of Certified Public Accountants issued Statement of
Position, or 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 its current fiscal year on April 1, 1999, the Company expensed
all costs of computer software developed or acquired for internal use.
During August 1999, the Company began the development of a second
generation proprietary software platform for its online reservations
systems. The total cost of this new system is expected to be approximately
$750,000, including the direct costs of Company personnel devoted to the
project, outside consulting fees and purchased software. Through December
31, 1999, the Company has incurred and capitalized $558,780 related to the
new system. Of this total, $473,382 represented consulting fees and
purchased software; $85,398 represented internal personnel costs.
6. Investment in Nippon TravelNow, K.K.
TravelNow has an ongoing affiliation with a Japanese startup operation
which provides travel reservation services through the Internet to
customers primarily in Japan and Asia. In July 1999, TravelNow invested
$42,468 in Nippon TravelNow, K.K. for a 49% interest in this operation. The
investment is carried on the equity method. During the three months ended
December 31, 1999, TravelNow recognized a loss from unconsolidated
subsidiaries related to Nippon TravelNow equal to the investment in this
company. The operations of Nippon TravelNow, K.K. and its web site,
TravelNowJapan.com, are currently in the process of being transferred to a
new corporate entity. It is intended that the new entity will be affiliated
with TravelNow.com Inc.
<PAGE>
7. Stock Options and Common Stock-Based Compensation
During the nine month period ended December 31, 1999, the Company granted
options on 530,000 shares of TravelNow common stock to 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.
The Company accounts for stock options on an intrinsic value basis under
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees. Accordingly, no stock-based
compensation costs related to stock options have been recognized in the
Company's financial statements because the stock options had no intrinsic
value at the dates of the grants.
Under the fair value based method provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, the value of the 530,000 stock
options at the grant date is estimated to be $1,134,372, of which $170,951
and $254,862 would be amortized during the three and nine month periods
ended December 31, 1999, respectively. Net income would be reduced by the
same amounts and earnings per share for the three and nine month periods
ended December 31, 1999 would be reduced by $0.017 and $0.029,
respectively. The amortized costs associated with the remaining quarter of
fiscal year 2000 ending on March 31, 2000 would be $170,951 under the
provisions of SFAS No. 123.
Separately, on May 18, 1999, the Company granted stock bonuses to certain
employees. Compensation expense of $650,000 was recognized in the Company's
statement of operations for the nine month period ended December 31, 1999.
These bonuses were initially reported in the Company's 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 10,349,304 TravelNow common shares outstanding as of December
31, 1999.
8. Income Taxes
No provision for income taxes has been recorded in the Company's financial
statements. The Company has predominantly incurred net losses since
inception and has to date not received a tax benefit for such losses. In
the opinion of management, the realizability of the Company's deferred tax
assets is sufficiently uncertain that a full valuation allowance has been
recorded.
9. 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.
<PAGE>
10. Travel Supplier Action
A national chain of hotels and motels in the United States reduced the
commissions it will pay to online travel reservation companies from 10% to
5% effective November 1, 1999. TravelNow has in the past listed the room
availability and rates of this chain on its web site and has booked
reservations for TravelNow customers at various locations of the chain. As
a result, the chain has been a significant source of revenue. Because of
the chain's reduction in commission rates for online service organizations,
the Company has removed the chain's listings from the TravelNow web site.
Management believes that there are a number of other motel chains of equal
quality and comparable prices. Thus, management believes TravelNow's
customers will book reservations at other hotels and motels and,
consequently, the commission policy change will have little, if any, effect
on the Company's business, operating results or financial condition.
TravelNow's commission income from this national chain has been as follows:
$54,845 and $10,854 for the three months ended December 31, 1999 and 1998,
respectively; and $130,698 and $22,904 for the nine month periods ended
December 31, 1999 and 1998, respectively.
11. Contingencies
On April 6, 1999 and June 9, 1999, TravelNow entered into agreements for a
term of two (2) years with an Internet telecommunications supplier. The
Company's management believes the telecommunications supplier (1) failed to
provide the services called for by the agreements, (2) billed more than is
contractually owed, and (3) threatened to terminate the telecommunications
services. These telecommunications services have since been terminated by
the supplier, but it continues to bill the Company on a monthly basis for
sums management believes the Company does not owe. TravelNow will continue
to attempt to reach a resolution of this matter, however, the amount owed
could ultimately be determined through a judicial proceeding. Management
estimates the total potential sums that could be claimed by the
telecommunications supplier for the two-year contractual period to be
approximately $138,000. No accrual has been made for any expense that might
result from the resolution of this matter.
