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 June 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)
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 July 31, 2000,
TravelNow.com Inc. had 10,349,304 shares of common stock outstanding, par value
$0.01 per share.
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TRAVELNOW.COM INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
As a Percent of Revenues
Three Months Ended June 30 Three Months Ended June 30
---------------------------- --------------------------
1999 1999
2000 As Restated 2000 As Restated
------------ ------------ ------- -----------
<S> <C> <C> <C> <C>
Total Revenues $ 2,223,888 $ 392,900 100.0% 100.0%
Cost of Revenues 1,625,157 370,466 73.1% 94.3%
------------ ------------ ------- -------
Gross Profit 598,731 22,434 26.9% 5.7%
------------ ------------ ------- -------
Operating Expenses
Sales and Marketing 190,837 29,519 8.6% 7.5%
General and Administrative 1,823,873 164,867 82.0% 42.0%
Stock-Based Compensation 163,281 650,000 7.3% 165.4%
------------ ------------ ------- -------
Total Operating Expenses 2,177,991 844,386 97.9% 214.9%
------------ ------------ ------- -------
Income/(Loss) From Operations (1,579,260) (821,952) (71.0%) (209.2%)
Interest Income 44,656 0 2.0% 0.0%
------------ ------------ ------- -------
Income/(Loss) Before Taxes (1,534,604) (821,952) (69.0%) (209.2%)
Provision for Income Taxes 0 0 0.0% 0.0%
------------ ------------ ------- -------
Net Income/(Loss) (1,534,604) (821,952) (69.0%) (209.2%)
Cumulative Preferred Stock Dividends (89,508) 0 (4.0%) 0.0%
------------ ------------ ------- -------
Net Income/(Loss) Applicable To
Common Stockholders ($ 1,624,112) ($ 821,952) (73.0%) (209.2%)
============ ============ ======= =======
Average Number of Shares
Of Common Stock Outstanding* 10,349,304 6,878,033
Net Income/(Loss) Per Share
Basic ($0.16) ($0.12)
Diluted ($0.16) ($0.12)
* In the three-month period ended June 30, 2000, 500,000 shares for
conversion of convertible perferred stock and 875,259 outstanding stock
options are excluded because they are antidilutive.
</TABLE>
<PAGE>
TRAVELNOW.COM INC.
CONDENSED BALANCE SHEETS
JUNE 30 AND MARCH 31, 2000
June 30, 2000 March 31, 2000
ASSETS (Unaudited)
------------------------------------- ------------- --------------
Cash and Cash Equivalents $ 2,064,213 $ 3,654,281
Accounts Receivable 1,311,727 729,467
Prepaid Assets 83,532 128,273
----------- -----------
Current Assets 3,459,472 4,512,021
Property and Equipment - Net 718,526 420,970
Capitalized Software - Net 708,611 770,255
----------- -----------
Total Assets $ 4,886,609 $ 5,703,246
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Accounts Payable $ 1,362,747 $ 1,098,071
Accrued Liabilities 593,342 279,947
Cumulative Preferred Stock Dividends 175,316 85,808
Deferred Revenue 4,552 14,052
----------- -----------
Current and Total Liabilities 2,135,957 1,477,878
----------- -----------
Redeemable Convertible Preferred Stock 4,326,809 4,340,694
Common Stock 103,493 103,493
Additional Paid-In Capital 1,970,704 1,896,931
Accumulated Deficit (3,650,354) (2,115,750)
----------- -----------
Stockholders' Deficit (1,576,157) (115,326)
----------- -----------
Total Liabilities and Equity $ 4,886,609 $ 5,703,246
=========== ===========
<PAGE>
<TABLE>
<CAPTION>
TRAVELNOW.COM INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
THREE MONTH PERIOD ENDED JUNE 30, 2000
(Unaudited)
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT 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 (1,534,604) (1,534,604)
Cumulative Preferred Stock Dividends 0 0 (89,508) 0 (89,508)
Stock Compensation 0 0 163,281 0 163,281
----------- ----------- ----------- ----------- -----------
BALANCE - JUNE 30, 2000 10,349,304 $ 103,493 $ 1,970,704 $(3,650,354) $(1,576,157)
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRAVELNOW.COM INC.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
Three Months Ended June 30
--------------------------
1999
2000 As Restated
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss ($1,534,604) ($ 821,952)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock-based compensation 163,281 650,000
Depreciation and amortization 100,002 4,736
Changes in Operating Assets and Liabilities:
Accounts receivable (582,260) (66,932)
Prepaid assets 44,741 0
Accounts payable 264,676 91,886
