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As filed with the Securities and Exchange Commission on December 10, 1999
SEC Registration No. 333-78443
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
AMENDMENT NO. THREE
TO
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
TRAVELNSTORE.COM, INC.
(Name of Small Business Issuer in its Charter)
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California 7399 77-0507163
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation) Classification Identification Code Identification Number)
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1320 Flynn Road, Suite 402
Camarillo, California 93012
(805) 388-9004
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
Jim B. Tyner, Chief Executive Officer
1320 Flynn Road, Suite 402
Camarillo, California 93012
(805) 388-9004
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Bruce W. McRoy, Esq.
Reicker, Clough, Pfau & Pyle, LLP
1421 State Street, Suite B
Santa Barbara, California 93101
(805) 966-2440 - TEL
(805) 966-3320 - FAX
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER SHARE OFFERING FEE
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common stock, no par value 1,000,000 shares $6.50 $6,500,000 $1,807*
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common stock, no par value 153,847 shares** $0.001 $ 100 $ 1*
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* Estimated solely for the purpose of calculating the registration fee.
** Shares issuable upon exercise of stock option (See, "CERTAIN
TRANSACTIONS - Option Sweepstakes".)
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities & Exchange Commission, acting pursuant
to said Section 8(a), may determine.
PROSPECTUS SUBJECT TO COMPLETION; DATED ______________
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PROSPECTUS
INITIAL PUBLIC OFFERING PROSPECTUS
1,000,000 shares of common stock
$6.50 per share
TravelnStore.com, Inc.
1320 Flynn Road, Suite 402
Camarillo, California 93012
(805) 388-9004
We operate a Web site on the Internet through which users of travel services
access travel service providers and retail travel agencies.
The Offering
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OFFERING PROCEEDS
PER SHARE MINIMUM MAXIMUM
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Public offering price $ 6.50 $2,000,000 $6,500,000
Underwriting discounts
and commissions $ 0.00 $ 0.00 $ 0.00
Proceeds to us $ 6.50 $2,000,000 $6,500,000
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This is our initial public offering. TravelnStore.com, Inc. will offer
and sell the shares covered by this offering directly to the investors. Our
officers and directors who will participate in the offer and sale of the shares
of common stock on behalf of the Company are Jim B. Tyner, Chairman and Chief
Executive Officer, John R. Toal, President and Chief Operating Officer, and
Peggy Murray, Director of Investors Relations. We have not retained any
underwriter or broker/dealer to assist in the offer and sale of the shares.
However, we reserve the right to engage one or more broker/dealer(s) to assist
in the offer and sale of the shares.
This Prospectus also covers 153,847 shares of common stock issuable upon
exercise of a Stock Option granted by us in a Sweepstakes conducted on our Web
site. (See, "CERTAIN TRANSACTIONS Option Sweepstakes.")
There is no public market for the shares covered by this offering. The
shares initially will not be listed on any exchange or through the Nasdaq
quotation system.
The price at which the shares of common stock may be resold after the
offering may not reflect the market price of our shares after the offering.
----------------
INVESTING IN COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed.
We cannot sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and it is not soliciting an offer to buy these
securities in any state where such an offer or sale is not permitted.
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TRAVELNSTORE.COM, INC.
LOGO
REPLICATION OF SELECTED SCREENS FROM TRAVELNSTORE.COM WEB SITE
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY....................................................... 6
RISK FACTORS............................................................. 9
DIVIDENDS................................................................ 15
USE OF PROCEEDS.......................................................... 15
DILUTION................................................................. 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................... 18
BUSINESS................................................................. 22
MANAGEMENT............................................................... 38
PRINCIPAL STOCKHOLDERS................................................... 43
CERTAIN TRANSACTIONS..................................................... 45
DESCRIPTION OF CAPITAL STOCK............................................. 48
PLAN OF DISTRIBUTION..................................................... 51
LEGAL MATTERS............................................................ 54
EXPERTS.................................................................. 55
ADDITIONAL INFORMATION................................................... 55
INDEX TO FINANCIAL STATEMENTS............................................ F-1
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
Prospectus. This summary may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
Prospectus carefully, including "Risk Factors" and the financial statements,
before making an investment decision.