12. Subsequent Event
The Company issued 500,000 shares of 8% cumulative, Class A Convertible
Preferred Stock on January 5, 2000, in exchange for cash of $4,500,000. The
Class A Convertible Preferred Stock is automatically convertible in a
one-to-one ratio to common shares upon the effectiveness of a registration
statement which was filed by the Company on February 7, 2000. Certain
specified events may affect the conversion ratio. Management plans to
register common shares sufficient to permit a full conversion of the Class
A Convertible Preferred Stock. If the registration statement does not
become effective by December 31, 2000, or the common shares are not listed
on the Nasdaq SmallCap Market or Nasdaq National Market System by December
31, 2000, the holders of the Class A Convertible Preferred Stock have the
right to require the Company to purchase all of the shares and pay any
accumulated dividends.
<PAGE>
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 during 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 contributor to our revenue growth. Facilities expense and
other indirect items related to the generation of revenue are included in
general and administrative expense.
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.
Since 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
and for SEC reporting purposes. TravelNow of Missouri's March 31 fiscal year-end
was adopted for the combined company.
Results of operations and comparison of operating results
- ---------------------------------------------------------
During the three months ended December 31, 1999, total revenues were
$1,008,161, representing 4.6 times the $218,791 of revenues in the comparable
period of 1998. We sustained a net loss in the three month period ended December
31, 1999 of $117,503. This loss was substantially due to our decision to
structure our operations and staff to accommodate significantly higher levels of
customer activity and travel reservations during calendar year 2000. The
$117,503 loss also included a loss from an unconsolidated subsidiary of $42,468.
During the three months ended December 31, 1998, we had a net loss of $17,665.
<PAGE>
Total revenues for the nine months ended December 31, 1999 were $2,413,062,
which was 3.8 times the $626,963 of revenues in the comparable period of 1998.
Net income for the 1999 nine month period was a loss of $818,267, due
substantially to a $650,000 non-cash charge for stock-based compensation related
to employee stock bonuses and the $42,468 loss from an unconsolidated
subsidiary. In the comparable nine month period of 1998, net income was
$111,918.
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 1,100 per week during the nine months ended December 31, 1998 to
an average of approximately 4,600 per week during the nine months ended December
31, 1999. Confirmed hotel bookings for the quarter ended December 31, 1999
averaged approximately 5,200 per week. Much of this 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 reservations system on the
TravelNow web site and began providing links to this system for our affiliates.
Car reservations have grown progressively during 1999 to an average of
approximately 2,000 confirmed reservations per week during the month of December
1999. 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 is expected to increase our
revenues in the future, but did not contribute significantly to the revenues in
the three and nine month periods ended December 31, 1999.
Cost of revenues
- ----------------
During the three months ended December 31, 1999, the cost of revenues as a
percent of revenues declined to 58.4% from 69.6% in the comparable period of the
prior year. This decline is the net impact of two countervailing factors. On the
one hand, the increase in revenues during this particular quarter outpaced the
percentage increase in most expenses charged to cost of revenues, particularly
personnel costs. On the other hand, commission payments to affiliated web sites
have increased on an absolute and percentage basis. The number of affiliates has
expanded rapidly and these affiliates have generated a larger proportion of our
business. A higher commission payment structure for affiliates was also
implemented in the Spring of 1999.
During the nine month period ended December 31, 1999, the cost of revenues
as a percent of revenues moved in the opposite direction, increasing from 50.7%
to 57.3% even though revenues were 3.8 times the revenues during the comparable
nine month period of 1998. The higher percentage of costs was due to two
factors. First, the shift in the mix of business to a greater proportion
generated by affiliates increased affiliate payments. Second, 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.
Taken together, the shift in the mix of business to a greater proportion
generated by affiliates and the expansion of our cost structure increased the
cost of revenues to 74.5% of revenues in the quarter ended June 30, 1999. This
ratio declined to 50.0% in the September 1999 quarter and 58.4% in the December
1999 quarter as the anticipated growth in revenues was realized, resulting in
the 57.3%% ratio for the nine months ended December 31, 1999.
