UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement under the Securities Act of 1933
TRAVELNOW.COM INC.
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(Name of small business issuer in its charter)
Florida 4700 59-3391244
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(State or jurisdiction of (Primary standard Industrial (I.R.S. Employer
Incorporation or organization) classification Code Number) Identification No.)
318 Park Central East - Suite 306
Springfield, Missouri 65806
(417) 864-3600
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(Address and telephone number of
principal executive offices and principal place of business)
Jeff Wasson
318 Park Central East - Suite 306
Springfield, Missouri 65806
(417) 864-3600
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(Name, address and telephone number of agent for service)
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
Kevin R. Sweeney
Shook, Hardy & Bacon L.L.P.
1010 Grand Boulevard, 5th Floor
Kansas City, Missouri 64105
(816) 474-6550
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<PAGE>
Approximate date of proposed sale to the public:
From time to time after effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number or the earlier effective
registration statement for the same offering. [____]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [____]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [____]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [____]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of Each class of Amount Proposed Maximum Proposed Maximum Amount of
Securities to be registered to be registered Offering Price per unit Aggregate Offering Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock offered for
sale by selling security holders 510,000 $10.88(2) $5,548,800 $1,464.88
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Total Registration Fee
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1. Estimated solely for the purpose of calculating the Registration Fee
pursuant to Rule 457(c) under the Securities Act.
2. Pursuant to the average of the bid and asked price for the referenced
common stock per the OTC Bulletin Board on February 2, 2000.
</TABLE>
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 7, 2000
<PAGE>
PROSPECTUS
TRAVELNOW.COM INC.
510,000 SHARES OF COMMON STOCK
TravelNow.com Inc. ("TravelNow"), a Florida corporation, is registering 510,000
shares of its common stock for resale in the open-market by two minority
shareholders, Raptor Global Portfolio, Ltd. and ALTAR Rock Fund, L.P., on and
after the effective date of this registration statement and from time to time
thereafter. See "Selling Security Holders." All of such shares to be sold were
acquired directly by Raptor Global Portfolio, Ltd. and ALTAR Rock Fund, L.P.
from us in connection with a private placement offering of our convertible
preferred stock on January 5, 2000. The convertible preferred stock
automatically converts into our common stock on the effective date of this
registration statement, effective on the immediately preceding business day. We
will not receive any proceeds from the sale of the shares covered by this
registration statement by the Tudor Entities (as defined below).
Both selling security holders will sell their shares at the then current market
price or in privately negotiated transactions at prices to be negotiated at that
time. We will not receive any proceeds from the sale of the shares covered by
this registration statement.
Our common stock is currently traded on the OTC Bulletin Board under the symbol
"TNOW." We have filed an application for trading privileges on the Nasdaq
SmallCap Market under the symbol "TNOW" and we expect that our common stock will
be traded on the Nasdaq SmallCap Market prior to the effective date of this
prospectus.
Our business is subject to many risks and an investment in our common stock will
also involve significant risks. You should carefully consider the various "Risk
Factors" described beginning on page 2 before investing in our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The Date of This Prospectus is February __, 2000.
<PAGE>
TABLE OF CONTENTS
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Page
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PART I
INFORMATION REQUIRED IN PROSPECTUS
PROSPECTUS SUMMARY..........................................................-1-
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS.............................-2-
RISK FACTORS................................................................-2-
USE OF PROCEEDS............................................................-10-
DETERMINATION OF OFFERING PRICE............................................-10-
SELLING SECURITY HOLDERS...................................................-10-
PLAN OF DISTRIBUTION.......................................................-11-
LEGAL PROCEEDINGS..........................................................-12-
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT...............................................-13-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT....................................................-14-
DESCRIPTION OF SECURITIES..................................................-16-
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES....................-17-
ORGANIZATION WITHIN LAST FIVE YEARS........................................-17-
DESCRIPTION OF BUSINESS....................................................-18-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................-25-
DESCRIPTION OF PROPERTY....................................................-34-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................-34-
<PAGE>
TABLE OF CONTENTS
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Page
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EXECUTIVE COMPENSATION.....................................................-35-
LEGAL OPINION..............................................................-40-
EXPERTS....................................................................-40-
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURE.................-40-
FINANCIAL STATEMENTS.......................................................F-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.........................II-1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.......................II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES...........................II-2
ITEM 27. EXHIBITS .........................................................II-5
UNDERTAKINGS...............................................................II-6
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected Our business methodology, which
information from this document and is to present travel availability and
may not contain all of the fare information without the
information that is important to you. intervention of a third party,
To understand the terms of our common requires a user friendly interface
stock, you should carefully read this permitting quick and easy access to
entire prospectus, including the travel information on an
financial statements and the notes individualized basis. This
thereto. methodology reduces labor costs when
contrasted with a traditional travel
We are an Internet-based travel service and results in a customer
services company which provides base that enables us to negotiate
online travel information and favorable contracts with travel
reservations to our customers on a suppliers and providers of travel
worldwide basis. Our web site information, resulting in reduced
(www.travelnow.com) gives customers travel costs and increased customer
real-time access to hotel, car and traffic.
airline information regarding
schedules, availability and rates and Our customers are normally not
enables the booking of reservations charged directly by us for booking
on an automated basis. In addition to travel accommodations on our web
our reservation and ticketing site. Our primary source of revenue
services, we offer discounted and is commission income. Travel
promotional fares, travel news and suppliers, such as hotel chains and
destination information such as maps car rental companies, pay commissions
and weather forecasts. to TravelNow when travel
accommodations booked through us are
We initially offered online utilized by our customers.
hotel bookings in May 1995 as the
first unbiased online source of hotel
data. We have grown into a full
service travel system with access to
over 40,000 hotel properties, 60 car
rental companies and 500 airlines.
European rail passes are also
available. These and other services,
collectively referred to as "travel
accommodations," are all available to
customers on our web site.
The offering
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Common Stock Offered ......................... 510,000 shares of common stock.
See "Description of Securities."
Shares of Common Stock Outstanding ........... 10,349,304
Use of Proceeds .............................. We will not receive any proceeds
from the sale of the common stock
by the selling security holders.
Common Stock Trading Symbol .................. OTC Bulletin Board:
TNOW
Method of Distribution ....................... To be sold from time to time in
open-market or privately
negotiated transactions.
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<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This registration statement on Form SB-2, including all documents
incorporated by reference, includes "forward-looking" statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995,
and we desire to take advantage of the "safe harbor" provisions thereof.
Therefore, we are including this statement for the express purpose of availing
ourselves of the protections of such safe harbor with respect to all of such
forward-looking statements. The forward-looking statements in this registration
statement reflect our current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including specifically the (1) absence of significant revenues,
(2) a history of losses, (3) no assurance that technology can be completed or
that its completion will not be delayed, (4) significant competition, (5) the
uncertainty of patent and proprietary rights, (6) possible adverse effects of
future sales of shares on the market, and (7) those other risks and
uncertainties discussed herein, that could cause actual results to differ
materially from historical results or those anticipated. In this registration
statement, the words "anticipates," "believes," "expects," "intends," "future,"
and similar expressions identify certain of the forward-looking statements.
Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. We
undertake no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that may arise after the date hereof. All
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by this
section.
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before you decide to buy our common
stock. Investing in our common stock involves a high degree of risk. The risks
and uncertainties described below are not the only ones facing us. Additional
risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business operations. Any of these presently
unknown or immaterial risks or any of the following risks could materially and
adversely affect our business, operating results and financial condition and
could result in a partial or complete loss of your investment.
Our business and prospects are difficult to evaluate because we have a limited
operating history.
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Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in an early stage of
development, particularly companies engaged in new and rapidly evolving markets
such as online commerce.
There can be no assurance that we will continue to be successful in
addressing such risks, and the failure to do so could have a material adverse
effect on our business, operating results and financial condition. We incurred a
net operating loss during the fiscal year ending March 31, 1998 of $29,079 and a
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net operating profit during the six (6) months ended September 30, 1998 of
$129,583. We had net operating income during the fiscal year ending March 31,
1999 of $27,484 and a net operating loss during the six (6) months ended
September 30, 1999 of $700,764, including a $650,000 non-cash charge for
stock-based compensation. We had stockholders' equity of $412,335 as of
September 30, 1999.
There is no assurance that financial results will show a profit.
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As a result of our limited operating history in online commerce and the
emerging nature of the markets in which we compete, we are unable to accurately
forecast our revenues.
During the last two fiscal years ending in March 31, 1999, we invested
approximately $195,000 developing, maintaining and operating our proprietary
software. We are currently incurring expenses developing second generation
proprietary software to gather data from GDS systems and to present that data to
our customers. To this end, we have entered into a consulting agreement with a
consulting firm and have hired personnel necessary to complete this endeavor,
including a database administrator. We have estimated these development expenses
through the time of implementation of this second generation system at
approximately $600,000 to $650,000. To the extent expenses for the development
of this software are not subsequently followed by increased revenues, our
operating results will fluctuate and losses in subsequent quarters could occur.
If we are unable to adjust spending in a timely manner to compensate for any
unexpected expenses or significant revenue shortfalls, there would be an
immediate material adverse effect on our business, operating results and
financial condition.
Our income varies depending on the season of the year.
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We expect that we will experience seasonality in our business corresponding
to seasonal fluctuations in the travel industry as well as Internet and
commercial online service usage. Historically, we have experienced increases in
our business during the January to March time period related to business travel.
Further increases have occurred from April through August as a result of both
business and leisure travel. A seasonal decline has normally occurred during
months of September through December. Seasonality in the travel industry,
Internet and commercial online service usage is expected to cause future
quarterly fluctuations in our operating results and could have a material
adverse effect on our business, operating results and financial condition.
We expect our quarterly operating results to fluctuate.
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We expect to experience significant fluctuations in our future quarterly
operating results due to a variety of other factors, many of which are outside
our control. Factors that may adversely affect our quarterly operating results
include, but are not limited to, the following:
(a) the announcement or introduction of new or enhanced web sites,
services and products by our competitors,
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<PAGE>
(b) general economic conditions and economic conditions specific to the
Internet, online commerce or the travel industry,
(c) the level of use of online services and consumer acceptance of the
Internet and commercial online services for the purchase of consumer
products and services offered by the Company,
(d) our ability to upgrade and develop our systems and infrastructure and
to attract new personnel in a timely and effective manner,
(e) the level of traffic on our online sites,
(f) technical difficulties, system downtime or Internet brownouts,
(g) the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure,
(h) governmental regulation and
(i) unforeseen events affecting the travel industry.
We operate in an extremely competitive market, and our business would suffer if
we are unable to compete effectively.
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The online travel services market is new, rapidly evolving and intensely
competitive, and we expect such competition to intensify in the future. We
compete primarily with traditional travel agencies and other online travel
reservation services. In the online travel services market, we compete with
other entities that maintain similar commercial web sites, such as Expedia
(operated by Microsoft Corporation), Travelocity (operated by Sabre Holdings
Corporation, a majority-owned subsidiary of AMR Corporation), TravelWeb
(operated by Pegasus Systems, Inc.), GetThere.com, and Preview Travel, among
others.
Several traditional travel agencies, including larger travel agencies such
as American Express Travel Related Services Co. Inc., Uniglobe Travel and
Carlson Wagonlit Travel, have established, or may establish in the future,
commercial web sites offering online travel services. In addition to the
traditional travel agency channel, most travel suppliers also sell their
services directly to customers, typically by telephone. As the market for online
travel services grows, we believe that the range of companies involved in the
online travel services industry, including travel suppliers, traditional travel
agencies and travel industry information providers, will increase their efforts
to develop services that compete with our services.
Many airlines and hotels offer travel services directly through their own
web sites, eliminating the need to pay commissions to third parties such as us.
We are unable to anticipate which other companies are likely to offer
competitive services in the future. There can be no assurance that our online
operations will compete successfully with any current or future competitors.
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<PAGE>
Certain of our competitors may be able to secure services and products from
travel suppliers on more favorable terms, devote greater resources to marketing
and promotional campaigns and devote substantially more resources to web site
and systems development. In addition, new technologies and the expansion of
existing technologies may increase competitive pressures on us. In particular,
Microsoft Corporation has publicly announced its intent to invest heavily in the
area of travel technology and services. Increased competition may result in
reduced operating margins, as well as loss of market share and brand
recognition. There can be no assurance that we will be able to compete
successfully against current or future competitors, and competitive pressures
faced by us could have a material adverse effect on our business, operating
results and financial condition.
Our future revenues and any future profits are substantially dependent upon
the widespread acceptance and use of the Internet and commercial online services
as an effective medium of commerce by consumers. For us to be successful, these
consumers must accept and utilize novel ways of conducting business and
exchanging information. Convincing consumers to purchase travel services online
may be particularly difficult, as such consumers have traditionally relied on
travel agents for advice and recommendations as to destinations and
accommodations as well as bookings, and are accustomed to a high degree of human
interaction in purchasing travel services.
Rapid growth in the use of and interest in the web, the Internet and
commercial online services is a recent phenomenon, and there can be no assurance
that acceptance and use will continue to develop or that a sufficiently broad
base of consumers will adopt, and continue to use, the Internet and commercial
online services as a medium of commerce, particularly for purchases of travel
services. Demand for recently introduced services and products over the Internet
and commercial online services is subject to a high level of uncertainty and
there exist few proven services and products.
The development of the Internet and commercial online services as a viable
commercial marketplace is subject to a number of factors, including continued
growth in the number of users of such services, concerns about transaction
security, continued development of the necessary technological infrastructure
and the development of complementary services and products. If the Internet and
commercial online services do not become a viable commercial marketplace, our
business, operating results and financial condition will be materially adversely
affected.
We must effectively manage rapid growth to be successful.
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We have rapidly and significantly expanded our operations, and anticipate
that further significant expansion will be required to address potential growth
in our customer base and market opportunities. We have also recently added a
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<PAGE>
number of key managerial and technical employees, and we expect to add
additional key personnel in the future. This expansion has placed, and is
expected to continue to place, a significant strain on our management,
operational and financial resources. To manage the expected growth of our
operations and personnel, we will be required to improve existing and implement
new transaction-processing, operational, customer service and financial systems,
procedures and controls, implement a formal disaster recovery program and
expand, train and manage our growing employee base. We also will be required to
expand our finance, administrative and operations staff.
Further, our management will be required to maintain and expand our
relationships with various travel service suppliers, other web sites and other
web service providers, Internet and commercial online service providers and
other third parties necessary to our business. There can be no assurance that
our current and planned personnel, systems, procedures and controls will be
adequate to support our future operations, that management will be able to hire,
train, retain, motivate and manage required personnel or that Company management
will be able to successfully identify, manage and exploit existing and potential
market opportunities. If we are unable to manage growth effectively, our
business, operating results and financial condition could be materially
adversely affected.
The loss of key personnel could have an adverse impact on our future
development.
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Our performance is substantially dependent on the continued services and on
the performance of our senior management and certain other key personnel. The
loss of the services of any of our executive officers or other key employees
could have a material adverse effect on our business, operating results and
financial condition. We have employment agreements with our Co-Chief Executive
Officers and have separate term life insurance policies in the face amount of
$5,000,000 each, with us as the named beneficiary. We also have employment
agreements with our Chief Information Officer and Chief Financial Officer and
have applied for a separate term life insurance policy for our Chief Information
Officer in the face amount of $2,000,000, with us as the named beneficiary. Our
future success also depends on our ability to identify, attract, hire, train,
retain and motivate qualified software developers, other skilled technical,
managerial, marketing and customer service personnel. Competition for such
personnel is intense, and there can be no assurance that we will be able to
successfully attract, assimilate or retain sufficiently qualified personnel.
The failure to retain and attract necessary software developers, technical,
managerial, and customer service personnel could have a material adverse effect
on our business, operating results and financial condition. Although none of our
employees is represented by a labor union, there can be no assurance that our
employees will not join or form a labor union or that we will not be required to
become a union contract signatory.
We are dependent on our travel suppliers and their willingness to observe
customary trade practices of paying commissions.
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We are dependent upon information from travel suppliers to offer our
customers access to travel services and products. Travel suppliers could elect
to sell exclusively through other sales and distribution channels or to restrict
our access to their inventory, which could significantly decrease the amount or
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<PAGE>
breadth of our inventory of available travel offerings and would have a material
adverse effect on our business, operating results and financial condition.
Consistent with industry practices, travel suppliers without written contractual
agreements pay customary commission rates for bookings made through our web site
but could unilaterally change this practice at any time with respect to future
bookings. Once in 1994 and twice in 1997, the major airlines reduced commissions
that would be paid to travel agencies and online services for airline
reservations. Accordingly, travel suppliers can reduce current industry
commission rates or eliminate such commissions entirely, which would have a
materially adverse effect on our business, operating results and financial
condition.