OUR BUSINESS
We created, maintain and promote the TravelnStore.com Web site which acts as a
navigational site to the proprietary Web sites created by a wide array of travel
service providers such as cruise lines, tour companies, car rental firms,
destination resorts and hotel groups. Unlike other Internet travel companies, we
do not directly sell travel services over the Internet.
Our business is to provide a vehicle through which customers can identify and
contact travel service providers and retail travel agents to purchase travel
services. Through our Certificates of Value we receive from the travel service
providers commissions and override fees with respect to these purchased
services. Our Certificates of Value for the various travel services to which
TravelnStore.com provides links. These Certificates may be redeemed for
discounts, upgrades or other premiums at any of the retail travel agencies in
the United States. We receive a commission or override from the travel service
provider for each Certificate that is redeemed.
We also recruit individual travel agencies, for a fee, to co-host the
TravelnStore.com Web site within their own market areas. The co-host agencies
are linked to the travel service providers' presentation of their travel
services on the Internet. This provides the co-host agency the opportunity to
market its services to our customer who is researching the travel services.
Typically a person who has used our Web site to research their trip uses a
travel agent to complete their purchase of the travel services.
TravelnStore.com was initially organized as a limited liability company on
August 18, 1998. Effective as of April 15, 1999, the limited liability company
was merged into TravelnStore.com, Inc., a California corporation, incorporated
March 4, 1999. Our principal executive offices are located at 1320 Flynn Road,
Suite 402, Camarillo, California 93012 and our telephone number is (805)
388-9004.
OUR OFFERING
Type of Securities Common stock
Minimum Shares to be Offered 308,000
Maximum Shares to be Offered 1,000,000
Maximum Shares Outstanding after
this Offering 10,715,378* shares of common stock and
8,154 shares of Series A Preferred Stock
* Based upon shares outstanding as of August 25, 1999, after giving effect
to a 2-for-1 stock split that was effective as of August 25, 1999.
Includes 315,378 shares of common stock reserved for issuance upon
conversion of $430,000 in principal amount of Convertible Promissory
Notes currently outstanding and with respect to which the holders have
advised us that they will convert the Notes as of the effective date of
this offering. Excludes: (i) 1,000,000 shares of common stock reserved
for issuance under TravelnStore.com's 1999 Equity Incentive Plan; (ii)
up to 153,847 shares issuable upon exercise of one outstanding Stock
Option; (iii) 24,462 shares of common stock reserved for issuance upon
conversion of 8,154 shares of Series A Preferred Stock currently
outstanding; and (iv) 30,767 shares of common stock reserved for
issuance upon conversion of $60,000 in principal amount of Convertible
Promissory Notes currently outstanding.
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Minimum Subscription The investor must purchase at least 300
shares of common stock for a minimum
investment of $1,950
Suitability Standards Each individual investor must have a net
worth of at least $250,000 or a net
worth of at least $150,000 and gross
income for each of the last two years of
at least $50,000, and anticipates having
at least that level of gross income for
the current tax year. For an investor
who is not an individual, either the
entity must have total assets of at
least $250,000 or the amount of the
investment must not exceed 5% of the
entity's total assets. In addition, the
amount of the investment by any investor
may not exceed 10% of the net worth of
the investor.
Interim Closing TravelnStore.com will not close on any
subscriptions until it has received
subscriptions for at least 308,000
shares. If it does not receive such
subscriptions by __________________,
____, TravelnStore.com will promptly
refund all monies, without interest, and
terminate this offering. After accepting
subscriptions for a minimum of 308,000
shares, TravelnStore.com may accept
subscriptions for additional shares as
they are received. TravelnStore.com will
not accept any subscriptions after
__________________, ____.
There can be no assurance that
TravelnStore.com will be able to sell
more than the minimum number of shares
covered by this offering
Use of Proceeds Enhancement and marketing of the
TravelnStore.com Web site; recruitment
of co-host travel agencies, expansion of
facilities, additional staff and
management, acquisition of
computer-related equipment,
establishment of strategic
relationships, payment of trade
payables, retirement of debt, general
and administrative purposes, and working
capital.
No Current Trading Market There is no public market for the shares
covered by this offering. After the
offering, the shares initially will not
be listed on any exchange or through
Nasdaq or any other quotation source.
After the closing of the offering, we
will seek to list our common stock on
the Philadelphia Stock Exchange or the
OTC Electronic Bulletin Board
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SUMMARY FINANCIAL DATA
The selected historical financial data presented below are derived from
the financial statements of TravelnStore, LLC, at the end of this Prospectus.