<PAGE>
Although our existing staff and facilities are generally adequate to
support higher levels of revenues, we plan to 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.
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. During the three months ended December 31, 1999, sales and
marketing expenses increased to $54,325 (5.4% of revenues) compared to $2,357
(1.1% of revenues) in the comparable period of the prior year as we expanded our
staff to develop our affiliate program.
Sales and marketing expenses were 4.9% and 1.6% of revenues in the nine
months ended December 31, 1999 and 1998, respectively, also due to the expansion
of staff. 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 increase until such additional
revenues are realized.
General and administrative expenses
- -----------------------------------
The increases in general and administrative expense, both on an absolute
and a percent of revenue basis, in the three and nine month periods ended
December 31, 1999 relative to the same periods of the prior year are due to two
primary factors: (1) expansion of staff and other activities to support our
growth, and (2) professional fees associated with becoming a public company. The
level of professional fees is expected to decrease in the remaining quarter of
the current fiscal year ending March 31, 2000.
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.
Subsequent events and commitments
- ---------------------------------
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. The preferred shares, plus any unpaid and accrued dividends, are
convertible on a share-for-share basis into our common stock upon the effective
date of a registration statement. On February 7, 2000, we filed a Form SB-2
registration statement to register 510,000 shares of common stock, an amount we
believe is enough to cover all outstanding preferred shares and any unpaid and
accrued dividends the selling security holders elect to convert into shares of
common stock. Therefore, our unrestricted shares are expected increase from
2,572,502 to 3,082,502 and total common shares outstanding are expected increase
from 10,349,304 to 10,859,304.
The proceeds from this sale of stock will be used for working capital and
other corporate purposes as we expand our operations and prepare for the
anticipated growth in our web-based travel services.
The following financial schedule shows the pro forma impact of the sale of
preferred stock on the Company's balance sheet as reported for December 31,
1999. Stockholders' equity increases from $544,832 as reported to $5,044,832 on
a pro forma basis.
<PAGE>
TRAVELNOW.COM INC.
CONDENSED PRO FORMA BALANCE SHEET
DECEMBER 31, 1999
(Unaudited)
Preferred
12/31/1999 Stock Sale Pro Forma
ASSETS As Reported 1/5/2000 12/31/1999
- ------ ----------- -------- ----------
Cash and Cash Equivalents $ 334,672 $4,500,000 $4,834,672
Other Assets 1,235,510 0 1,235,510
---------- ---------- ----------
Total Assets 1,570,182 4,500,000 6,070,182
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
- --------------------
Total Liabilities $1,025,350 $ 0 $1,025,350
Stockholders' Equity 544,832 4,500,000 5,044,832
---------- ---------- ----------
Total Liabilities and Equity $1,570,182 $4,500,000 $6,070,182
========== ========== ==========
We entered into a consulting agreement for computer programming services
related to software development. Depending on the ultimate scope of the project,
this contract should range in cost from $500,000 to $550,000. As of December 31,
1999, we had incurred $403,850 in costs for such services. Purchases of
application software related to the project, from the same vendor, total an
additional $88,698. As of December 31, 1999, the amount payable to this vendor
was $419,572, of which $230,411 was paid in January 2000. The remainder is due
in two installments: $86,464 in February 2000 and $102,697 in March 2000. The
total cost of the software development program is expected to be approximately
$750,000. This total amount includes consulting fees, purchased software and
direct costs of Company personnel.
Liquidity and capital resources
- -------------------------------
In conjunction with the merger of TravelNow of Missouri and Old Sentry
which was completed in July 1999, we received capital contributions from certain
shareholders of Old Sentry totaling approximately $500,000. Of this amount,
approximately $200,000 was received in the quarter ended June 30, 1999 and the
remaining $300,000 was received in July and August 1999.
As a result of these capital contributions and the sale of $250,000 of
common stock in November 1999, our stockholders' equity increased from a deficit
of $37,066 on March 31, 1999 to $544,832 as of December 31, 1999.
We had a net loss of $818,267 during the nine months ended December 31,
1999. All but $125,799 of the loss was due to the $650,000 non-cash charge for
stock-based compensation and a $42,468 loss from an unconsolidated subsidiary.