We rely on internally developed systems and have experienced periodic system
interruptions.
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We currently provide reservation services to our customers through our own
proprietary technology. Our proprietary airline software was recently developed
as a strategically important element in serving the needs of our customers and
the requirements of our affiliated web sites which use TravelNow to provide
travel services to their customers.
We have experienced periodic system interruptions, which we believe will
continue to occur from time to time. Our revenues depend on the number of
customers who use our online travel sites to book their travel reservations.
Accordingly, the satisfactory performance, reliability and availability of our
online sites, transaction-processing systems and network infrastructure are
critical to our operating results, as well as our ability to attract and retain
customers and maintain adequate customer service levels. Any system
interruptions that result in downtime on our web site or reduced performance of
the reservation system reduces the volume of reservations and the attractiveness
of our service offerings, which could have a material adverse effect on our
business, operating results and financial condition.
We cannot assure you that our transaction-processing systems and network
infrastructure will be able to accommodate increases in traffic in the future,
or that we will, in general, be able to accurately project the rate or timing of
such increases or upgrade our systems and infrastructure to accommodate future
traffic levels on our online sites. In addition, we cannot assure you that we
will be able in a timely manner to effectively upgrade and expand our
transaction-processing systems or to successfully integrate any newly developed
or purchased modules with our existing systems. Any inability to do so could
have a material effect on our business, operating results and financial
condition.
We are more vulnerable to system failures because our computer systems
are currently located at one site.
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Our success, in particular our ability to successfully receive and fulfill
orders online and provide high-quality customer service, largely depends on the
efficient and uninterrupted operation of our computer and communications
hardware systems. Substantially all of our computer and communications systems
-7-
<PAGE>
are located at a single facility in Springfield, Missouri. Our systems and
operations are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, break-ins, earthquake and similar events.
We developed and completed the basic programming for our second generation
proprietary software which gives us a redundant system to back-up a loss of
electrical power. When completed, which management expects to occur not later
than February 28, 2000, this software will run concurrently at the Springfield,
Missouri and Denver, Colorado locations and a telecommunications supplier will
be added at our Denver area location. This will provide separate locations for
our servers as well as multiple telecommunications suppliers. Until the
completion of the foregoing, we will continue to remain vulnerable to the risks
of having only one site for our operations. We do not carry business
interruption insurance to compensate us for losses that may occur if a failure
of telecommunication services or a power failure disables our operations.
Despite the implementation of network security measures by us, our servers
are vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays, loss of data or the
inability to accept and confirm customer reservations. The occurrence of any of
the foregoing risks could have a material adverse effect on our business,
operating results and financial conditions.
We have limited protection of proprietary technology and there is a risk of
third party claims.
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We have recently filed for U.S. Service Mark protection of "TravelNow.com."
On September 22, 1999 the United States Department of Commerce Patent and
Trademark Office notified us that an application filed prior to the date of our
application is a "potentially conflicting pending application" with our
application. The examining attorney representing the Patent and Trademark Office
notes that if the earlier filed application matures into a registration, the
registration of our application may be refused. We have several options at this
juncture and have not yet decided which of these options would be the most
appropriate to pursue. Further, because the name "TravelNow" has been used in
the travel business in a context apart from the Internet, prior to its use by
us, it is not clear whether U.S. Service Mark protection will be granted or even
if granted whether it would protect us from use by others on the Internet or
elsewhere. We do not believe that our ability or inability to obtain a Service
Mark with respect to the name TravelNow.com will have a material impact on our
business in as much as no other entity will be able to use that URL address. We
are in the process of selecting a trademark for which we intend to seek
trademark protection.
We rely on confidentiality and/or license agreements with our employees,
customers, partners and others to protect our proprietary rights. We have not
sought registration of our name or trademark other than in the United States. We
have licensed in the past, and expect that we may license in the future, certain
of our proprietary rights to third parties such as our affiliates. While we
attempt to ensure that the quality of our brand is maintained by such licensees,
there can be no assurance that such licensees will not take actions that might
materially adversely affect the value of our proprietary rights or reputation,
which could have a material adverse effect on our business, operating results
and financial condition.
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<PAGE>
There can be no assurance that the steps taken by us to protect our
proprietary rights will be adequate or that third parties will not infringe or
misappropriate our copyrights, trademarks, trade secrets, trade dress and
similar proprietary rights. In addition, there can be no assurance that other
parties will not assert infringement claims against us. We may be subject to
legal proceedings and claims from time to time in the ordinary course of our
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties by us and our licensees. Such
claims, even if not meritorious, could result in the expenditure of significant
financial and managerial resources.
We also intend to strategically license certain content for our online
sites from third parties, including content which is integrated with internally
developed content and used on our online sites to provide key services. There
can be no assurance that these third party content licenses will be available to
us on commercially reasonable terms or that we will be able to successfully
integrate such third party content.
Changes in federal, state or foreign laws may impact our operations.
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We are subject to regulations applicable to businesses generally. Although
there are currently few laws and regulations directly applicable to the Internet
and commercial online services, it is possible that a number of laws and
regulations may be adopted in the future with respect to the Internet or
commercial online services covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality of
products and services. Furthermore, the growth and development of the market for
online commerce may prompt calls for more stringent consumer protection laws
that may impose additional burdens on those companies conducting business
online. The adoption of any additional laws or regulations may decrease the
growth of the Internet or commercial online services, which could, in turn,
decrease the demand for our products and services and increase our cost of doing
business, or otherwise have a material adverse effect on our business, operating
results and financial condition.
Moreover, the applicability to the Internet and commercial online services
of existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. For example, tax authorities in a number of states
are currently reviewing the appropriate tax treatment of companies engaged in
online commerce, and new state tax regulations may subject us to additional
state sales and income taxes. Any such new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to our business, or the application of existing laws and
regulations to the Internet and commercial online services could have a material
adverse effect on our business, operating results and financial condition.
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We may be subject to regulation by a number of states that have "seller of
travel" acts. These acts require us to register as a seller of travel, comply
with certain disclosure requirements, post a bond or escrow funds and/or
participate in state restitution funds. We are in the process of making
applications, as appropriate, in California and Florida. There is a possibility
that we may later become subject to regulation requirements in additional
states, however we do not anticipate that it will have a material impact on us
or our financial condition. All of our services are subject to federal and state
consumer protection laws and regulations prohibiting unfair and deceptive trade
practices. These consumer protection laws could result in substantial costs and
interfere with the conduct of our business.
USE OF PROCEEDS
We will not realize any proceeds from the sale of the shares of common
stock by the selling security holders. See "Selling Security Holders." We have
already received and are utilizing in our business the proceeds received from
the Class A Convertible Preferred Stock sold in private placements.
DETERMINATION OF OFFERING PRICE
All securities to be registered pursuant to this prospectus will be sold by
the selling security holders. See "Selling Security Holders." The shares offered
may be offered and sold from time to time by any selling security holder. The
selling security holders will act independently of us in making decisions with
respect to the timing, manner, and size of each sale. The shares will be sold at
market price or in negotiated transactions.
SELLING SECURITY HOLDERS
Raptor Global Portfolio, Ltd.
- -----------------------------
We are registering 507,776 shares of common stock which are to be converted
from 497,820 shares of Class A Convertible Preferred Stock by Raptor Global
Portfolio, Ltd. ("Raptor") upon the effective date of this registration
statement, effective as of the immediately preceding business day. Our only
relationship to Raptor is as a shareholder. Upon conversion, Raptor will own a
total of 507,776 shares of common stock which will be less than five percent
(5%) of our issued and outstanding common stock. See "Plan of Distribution."
ALTAR Rock Fund, L.P.
- ---------------------
We are registering 2,224 shares of common stock which are to be converted
from 2,180 shares of Class A Convertible Preferred Stock by ALTAR Rock Fund,
L.P.("ALTAR") upon the effective date of this registration statement, effective
as of the immediately preceding business day. Our only relationship to ALTAR is
as a shareholder. Upon conversion, ALTAR will own a total of 2,224 shares of
common stock, which will be less than one percent (1%) of our issued and
outstanding common stock.
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Tudor entities
- --------------
Pursuant to the TravelNow.com Inc. Class A Convertible Preferred Stock
Purchase Agreement, dated January 5, 2000 (the "Stock Purchase Agreement"), by
and among TravelNow and Raptor, on its own behalf and on behalf of each of the
Tudor Entities (as defined below), Raptor and ALTAR have the right to transfer
to the Tudor Entities shares of the Class A Convertible Preferred Stock or
common stock and the Tudor Entities have the right to acquire and hold shares of
the Class A Convertible Preferred Stock or the common stock. Therefore, any or
all of the Tudor Entities may be selling security holders. Tudor Entities means
each of the following:
Tudor Private Equity Fund, L.P., Tudor Arbitrage Partners, L.P., Tudor
BVI Futures, Ltd., Raptor Global Fund, L.P., Raptor Global Fund Ltd.,
Raptor Global Portfolio, Ltd., ALTAR Rock Fund, L.P. or any funds or
other investment vehicles or entities of which any of the forgoing
entities are affiliates, or any affiliate or affiliated group of Tudor
Investment Corporation and/or Tudor Global Trading, Inc.
"Affiliate" means any other person directly or indirectly controlling,
controlled by, or under direct or indirect common control with the
referenced person or entity and includes without limitation, (a) any
person who is an officer, director, general partner or direct or
indirect beneficial holder of at least 5% of the then outstanding
capital stock of the referenced person or entity, (b) any person of
which the referenced person or entity and/or its affiliates (as
defined in clause (a) above), directly or indirectly, either
beneficially own(s) at least 5% of the then outstanding equity
securities or constitute(s) at least a 5% equity participant, and (c)
any entities for which a Tudor Entity or any of its affiliates (as
defined in clauses (a) or (b) above) serve as general partner and/or
investment advisor or in a similar capacity, and all mutual funds or
other pooled investment vehicles or entities under the control or
management of such Tudor Entity or the general partner or investment
adviser thereof or any person in a similar capacity, or any affiliate
(as defined in clause (a) or (b) above) of any of them, or any
affiliates of any of the foregoing.
"Affiliated Group" has the meaning given to it in Section 1504 of the
Internal Revenue Code of 1986, as amended, and in addition includes
any analogous combined, consolidated, or unitary group, as defined
under any applicable state, local, or foregoing income tax law.
PLAN OF DISTRIBUTION
All shares to be registered pursuant to this prospectus will be sold by the
selling security holders. See "Selling Security Holders." The selling security
holders will act independently of us in making decisions with respect to the
timing, manner, and size of each sale. Such sale may be made on any market upon
which the common stock may be quoted, at prices and on terms then prevailing or
at prices related to the then market price, or in negotiated transactions. In
effecting sales, the selling security holders may use the services of
broker-dealers. Such broker-dealers engaged by the selling security holders may
arrange for other broker-dealers to participate. Broker-dealers may receive
commissions or discounts from the selling security holders in amounts to be
negotiated.
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The shares will be sold by the selling security holders on a continuous
basis pursuant to Rule 415 under the Securities Act of 1933, as amended. The
sales of securities, which this prospectus is a part, will terminate on the
earlier of (a) the second anniversary of the Closing Date of the Stock Purchase
Agreement; (b) the date on which all shares offered have been sold by the
selling security holders; or (c) such time as all of the shares held by the
selling security holders can be sold within a given three-month period without
compliance with the registration requirements of the Securities Act of 1933
pursuant to Rule 144. There can be no assurance that the selling security
holders will sell any or all of the shares of common stock offered.
In addition, at any time we may refuse to permit the selling security
holders from reselling our common stock pursuant to this registration statement.
We may exercise this right because a sale pursuant to this registration
statement, in its then-current form, could constitute a violation of the federal
securities laws. However, we are only entitled to exercise this right two (2)
times in any twelve (12) month period, and the period during which this
registration statement may be withdrawn shall not exceed thirty (30) days.
LEGAL PROCEEDINGS
On April 6, 1999 and June 9, 1999, we entered into agreements for a term of
two (2) years with an Internet telecommunications supplier. Our 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 us on a monthly basis for sums our management believes we do
not owe. We will continue to attempt to reach a resolution in this matter,
however, the amount owed could ultimately be determined through a judicial
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<PAGE>
proceeding. Our 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.
There is no litigation currently pending against us.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information with respect to the
executive officers and directors of TravelNow.com Inc., as of the date of this
filing.
Name Age Position with TravelNow.com Inc.
- ---- --- --------------------------------
John Christopher Noble 28 Co-Chief Executive Officer & Director
Jeffrey Alan Wasson 26 Co-Chief Executive Officer & Director
Christopher R. Kuhn 33 Chief Information Officer & Vice President
H. Whit Ehrler 58 Chief Financial Officer, Vice President
& Director
Craig Alan Dayberry 39 Database Administrator
Bill Perkin 43 Director
Jerry Rutherford 56 Director
John Christopher Noble was a founding member of TravelNow in May, 1995. Mr.
Noble was elected to the Board of Directors on August 6, 1999. Currently Mr.
Noble serves as our Co-Chief Executive Officer and Secretary. From January of
1995 until May of 1995, Mr. Noble was a student at Southwest Texas State
University in San Marcos, Texas and from September of 1994 until December of
1994, Mr. Noble was a student at Austin Community College in Austin, Texas.
Jeffrey Alan Wasson was a founding member of TravelNow in May, 1995. Mr.
Wasson was elected to the Board of Directors on August 6, 1999. Currently Mr.
Wasson serves as our Co-Chief Executive Officer and Chairman of the Board. From
August of 1991 until May of 1995, Mr. Wasson was a student at the University of
Missouri in Columbia, Missouri, majoring in Travel and Tourism.
Christopher R. Kuhn joined us on July 12, 1999 as Chief Information
Officer. Prior to joining TravelNow, Mr. Kuhn was Director of Web Development
for Compaq Computer from August, 1998 until July, 1999, Manager of Web Service
Solutions with Digital Equipment from April, 1998 until August, 1998 and Manager
of Web Engineering for MCI Telecommunications from November, 1989 until April,
1998.
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H. Whit Ehrler joined us as Vice President & Chief Financial Officer on
August 23, 1999. Mr. Ehrler was Vice President, Finance & Administration of
Carrollton Graphics, Inc. in Carrollton, Ohio from June 1997 through August
1999. From 1994 through 1997, Mr. Ehrler was with Helson Ehrler Investment
Partners in Stamford, Connecticut.
Craig Dayberry joined us on September 22, 1999 and has served as Database
Administrator since that date. Prior to joining us, Mr. Dayberry worked at MCI
Communications from 1992 to April, 1998 as Database Administrator and from
April, 1998 to August, 1999 as a contract Database Administrator for Digital
Equipment and Compaq Computer. Mr. Dayberry received his Bachelor of Science
degree in Information Systems from the University of Colorado at Colorado
Springs, Colorado.
Bill Perkin was appointed to the Board on October 22, 1999 to fill a newly
created seat on the Company's Board of Directors. Since 1988 Mr. Perkin has been
the sole owner of Perkin Marketing Services, Inc., an advertising marketing
company with principal offices located in Springfield, Missouri. Prior to the
formation of Perkin Marketing Services, Inc., Mr. Perkin spent fifteen years in
radio and television broadcast, sales and marketing.
Jerry Rutherford was appointed to the Board on October 22, 1999 to fill a
newly created seat on the Company's Board of Directors. Since March of 1995 Mr.
Rutherford has operated several businesses owned entirely by Mr. Rutherford,
including ERA Rutherford Realtors located in Springfield, Missouri. Mr.
Rutherford was a Vice President and General Manager of TeleCable of Springfield,
Inc. in Springfield, Missouri from April 19, 1979 until March 1995, at the time
of its acquisition by Telecommunications, Inc. in February of 1995.
Board of Directors.
- -------------------
Our Bylaws call for a Board of Directors of not less than one nor more than
seven members. Currently the Board of Directors consists of five (5) members,
Jeff Wasson, our Co-Chief Executive Officer and Chairman of the Board; John
Christopher Noble, our Co-Chief Executive Officer and Secretary; H. Whit Ehrler,
our Chief Financial Officer and Vice President; and Bill Perkin and Jerry
Rutherford, our two independent directors. The Bylaws provide that our directors
are to be elected at our annual meeting to serve for one year or until their
successors are duly elected and qualified.
Involvement in certain legal proceedings.