The financial statements for the period August 18, 1998 (date of inception) to
December 31, 1998 have been audited by Farber & Hass LLP, independent
accountants. The selected financial data set forth below and the financial
statements at the end of this prospectus are for TravelnStore.com, LLC, a
California limited liability company. Effective as of April 15, 1999, the
limited liability company was merged into TravelnStore.com, Inc., a California
corporation and the Registrant. The corporation had no operations prior to its
acquisition of the limited liability company.
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AT DECEMBER 31, 1998 AT AUGUST 31, 1999
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Balance Data Sheet
Cash, cash equivalents and
short-term
Investments $ 19,045 $ 21,236
Total Assets $ 81,970 $ 281,174
Current Liabilities $ 296,847 $ 845,864
Working Capital $ (214,877) $ (581,669)
Long-Term Debt $ 225,000 $ -0-
Stockholders' Equity $ (307,914) $ (564,690)
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FOR THE PERIOD AUGUST 18, FOR THE EIGHT MONTHS ENDED
1998 (DATE OF INCEPTION) AUGUST 31, 1999
THROUGH DECEMBER 31, 1998 --------------------------
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Statement of Operations Data
Revenues $ 23,128 $ 31,934
Operating Expenses $ 326,356 $ 417,536
Other Income (Expense) $ (4,086) $ (1,786,061)
Net Income (Loss) $ (308,114) $ (2,171,663)
Net Income (Loss)
Per common share* $ (0.03) $ (0.23)
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* Based on 9,000,000 and 9,400,000 shares of common stock issued and outstanding
as of December 31, 1998 and August 31, 1999, respectively. The per share numbers
reflect a 2-for-1 stock split that was effective as of August 25, 1999.
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RISK FACTORS
Investing in common stock is risky. You should carefully consider the following
risk factors and all other information contained in this Prospectus before
purchasing our common stock. Additional risks and uncertainties that are not yet
identified or that we currently think are immaterial may also materially
adversely affect our business and financial condition in the future. Any of the
following risks could materially adversely affect our business, operating
results and financial condition and could result in a complete loss of your
investment.
RISKS ASSOCIATED WITH OUR COMPANY
WE WERE ORGANIZED IN JULY 1998, HAVE A LIMITED OPERATING HISTORY AND WE
MAY NOT BE ABLE TO SUPPORT A PUBLIC MARKET FOR OUR STOCK.
We are subject to all the risks inherent in the establishment and
expansion of a new business enterprise. In general, startup businesses are
subject to risks and/or levels of risk that are often greater than those
encountered by companies with established operations and relationships. Our
business plan is unproven and we must be able to adapt as we grow. Companies at
this point in their business life seldom seek to register and offer stock in a
public offering. Consequently, you are being asked to invest at an earlier stage
in our growth than is typically the case in an initial public offering. This
Offering carries a higher degree of risk than a typical initial public offering
of stock.
WE EXPECT THAT OUR OPERATING LOSSES WILL CONTINUE AND THAT WE MUST USE
THE PROCEEDS OF THIS OFFERING TO SUPPORT OUR OPERATIONS.
There is no assurance that revenue generated by our sales will be
sufficient to fund operations. We expect to incur losses for the foreseeable
future due to the significant costs associated with the development and
marketing of our services. We expect our operating losses to continue until such
time as our sales generate sufficient revenues to generate a profit.
If we do not raise our minimum goal of $2,000,000 in this Offering and
we are unable to arrange alternative financing, there will most likely be
substantial doubt as to our ability to continue as a going concern. Consequently
our independent auditors have qualified their report on our financial condition
because there is substantial doubt as to our ability to continue as a going
concern. See "Management Discussion and Analysis of Financial Condition and
Results of Operation."
As of August 31, 1999, our accumulated deficit was $2,475,000. After
giving effect to the conversion of Convertible Promissory Notes in the aggregate
principal amount of $430,000, which conversion will occur as of the effective
date of this offering, our accumulated deficit as of August 31, 1999, would be
$2,045,777.
WE MUST HIRE AND RETAIN ADDITIONAL RELIABLE PERSONNEL, INCLUDING A CHIEF
FINANCIAL OFFICER, IN ORDER TO BE ABLE TO ACHIEVE OUR PLAN.