Accrued liabilities 303,895 6,556
----------- -----------
Net Cash Used In Operating Activities (1,240,269) (135,706)
----------- -----------
INVESTING ACTIVITIES:
Acquisition of Property, Equipment
and Capitalized Software (335,914) (12,672)
----------- -----------
Net Cash Used In Investing Activities (335,914) (12,672)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from capital contributions 0 199,985
Proceeds from sale of common stock 0 180
Expenses related to sale of preferred stock (13,885) 0
Repayments of notes payable to stockholders 0 (4,000)
Repayments of notes payable 0 (2,700)
----------- -----------
Net Cash Provided By/(Used In) Financing Activities (13,885) 193,465
----------- -----------
Net Increase/(Decrease) In Cash and Cash Equivalents (1,590,068) 45,087
CASH AND CASH EQUIVALENTS:
Beginning of Period 3,654,281 6,227
----------- -----------
End of Period $ 2,064,213 $ 51,314
=========== ===========
NON-CASH TRANSACTIONS:
Cumulative Preferred Stock Dividends $ 89,508 $ 0
</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. The preferred stock accrues dividends
at 8% per annum until the stock is converted to common stock or redeemed.
As of June 30, 2000, approximately $175,000 was accrued for such dividends.
The preferred stock has similar voting rights to common stock and senior
preference on dividends and liquidating assets compared to common stock.
The Class A Convertible Preferred Stock automatically converts into shares
of the our common stock immediately upon the fulfillment of both of the
following conditions: (1) the effectiveness of a report filed by the
Company with the Securities and Exchange Commission covering an amount of
the common stock sufficient to allow for the sale of all common stock
issuable upon conversion of all then outstanding shares of Class A
Convertible Preferred Stock; and (2) the listing of the common stock of the
Company on either the Nasdaq SmallCap Market or the Nasdaq National Market
System. Both of these conditions have been met as noted below.
<PAGE>
Our stock was approved for listing on the Nasdaq SmallCap Market effective
May 25, 2000. The Securities and Exchange Commission declared our 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
conversion of 500,000 shares is automatic. The holders of the preferred
stock also have the option of receiving accrued preferred dividends in cash
or in stock at a price of $9.00 per share.
In connection with the sale of preferred stock, we incurred certain
professional fees through June 30, 2000 at a cost of approximately
$173,000. We expect to incur additional professional fees related to the
sale of the preferred stock subsequent to June 30, 2000 of approximately
$62,000.
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.
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 months ended June 30, 2000, $163,281 in stock-based compensation
cost was 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.
In accordance with the terms of our Omnibus Stock Incentive Plan,
management plans to submit for approval to the Company's Stock Option
Committee of the Board of Directors, requests for the issuance of stock
grants for approximately 27,000 shares to one employee, our public and
investors relations firm, and outside consultants for services rendered
principally subsequent to March 31, 2000.
On June 7, 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 by the employees' annual salary. This resulted in stock options for
the purchase of approximately 285,000 shares being granted that are
currently outstanding, which have a contractual life of three years and 90
days and vest in equal amounts over three years. No compensation expense
has been recognized for these options in our financial statements because
the options had no "intrinsic" value at the grant date.
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 months ended June 30, 2000, would have been $251,056. The effect on
net loss would have been an increase of $87,775. The effect on loss per
share would have been an increase of $0.01 per share to $0.17 per share.
<PAGE>
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 10,349,304
TravelNow common shares outstanding as of December 31, 1999.
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 month period ending June 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.