- -----------------------------------------
On August 25, 1997, Mr. Noble pled guilty to a charge of assault in the
third degree, a Class A misdemeanor, in the Circuit Court of Green County,
Missouri. The Circuit Court ordered Mr. Noble to pay a fine of $10.00, court
costs of $249.50, restitution of $900.00, and to complete 50 hours of community
service, and placed Mr. Noble on probation until August 24, 1999. Mr. Noble has
fully complied with the Circuit Court's order and the probation has been
completed.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 14, 2000, by the following
individuals or groups: (i) each person or entity who is known by the Company to
own beneficially more than 5% of our outstanding common stock, (ii) each of the
executive officers, (iii) each of our directors and executive officers as a
group. The persons named in the table below have sole voting and investment
power with respect to all shares of common stock held by them. Applicable
percentage ownership in the following table is based on 10,349,304 shares of our
common stock outstanding as of January 14, 2000. To the extent that subsequent
to the date of this filing any shares are issued, there will be further dilution
to our current shareholders.
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Shares beneficially owned as of January 13, 2000 (1).
- -----------------------------------------------------
Name of Beneficial Owner Number Percent
- ------------------------ ------ -------
Jeff Wasson (2) (3) 1,895,067 18.3
John Christopher Noble (2) (3) 1,886,517 18.2
Jerry Rutherford (2) (3) 1,378,569 13.3
H. Whit Ehrler (2) (4) 0 0.0
Christopher R. Kuhn (2) (4) 0 0.0
Craig Dayberry (2) (4) 0 0.0
Bill Perkin (2) 106,601 1.0
All directors and executive officers
as a group (4) 5,266,754 50.9
(1) Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting and
investment power with respect to securities.
(2) Messrs. Wasson, Noble, Kuhn, Dayberry and Ehrler have elected to
use as their address the address of TravelNow, 318 Park Central East, Suite 306,
Springfield, Missouri 65806. Mr. Rutherford's address is: 3222 South Campbell
Avenue, Suite MM, Springfield, Missouri 65807. Mr. Perkins's address is: 1200
East Woodhurst, Bldg. N, Springfield, Missouri 65804.
(3) None of these individuals have any options or other rights to
acquire options or similar rights with respect to TravelNow's shares as of the
date of this filing. However, the absence of such rights at this time does not
mean that in the future the Board of Directors will not adopt a stock option
plan or other compensation plan that could create such rights in these
individuals, or other executives or employees of the Company.
(4) Currently, Messrs. Ehrler, Kuhn and Dayberry have no vested
options. See the table following the caption "Option Grants as of January 14,
2000."
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DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 50,000,000 shares of common
stock, no par value, and 25,000,000 shares of preferred stock, no par value. As
of January 14, 2000, we had 10,349,304 shares of common stock issued and
outstanding and 500,000 shares of preferred stock issued and outstanding.
Common stock.
- -------------
TravelNow is not offering for sale any shares of common stock in this
registration statement. We are registering an aggregate of 510,000 shares of
common stock for sale by the selling security holders at a price to be
determined in the future. The holders of common stock are entitled to one vote
per share on all matters to be voted upon by the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, the
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefore. See "Dividend Policy."
In the event of a liquidation, dissolution or winding up, the holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to prior rights of preferred stock, if any, then
outstanding. The common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
available to the common stock. All outstanding shares of common stock are fully
paid and non-assessable.
Preferred stock.
- ----------------
The Board of Directors has the authority to issue the preferred stock in
one or more series and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of preferred stock and to fix the number of shares
constituting any series and the designation of such series, without any further
vote or action by the shareholders. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of TravelNow
without further action by the shareholders and may adversely affect the voting
and other rights of the holders of common stock.
In December 1999, our Board of Directors established a Class A Convertible
Preferred Stock and authorized the issuance of up to 500,000 shares.
The Class A Convertible Preferred Stock ranks senior to all other classes
or series of our common and preferred stock with respect to dividend rights,
redemption and on liquidation, dissolution or winding up. It has a face value
equal to Nine Dollars ($9.00) per share and bears dividends at eight percent
(8%) per annum per share on the face value.
On January 5, 2000, we issued 497,820 shares of our Class A Convertible
Preferred Stock to Raptor Global Portfolio, Ltd. and 2,180 shares of our Class A
Convertible Preferred Stock to ALTAR Rock Fund, L.P., all at a price of $9.00
per share. The Class A Convertible Preferred Stock will be automatically
converted into shares of TravelNow's common stock on a share-for-share basis
immediately upon the fulfillment of both of the following conditions: (1) the
effectiveness of a registration statement filed by TravelNow 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 TravelNow on either the Nasdaq SmallCap Market or the
Nasdaq National Market System.
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Regardless of whether or not the Class A Convertible Preferred Stock is
automatically converted pursuant to the fulfillment of the conditions stated
above, the holders of the Class A Convertible Preferred Stock shall have the
right to convert their shares of Class A Convertible Preferred Stock into shares
of common stock.
The number of shares of common stock to which the holder of Class A
Convertible Preferred Stock is entitled upon such conversion is equal to the
product obtained by multiplying (1) the number of shares of Class A Convertible
Preferred Stock being converted by (2) the Applicable Conversion Rate. The
Applicable Conversion Rate in effect at any time for the Class A Convertible
Preferred Stock is equal to the quotient obtained by dividing (1) the sum of
$9.00 plus an amount equal to all accrued but unpaid dividends on a share of
Class A Convertible Preferred Stock by (2) the Applicable Conversion Value,
which is $9.00.
If TravelNow fails to fulfill the conditions required for the automatic
conversion of the Class A Convertible Preferred Stock on or prior to December
31, 2000, the holders of shares of Class A Convertible Preferred Stock have the
right to require us to purchase all of the Class A Convertible Preferred Stock
and pay any accumulated dividends.
As of the effective date of this registration statement, we anticipate that
no preferred stock will remain outstanding.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
Merger of TravelNow.com Inc. and Sentry Accounting Inc.
- -------------------------------------------------------
On July 23, 1999, an Agreement and Plan of Reorganization was consummated
between TravelNow.com Inc., a Missouri corporation ("TravelNow of Missouri"),
and Sentry Accounting, Inc., a Florida corporation ("Old Sentry"), wherein 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. 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
number of shares at that point was 1,966,533. On July 28, 1999, the now combined
entities 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. See "Part II - Shares Eligible for Future Sale."
Although Old Sentry was the surviving corporation of the merger, we changed
our name at the time of the filing of the Articles of Merger to TravelNow.com
Inc.
The transaction consummated between TravelNow of Missouri and Old Sentry is
generally known as a reverse merger. A reverse merger is normally the result of
a merger in which the acquiring corporation has less size and substance than the
acquired company. The acquiring corporation survives as a legal entity, but the
shareholders of the acquired company obtain a majority of the voting rights of
the combined entity. The substantive effect of the transaction is thus reversed
from the legal effect.
At the time of the merger of TravelNow of Missouri into Old Sentry, Old
Sentry had no significant operations and only nominal net assets. 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 for both accounting purposes and for SEC reporting.
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History of Sentry Accounting, Inc.
- ----------------------------------
Prior to the merger, Old Sentry was engaged in providing accounting
services and related financial and administrative services to small businesses.
The accounting and related financial and administrative services business of Old
Sentry prior to the merger is described in Old Sentry's filing on SEC Form 10-SB
filed on February 5, 1999 which filing was amended on SEC Form 10-SB/A1 on May
4, 1999 and further amended on SEC Form 10-SB/A2 filed on May 18,1999. As part
of the terms of the merger, Old Sentry's accounting and financial and
administrative business was transferred to a shareholder of Old Sentry in
exchange for 2,000,000 shares of Old Sentry's common stock and a cash payment of
$2,000. The merger was effective on July 27, 1999. Immediately after the merger,
Messrs. Wasson and Noble, directors of TravelNow of Missouri, were appointed
directors of TravelNow. The Board of Directors adopted a resolution which
provides that effective as of the date of the approval by the shareholders of
the merger, Messrs. Wasson and Noble shall serve as Co-Chief Executive Officers.
Certain of the shareholders of Old Sentry agreed to make a capital
contribution to TravelNow in the amount of $500,000. This capital contribution
was completed in installments on August 6, 1999. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
Corporate history of TravelNow of Missouri prior to the merger.
- ---------------------------------------------------------------
TravelNow of Missouri was incorporated under the laws of the state of
Missouri as Travel Now Network, Inc. on March 22, 1995. On March 21, 1997,
TravelNow of Missouri merged into Eleven Twelve Corporation, a Missouri company.
Although Eleven Twelve Corporation was the surviving entity, Eleven Twelve
Corporation's name was changed to TravelNow Global Reservation Network, Inc. at
the time of the merger. On April 29, 1999, its name was changed to TravelNow.com
Inc.
DESCRIPTION OF BUSINESS
Principal services and our markets.
- -----------------------------------
We are an Internet-based travel services company which provides online
travel information and reservations to our customers on a worldwide basis. Our
web site (www.travelnow.com) gives customers real-time access to hotel, car and
airline information regarding schedules, availability and rates and enables the
booking of reservations on an automated basis. In addition to our reservation
and ticketing services, we offer discounted and promotional fares, travel news
and destination information such as maps and weather forecasts.
We initially offered online hotel bookings in May 1995 as the first
unbiased online source of hotel data. We have grown into a full service travel
system with access to over 40,000 hotel properties, 60 car rental companies and
500 airlines. European rail passes are also available. These and other services,
collectively referred to as "travel accommodations," are all available to
customers on our web site.
In May of 1995 we fulfilled, at our web site, a request by a customer in
Hong Kong for a hotel reservation in Chicago, Illinois. Our managers believed
this international booking over the Internet, and the fulfillment activity that
followed during 1995, was evidence of a substantial inefficiency in the
availability of and access to travel information by individual and small
business travelers. Our management further determined that an unbiased web site,
i.e., a web site where availability and fares were presented giving the customer
the maximum number of choices, would address that market inefficiency.
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Our business methodology, which is to present travel availability and fare
information without the intervention of a third party, requires a user friendly
interface permitting quick and easy access to travel information on an
individualized basis and reduces labor costs when contrasted with a traditional
travel service. Management believed that a web site which provided this service
would result in a customer base that would enable us to negotiate favorable
contracts with travel suppliers and providers of travel information, resulting
in reduced travel costs and increased customer traffic.
From that initial hotel reservation booked in 1995, we have witnessed hotel
confirmations issued at our web site increase from 20,348 during the fiscal year
ending March 31, 1998 to 53,368 during the fiscal year ending March 31, 1999 and
increase from 23,938 during the six month period ending September 30, 1998 to
96,983 during the six month period ending September 30, 1999.
Expansion of our customer base has been primarily achieved by increasing
the number of our affiliates, those independent web sites that have
contractually agreed to use our proprietary reservation system. This leveraging
of relationships by the sharing of non-proprietary information has resulted in
impressions, that is the number of pages displayed to those who visit our web
site, to grow from 1,879,252 to 6,782,168 for the fiscal years ending March 31,
1998 and 1999 and from 3,696,702 to 17,720,677 during the six month periods
ending September 30, 1998 and September 30, 1999, respectively.
We are currently exploring international opportunities as part of our
evolving strategy to address foreign markets. We have invested in an affiliated
Japanese company, Nippon TravelNow K.K., for a 49 % interest in that
organization. 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 which will continue to be affiliated with TravelNow.com Inc.
This reorganization of the Japanese activities is not expected to significantly
affect our financial position.
There have been no further commitments to make any specific investments in
any other international markets.
Distribution method of our services.
- ------------------------------------
The vast majority of travel accommodations are booked and confirmed on our
web site through an automated process. We have developed in house our
proprietary technology for hotels and rental cars which interfaces with multiple
sources of travel supplier information. A similar software system was
implemented on September 30, 1999 for airline reservations capable of replacing
an outsourced system obtained from another company. In addition to our automated
systems, we provide online and telephone customer service support 24 hours per
day, seven days per week.
Our customers are normally not charged directly by us for booking travel
accommodations on our web site. Our primary source of revenue is commission
income. Travel suppliers, such as hotel chains and car rental companies, pay
commissions to us when travel accommodations booked through us are utilized by
our customers.
Competition.
- ------------
The online travel services market is new, rapidly evolving and intensely
competitive, and we expect such competition to intensify in the future. We
compete primarily with traditional travel agencies and online travel reservation
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services. In the online travel services market, we compete with other entities
that maintain similar commercial web sites, such as Expedia (operated by
Microsoft Corporation), Travelocity (operated by Sabre Holdings Corporation, a
majority-owned subsidiary of American Airlines), TravelWeb (operated by Pegasus
Systems, Inc.), GetThere.com, and Preview Travel, among others.
Several traditional travel agencies, including larger travel agencies such
as American Express Travel Related Services Co. Inc., Uniglobe Travel and
Carlson Wagonlit Travel, have established, or may establish in the future,
commercial web sites offering online travel services. In addition to the
traditional travel agency channel, most travel suppliers also sell their
services directly to customers, typically by telephone. As the market for online
travel services grows, we believe that the range of companies involved in the
online travel services industry, including travel suppliers, traditional travel
agencies and travel industry information providers, will increase their efforts
to develop services that compete with our services.
Many airlines and hotels offer travel services directly through their own
web sites, eliminating the need to pay commissions to third parties such as us.
We are unable to anticipate which other companies are likely to offer
competitive services in the future.
In addition, new technologies and the expansion of existing technologies
may increase competitive pressures on us. In particular, Microsoft Corporation
has publicly announced its intent to invest heavily in the area of travel
technology and services.
Travel suppliers.
- -----------------
Information regarding the availability of hotel rooms, airline flights and
rental cars and other travel services is generated and provided to the travel
industry by "travel suppliers." Examples of well known travel suppliers include
Holiday Inn and Hyatt hotels, Avis and Hertz automobile rental companies, and
American Airlines and United Airlines. We have access to travel suppliers of
over (1) 40,000 hotels consisting of millions of hotel rooms throughout the
world, (2) 500 airlines, which on any given day involves thousands of airline
passenger seats moving between specified destinations around the globe, and (3)
fleets of tens of thousands of automobiles located in cities throughout the
world.
Global distribution systems.
- ----------------------------
Data as to the availability and pricing of hotel rooms, airline seats and
automobiles is constantly gathered from travel suppliers by electronic global
distribution services ("GDS") such as Sabre Holding Corporation's SABRE system
("SABRE"), Pegasus Systems, Inc.'s Thisco, Worldspan and others. We have
contracts with two GDS systems: Sabre and Thisco. Through our relationship with
McDaniel Travel, Inc. ("McDaniel Travel") we have an indirect relationship with
a third GDS system, Worldspan. Each of the contracts with these GDS systems
permits us to use our proprietary software to access information regarding the
availability of hotel rooms, rental cars and airlines, including the fares and
rates for these travel accommodations.
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<PAGE>
In 1996 and 1997 we issued 3,200 shares of our common stock, which after
adjustment for the merger and stock dividends referred to elsewhere herein is
426,396 shares, to Marvin McDaniel owner of McDaniel Travel in exchange for our
right to use the "ARC" number (the agency tracking number issued by Airline
Reporting Corporation) and the "IATAN" number, (the agency tracking number
assigned by the International Airline Travel Agent Network) of McDaniel Travel.
Although a travel agency is unable to issue domestic and international airline
tickets without first obtaining ARC and IATAN numbers, the importance of these
numbers with respect to hotel and automobile reservations is that they are used
in tracking those reservations for commission collection. Although we do not
foresee a disruption in the relationships between McDaniel Travel and the GDS
systems which track the ARC and IATAN numbers for commission collection
purposes, if any disruption occurred there is the possibility that our ability
to track our reservations or obtain payment could be disrupted. Because we
believe the issuance of airline tickets will have a growing and important impact
on revenues, we are in the process of obtaining our own ARC and IATAN numbers.
Provided that bookings through our web site remain at specified contractual
levels no payments are due to any of these GDS systems. Further, McDaniel Travel
does not charge us fees of any kind as a result of the Worldspan contract with
McDaniel Travel in which Worldspan permits us to have access to its proprietary
information. Currently we are maintaining these required levels and no payments
are due to Thisco, Sabre or Worldspan. However, there is a dispute between
McDaniel Travel and Worldspan in which Worldspan claims it is owed $12,600 as a
result of our failure to maintain the required booking levels during an earlier
period. Management believes it is improbable that we are liable for any amount.
Any sums owed by McDaniel Travel to Worldspan will be our obligation. We do not
anticipate that this difference of opinion will lead to a disruption in our
ability to access the Worldspan proprietary data base. The availability of
travel accommodations and their respective fares and rates are then presented to
our leisure and business traveler customers at our web site through our
proprietary software interface.