Net cash used in operating activities was $50,840.
Cash used in investing activities during the nine months ended December 31,
1999 was $302,342 which was applied to the acquisition of fixed assets, software
development and an investment in an affiliated Japanese company, Nippon
TravelNow, K.K., for a 49% interest in that organization. During the nine months
ended December 31, 1999, net cash provided by financing activities was $681,627,
primarily from $499,985 in capital contributions and $250,180 from the sale of
common stock. A total of $68,538 of cash was used to repay all of our
outstanding notes payable. Cash and cash equivalents increased by $328,445 to
$334,672 during the nine month period.
<PAGE>
In conjunction with the development of a new software platform for our
online reservations systems, we engaged a consulting firm to provide programming
support. As of December 31, 1999, our account payable to this consulting and
software organization was $419,572.
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.
The sale of $4.5 million of convertible preferred stock described above has
provided us with capital to pursue our strategy of continued technical
development, product line expansion and customer growth. During calendar year
2000, we have plans to make substantial investments to implement our strategy. A
portion of these investments will be in computer hardware and software which may
be capitalized. The balance will be in personnel and other costs that will be
expensed as incurred. Since these expenses will be incurred in advance of the
anticipated revenue growth, management is projecting that we will operate at a
net loss during calendar year 2000.
Year 2000
- ---------
The Year 2000, or "Y2K," issue relates to computer systems which read and
process calendar dates as part of their functionality and might not properly
interpret the year "2000." This problem can occur because historically many
computer programs were designed to use two-digit fields to store and recognize
years. As a result, the date 01/01/00 would be read by such programs as January
1, 1900 instead of January 1, 2000. In addition, there is a potential issue
relating to the correct identification of leap years and the year 2000 is a leap
year.
We have undertaken a thorough process to identify, correct and test
potential problems in the software systems used within the company. We believe
that our mission critical systems which support web-based travel reservation
services have been adequately tested and that potential Y2K problems have been
identified and corrected. Nevertheless, additional testing and ongoing
compliance monitoring is in progress.
Our experience since January 1 is that our reservation systems and the
computer systems of our key suppliers of travel information and travel services
are operating without significant Y2K issues.
The status of our Y2K process by our principal phases is as follows: (1)
Identification - Complete; (2) Inventory - Complete, (3) Readiness Projects: (a)
Majority of Mission Critical Projects - Complete, (b) Non-Mission Critical
Projects - Complete, and (4) Testing and Monitoring - In Progress.
Our Year 2000 program costs have not and are not expected to have a
material effect on our operating results or financial condition. We have
maintained normal operating conditions of our systems and no critical software
development programs have been deferred due to Year 2000 projects.
Our development of a new software platform for our reservation systems has
been completed except for final testing and optimization. An independent third
party consulting organization was involved to test this new platform during our
development to verify Y2K compliance. The implementation of the new platform has
provided us with two separate reservation systems as a contingency plan for Y2K
issues.
Our internal computer systems interface with the external computer systems
of various travel suppliers and global distribution services. Several
interoperability tests with these external systems have been successfully
conducted. However, all such systems have not been tested for potential Y2K
interface problems with our software systems. We do not have the resources to
assess all potential problems associated with the risk of failure by third party
suppliers. Our contingency plan is to use as many third party suppliers as
possible to limit the risk of one supplier not being Year 2000 compliant. The
failure of any of our computer systems or of the systems with which we interface
to properly handle Year 2000 and related issues could have a materially adverse
effect on our business, our operating results and financial condition.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
The material set forth in Registrant's Form 8-K filed on January 28, 2000
is responsive to this Item No. 2 and is incorporated herein by this reference.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Security Holders of Registrant
during the period covered by this report.
Item 5. Other Information
(a) On February 7, 2000 the Registrant filed Form SB-2 with the Securities
and Exchange Commission.