Three Months Ended 6/30/1999
-----------------------------------------
As Previously Increase/
Statements of Operations Data Restated Reported (Decrease)
------------------------------------ ----------- ----------- -----------
Total Revenues $ 392,900 $ 381,449 $ 11,451
Cost of Revenues 370,466 284,214 86,252
----------- ----------- -----------
Gross Profit 22,434 97,235 (74,801)
----------- ----------- -----------
Operating Expenses
Sales and Marketing 29,519 29,519 0
General and Administrative 164,867 164,867 0
Stock-Based Compensation 650,000 650,000 0
----------- ----------- -----------
Total Operating Expenses 844,386 844,386 0
----------- ----------- -----------
Income/(Loss) Before Taxes (821,952) (747,151) (74,801)
Provision for Income Taxes 0 0 0
----------- ----------- -----------
Net Income/(Loss) ($ 821,952) ($ 747,151) ($ 74,801)
=========== =========== ===========
Average Number of Shares
Of Common Stock Outstanding 6,878,033 6,878,033 0
Net Income/(Loss) Per Share
Basic ($ 0.12) ($ 0.11) ($ 0.01)
Diluted ($ 0.12) ($ 0.11) ($ 0.01)
<PAGE>
June 30, 1999
------------------------------------
As Previously Increase/
Balance Sheet Data Restated Reported (Decrease)
------------------------------- --------- --------- ---------
Cash and Cash Equivalents $ 51,314 $ 51,314 $ 0
Accounts Receivable 173,494 173,494 0
--------- --------- ---------
Current Assets 224,808 224,808 0
Property and Equipment - Net 54,281 54,281 0
--------- --------- ---------
Total Assets $ 279,089 $ 279,089 $ 0
========= ========= =========
Accounts Payable $ 174,952 $ 100,151 $ 74,801
Accrued Liabilities 51,152 51,152
Notes Payable 61,838 61,838 0
--------- --------- ---------
Current and Total Liabilities 287,942 213,141 74,801
Stockholders' Equity (8,853) 65,948 (74,801)
--------- --------- ---------
Total Liabilities and Equity $ 279,089 $ 279,089 $ 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 June 30, 2000 were
$2,223,888, which was nearly 5.7 times the $392,900 of revenues for three-month
period ended June 30, 1999. Net loss for the quarter ended June 30, 2000 was
<PAGE>
$1,534,604, due in part to $163,281 of non-cash charges for stock-based
compensation and $267,000 of severance charges related to a former officer and
director of the Company. The stock-based compensation was for employee stock
options granted in 1999. In the quarter ended June 30, 1999, net loss was
$821,952, which included non-cash stock-based compensation of $650,000 for a
stock bonus paid to certain employees in May 1999.
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 2,700 per week during the three-months ending June 30, 1999, to an
average of approximately 9,500 per week during the three months ended June 30,
2000. Confirmed hotel bookings for the month of July 2000 averaged over 12,000
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 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 3,500 confirmed reservations per week during the month of July
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 5% of
our revenues in the quarter ended June 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 decreased from 94.3% to 73.1%
in the three-month periods ended June 30, 1999 and 2000, respectively. This
change in the cost of revenue as a percent of revenue was due principally to the
growth of total revenues without corresponding increases in the elements of cost
of revenues such as payroll for technical and customer service personnel. One
factor which moved in the other direction was commission payments to affiliates.
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. 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 94.3% of revenues in the quarter ended June 30, 1999 from lower
levels in previous quarters. This ratio then declined to 51.9% in the September
1999 quarter and to 63.8% in the December 1999 quarter as the anticipated growth
in revenues was realized. During the fourth quarter ended March 31, 2000,
additional staff expansion increased the cost of revenue percentage again to
74.0%.
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 8.6% and 7.5% of revenues in the
three-month periods ended June 30, 2000 and 1999, respectively. We have
increased our staff in this area to generate additional revenue growth.
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 $164,867 in the three-month
period ended June 30, 1999, to $1,823,873 in the three-month period ended June
30, 2000. As a percent of revenues, general and administrative expenses
increased from 42.0% to 82.0%.
These increases in general and administrative expense, both on an absolute
and a percent of revenue basis, in the quarter ended June 30, 2000 relative to
the comparable quarter 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,
par value $0.01 per share. 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.