By obtaining hotel, airline and auto rental availability and fares from
multiple GDS systems rather than rely upon only one GDS, we believe that we are
avoiding dependence on any one of these third party providers to continue to
offer and maintain such services. Nevertheless, any discontinuation of these
services by one or more GDS, or any reduction in performance of a GDS that
requires us to replace such services, would be disruptive to our business.
Commission payments.
- --------------------
We earn commissions on travel accommodations either (1) as a percentage of
the gross dollar value of the travel booking, or (2) as a fixed dollar amount
per booking. The specific percentage or fixed dollar amount is dependent upon
whether the booking involves a (1) vacation package, (2) hotel room, (3) car
rental, (4) airline ticket, (5) Eurail ticket, or (6) hotel rooms and/or airline
tickets through consolidators of such travel accommodations. Typically, the
commissions on hotel rooms and rental cars are a higher percentage of the gross
booking value than on airline tickets. Airline ticket commissions can also vary
among airlines.
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<PAGE>
Company growth through affiliate program.
- -----------------------------------------
A substantial portion of our growth has come from providing our travel
reservation engine to 400 independent operators of web sites with whom we
currently share our commissions. Generally these web sites note the travel
service at their site is "powered by TravelNow." An independent web site that
has contracted for the use of the TravelNow reservation engine is referred to as
an affiliate.
We established our affiliate program as a cost effective mechanism to
increase our customer base without the expenditure of substantial sums of
capital on direct advertising. The web site of each affiliate is dynamically
connected to the TravelNow reservation engine in exchange for the sharing of
commissions with the affiliates. This program has contributed substantially to
our growth and allowed us to benefit from the advertising, marketing and other
activities of our affiliates to develop traffic for their respective web sites.
The activities used by affiliates to increase traffic to their web sites
are not controlled or influenced by us except in so far as the sharing of the
commission revenue affects the actions of each affiliate. We believe that our
own ability to grow will depend in large part on, among other things, our
ability to continue to generate sales volume by effectively maintaining our
current relationships with our affiliates and to continue the expansion of our
affiliate program.
Set forth in the table below is the cumulative number of travelers that
booked travel reservations through our web site during the periods indicated:
Number of TravelNow Customers
Fiscal Year Ending Nine Months Ending Fiscal Year Ending Nine Months Ending
March 31, 1998 December 31, 1998 March 31, 1999 December 31, 1999
-------------- ----------------- -------------- -----------------
21,914 57,478 76,856 281,484
We offer to customers, who affirmatively elect to do so, the option to
receive travel-related information on a regular basis through email
communications. As of September 30, 1999, 119,694 leisure and business travelers
who have previously booked travel reservations through the TravelNow web site
were receiving these periodic emails from us.
The following chart shows the number of hotel reservations booked by week
through us by our customers from the week beginning March 16,1997 through the
week beginning December 26, 1999. During that time period, hotel reservations
booked by us have increased from less than 450 per week in March 1997 to more
than 5,400 per week in October and November of 1999. Weekly hotel reservations
during December 1999 were seasonally lower than October/November 1999 by
approximately 12% versus a comparable seasonal decline in December 1998 of
approximately 10%.
[GRAPHIC OMITTED]
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<PAGE>
Intellectual property, third party licenses.
- --------------------------------------------
We have recently filed for U.S. Service Mark protection of "TravelNow.com."
On September 22, 1999 the United States Department of Commerce Patent and
Trademark Office notified us that an application filed prior to the date of our
application is a "potentially conflicting pending application" with our
application. We are in the process of selecting a trademark for which we intend
to seek trademark protection.
We rely on confidentiality and/or license agreements with our employees,
customers, partners and others to protect our proprietary rights. We also intend
to strategically license certain content for our online sites from third
parties, including content which is integrated with internally developed content
and used on our online sites to provide key services.
Governmental regulation.
- ------------------------
We are subject to regulations applicable to businesses generally. Although
there are currently few laws and regulations directly applicable to the Internet
and commercial online services, it is possible that a number of laws and
regulations may be adopted in the future with respect to the Internet or
commercial online services covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality of
products and services. Furthermore, the growth and development of the market for
online commerce may prompt calls for more stringent consumer protection laws
that may impose additional burdens on those companies conducting business
online. The adoption of any additional laws or regulations may decrease the
growth of the Internet or commercial online services, which could, in turn,
decrease the demand for our products and services and increase our cost of doing
business, or otherwise have a material adverse effect on our business, operating
results and financial condition.
Moreover, the applicability to the Internet and commercial online services
of existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. For example, tax authorities in a number of states
are currently reviewing the appropriate tax treatment of companies engaged in
online commerce, and new state tax regulations may subject us to additional
state sales and income taxes. Any such new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to our business, or the application of existing laws and
regulations to the Internet and commercial online services could have a material
adverse effect on our business, operating results and financial condition.
We may be subject to regulation by a number of states that have "seller of
travel" acts. These acts require us to register as a seller of travel, comply
with certain disclosure requirements, post a bond or escrow funds and/or
participate in state restitution funds. We are in the process of making
applications, as appropriate, in California and Florida. There is a possibility
that we may later become subject to regulation requirements in additional
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<PAGE>
states, however we do not anticipate that it will have a material impact on us
or our financial condition. All of our services are subject to federal and state
consumer protection laws and regulations prohibiting unfair and deceptive trade
practices. These consumer protection laws could result in substantial costs and
interfere with the conduct of our business.
Research and development.
- -------------------------
During the two (2) years ended on March 31, 1999, we invested approximately
$195,000 developing, maintaining and operating our proprietary software. We are
currently incurring expenses developing second generation proprietary software
to gather data from GDS systems and to present that data to our customers. To
this end, we have entered into a consulting agreement with a consulting firm and
have hired personnel necessary to complete this endeavor, including a database
administrator. We have estimated additional development expenses through the
time of implementation, projected to be February 29, 2000, of this second
generation system at approximately $600,000 to $650,000. To the extent expenses
for the development of this software are not subsequently followed by increased
revenues, our operating results will fluctuate and may result in losses in
subsequent quarters. If we are unable to adjust spending in a timely manner to
compensate for any unexpected expenses or significant revenue shortfalls, there
would be an immediate material adverse effect on our business, operating results
and financial condition.
Environmental compliance.
- -------------------------
The costs and effects of compliance with environmental laws do not have and
are not anticipated to have a material impact on us or our financial condition.
Employees.
- ----------
As of January 1, 2000 we had fifty-three (53) full time employees and three
(3) part-time employees. Of these employees, six (6) were involved in sales and
marketing, twenty-four (24) were involved in customer service, fifteen (15) were
involved in technology and development, and eleven (11) were involved in
operations, finance and administration.
Additional information.
- -----------------------
Our Company files annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information may be inspected and copied on the
Commission's home page on the World Wide Web at http://www.sec.gov or at the
Commission's public reference room located at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's Regional Offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at 7 World Trade Center, 13th Floor, New York, New York
10048. Information about the Commission's public reference room can be obtained
by calling 800/SEC-0330. Copies of such materials may also be obtained at
prescribed rates from the Pubic Reference Section of the Commission located at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549.
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<PAGE>
All requests for such materials can be made through our web site at
http://www.travelnow.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following selected financial data for the six month periods ended
September 30, 1999 and 1998 (unaudited) and the years ended March 31, 1999 and
1998 have been derived from our financial statements which are included in this
prospectus. The financial data should be read in conjunction with the financial
statements and the discussion and analysis which follows.
-25-
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
TRAVELNOW.COM INC.
STATEMENTS OF OPERATIONS
SIX MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
AND YEARS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
Six Months Ended Years Ended
September 30 March 31
-------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total Revenues $ 1,404,901 $ 408,172 $ 886,172 $ 345,677
Cost of Revenues 795,334 165,570 532,050 149,445
----------- ----------- ----------- -----------
Gross Profit 609,567 242,602 354,122 196,232
----------- ----------- ----------- -----------
Operating Expenses
Sales and Marketing 64,166 7,740 86,258 29,953
General and Administrative 596,165 105,279 240,380 187,248
Stock-Based Compensation 650,000 0 0 8,110
----------- ----------- ----------- -----------
Total Operating Expenses 1,310,331 113,019 326,638 225,311
----------- ----------- ----------- -----------
Income/(Loss) Before Taxes (700,764) 129,583 27,484 (29,079)
Provision for Income Taxes 0 0 0 0
----------- ----------- ----------- -----------
Net Income/(Loss) $ (700,764) $ 129,583 $ 27,484 $ (29,079)
=========== =========== =========== ===========
Average Number of Shares
Of Common Stock Outstanding 8,171,543 6,009,518 6,009,518 6,009,518
Net Income/(Loss) Per Share
Basic $ (0.086) $ 0.022 $ 0.005 $ (0.005)
Diluted $ (0.086) $ 0.022 $ 0.005 $ (0.005)
Six Months Ended Years Ended
September 30 March 31
---------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- -------
As a Percent of Total Revenues
- ------------------------------
Total Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Revenues 56.6% 40.6% 60.0% 43.2%
------- ------- ------- -------
Gross Profit 43.4% 59.4% 40.0% 56.8%
------- ------- ------- -------
Operating Expenses
Sales and Marketing 4.6% 1.9% 9.8% 8.7%
General and Administrative 42.4% 25.8% 27.1% 54.2%
Stock-Based Compensation 46.3% 0.0% 0.0% 2.3%
------- ------- ------- -------
Total Operating Expenses 93.3% 27.7% 36.9% 65.2%
------- ------- ------- -------
Income/(Loss) Before Taxes (49.9)% 31.7% 3.1% (8.4)%
Provision for Income Taxes 0.0% 0.0% 0.0% 0.0%
------- ------- ------- -------
Net Income/(Loss) (49.9)% 31.7% 3.1% (8.4)%
======= ======= ======= =======
-26-
</TABLE>
<PAGE>
TRAVELNOW.COM INC.
BALANCE SHEETS
SEPTEMBER 30 AND MARCH 31, 1999 AND MARCH 31, 1998
(Unaudited)
ASSETS 9/30/99 3/31/99 3/31/98
- ------ ----------- ----------- -----------
Cash and Cash Equivalents $ 234,473 $ 6,227 $ 3,849
Accounts Receivable 462,522 106,562 43,692
----------- ----------- -----------
Current Assets 696,995 112,789 47,541
Property and Equipment - Net 90,602 46,345 37,643
Construction In Process - Software 164,455 0 0
Investment - Nippon TravelNow, K.K 42,468 0 0
----------- ----------- -----------
Total Assets $ 994,520 $ 159,134 $ 85,184
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY / (DEFICIT)
- ------------------
Accounts Payable $ 468,928 $ 83,066 $ 44,716
Accrued Liabilities 113,257 44,596 27,180
Notes Payable - Current Portion 0 58,538 55,238
Notes Payable to Stockholders 0 10,000 14,000
----------- ----------- -----------
Current Liabilities 582,185 196,200 141,134
Notes Payable Less Current Portion 0 0 8,600
----------- ----------- -----------
Total Liabilities 582,185 196,200 149,734
----------- ----------- -----------
Common Stock 0 22,550 22,550
Additional Paid-In Capital 1,430,416 257,701 257,701
Accumulated Deficit (1,018,081) (317,317) (344,801)
----------- ----------- -----------
Stockholders' Equity/(Deficit) 412,335 (37,066) (64,550)
----------- ----------- -----------
Total Liabilities and Equity $ 994,520 $ 159,134 $ 85,184
=========== =========== ===========
-27-
<PAGE>
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 six months ended September 30, 1999, total revenues were
approximately $1.4 million, representing 3.4 times the $408,172 of revenues in
the comparable period of 1998. We sustained a net loss in the 1999 six month
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<PAGE>
period of $700,764 due principally to a $650,000 non-cash charge for stock-based
compensation related to employee stock bonuses paid on May 18, 1999. In the
comparable six month period of 1998, net income was $129,583.
Net income for the 1999 six month period exclusive of the $650,000 non-cash
charge was a loss of $50,764, all of which was sustained in the initial three
months of the period. 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. Total revenues grew from $381,449 in
the quarter ended June 30, 1999 to approximately $1.0 million in the following
quarter ended September 30, 1999.
Our total revenues for the fiscal year ending March 31, 1999 ("FY1999")
were $886,172, which represented an increase of $540,495 or more than 156% as
compared with FY1998 ended March 31, 1998. Net income for FY1999 was $27,484
compared with a net loss for the prior year of $29,079.
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 six months ended September 30, 1998 to
an average of approximately 4,300 per week during the six months ended September
30, 1999. Confirmed hotel bookings for the quarter ended September 30, 1999
averaged approximately 5,300 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.
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 to the revenue in the periods
reported through September 30, 1999.
Cost of revenues.
- -----------------
Our cost of revenues as a percent of revenues increased from 40.6% to 56.6%
in the six months ended September 30, 1998 and 1999, respectively. This
percentage was 60.0% for the year ended March 31, 1999 and 43.2% in the
comparable prior year.
These changes in cost of revenues are due to two factors. First, 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
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<PAGE>
generated a larger proportion of our business. A higher commission payment
structure was also implemented in the Spring of 1999.
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 as the anticipated growth
in revenues was realized, resulting in the 56.6% ratio for the six months ended
September 30, 1999.
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 beyond current capabilities. 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 six months ended September 30, 1999, sales and
marketing expenses increased to $64,166 (4.6% of revenues) compared to $7,740
(1.9% 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 9.8% and 8.7% of revenues in the years
ended March 31, 1999 and 1998, respectively. In the year ended March 31, 1999,
we traded advertising services with another Internet-based organization. The
value of these advertisements was recognized in our financial statements as
revenues and advertising costs in equal amounts.
We intend to 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 six month period ended September 30, 1999
relative to the same period 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 not anticipated to change in the remaining two quarters of
the current fiscal year ending March 31, 2000, because of professional fees
associated with the filing of this registration statement.
-30-
<PAGE>
In the year ended March 31, 1999, general and administrative costs
increased from $187,248 in the prior year to $240,380, or by 28.4%. Since total
revenues grew faster, general and administrative expenses as a percent of
revenues declined from 54.2% to 27.1%. 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 this registration statement. We are registering 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 will
increase from 2,572,502 to 3,082,502 and total common shares outstanding will
increase from 10,349,304 to 10,859,304.
On November 17, we sold 25,000 new restricted common shares of stock to
another institutional investor at $10.00 per share for a total of $250,000.
The proceeds from these two sales 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.
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 $450,000 to $500,000. As of September
30, 1999, we had incurred a liability of $136,210 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.
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. We have in the past listed the room availability and
rates of this chain on our web site and have 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, we have removed the chain's listings
from the TravelNow web site. Our management believes that there are a number of
other motel chains of equal quality and comparable prices. Thus, management
believes our customers will book reservations at other hotels and motels and,
consequently, the commission policy change will have little, if any, effect on
our business, operating results or financial condition.
TravelNow's commission income from this national chain has been as follows:
$37,584 and $28 for the years ended March 31, 1999 and 1998, respectively; and
$75,350 and $11,470 for the six (6) month period ended September 30, 1999 and
1998, respectively.
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<PAGE>
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, our stockholders' equity
increased from a deficit of $37,066 on March 31, 1999 to $412,335 as of
September 30, 1999. Our working capital position has also strengthened during
this six month time period. Working capital (current assets less current
liabilities) was a negative $83,411 on March 31, 1999 and was a positive
$114,810 on September 30, 1999. All of our notes payable, which totaled $68,538
at March 31, 1999, have been repaid.
We had a net loss of $700,764 during the six months ended September 30,
1999. All but $50,764 of the loss was due to the $650,000 non-cash charge for
stock-based compensation. Net cash used in operating activities was $78,939.
Cash used in investing activities during the six months ended September 30,
1999 was $124,442, 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 six months
ended September 30, 1999, net cash provided by financing activities was
$431,627, primarily from $499,985 in capital contributions. A total of $68,538
of cash was used to repay all of our outstanding notes payable. Cash and cash
equivalents increased by $228,246 to $234,473 during the six month period.
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 significant 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 2000.
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<PAGE>
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
-33-
<PAGE>
interface to properly handle Year 2000 and related issues could have a
materially adverse effect on our business, our operating results and financial
condition.
DESCRIPTION OF PROPERTY
Our operations are headquartered in Springfield, Missouri where we lease
space to house our principal administrative, sales and marketing, and customer
service organizations as well as our primary computer and communications
systems. We have moved our product development staff to the Denver, Colorado
area where it is currently operating at a temporary location under the
supervision of our Chief Information Officer. We anticipate that we will require
additional space within the next 12 months, and believe that such additional
space will be available on commercially reasonable terms.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions, or series of transactions, during FY 1998 or FY
1999, nor are there any currently proposed transactions, or series of
transactions, to which we are a party, in which the amount exceeds $60,000, and
in which to our knowledge any director, executive officer, nominee, five percent
or greater shareholder, or any member of the immediate family of any of the
foregoing persons, has or will have any direct or indirect material interest
other than that described below.