(b) Effective January 1, 2000 the employment agreements of the Company's
Co-Chief Executive Officers, Jeffrey Alan Wasson and John Christopher Noble,
were amended to reflect an increase in each of their salaries to $150,000 per
year as recommended by the compensation committee, consisting of the Company's
two independent directors.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) On October 12, 1999 the Registrant filed Form 8-KA(3) which
incorporated by reference the Registrant's Form 10-KSB filed on
October 12, 1999
(b) On November 5, 1999 the Registrant filed Form 8-K
(c) On January 28, 2000 the Registrant filed Form 8-K
Exhibit Index
Exhibit
Number Document Name and Location
------ --------------------------
2.0 Plan of acquisition, reorganization, arrangement,
liquidation or succession
2.1(b) Agreement and Plan of Reorganization by and between Sentry
Accounting, Inc., and TravelNow.com Inc. dated July 23, 1999
incorporated by reference to Exhibit 2.01 to Form 8-K filed
August 11, 1999
3.0 Articles and Bylaws
3.1(a) Articles of Incorporation filed June 27, 1996.
3.2(a) Articles of Amendment to Articles of Incorporation filed
November 25, 1996.
3.3(b) Articles of Amendment to Articles of Incorporation filed
July 27, 1996.
3.4(f) Articles of Amendment to the Articles of Incorporation of
TravelNow.com Inc., filed January 5, 2000
3.5(f) Articles of Amendment to the Articles of Incorporation of
TravelNow.com Inc., filed January 11, 2000
3.6 (a) Bylaws of Registrant as in effect on August 13, 1999.
3.7(e) Amendment to Bylaws of Registrant
4.0 Instruments defining the rights of security holders
including indentures
4.1(e) Form of the Company's common stock certificate
4.2(f) Articles of Amendment to The Articles of Incorporation filed
January 11, 2000
10.0 Material Contracts
10.1(e) Employment Agreement between the Company and John
Christopher Noble.
10.2(f) Amended Employment Agreement between the Company and John
Christopher Noble approved December 30,1999, effective
January 1, 2000
10.3(e) Employment Agreement between the Company and Jeffrey Alan
Wasson.
10.4(f) Amended Employment Agreement between the Company and Jeffrey
Alan Wasson, approved December 30,1999, effective January 1,
2000
10.5(e) Employment Agreement between the Company and Christopher
Kuhn.
<PAGE>
10.6(e) Employment Agreement between the Company and Whit Ehrler.
10.7(e) Stock Option Agreement between the Company and Christopher
Kuhn.
10.8(e) Stock Option Agreement between the Company and Whit Ehrler.
10.9(e) Stock Option Agreement between the Company and Craig
Dayberry.
10.10(e) Employment Agreement between a former employee of the
Company and the Company effective March 31, 1998, contract
ending on September 30, 1998.
10.11(e) Subscription Agreement between SABRE Inc. and the Company.
10.12(e) ULTRADIRECT Interface Agreement with the Company.
10.13(e) MCI/Worldcom Flex TI Internet Agreement with the Company.
10.14(e) Telecommunications Service Agreement between City Utilities
of Springfield, Springfield, Missouri and the Company.
10.15(e) The McDaniel Building Lease Agreement between the Company as
Lessee and Warren Davis Properties II, L.L.C., Lessor and
Addendum thereto.
10.16(f) TravelNow.com Inc. Class A Convertible Preferred Stock
Purchase Agreement, dated January 5, 2000
16.0 Letter on Change in Certifying Accountants.
16.1(d) Letter regarding change in Certifying Accountant.
- ----------
(a) Filed as an exhibit to Report on Form 10-SB filed February 5, 1999.
(b) Filed as an exhibit to Report on Form 8-K filed August 11, 1999.
(c) Filed as an exhibit to Report on Form 10-QSB filed August 16, 1999.
(d) Filed as an exhibit to Report on Form 8-KA filed August 13, 1999.
(e) Filed as an exhibit to Report on Form 10-KSB filed October 12, 1999.
(f) Filed as an exhibit to Report on Form 8-K filed January 28, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: February 14, 2000
TRAVELNOW.COM INC.
By: /s/ Jeffrey A. Wasson
-------------------------
Jeffrey A. Wasson
Co-Chief Executive Officer
By: /s/ John Christopher Noble
------------------------------
John Christopher Noble
Co-Chief Executive Officer
By: /s/ H. Whit Ehrler
----------------------
H. Whit Ehrler
Chief Financial Officer
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<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 334,672
<SECURITIES> 0
<RECEIVABLES> 533,926
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<DEPRECIATION> (67,635)
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0
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