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. The preferred shares, plus any unpaid and accrued dividends, are
convertible on a share-for-share basis into our common stock subsequent to an
effective registration of such common stock and the listing of our common stock
on the Nasdaq SmallCap Market. TravelNow's common stock was listed on the Nasdaq
SmallCap Market effective May 25, 2000. Our SB-2 registration statement filed
with the SEC on August 4, 2000 (described below) was declared effective by the
SEC as of August 9, 2000.
<PAGE>
Through the SB-2, we registered 527,000 shares of common stock, an amount
we believe is sufficient to convert all outstanding preferred shares and shares
representing any unpaid and accrued dividends the selling security holders elect
to convert into shares of common stock. Therefore, assuming conversion of the
527,000 shares, our outstanding unrestricted shares will increase from 2,572,502
to 3,099,502 and total common shares outstanding will increase from 10,349,304
to 10,876,304. The proceeds from this sale of stock will continue to 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 $4.5 million sale of convertible preferred stock has been included in
our financial statements net of $173,191 of expenses related to the sale,
including the registration of common stock, through June 30, 2000. Additional
expenses to complete the registration of the common stock and to issue the
initial prospectus are expected to be approximately $62,000. The pro forma
balance sheet impact of the conversion of our preferred stock into our common
stock is shown on the following table, excluding the expected additional
expenses of $62,000.
<TABLE>
<CAPTION>
Conversion
6/30/2000 Of Preferred Pro Forma
ASSETS As Reported Stock 6/30/2000
----------- ----------- -----------
<S> <C> <C> <C>
Cash and Cash Equivalents $ 2,064,213 $ 0 $ 2,064,213
Other Assets 2,822,396 0 2,822,396
----------- ----------- -----------
Total Assets 4,886,609 0 4,886,609
=========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Total Liabilities $ 2,135,957 $ 0 $ 2,135,957
Redeemable Convertible Preferred Stock 4,326,809 (4,326,809) 0
Stockholders' Equity/(Deficit) (1,576,157) 4,326,809 2,750,652
----------- ----------- -----------
Total Liabilities and Equity $ 4,886,609 $ 0 $ 4,886,609
=========== =========== ===========
</TABLE>
The conversion of the preferred stock into common stock increases
Stockholders' Equity to $2,750,652 from a deficit of $1,576,157. This conversion
is automatic upon the satisfaction of two conditions listed above, both of which
have been met.
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 $1,534,604 for the three months ended June 30, 2000.
Non-cash charges of $163,281 for stock-based compensation and $267,000 of
severance expense were included in this loss. Net cash used in operating
activities was $1,240,269.
<PAGE>
Cash used in investing activities during the three-month period ended June
30, 2000, was $335,914. This amount included $360,263 for the acquisition of
property and equipment and a $24,349 net credit in capitalized software.
During the quarter, the only financing activity was $13,885 of expense
related to the sale and registration of convertible preferred stock.
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 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
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 August 9, 2000, the Company's Registration Statement on Form SB-2/A
became effective for resales by certain minority shareholders.
<PAGE>
(b) Certain individual holders of TravelNow's capital stock entered into a
Standstill Agreement (the "Agreement") with the Company. On July 31,
2000, all parties to the Agreement had executed the Agreement, which
is effective as of July 13, 2000. The Agreement provides that such
individual holders shall not transfer or sell their shares of common
stock, except in privately negotiated transactions, for a period of
one year, beginning on the effective date of the Agreement. The
individual holders, however, may pledge or encumber up to thirty
percent (30%) of their shares of common stock during such one year
period. This Agreement affects approximately 7,300,000 shares of
TravelNow's common stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 the Articles of Incorporation filed
November 25, 1996.
3.3(b) Articles of Amendment to the Articles of Incorporation filed July
27, 1996.
3.4(d) Articles of Amendment to the Articles of Incorporation filed
January 5, 2000.
3.5(d) Articles of Amendment to the Articles of Incorporation filed
January 11, 2000.
3.6(a) Bylaws of the Company as in effect on August 13, 1999.
3.7(c) Amendment to Bylaws of the Company on October 4, 1999.
3.8(e) Amended and Restated Bylaws of the Company, adopted May 3, 2000.