MARKET FOR REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price range of common stock.
- ----------------------------
Old Sentry's stock traded under the symbol SNTY on the OTC Bulletin Board
from February 5, 1999, until August 1, 1999. There were approximately 491,000
shares of Old Sentry's common stock issued and outstanding as of July 23, 1999.
We have done a search to determine the availability of high and low bid
information for Old Sentry common stock for the periods indicated below, and
have been unable to locate these historical records if in fact such activities
in the shares occurred prior to the merger of July 27, 1999 referred to
elsewhere in this filing.
Our stock has traded under the symbol TNOW on the OTC Bulletin Board since
August 2, 1999. There were 10,349,304 shares of the registrant's common stock
issued and outstanding as of January 14, 2000. The following table shows the
high and low bid information for our common stock as reported on the OTC
Bulletin Board, which reflect inter-dealer prices without retail mark-up,
mark-down or commission, and which may not represent actual transactions.
High Low
---- ---
Second Quarter from August 2 - September 30, 1999 $ 15.125 $ 5.125
Third Quarter from September 30 - December 31, 1999 $ 15.875 $ 10.375
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<PAGE>
The closing sale price of our common stock as reported on the OTC Bulletin
Board on January 14, 2000 was $13.63 per share. As of that date there were
approximately 948 holders of record of our common stock. This includes the
number of persons whose stock is in nominee or "street name" accounts through
brokers.
The market price of our common stock has been and may continue to be
subject to wide fluctuations in response to a number of events and factors, such
as quarterly variations in our operating results, announcements of technological
innovations or new products by us or our competitors, changes in financial
estimates and recommendations by securities analysts, the operating and stock
performance of other companies that investors may deem comparable to us, and
news reports relating to trends in our markets. In addition, the stock market in
recent years has experienced extreme price and volume fluctuations that have
particularly affected the market prices of many high technology and
Internet-related companies that have often been unrelated or disproportionate to
the operating performance of such companies. These fluctuations, as well as
general economic and market conditions, may adversely affect the market price
for our common stock.
Dividend policy.
- ----------------
We have never declared or paid any cash dividends on our common stock. We
anticipate that we will retain all of our future earnings for use in the
expansion and operation of our business and do not anticipate paying cash
dividends on the common stock.
EXECUTIVE COMPENSATION
Donald R. Mastropietro served as Chief Executive Officer of Old Sentry from
its inception in June 1996 until September 30, 1998. During the fiscal year
ended March 31, 1999, Mr. Mastropietro received compensation of $10,500. Ms.
Teresa B. Crowley served as Chief Executive Officer of Old Sentry from September
30, 1998 until July 23, 1999. During the fiscal year ending March 31, 1999, Ms.
Crowley received compensation of $3,000.
The following table summarizes the annual compensation we paid during the
fiscal year ended March 31, 1999 to our current Co-Chief Executive Officers. No
person received compensation in excess of $100,000 in that fiscal year. The
following table also includes the annualized compensation that we anticipate
paying during the current fiscal year to our executive officers whose salary and
bonus is anticipated to exceed $100,000 annually during the current fiscal year,
for services rendered to us in all capacities.
-35-
<PAGE>
<TABLE>
<CAPTION>
Annual Summary Compensation Table
Other Annual Long-Term
Name and Principal Position Annual Compensation Compensation ($) Compensation Awards
- --------------------------- ------------------------------------- ---------------- -------------------------
Year Securities Restricted
Ended Underlying Stock
March 31 Salary ($) Bonus ($) Options (#) Awards ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John Christopher Noble,
Co-Chief Executive Officer 1999 36,534 (2) (1) 792,830 (7)
Jeff Wasson,
Co-Chief Executive Officer 1999 35,380 (2) (1) 792,830 (7)
Christopher R. Kuhn,
Chief Information Officer
and Vice President of
Development (5) $130,000 (5) (3) (1) 250,000 (6)
Whit Ehrler,
Chief Financial Officer and
Vice President of Finance (5) $130,000 (5) (4) (1) 250,000 (6)
Craig Dayberry,
Database Administrator (5) $100,000 (5) (1) 30,000 (6)
(1) Represents personal benefits such as car expenses if in excess of 10%
of total annual salary. For the period covered by this registration statement no
other annual income had been paid to these Executive Officers.
(2) Both Messrs. Wasson and Noble's employment agreements have been amended
to reflect an increase in salary to $150,000 per year, effective January 1,
2000, as recommended by the compensation committee, comprised of our two
independent directors.
(3) The Employment Agreement with Mr. Kuhn provides that he will receive a
non-interest bearing loan of $80,000 after the completion of the first full year
of employment which is July 12, 2000. Upon completion of a second full year of
employment, the loan of $80,000 will be forgiven and all state and federal
income taxes related to such forgiveness will be grossed up and paid by
TravelNow at that time. If Mr. Kuhn voluntarily leaves TravelNow or is
terminated for cause or if he fails to remain with TravelNow for the full
two-year period, he is obligated to repay the non-interest bearing loan in
thirty-two equal monthly installments.
(4) The Employment Agreement with Mr. Ehrler provides that he will receive
a non-interest bearing loan of $80,000 after the completion of the first full
year of employment which is August 23, 2000. Upon completion of a second full
year of employment, the loan of $80,000 will be forgiven and all state and
federal income taxes related to such forgiveness will be grossed-up and paid by
TravelNow at that time. If Mr. Ehrler voluntarily leaves TravelNow or is
terminated for cause or if he fails to remain with TravelNow for the full
two-year period, he is obligated to repay the non-interest bearing loan in
thirty-two equal monthly installments.
(5) Mr. Kuhn joined TravelNow on July 12, 1999. Mr. Ehrler joined TravelNow
on August 23, 1999 and Mr. Dayberry joined TravelNow on September 22, 1999. The
salaries set forth above are the annual amounts called for by their respective
compensation arrangements with TravelNow.
(6) See the table following the caption "Option Grants as of January 14,
2000."
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</TABLE>
<PAGE>
(7) On May 18, 1999 the date of grant of this stock bonus there was no
established market value for these securities. See Note 8 in our Financial
Statements. For details with respect to this stock bonus see the material
following the caption "Shares Issued as a Stock Bonus."
Option grants as of January 14, 2000.
- -------------------------------------
The following table sets forth information with respect to stock options
granted to each of the named executive officers as of January 14, 2000,
including the potential realizable value over the 5 year term of the options
based on assumed rates of stock appreciation of 5% and 10% compounded annually
with respect to those options. The "Value of Unexercisable In-the-Money-Options"
is based upon a value of $13.63 per share which was the closing price of our
shares on the OTC Bulletin board on January 14, 2000, minus the per share
exercise price, multiplied by the number of shares underlying the option. No
executive officer exercised stock options during the period covered by this
registration statement and none of the stock options granted to the below named
executives may be exercised prior to June 12, 2000. These assumed rates of
appreciation comply with the rules of the Securities and Exchange Commission and
do not represent our estimate of future stock price. Actual gains, if any, on
stock option exercises will be dependent on the future performance of our common
stock. The options set forth below were granted pursuant to separate stock
option agreements executed in conjunction with the employment agreements between
us and the below named executives. The executives listed below must pay the
exercise price by cash or check. We have not adopted a stock option plan.
<TABLE>
<CAPTION>
Option Grants
Individual Grants
-----------------
Number of Shares
Underlying Options Value of Unexercised
Granted Which Were Exercise Price in-the-Money Options at
Name (1) Unexcercised On 01/14/00 (2) Exercise Date (3) ($/ Share) January 14, 2000 (4)
- -------- ---------------------------- ----------------- ---------- --------------------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C>
Christopher R. Kuhn (5) 100,000 07/12/2000 $ 1.50 $1,548,130 $1,953,549
50,000 07/12/2002 $15.00
50,000 07/12/2000 $30.00
50,000 07/12/2000 $45.00
H. Whit Ehrler (5) 100,000 08/23/2000 $ 1.50 $1,548,130 $1,953,549
50,000 08/23/2002 $15.00
50,000 08/23/2000 $30.00
50,000 08/23/2000 $45.00
(1) In addition to the option granted to Messrs Kuhn and Ehrler, set forth
in the table above, we have granted to Mr. Dayberry our Data Base Administrator,
five separate options to purchase a total of 30,000 shares of our common stock,
each option for 6,000 shares, which may be exercised (or will vest) in three
equal annual installments commencing with the initial exercise date. The
exercise date of the first option covering the initial underlying 6,000 shares
is September 22, 2000 with exercise dates of the remaining options being
September 22 in each of the following years, 2001, 2002, 2003 and 2004. The
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</TABLE>
<PAGE>
option price or strike price for each 6,000 share option on each of the exercise
dates is $5.00 in 2000, $20.00 in 2001, $35.00 in 2002, $50.00 in 2003, and
$65.00 in 2004. All unexercised options will expire on September 22, 2004 except
for the option that may be exercised on September 22, 2004. That option will not
expire until December 22, 2004. The initial option, with a strike price of $5.00
per share, is considered an unexercisable in-the-money option as of the date of
this filing. The value of this unexercisable in-the-money-option is based upon a
value of $13.63 per share which was the closing price of our shares on the OTC
Bulletin Board on January 14, 2000, minus the per share exercise price,
multiplied by the number of shares underlying the option. The potential
realizable value of this unexercisable in the money option assuming an annual
rate of appreciation of 5% and 10% is $66,086 and $83,392 respectively.
(2) All options are considered unqualified options under the Internal
Revenue Code, therefore, upon their exercise, the employee will realize taxable
gain equal to the difference between the fair market value as of the exercise
date and the exercise price.
(3) Options are exercisable in three equal installments (i.e., 33% of the
shares may be purchased per installment). The first installment may be exercised
on the exercise date set forth in the table above with the balance of the
options exercisable in two equal installments on the two succeeding anniversary
dates following the exercise date. Certain of the installments are not
exercisable until the end of Messrs. Kuhn and Ehrler's five year option
agreements. Messrs. Kuhn and Ehrler have an additional ninety days after the end
of the five-year period to exercise the options with respect to those
installments.
(4) The closing price of our shares on the OTC Bulletin Board on January
14, 2000 was $13.63. The first installments of the initial options granted to
Messrs. Kuhn, Ehrler and Dayberry are exercisable on July 23, 2000, August 23,
2000 and September 22, 2000 respectively.
(5) As of the date of this filing we have issued stock options covering
530,000 shares of our common stock no par value. Mr. Kuhn holds 47% of those
options, Mr. Ehrler holds 47% of those options and Mr. Dayberry holds 6% of
those options. At the time of this filing, other than the foregoing options, we
have not issued any other options covering our common stock and have not adopted
an employee or other stock option plan.
Adjustments in the Event of Recapitalization, Merger of the Company
Under our stock option agreements with the executives named above, in the
event of a corporate reorganization, the executives named above will have the
right to exercise any unexpired option whether currently exercisable or not as
to any installments.
Audit committee.
- ----------------
In December 1999, the Board of Directors formed the audit committee for the
purpose of reviewing our internal accounting procedures and consulting with and
reviewing the services provided by our independent public accountants. Bill
Perkin and Jerry Rutherford constitute the audit committee.
Compensation committee.
- -----------------------
In December 1999, the Board of Directors formed the compensation committee.
The compensation committee reviews and recommends to the board the compensation
and benefits of all of our officers and reviews general policy relating to
compensation and benefits of our employees.
The compensation committee will also administer our stock option plans.
Bill Perkin and Jerry Rutherford constitute the compensation committee.
Compensation of Directors.
- --------------------------
Directors who are also employees are not separately compensated.
Non-employee directors are not currently compensated but may be compensated in
the future.
-38-
<PAGE>
Employment Agreements.
- ----------------------
Employment Agreement with Jeff Wasson, President and Co-Chief Executive
Officer
Mr. Wasson's employment agreement is for a term of five (5) years, from
October 1, 1999 to September 30, 2004 and calls for participation in all
employee benefit programs. Effective January 1, 2000, Mr. Wasson's employment
agreement was amended to include a base salary of $150,000 per year for the
remainder of the term. In the event of a termination of executive by us without
cause, we shall make a lump sum payment to Mr. Wasson equal to his base salary
for the remainder of that year. Thereafter, on each remaining anniversary date
for the balance of the term of the employment agreement, Mr. Wasson will be paid
a lump sum equal to this base salary. In addition, Mr. Wasson agrees not to
directly or indirectly solicit or have contact with (1) our travel suppliers,
(2) GDS systems or (2) our employees or customers for two years after
termination of employment. However, we cannot give any assurance that these
provisions will be enforceable.
Employment Agreement with John Christopher Noble, Co-Chief Executive
Officer
Mr. Noble's employment agreement is for a term of five (5) years, from
October 1, 1999 to September 30, 2004 and calls for participation in all
employee benefit programs. Effective January 1, 2000, Mr. Noble's employment
agreement was amended to include a base salary of $150,000 per year for the
remainder of the term. In the event of a termination of executive by us without
cause, we shall make a lump sum payment to Mr. Noble equal to his base salary
for the remainder of that year. Thereafter, on each remaining anniversary date
for the balance of the term of the employment agreement, Mr. Noble will be paid
a lump sum equal to his base salary. In addition, Mr. Noble agrees not to
directly or indirectly solicit or have contact with (1) our travel suppliers,
(2) GDS systems or (2) our employees or customers for two years after
termination of employment. However, we cannot give any assurance that these
provisions will be enforceable.
Employment Agreement with Christopher R. Kuhn, Chief Information Officer
and Vice President, Development
The term of Mr. Kuhn's agreement is for five (5) years, from July 12, 1999
to July 11, 2004 and calls for participation in all employee benefit programs.
Mr. Kuhn's employment agreement calls for a base salary of $130,000 per
year and receipt of a non-interest bearing loan of $80,000 after the completion
of the first full year of continuous full-time employment. Upon completion of a
second full year of continuous full-time employment, the loan of $80,000 will be
forgiven and all state and federal income taxes related to such forgiveness
will be grossed-up and paid by us at that time. If Mr. Kuhn voluntarily leaves,
or is discharged for cause before the completion of the two year period, he is
obligated to repay the non-interest bearing loan in equal monthly installments
over a period of thirty-two (32) months.
In the event of a termination of executive by us without cause, we shall
make a lump sum payment to Mr. Kuhn equal to his base salary for the remainder
of that year. Thereafter, on each remaining anniversary date for the balance of
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<PAGE>
the term of the employment agreement, Mr. Kuhn will be paid a lump sum equal to
his base salary. In addition, Mr. Kuhn agrees not to directly or indirectly
solicit or have contact with (1) our travel suppliers, (2) GDS systems or (2)
our employees or customers for two years after termination of employment. We
cannot give any assurance that these provisions will be enforceable.
Employment Agreement with H. Whit Ehrler, Chief Financial Officer and Vice
President, Finance
The term of Mr. Ehrler's agreement is for five (5) years from August 23,
1999 to August 22, 2004 and calls for participation in all employee benefit
programs.
Mr. Ehrler's employment agreement calls for a base salary of $130,000 per
year and receipt of a non-interest bearing loan of $80,000 after the completion
of the first full year of continuous full-time employment. Upon completion of a
second full year of continuous full-time employment, the loan of $80,000 will be
forgiven and all state and federal income taxes related to such forgiveness will
be grossed-up and paid by us at that time. If Mr. Ehrler voluntarily leaves or
is discharged for cause before the completion of the two year period, he is
obligated to repay the non-interest bearing loan in equal monthly installments
over a period of thirty-two months.
In the event of a termination of executive by us without cause, we shall
make a lump sum payment to Mr. Ehrler equal to his base salary for the remainder
of that year. Thereafter, on each remaining anniversary date for the balance of
the term of the employment agreement, Mr. Ehrler will be paid a lump sum equal
to his base salary. In addition, Mr. Ehrler agrees not to directly or indirectly
solicit or have contact with (1) our travel suppliers, (2) GDS systems or (2)
our employees or customers for two years after termination of employment.
However, we cannot give any assurance that these provisions will be enforceable.
LEGAL OPINION
-------------
Shook, Hardy & Bacon L.L.P. has given its opinion as attorneys-at-law that
the shares offered for sale herein have been fully paid, validly issued and are
non-assessable.
EXPERTS
-------
Our financial statements included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURE
-------------------------------------------------
During the most recent two fiscal years and any later interim periods, the
principal independent accountant has not resigned, declined to stand for
reelection, or been dismissed as a result of any disagreement on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, and during such periods, the principal accountant's reports
on our financial statements have not contained an adverse opinion or disclaimer
of opinion and have not been modified as to uncertainty, audit scope, or
accounting principles. However, in anticipation of the preparation of the
audited financial statements contained herein, the Company (TravelNow of
Missouri) appointed Deloitte & Touche LLP as its independent auditors. Upon
consummation of the Merger effective as of July 27, 1999 and upon approval by
the Board of Directors, Deloitte & Touche LLP became our independent
accountants. This change was noted in our Current Report on Form 8-K filed on
August 6, 1999.
-40-
<PAGE>
TRAVELNOW.COM INC.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report ..............................................F-2
Statements of Operations for the Years Ended March 31, 1999
and 1998, and the Three Month Periods Ended June 30, 1999
and 1998 (Unaudited).................................................... F-3
Balance Sheets for March 31, 1999 and 1998 and June 30, 1999
and 1998 (Unaudited).................................................... F-4
Statements of Stockholders' Equity (Deficit) for the Years
Ended March 31, 1999 and 1998, and the Three Month Period
Ended June 30, 1999 (Unaudited)......................................... F-5
Statements of Cash Flows for the Years Ended March 31, 1999
and 1998, and the Three Month Periods Ended June 30, 1999
and 1998 (Unaudited).................................................... F-6
Notes to Financial Statements..............................................F-7
Statement of Operations for the Three Month and Six Month Periods
Ended September 30, 1999 and 1998 (Unaudited)........................... F-14
Balance Sheet for September 30, 1999 (Unaudited).......................... F-15
Statement of Stockholders' Equity/(Deficit) for the Six Month
Period Ended September 30, 1999 (Unaudited)............................. F-16
Statements of Cash Flows for the Six Month Periods Ended
September 30, 1999 and 1998 (Unaudited)................................. F-17
Notes to Condensed Financial Statements (Unaudited)....................... F-18
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
TravelNow.Com Inc.
We have audited the balance sheets of TravelNow.Com Inc. (the "Company") as of
March 31, 1999 and 1998, and the related statements of operations, stockholders'
equity (deficit), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TravelNow.Com Inc. as of March
31, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Little Rock, Arkansas
October 1, 1999
(January 5, 2000 as to the third and fourth paragraphs of Note 10)
F-2
<PAGE>
<TABLE>
<CAPTION>
TRAVELNOW.COM INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998, AND THE THREE MONTH PERIODS
ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
Three Month
Years Ended March 31, Periods Ended June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 886,172 $ 345,677 $ 381,449 $ 155,701
COST OF REVENUES 532,050 149,445 284,214 50,427
--------- --------- --------- ---------
GROSS PROFIT 354,122 196,232 97,235 105,274
--------- --------- --------- ---------
OPERATING EXPENSES:
Sales and marketing 86,258 29,953 29,519 6,235
General and administrative 240,380 187,248 164,867 43,309
Stock-based compensation -- 8,110 650,000 --
--------- --------- --------- ----------
Total operating expenses 326,638 225,311 844,386 49,544
--------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAX 27,484 (29,079) (747,151) 55,730
INCOME TAX EXPENSE (BENEFIT) -- -- -- --
--------- --------- --------- ---------
NET INCOME (LOSS) $ 27,484 $ (29,079) $(747,151) $ 55,730
========= ========= ========= =========
NET INCOME (LOSS) PER SHARE:
Basic and diluted 0.01 (0.01) (0.29) 0.02
========= ========= ========= =========
See notes to the financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRAVELNOW.COM INC.
BALANCE SHEETS
MARCH 31, 1999 AND 1998 AND JUNE 30, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------
March 31, June 30,
------------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
ASSETS (unaudited)
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 6,227 $ 3,849 $ 51,314 $ 98
Accounts receivable 106,562 43,692 173,494 64,821
----------- ----------- ----------- -----------
Total current assets 112,789 47,541 224,808 64,919
PROPERTY AND EQUIPMENT, Net 46,345 37,643 54,281 37,059
----------- ----------- ----------- -----------
TOTAL $ 159,134 $ 85,184 $ 279,089 $ 101,978
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 83,066 $ 44,716 $ 100,151 $ 42,726
Accrued liabilities 44,596 27,180 51,152 10,034
Current portion of notes payable 58,538 55,238 55,838 45,238
Notes payable to stockholders 10,000 14,000 6,000 6,000
----------- ----------- ----------- -----------
Total current liabilities 196,200 141,134 213,141 103,998
NOTES PAYABLE,
less current portion -- 8,600 -- 6,800
----------- ----------- ----------- -----------
Total liabilities 196,200 149,734 213,141 110,798
COMMITMENTS AND
CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, par value $0.01, authorized
3,000,000 shares, issued and outstanding
2,255,000 shares at March 31, 1999 and
1998, and June 30, 1998, and 2,906,800
shares at June 30, 1999 22,550 22,550 29,068 22,550
Additional paid-in capital 257,701 257,701 1,101,348 257,701
Accumulated deficit (317,317) (344,801) (1,064,468) (289,071)
----------- ----------- ----------- -----------
Total stockholders' equity (deficit) (37,066) (64,550) 65,948 (8,820)
----------- ----------- ----------- -----------
TOTAL $ 159,134 $ 85,184 $ 279,089 $ 101,978
=========== =========== =========== ===========
See notes to the financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRAVELNOW.COM INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998, AND THE THREE MONTH PERIOD
ENDED JUNE 30, 1999 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock Additional
--------------------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity (Deficit)
------ ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1997 2,055,000 $ 20,550 $ 251,591 $ (315,722) $ (43,581)
Net loss -- -- -- (29,079) (29,079)
Stock issued for services 200,000 2,000 6,110 -- 8,110
----------- ----------- ----------- ----------- -----------
BALANCE, MARCH 31, 1998 2,255,000 22,550 257,701 (344,801) (64,550)
Net income -- -- -- 27,484 27,484
----------- ----------- ----------- ----------- -----------
BALANCE, MARCH 31, 1999 2,255,000 22,550 257,701 (317,317) (37,066)
Net loss (unaudited) -- -- -- (747,151) (747,151)
Capital contribution (unaudited) -- -- 199,985 -- 199,985
Stock bonus (unaudited) 650,000 6,500 643,500 -- 650,000
Stock issued (unaudited) 1,800 18 162 -- 180
----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1999
(UNAUDITED) 2,906,800 $ 29,068 $ 1,101,348 $(1,064,468) $ 65,948
=========== =========== =========== =========== ===========
See notes to the financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRAVELNOW.COM INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998, AND THE THREE MONTH PERIODS
ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
Three Month Periods
Years Ended March 31, Ended June 30,
------------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited)
OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) $ 27,484 $ (29,079) $(747,151) $ 55,730
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Stock based compensation -- 8,110 650,000 --
Depreciation and amortization 18,120 20,378 4,736 4,530
Loss on disposal of property and equipment -- 9,781 -- --
Changes in operating assets and liabilities:
Increase in accounts receivable (62,870) (27,537) (66,932) (21,129)
Increase (decrease) in accounts payable 38,350 22,849 17,085 (1,990)
Increase (decrease) in accrued liabilities 17,416 (12,102) 6,556 (17,146)
--------- --------- --------- ---------
Net cash provided by (used in) operating activities 38,500 (7,600) (135,706) 19,995
INVESTING ACTIVITIES:
Acquisition of property and equipment (26,822) (18,074) (12,672) (3,946)
--------- --------- --------- ---------
Net cash used in investing activities (26,822) (18,074) (12,672) (3,946)
FINANCING ACTIVITIES:
Proceeds from capital contribution -- -- 199,985 --
Proceeds from sale of stock -- -- 180 --
Proceeds from notes payable to stockholders 4,000 7,000 -- --
Repayments of notes payable to stockholders (8,000) (1,000) (4,000) (8,000)
Proceeds from notes payable 15,500 44,438 -- --
Repayments of notes payable (20,800) (23,188) (2,700) (11,800)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities (9,300) 27,250 193,465 (19,800)
Net increase (decrease) in cash and cash equivalents 2,378 1,576 45,087 (3,751)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,849 2,273 6,227 3,849
--------- --------- --------- ---------
End of period $ 6,227 $ 3,849 $ 51,314 $ 98
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 4,609 $ 1,289 $ 2,897 $ 1,268
========= ========= ========= =========
NONCASH TRANSACTIONS:
Exchange of office space for software $ 800 $ 800 $ -- $ --
========= ========= ========= =========
Exchange of advertising $ 43,500 $ -- $ -- $ --
========= ========= ========= =========
Exchange of common stock for
services performed $ -- $ 8,110 $ -- $ --
========= ========= ========= =========
See notes to the financial statements.
F-6
</TABLE>
<PAGE>
TRAVELNOW.COM INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998, AND THE THREE MONTH PERIODS
ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Description of Business - In April 1995,
TravelNow.com Inc. (the "Company") (formerly known as TravelNow Global
Reservation Network, Inc.) began operations as an Internet-based travel
company located in Springfield, Missouri. The Company's Web site,
www.travelnow.com, allows travelers to make hotel, car, and airline
reservations electronically using the Internet. The Company earns
commissions for each reservation resulting in the traveler using the
services reserved.
On May 25, 1999, the Company authorized a 50:1 stock dividend. Retroactive
recognition has been given to this dividend for all periods presented.
On July 23, 1999, the Company completed a merger with Sentry Accounting,
Inc. ("Sentry"). Under the terms of the merger, the shares of the Company
were exchanged for shares of Sentry on a 1.97:1.0 ratio. The merged company
operates under the name TravelNow.com Inc. ("TravelNow"). The merger
resulted in shareholders of the Company owning approximately 75% of the
outstanding stock of TravelNow. These shares are restricted from trading
for a twelve-month period. Sentry's assets, liabilities, revenues and
expenses are immaterial. The assets and liabilities of the combined Company
and Sentry were recorded in the merger at historical cost.
Certain Risks and Concentrations - The Company has experienced cumulative
operating losses, and its operations are subject to certain risks and
uncertainties including, among others, risks and costs associated with
technology and regulatory trends, evolving industry standards, dependence
on its network infrastructure, key employees and suppliers, growth
management, actual and prospective competition by entities with greater
financial and other resources, the development of the Internet market and
need for additional capital. There can be no assurance that the Company
will be successful in sustaining profitability and positive cash flow in
the future.
The Company is potentially subject to a concentration of credit risk from
its accounts receivable. The Company considers the need for allowances for
potential credit losses and records such allowances if necessary.
Historically, such losses have not been significant.
Commissions and related revenues accounted for 87% and 92% of total net
revenues for the years ended March 31, 1999 and 1998, respectively. The
Company relies on unrelated service entities to accumulate, process, and
remit a significant portion of these revenues. Discontinuance of these
services could result in disruption to the Company's business and
accordingly could have a material adverse effect on the Company's results
of operations, financial position, and cash flows.
Cash and Cash Equivalents - Cash and cash equivalents include all
short-term, highly liquid investments purchased with a maturity date at
acquisition of three months or less. Cash and cash equivalents are stated
at cost, which approximates fair value.
Property and Equipment - Property and equipment are recorded at cost and
depreciated using an accelerated method over their estimated useful lives
ranging from 3-10 years. Expenditures for maintenance and repairs are
expensed when incurred.
F-7
<PAGE>
Long-Lived Assets - The Company periodically evaluates the recoverability
of its long-lived assets and would recognize impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets. No such impairments
have been identified to date. The Company assesses the impairment of
long-lived assets when events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable.
Revenue Recognition - Commissions earned are recognized on the traveler's
planned departure date as to hotels, planned return date as to rental cars,
and reservation date as to airlines, all net of allowances for
cancellations and credit risk. Banner advertising revenues are derived from
other companies advertising on the Company's Web site and are recognized
upon display of the advertising on the Web site, or over the display period
depending on several factors including the term of the display agreement.
Cost of Revenues - Cost of revenues is predominantly comprised of
transaction and personnel costs including software and telecommunications
costs associated with operating the Company's reservation system, traveler
support, outside consultants, and commission sharing with affiliates. The
Company does not allocate the costs of facilities or other indirect expense
items attributable to revenue generation activities to cost of revenues.
Such costs and expenses are included in general and administrative
expenses.
Use of Estimates - Management of the Company has made estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
Common Stock-Based Compensation - The Company accounts for stock-based
compensation arrangements in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and complies with the disclosure provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, issued by the Financial Accounting Standards Board ("FASB").
Interim Financial Statements - The balance sheets as of June 30, 1999 and
1998, and the statements of operations, shareholders' equity (deficit) and
cash flows for the three month periods ended June 30, 1999 and 1998, have
been prepared by the Company without audit. In the opinion of management,
all adjustments (which included only normal, recurring adjustments)
necessary to present fairly the financial position at June 30, 1999 and
1998, and the results of operations and cash flows for the three months
ended June 30, 1999 and 1998, have been made. The results of operations for
the three months ended June 30, 1999, are not necessarily indicative of the
results to be expected for the full year.
Income Taxes - Income taxes are accounted for using an asset and liability
approach which requires the recognition of taxes payable or refundable for
the current year and deferred tax liabilities and assets for the temporary
differences between financial statement carrying amounts and related tax
bases of assets and liabilities. The measurement of current and deferred
tax liabilities and assets are based on provisions of the enacted tax law;
the effects of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced by a valuation allowance when
it is more likely than not that a tax benefit will not be realized by the
Company.
F-8
<PAGE>
Recently Issued Accounting Standards - In June 1998, Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities ("SFAS No. 133") was issued. SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 as amended by SFAS No. 137,
is effective for fiscal years beginning after June 15, 2000. Management is
in the process of evaluating the effect, if any, SFAS No. 133 will have on
its financial position and results of operations.
The Accounting Standards Executive Committee of 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. The provisions of SOP 98-1 are effective for fiscal years
beginning after December 15, 1998, and require that certain direct costs
associated with such development are capitalized and amortized and all
remaining costs must be expensed when incurred. Prior to the effective date
of SOP 98-1, the Company expensed all costs of computer software developed
for internal use. Management is currently evaluating the impact of SOP 98-1
and believes that costs similar in nature to costs expensed prior to the
SOP's effective date will be capitalized. However, management is unable to
determine the amount of costs expensed in periods prior to the effective
date that would have been capitalized had SOP 98-1 been effective during
these periods.
Net Income or Loss Per Share - The Company computes net income or loss per
share in accordance with SFAS No. 128, Earnings Per Share, which requires
dual presentation of basic earnings per share ("EPS") and diluted EPS.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31, June 30,
---------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Computer hardware and software $ 73,140 $ 52,630 $ 84,993 $ 55,776
Furniture and office equipment 16,634 10,322 17,453 11,122
--------- --------- --------- ---------
89,774 62,952 102,446 66,898
Less accumulated depreciation (43,429) (25,309) (48,165) (29,839)
--------- --------- --------- ---------
Net property and equipment $ 46,345 $ 37,643 $ 54,281 $ 37,059
========= ========= ========= =========
</TABLE>
Total depreciation expense for the years ended March 31, 1999 and 1998, and
the three month periods ended June 30, 1999 and 1998 (unaudited), was
$18,120, $20,378, $4,736 and $4,530, respectively.
F-9
<PAGE>
3. NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable consists of the following:
March 31, June 30,
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Line of credit bearing interest at 9.5%,
due September 1, 1999, interest due
monthly, collateralized by personal
guaranties of various shareholders $49,938 $44,438 $49,938 $34,438
Note payable, bearing no interest,
due July 1999 8,600 19,400 5,900 17,600
------- ------- ------- -------
58,538 63,838 55,838 52,038
Less portion due within one year 58,538 55,238 55,838 45,238
------- ------- ------- -------
Total notes payable
less current portion $ -- $ 8,600 $ -- $ 6,800
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Notes payable to stockholders consists of the following:
March 31, June 30,
----------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Note payable to stockholder, bearing
interest at 8.5%, due on demand,
unsecured $ -- $ 5,000 $ -- $ --
Note payable to stockholder, bearing
interest at 8.5%, due on demand,
unsecured -- 3,000 -- --
Note payable to stockholder, bearing no
interest, due on demand, unsecured 4,000 -- -- --
Note payable to stockholder, bearing
interest at 8.5%, due on demand,
unsecured 2,000 2,000 2,000 2,000
Note payable to stockholder, bearing
interest at 8.38%, due on demand,
unsecured 2,000 2,000 2,000 2,000
Note payable to stockholder, bearing no
interest, due on demand,
unsecured 2,000 2,000 2,000 2,000
------- ------- ------- -------
Total notes payable
to stockholders $10,000 $14,000 $ 6,000 $ 6,000
======= ======= ======= =======
The weighted average rate for notes payable at March 31, 1999 and 1998, and
June 30, 1999 and 1998 (unaudited), were 7.7%, 6.0%, 8.5%, and 6.5%,
respectively.