4.0 Instruments defining the rights of security holders including
indentures.
4.1(c) Form of the Company's common stock certificate.
4.2(d) Articles of Amendment to the Articles of Incorporation filed
January 11, 2000.
10 Material Contracts.
10.1(c) Employment Agreement between the Company and John Christopher
Noble, approved October 4, 1999, effective July 27, 1999.
10.2(e) Amended Employment Agreement between the Company and John
Christopher Noble, approved December 30,1999, effective January
1, 2000.
10.3(c) Employment Agreement between the Company and Jeffery Alan Wasson,
approved October 4, 1999, effective July 27, 1999.
10.4(e) Amended Employment Agreement between the Company and Jeffery Alan
Wasson, approved December 30,1999, effective January 1, 2000.
10.5(c) Employment Agreement between the Company and Christopher R. Kuhn,
approved October 4, 1999, effective July 12, 1999.
10.6(c) Employment Agreement between the Company and H. Whit Ehrler,
approved October 4, 1999, effective August 23, 1999.
10.7(e) TravelNow.com Inc. 2000 Omnibus Stock Incentive Plan, approved
May 3, 2000.
10.8(c) Stock Option Agreement between the Company and Christopher R.
Kuhn, approved October 4, 1999, effective.
10.9(c) Stock Option Agreement between the Company and H. Whit Ehrler,
approved October 4, 1999, effective August 23, 1999.
10.10(c) Stock Option Agreement between the Company and Craig Dayberry,
approved October 4, 1999, effective September 23, 1999.
10.11(c) Employment Agreement between a former employee of the Company and
the Company, approved March 31, 1998, contract ending on
September 30, 1998.
<PAGE>
10.12(c) Subscription Agreement between SABRE Inc. and the Company.
10.13(c) Agreement by and between THISCO and the Company.
10.14(c) Telecommunications Service Agreement between MCI/World.com and
the Company.
10.15(c) Telecommunications Service Agreement between City Utilities of
Springfield, Springfield, Missouri, and the Company.
10.16(c) Office lease between the Company as Lessee and Warren Davis
Properties II, L.L.C., Lessor, and Addendum thereto dated August
13, 1998.
10.17(e) Office Lease between the Company as Lessee and Warren Davis
Properties II, L.L.C., Lessor, and Addendum thereto dated March
7, 2000.
10.18(d) TravelNow.com Inc. Class A Convertible Preferred Stock Purchase
Agreement.
10.19(e) Letter Agreement between The Company and Keating Communications,
Inc. dated March 15, 2000.
10.20(e) Letter Agreement between the Company and Scott Wayne dated March
15, 2000.
10.21(e) Letter Agreement between the Company and Michael Bauer dated
April 11, 2000.
10.22(f) Standstill Agreement between the Company and Nineteen holders of
TravelNow.com Inc.'s common stock dated July 13, 2000.
*10.23 Demand Promissory Note Dated April 17, 2000.
*10.24 Demand Promissory Note Dated April 18, 2000.
*27.1 Financial Data Schedule.
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* Filed herewith.
(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
(file no. 0-25357).
(c) Filed as an exhibit to Report on Form 10-KSB filed October 12,
1999 (file no. 0-25357).
(d) Filed as an exhibit to Report on Form 8-K filed January 28, 2000
(file no. 0-25357).
(e) Filed as an exhibit to Report on Form 10-KSB filed July 14, 2000
(file no. 0-25357).
(f) Filed as an exhibit to Registration Statement on Form SB-2/A
filed August 4, 2000 (file no. 333-96273).
<PAGE>
(b) Reports on Form 8-K
1. A Current Report on Form 8-K was filed on June 2, 2000, to report
the resignation of the Co-CEO, as Co-CEO and Director of the
Company and to announce the election of a new Director to fill
the newly created vacancy.
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: August 14, 2000
TRAVELNOW.COM INC.
By: /s/ Jeffrey A. Wasson
-------------------------
Jeffrey A. Wasson
Chief Executive Officer
Date: August 14, 2000
By: /s/ H. Whit Ehrler
----------------------
H. Whit Ehrler
Vice President & CFO
Date: August 14, 2000