</TABLE>
4. RELATED PARTY TRANSACTIONS
A stockholder of the Company provides access to travel services for the
Company. The Company reimburses the stockholder on a periodic basis.
Amounts payable to the stockholder as of March 31, 1999 and 1998, and June
30, 1999 and 1998 (unaudited), were $15,378 and $15,357, $9,636, and
$4,564, respectively.
F-10
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various operating leases for property and
equipment as follows as of March 31, 1999:
Years ending March 31:
2000 $ 56,026
2001 32,753
2002 15,818
2003 782
---------
Total $ 105,379
=========
Total rental expense for the years ended March 31, 1999 and 1998, and the
three month periods ended June 30, 1999 and 1998 (unaudited), was
approximately $23,550, $17,710, $13,864 and $2,565, respectively.
6. INCOME TAXES
<TABLE>
<CAPTION>
Years Ended Three Month Periods
March 31, Ended June 30,
---------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Current tax expense $ 21,409 $ -- $ -- $ 11,753
Deferred tax expense (benefit) (15,393) (8,725) (266,652) (10,020)
Benefit of net operating
loss carryforward (21,409) -- -- (11,753)
Change in deferred tax asset
valuation allowance 15,393 8,725 266,652 10,020
</TABLE>
No provision for income taxes has been recorded because the Company has
predominantly incurred net losses since inception and the Company has
received no benefit for such losses. Management believes that, based on a
number of factors, the available objective evidence creates sufficient
uncertainty regarding the realizability of the deferred tax assets such
that a full valuation allowance has been recorded.
Net deferred tax assets at March 31, 1999 and 1998, and June 30, 1999 and
1998 (unaudited), are comprised of the following:
<TABLE>
<CAPTION>
March 31, June 30,
---------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforward $ 103,314 $ 124,723 $ 389,099 $ 112,970
Property and equipment -- 7,428 -- 5,319
Other 10,726 -- -- 114
--------- --------- --------- ---------
Total deferred tax assets 114,040 132,151 389,099 118,403
Liabilities:
Property and equipment 1,009 -- 956 --
Other -- 3,728 8,460 --
--------- --------- --------- ---------
Total deferred tax liabilities 1,009 3,728 9,416 --
--------- --------- --------- ---------
Net deferred tax assets 113,031 128,423 379,683 118,403
Deferred tax asset valuation allowance (113,031) (128,423) (379,683) (118,403)
--------- --------- --------- ---------
$ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
F-11
<PAGE>
The difference between the statutory rate of approximately 38% and the tax
expense (benefit) of zero recorded by the Company is primarily due to the
Company's full valuation allowance against its net deferred tax assets.
At March 31, 1999, the Company had available net operating loss
carryforwards of $270,988. These carryforwards expire from 2015 to 2018.
7. SHAREHOLDERS' EQUITY (DEFICIT)
During the year ended March 31, 1998, the Company issued 200,000 shares of
common stock in exchange for services provided by an outside party. The
shares issued were recorded at the estimated fair value of the services
provided, which was $8,110.
8. STOCK COMPENSATION (UNAUDITED)
On May 18, 1999, the stockholders of the Company unanimously voted to grant
stock bonuses to certain key employees of the Company. The number of shares
granted after giving retroactive effect to the subsequent stock dividend
totaled 650,000 shares. The Company has recognized compensation expense of
$650,000 in the statement of operations for the three month period ended
June 30, 1999 (unaudited), for the stock bonus. The compensation was based
on the stock price in transactions occurring near the date of the stock
grant.
9. EARNINGS PER SHARE
A reconciliation of shares used in calculation of basic and diluted and
unaudited pro forma net earnings per share follows:
<TABLE>
<CAPTION>
March 31, June 30,
------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Net income (loss) $ 27,484 $ (29,079) $ (747,151) $ 55,730
=========== =========== =========== ===========
Net income (loss) per common share:
Basic 0.01 (0.01) (0.29) 0.02
Diluted 0.01 (0.01) (0.29) 0.02
Reconciliation of weighted average shares:
Shares used in computing basic net
income (loss) per share 2,255,000 2,255,000 2,580,900 2,255,000
Shares used in computing diluted net income
(loss) per share 2,255,000 2,255,000 2,580,900 2,255,000
</TABLE>
There were no potentially dilutive securities as of March 31, 1999 and
1998, and June 30, 1999 and 1998 (unaudited).
F-12
<PAGE>
10. SUBSEQUENT EVENTS (UNAUDITED)
Certain stockholders of Sentry agreed to make capital contributions of
$500,000 to the Company in contemplation of the merger between the two
companies described in Note 1. The Company's right to keep the
contributions as equity was contingent upon completion of the merger. As of
June 30, 1999 (unaudited), approximately $200,000 of the contributions had
been received. The remaining $300,000 was received in July and August 1999.
Also, subsequent to the merger discussed in Note 1 to the financial
statements, TravelNow 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 September
2002 for 500,000 of the shares and September 2000 to September 2004 for
30,000 shares. Additionally, TravelNow entered into employment agreements
with employees providing for aggregate compensation from annual salaries of
$390,000 for a period of 5 years and debt forgiveness of $160,000 in the
employees' second year of employment.
On November 17 1999, TravelNow issued 25,000 shares of its common stock for
$250,000.
TravelNow 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 intended to be filed by TravelNow. 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 TravelNow to
purchase all of the shares and pay any accumulated dividends.
F-13
<PAGE>
<TABLE>
<CAPTION>
TRAVELNOW.COM INC.
STATEMENTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
Three Months Ended Six Months Ended
September 30 September 30
-------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total Revenues $ 1,023,452 $ 252,471 $ 1,404,901 $ 408,172
Cost of Revenues 511,120 115,143 795,334 165,570
----------- ----------- ----------- -----------
Gross Profit 512,332 137,328 609,567 242,602
----------- ----------- ----------- -----------
Operating Expenses
Sales and Marketing 34,647 1,505 64,166 7,740
General and Administrative 431,298 61,970 596,165 105,279
Stock-Based Compensation 0 0 650,000 0
----------- ----------- ----------- -----------
Total Operating Expenses 465,945 63,475 1,310,331 113,019
----------- ----------- ----------- -----------
Income/(Loss) Before Taxes 46,387 73,853 (700,764) 129,583
Provision for Income Taxes 0 0 0 0
----------- ----------- ----------- -----------
Net Income/(Loss) $ 46,387 $ 73,853 ($ 700,764) $ 129,583
=========== =========== =========== ===========
Average Number of Shares
Of Common Stock Outstanding 9,465,052 6,009,518 8,171,543 6,009,518
Net Income/(Loss) Per Share
Basic $ 0.005 $ 0.012 ($ 0.086) $ 0.022
Diluted $ 0.005 $ 0.012 ($ 0.086) $ 0.022
As a Percent of Total Revenues
- ----------------------------------
Total Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Revenues 50.0% 45.6% 56.6% 40.6%
----------- ----------- ----------- -----------
Gross Profit 50.0% 54.4% 43.4% 59.4%
----------- ----------- ----------- -----------
Operating Expenses
Sales and Marketing 3.4% 0.6% 4.6% 1.9%
General and Administrative 42.1% 24.5% 42.4% 25.8%
Stock-Based Compensation 0.0% 0.0% 46.3% 0.0%
----------- ----------- ----------- -----------
Total Operating Expenses 45.5% 25.1% 93.3% 27.7%
----------- ----------- ----------- -----------
Income/(Loss) Before Taxes 4.5% 29.3% (49.9%) 31.7%
Provision for Income Taxes 0.0% 0.0% 0.0% 0.0%
----------- ----------- ----------- -----------
Net Income/(Loss) 4.5% 29.3% (49.9%) 31.7%
=========== =========== =========== ===========
See notes to condensed financial statements.
F-14
</TABLE>
<PAGE>
TRAVELNOW.COM INC.
BALANCE SHEETS
SEPTEMBER 30, 1999
(Unaudited)
ASSETS
Cash and Cash Equivalents $ 234,473
Accounts Receivable 462,522
-----------
Current Assets 696,995
Property and Equipment - Net 90,602
Construction In Process - Software 164,455
Investment - Nippon TravelNow, K.K 42,468
-----------
Total Assets $ 994,520
===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts Payable $ 468,928
Accrued Liabilities 113,257
Notes Payable - Current Portion 0
Notes Payable to Stockholders 0
-----------
Current Liabilities 582,185
Notes Payable Less Current Portion 0
-----------
Total Liabilities 582,185
-----------
Common Stock 0
Additional Paid-In Capital 1,430,416
Accumulated Deficit (1,018,081)
-----------
Stockholders' Equity 412,335
-----------
Total Liabilities and Equity $ 994,520
===========
See notes to condensed financial statements.
F-15
<PAGE>
<TABLE>
<CAPTION>
TRAVELNOW.COM INC.
STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)
SIX MONTH PERIOD ENDED SEPTEMBER 30, 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 (700,764) (700,764)
Capital Contributions 0 0 499,985 0 499,985
Stock Bonus 1,732,233 6,500 643,500 0 650,000
Stock Issued 4,797 18 162 0 180
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 - SEPTEMBER 30, 1999 10,324,304 $ 0 $ 1,430,416 ($1,018,081) $ 412,335
=========== =========== =========== =========== ===========
See notes to condensed financial statements.
F-16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRAVELNOW.COM INC.
STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
1999 1998
--------- ---------
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income/(Loss) ($700,764) $ 129,583
Adjustments to reconcile net income/(loss) to
net cash provided by/(used in) operating activities:
Stock-based compensation 650,000 0
Depreciation and amortization 9,472 9,958
Loss on disposal of property and equipment 0 0
Changes in operating assets and liabilities:
Accounts receivable (355,960) (76,089)
Accounts payable 249,652 (9,565)
Accrued liabilities 68,661 (6,767)
--------- ---------
Net Cash Provided By/(Used In) Operating Activities (78,939) 47,120
--------- ---------
INVESTING ACTIVITIES:
Acquisition of property and equipment (53,729) (4,830)
Software Construction in Process (28,245) 0
Investment in Nippon TravelNow, K.K (42,468) 0
--------- ---------
Net Cash Used In Investing Activities (124,442) (4,830)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from capital contributions 499,985 0
Proceeds from sale of stock 180 0
Proceeds from notes payable to stockholders 0 0
Repayments of notes payable to stockholders (10,000) (8,000)
Proceeds from notes payable 0 10,000
Repayments of notes payable (58,538) (14,500)
--------- ---------
Net Cash Provided By/(Used In) Financing Activities 431,627 (12,500)
--------- ---------
Net Increase In Cash and Cash Equivalents 228,246 29,790
CASH AND CASH EQUIVALENTS:
Beginning of Period 6,227 3,849
--------- ---------
End of Period $ 234,473 $ 33,639
========= =========
NON-CASH TRANSACTIONS:
Acquisition of Software in Accounts Payable $ 136,210 $ 0
========= =========
See notes to condensed financial statements
F-17
</TABLE>
<PAGE>
TRAVELNOW.COM INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying condensed financial statements 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.
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.
F-18
<PAGE>
4. Capital Contributions
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.
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
$500,000, including the direct costs of Company personnel devoted to the
project, outside consulting fees and purchased software. Through September
30, 1999, the Company has incurred and capitalized $164,455 related to the
new system. Of this total, $136,210 represented consulting fees and $28,245
represented internal personnel costs.
6. Investment in Nippon TravelNow, K.K.
TravelNow has an ongoing affiliation with a Japanese company. In September
1999, TravelNow invested $42,468 in Nippon TravelNow, K.K., which provides
travel reservation services through the Internet to customers primarily in
Japan and Asia. This investment represents a 49.0% interest in the Japanese
company, and is carried on the equity method. The Japanese company's
operations from the date of the investment through September 30, 1999, were
not significant to TravelNow's financial position or results of operations.
7. Stock Options and Common Stock-Based Compensation
During the three month period ended September 30, 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 $56,984
would be amortized during the three months ended September 30, 1999. Net
income would be reduced by the same amount and earnings per share for the
three and six months ended September 30, 1999 would be reduced by $0.006
and $0.007, respectively. The amortized costs associated with each of the
two remaining quarters 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 six month period ended September 30, 1999.
These bonuses were initially reported in the Company's Form 10-KSB filed on
F-19
<PAGE>
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 10,324,304 TravelNow common shares currently outstanding.
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.
F-20
<PAGE>
------------------------------
------------------------------
TRAVELNOW.COM INC.
510,000 SHARES OF COMMON STOCK
TO BE SOLD BY THE HOLDERS THEREOF
----------
PROSPECTUS
----------
__________ , 2000
------------------------------
------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850 of the Florida Business Corporation Act gives TravelNow
the power to indemnify its directors and officers. Our Bylaws provide that:
The Corporation shall indemnify any director, officer, employee or
agent of the Corporation ("Indemnified Person") who was or is a party,
or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in the
right of the Corporation, by reason of the fact that such person is or
was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director,
officer, employee, partner or agent of another corporation,
partnership, joint venture, trust of other enterprise, against
expenses, judgment, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action,
suit or proceeding, including attorney fees, if such person acted in
good faith and in a manner such person reasonably believed to be in or
not opposed to the best interest of the Corporation; and, with respect
to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the Indemnified Person did not act
in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable
cause to believe that such person's conduct was unlawful.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs of expenses payable by us in
connection with the issuance and distribution of the securities being registered
hereunder. No expenses shall be borne by the selling security holders. All of
the amounts shown are estimates, except for the SEC Registration Fees.
Filing Fee .................................. $ 1,633.18
Legal Fees .................................. $107,000.00
Accounting Fees.............................. $ 27,000.00
Printing Fee................................. $ 20,000.00
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
As of March 31, 1996, there were issued 14,600 shares of authorized but
previously unissued common stock. Five employees received 9,745 shares in
exchange for services, and 4,855 shares were issued to nine shareholders in
exchange for cash in the amount of $241,125.00. Then, on September 2, 1996, we
authorized a three-for-one stock split bringing the total shares of our common
stock outstanding to 43,800 shares. Thereafter on or about February 19, 1997, we
issued 38,400 shares of our authorized but unissued common stock to two
shareholders for $1.00 per share bringing the total shares issued and
outstanding to 82,200.
Effective on March 21, 1997, we merged with Eleven Twelve Corporation, a
Missouri corporation, and underwent a recapitalization. As a result of that
merger, one shareholder holding 8,100 shares of our common stock was forced to
elect either appraisal rights or the stock's valuation of $1.00 per share. That
shareholder did not choose to pursue the statutory right of appraisal but
accepted $1.00 per share for each of the 8,100 shares. As a result of the merger
and recapitalization on March 21, 1997, twelve shareholders held 41,100 shares
of our issued and outstanding common stock, and we received additional cash
capital contributions of $7,000.00, for a total of $248,125.00 of capital
contributions in cash when added to the previous $241,125.00. In addition to the
capital contributions in cash, company promissory notes and trade receivables in
the amount of $47,500.00 were forgiven.
On June 7, 1997, pursuant to an exemption from the registration requirement
of the Securities Act of 1933 found in Section 4(2) we issued four thousand
(4,000) shares of our common stock in exchange for legal services on June 9,
1997 equal to 532,995 after adjusting for the results of a stock dividend issued
on May 25, 1999, the merger effective July 27, 1999 and stock dividend issued
July 28, 1999. The recipient, our legal counsel, had adequate access to the
information necessary to evaluate the risks attendant to the issuance of those
shares and represented that he was acquiring 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 affixed to the securities issued in such
transaction.
On May 18, 1999, we issued 13,000 shares of our authorized but unissued
common stock to five employees as a stock bonus. See "Shares Issued As a Stock
Bonus."
Thus, between August 6, 1995, and May 18, 1999, we issued a total of 58,100
shares to eighteen shareholders. The following table reflects the shares of our
stock issued in the foregoing transactions after giving effect to the stock
dividend on May 25, 1999, the merger on July 27, 1999 and the stock dividend on
July 28, 1999. Also included in the table below are 1,800 shares of our common
stock issued to a former employee on June 2, 1999 in exchange for $180.00
pursuant to an agreement previously entered into between us and the employee for
services rendered by that employee which agreement ended on September 30, 1998.
II-2
<PAGE>
- --------------------------------------------------------------------------------
Number of Shares issued by the Company Number of shares issued by the Company
between August 6, 1995 and May 25, 1999 between August 6, 1995 and May 25, 1999
adjusted for results of stock dividend
issued on May 25, 1999, Merger effective
July 27, 1999 and stock dividend issued
July 28, 1999
- --------------------------------------------------------------------------------
58,100 7,751,802 (1)
- --------------------------------------------------------------------------------
(1) See the material following the caption "Shares Eligible for Future
Sale."
These shares were issued pursuant to exemptions from the registration
requirements of the Securities act of 1933 found in Section 4(2). Each of the
recipients had adequate access to the information necessary to evaluate the
risks attendant to the issuance of those shares and represented that he or she
was acquiring the securities for investment only and not with any intention for
sale in connection with any distribution as reflected by appropriate legends
affixed to the securities issued in each of the foregoing transactions.
On November 17, 1999, pursuant to an exemption from the registration
requirement of the Securities Act of 1933 found in Section 4(2), the registrant
issued 25,000 shares of our common stock at $10.00 per share for a total
offering price of $250,000. The recipient, Finter Bank Z[upsilon]rich, was an
accredited investor with adequate access to the information necessary to
evaluate the risks attendant to the issuance of those shares and represented
that it was acquiring 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 affixed to the securities issued in such transaction.
On January 5, 2000, pursuant to an exemption from the registration
requirement of the Securities Act of 1933 found in Section 4(2), we issued
500,000 shares of Class A Convertible Preferred Stock at a price of $9.00 per
share for a total offering price of $4.5 million. The recipient, Raptor Global
Portfolio, Ltd., on its own behalf and on behalf of each of the Tudor Entities,
was an accredited investor with adequate access to the information necessary to
evaluate the risks attendant to the issuance of those shares and represented
that it was acquiring 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 to affixed to the securities issued in such transaction.
We have not issued any other equity securities during the period covered by
this registration statement.
Shares issued as a stock bonus.
- -------------------------------
At a special meeting of shareholders of TravelNow held on May 18, 1999 in
which all shareholders were present in person or by proxy, the shareholders of
TravelNow unanimously approved the following stock bonuses.
II-3
<PAGE>
<TABLE>
<CAPTION>
Stock bonuses issued on May 18,
1999 adjusted for results of stock
Number of Shares approved for dividend issued on May 25, 1999,
stock bonuses by Unanimous Vote Merger effective July 27, 1999 and
Employee of Shareholders - May 18, 1999 stock dividend issued July 28, 1999
- -------- ------------------------------ -----------------------------------
<S> <C> <C>
James Coopedge 500 66,624
Chris Lynch 500 66,624
Monica Tindal 100 13,325
Jeff Wasson 5,950 792,830
John Christopher Noble 5,950 792,830
----- -------
Total 13,000 1,732,233
</TABLE>
These bonuses were discretionary on our part and given in recognition of
the dedication of the recipients to their work on our behalf. The recipients
represented their intentions to hold 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 affixed to the securities issued in connection
with the foregoing stock bonuses.
Shares eligible for future sale.
- --------------------------------
Currently we have authorized, issued and outstanding 10,349,304 shares of
our common stock, no par value. Of these shares, 2,572,502 are unrestricted and
freely tradeable and 7,776,802 are restricted. In addition, we have authorized,
issued and outstanding 500,000 shares of our preferred stock, that are to be
automatically converted into our common stock upon the effective date of this
registration statement, effective as of the immediately preceding business day.
Therefore, upon the effective date of this registration statement, we will have
authorized, issued and outstanding 10,859,304 shares of common stock. Of those
shares, 3,082,502 will be unrestricted and freely tradeable, and 7,776,802 will
be restricted. Of the 7,776,802 restricted shares, 7,751,802 will become
eligible for sale in the public market beginning on July 26, 2000 pursuant to
Rule 144, and 25,000 will be eligible for sale in the public market beginning on
November 17, 2000, pursuant to Rule 144.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares for at least one year(including the holding
period of any prior owner except an affiliate) is entitled to sell within any
three-month period a number of shares that does not exceed the greater of: (1)
one percent of the number of total shares of common stock then outstanding
(which will equal 108,493 shares based on the shares outstanding as of the date
of this filing); or (2) the average weekly trading volume of the common stock on
the Nasdaq SmallCap Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale. The average weekly trading
volume on the OTC Bulletin Board for the four week period ending December 31,
1999 was 101,875. Sales under Rule 144 are also subject to certain manner of
sale provisions and notice requirements and to the availability of current
public information about TravelNow.
II-4
<PAGE>
ITEM 27. 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(f) Articles of Amendment to the Articles of Incorporation filed January
5, 2000
3.5(f) Articles of Amendment to the Articles of Incorporation 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 on October 4, 1999
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
5.0 Opinion regarding legality
5.1 Opinion of Shook, Hardy & Bacon L.L.P.
10 Material Contracts
10.1(e) Employment Agreement between the Company and John Christopher Noble,
approved October 4, 1999, effective July 27, 1999
10.2 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 Jeffery Alan Wasson,
approved October 4, 1999, effective July 27, 1999
10.4 Amended Employment Agreement between the Company and Jeffery Alan
Wasson, approved December 30,1999, effective January 1, 2000
10.5(e) Employment Agreement between the Company and Christopher R. Kuhn,
approved October 4, 1999, effective July 12, 1999
10.6(e) Employment Agreement between the Company and H. Whit Ehrler, approved
October 4, 1999, effective August 23, 1999
10.7(e) Stock Option Agreement between the Company and Christopher R. Kuhn,
approved October 4, 1999, effective
10.8(e) Stock Option Agreement between the Company and H. Whit Ehrler,
approved October 4, 1999, effective August 23, 1999
10.9(e) Stock Option Agreement between the Company and Craig Dayberry,
approved October 4, 1999, effective September 23, 1999
10.10(e) Employment Agreement between a former employee of the Company and the
Company, approved March 31, 1998, contract ending on September 30,
1998
10.11(e) Subscription Agreement between SABRE Inc. and the Company
10.12(e) Agreement by and between THISCO and the Company
10.13(e) Telecommunications Service Agreement between MCI/World.com and the
Company
10.14(e) Telecommunications Service Agreement between City Utilities of
Springfield, Springfield, Missouri, and the Company
10.15(e) Office lease between the Company as Lessee and Warren Davis Properties
II, L.L.C., Lessor, and Addendum thereto dated
10.16(f) TravelNow.com Inc. Class A Convertible Preferred Stock Purchase
Agreement
II-5
<PAGE>
ITEM 27. EXHIBITS CONTINUED
Exhibit
Number Document Name and Location
- ---------------------------------------------------------------
16 Letter on change in Certifying Accountant
16.1(d) Letter regarding change in Certifying Accountant
23.0 Consent of experts and counsel
23.1 Consent of Shook, Hardy & Bacon L.L.P. contained in Exhibit 5
23.2 Consent of Deloitte & Touche LLP
- ----------
(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-QSB filed August 16, 1999
(file no. 0-25357)
(d) Filed as an exhibit to Report on Form 8-K-A filed August 13, 1999
(file no. 0-25357)
(e) Filed as an exhibit to Report on Form 10-KSB filed October 12, 1999
(file no. 0-25357)
(f) Filed as an exhibit to Report on Form 8-K filed January 28, 2000 (file
no. 0-25357)
ITEM 28. UNDERTAKINGS
We undertake to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective amendment
thereof) which, individual or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement; notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering set forth
in the "Calculation of Registration Fee" table in the effective Registration
Statement, and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
We undertake that, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of these securities at that time shall be deemed to be the initial bona
fide offering thereof.
We undertake to remove from registration by means of a post-effective
amendment any of the securities being registered, which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons, we
have been advised that in the opinion of the Commission this indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
II-6
<PAGE>
than the payment by the Company of expenses incurred or paid by one of our
directors, officers or controlling persons in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A(b)(1) or (4) or 497(h) under
the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time if was declared effective.
For purposes of determining any liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered, and the
offering of these securities at that time shall be deemed to be the initial bona
fide offering.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Springfield, State of Missouri, on February 4, 2000.
TRAVELNOW.COM INC.
By: /s/ Jeffery Alan Wasson
- ---------------------------
Jeffery Alan Wasson
Co-Chief Executive Officer, Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
By: /s/ John Christopher Noble
- ------------------------------
John Christopher Noble
Co-Chief Executive Officer, Director
Date: February 4, 2000
By: /s/ H. Whit Ehrler
- ----------------------
H. Whit Ehrler
Chief Financial Officer
Date: February 4, 2000
By: /s/ Bill Perkin
- -------------------
Bill Perkin
Director
Date: February 4, 2000
By: /s/ Jerry Rutherford
- ------------------------
Jerry Rutherford
Director
Date: February 4, 2000
Law Offices
---------------------------
SHOOK, HARDY & BACON L.L.P.
Overland Park 1010 Grand Boulevard, 5th Floor London
Houston Post office Box 15607 Zurich
Washington, D.C. Kansas City, Missouri 64106-0607 Geneva
San Francisco Telephone (816) 474-6550 Melbourne
Miami Facsimile (816) 842-3190 Buenos Aires
January 31, 2000
TravelNow.com Inc.
318 Park Central East, Suite 306
Springfield, Missouri 65806
Re: Validity of 510,000 Shares of Common Stock, no Par Value Per
Share, of TravelNow.com Inc.
Ladies and Gentlemen:
As counsel for TravelNow.com Inc., a Florida corporation (the
"Company"), we have participated in the preparation and filing of the
Registration Statement on Form SB-2 (the "Registration Statement"), for the
registration under the Securities Act of 1933, as amended, of up to 510,000
shares of Common Stock, no par value per share, of the Company (the "Common
Stock").
In connection with this opinion, we have assumed the authenticity of
all records, documents and instruments submitted to us as originals, the
genuiness of all signatures, the legal capacity of natural persons, and the
conformity to the originals of all records, documents and instruments submitted
to us as copies. We have based our opinion upon our review of the following
records, documents and instruments:
1. The Articles of Incorporation, as amended, of the Company certified
by the Secretary of State of the State of Florida as of January 31, 2000 and
certified to us by an officer of the Company as being complete and in full force
and effect as of the date of this opinion;
2. The Bylaws of the Company certified to us by an officer of the
Company as being complete and in full force and effect as of the date of this
opinion;
3. The minutes of various meetings of the Board of Directors of the
Company;
4. All such records of the Company and all such agreements,
certificates of public officials, certificates of officers and representatives
of the Company; and
<PAGE>
TravelNow.com Inc.
January 31, 2000
Page 2
5. Such other documents, papers, statutes and authorities as we have
deemed necessary to form the basis of the opinion hereinafter expressed.
In addition to the examination outlined above, we have conferred with
various officers of the Company and have ascertained or verified to our
satisfaction such additional facts as we deemed necessary or appropriate for the
purpose of this opinion.
Based on the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of Florida.
2. The Company's Articles of Incorporation, as amended, authorizes
Fifty Million (50,000,000) shares of Common Stock, no par value per share, and
Twenty-Five Million (25,000,000) shares of Preferred Stock, no par value per
share.
3. Subject to the effectiveness of the Registration Statement, all
legal and corporate proceedings necessary for the authorization and issuance of
the Common Stock to be sold pursuant to the Registration Statement have been
duly taken and the Common Stock is validly authorized, validly issued, fully
paid and nonassessable.
We hereby consent to all references to the undersigned in the
Registration Statement and the prospectus contained therein, and in all
amendments thereto, and to the filing of this opinion by the Company as an
exhibit to such Registration Statement or any amendments thereto.
Very truly yours,
/s/ Shook, Hardy & Bacon
------------------------
Shook, Hardy & Bacon
AMENDMENT NO. 1 TO THE EMPLOYMENT
AGREEMENT BY AND BETWEEN
TRAVELNOW.COM INC AND JOHN CHRISTOPHER NOBLE
This Amendment No. 1 dated as of January 1, 2000 ("Amendment No. 1")
to that certain Employment Agreement, dated October 1, 1999, (the "Agreement"),
by and between TRAVELNOW.COM INC., a Florida corporation (the "Company"), and
JOHN CHRISTOPHER NOBLE, has been made and entered into by and among the Company
and John Christopher Noble.
WHEREAS, the Compensation Committee recommended to the Board of
Directors an increase in salary, effective January 1, 2000, for the remaining
term of the Agreement;
WHEREAS, the Board of Directors approved and ratified the
recommendation;
WHEREAS, the parties desire to modify and amend certain terms in the
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, and intending to be legally bound hereby, the
parties hereto agree to amend the Agreement as follows:
Section 3. COMPENSATION; REIMBURSEMENT
Section 3.1. Base Salary, of the Agreement shall be replaced entirely
with the following:
For all services rendered by Executive under this
Agreement, the Company shall pay Executive a base salary of
One Hundred Fifty Thousand Dollars ($150,000) per annum,
payable bi-weekly in equal installments (the "Base Salary").
The amount of the Base Salary may be increased at any time
and from time to time by the Board of Directors of the
Company, and shall be adjusted annually to reflect changes
in the Consumer Price Index for the statistical area in
which the residence of Executive is located. No such change
shall in any way abrogate, alter, terminate or otherwise
affect the other terms of this Agreement.
Section 2. Defined Terms. All capitalized terms not defined herein
shall have the meanings assigned to them in the Agreement.
Section 3. Counterparts. This Amendment No. 1 may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
<PAGE>
Section 4. Governing Law. This Amendment No. 1 shall be governed by,
and construed in accordance with, the laws of the State of Missouri without
regard to its laws or regulations relating to conflicts of laws.
Section 5. Entire Agreement. This Amendment No. 1 together with the
Agreement, embodies the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and understandings relating thereto.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be
executed as of the date first above written.
EXECUTIVE
By: /s/ John Christopher Noble
------------------------------
Name: John Christopher Noble
Title: Co-Chief Executive Officer
TRAVELNOW.COM INC.
By: /s/ Jeff Wasson
-------------------
Name: Jeff Wasson
Title: Co-Chief Executive Officer
AMENDMENT NO. 1 TO THE EMPLOYMENT
AGREEMENT BY AND BETWEEN
TRAVELNOW.COM INC AND JEFF WASSON
This Amendment No. 1 dated as of January 1, 2000 ("Amendment No. 1")
to that certain Employment Agreement, dated October 1, 1999, (the "Agreement"),
by and between TRAVELNOW.COM INC., a Florida corporation (the "Company"), and
JEFF WASSON, has been made and entered into by and among the Company and Jeff
Wasson.
WHEREAS, the Compensation Committee recommended to the Board of
Directors an increase in salary, effective January 1, 2000, for the remaining
term of the Agreement;
WHEREAS, the Board of Directors approved and ratified the
recommendation;
WHEREAS, the parties desire to modify and amend certain terms in the
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, and intending to be legally bound hereby, the
parties hereto agree to amend the Agreement as follows:
Section 3. COMPENSATION; REIMBURSEMENT
Section 3.1. Base Salary, of the Agreement shall be replaced entirely
with the following:
For all services rendered by Executive under this
Agreement, the Company shall pay Executive a base salary of
One Hundred Fifty Thousand Dollars ($150,000) per annum,
payable bi-weekly in equal installments (the "Base Salary").
The amount of the Base Salary may be increased at any time
and from time to time by the Board of Directors of the
Company, and shall be adjusted annually to reflect changes
in the Consumer Price Index for the statistical area in
which the residence of Executive is located. No such change
shall in any way abrogate, alter, terminate or otherwise
affect the other terms of this Agreement.
Section 2. Defined Terms. All capitalized terms not defined herein
shall have the meanings assigned to them in the Agreement.
Section 3. Counterparts. This Amendment No. 1 may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
<PAGE>
Section 4. Governing Law. This Amendment No. 1 shall be governed by,
and construed in accordance with, the laws of the State of Missouri without
regard to its laws or regulations relating to conflicts of laws.
Section 5. Entire Agreement. This Amendment No. 1 together with the
Agreement, embodies the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and understandings relating thereto.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be
executed as of the date first above written.
EXECUTIVE
By: /s/ Jeff Wasson
-------------------
Name: Jeff Wasson
Title: Co-Chief Executive Officer
TRAVELNOW.COM INC.
By: /s/ John Christopher Noble
------------------------------
Name: John Christopher Noble
Title: Co-Chief Executive Officer
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of TravelNow.com on Form
SB-2 of our report dated October 1, 1999 (January 5, 2000, as to the third and
fourth paragraphs of Note 10), appearing in the Prospectus, which is part of
this Registration Statement and to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Deloitte & Touche, LLP
- --------------------------
Deloitte & Touche, LLP
Little Rock, AR
February 2, 2000