KEY PERSONNEL. We are dependent on the efforts and relationships of Jim
Tyner, John Toal and our other executive officers for our business
operations. We must hire additional management personnel who are
experienced in the travel industry to support and expand our
relationships with travel service providers. There can be no assurance
that Mr. Tyner, Mr. Toal or any of our other executive officers will
remain with us or that we will be able to identify and retain the
additional personnel. If we are not able to hire and retain these
personnel, it will be more difficult to establish and maintain our
relationship with travel service providers and retail travel agencies.
In turn, this could limit our ability to realize income from our
Certificates of Value.
CHIEF FINANCIAL OFFICER. Richard Bush is our Chief Financial Officer.
Mr. Bush currently also serves as the Vice President of Finance of
Fairfield Manufacturing, Inc. which is located in West Lafayette,
Indiana. Mr. Bush has agreed to serve as our Chief Financial Officer on
an interim basis. If we do not hire a full time C.F.O. prior to Mr.
Bush's resignation, our ability to manage our financial reports and
thereby our ability to manage our business may be adversely affected.
WE MAY REQUIRE CAPITAL IN ADDITION TO THE MINIMUM PROCEEDS OF THIS
OFFERING TO FUND OUR OPERATIONS.
We anticipate that the minimum proceeds of the Offering will be
sufficient to meet our cash requirements for a period of 12 months following the
closing of the offering. If we need additional capital to establish our desired
market position or for other reasons, there can be no assurance that such
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capital will be available or will be available on terms that are acceptable to
TravelnStore.com. We anticipate that we will not be able to obtain such
additional capital from banks or similar financial institutions.
OUR FINANCIAL FORECASTS ARE ONLY OUR ESTIMATES OF EXPECTED PERFORMANCE AND
SHOULD NOT BE RELIED ON AS ACCURATE INDICATORS OF PERFORMANCE IN THE
DEVELOPING E-COMMERCE TRAVEL INDUSTRY.
We can give no assurance that we will be able to achieve our forecasts.
Many of the assumptions on which we have based our forecasts inevitably will not
materialize and unanticipated events will occur for any number of reasons,
including the following:
- Changes in general economic conditions and other factors that
affect demand for travel services;
- Changes in the travel industry itself;
- Changes in our relationships with travel suppliers;
- Competitive factors including changes in travel services
distribution and payment methods; and
- The success of TravelnStore.com's operating and growth
strategies.
Our actual results of operations likely will vary from the forecasts and
the variations may be material. The forecasts are included solely to give you
information concerning our best estimates of future operating results based upon
certain assumptions. We make no representation that such results will be
achieved. Our independent accountants have not compiled or examined these
forecasts and are not offering an opinion or any form of assurance of their
accuracy.
WE MAY WISH TO GROW MORE RAPIDLY THROUGH THE ACQUISITION OF ONE OR MORE
EXISTING BUSINESSES. OUR ACQUISITION OF AN EXISTING BUSINESS WILL CREATE
NEW RISKS AND CHALLENGES WHICH MIGHT ADVERSELY EFFECT OUR ABILITY TO
ACHIEVE OUR BUSINESS PLAN.
We may seek to increase our revenues, expand our markets or increase our
products and services in part through the acquisition of existing travel or
Internet related businesses. Recent experience shows that businesses that
operate primarily through an Internet presence may need to acquire or combine
with other businesses in order to maintain or enhance market position. We have
neither identified nor commenced negotiations with any business which we intend
to acquire.
Acquisitions would expose us to increased risks, including, but not
limited to:
- Risks associated with assimilating the new operations and
personnel;
- The diversion of resources from our existing operations;
- The inability to generate revenues from such new acquisitions
sufficient to offset associated acquisition costs;
- The establishment and maintenance of uniform standards,
procedures and policies and the impairment of relationships with
employees and customers as a result of the integration of new
operations and employees;
- Additional expenses associated with amortization of acquired
intangible assets or potential businesses; and
- Customer dissatisfaction or performance problems at an acquired
company could have an adverse effect on our reputation.
Decisions regarding acquisitions are the sole prerogative of our
management. We will use our best efforts to undertake a thorough due diligence
review of any acquisition candidate prior to committing to the acquisition.
However, there can be no assurance that businesses we acquire will achieve the
anticipated revenues and earnings.
Should we elect to undertake acquisitions, part or all of the funds
utilized for those acquisition(s) may come from a portion of the funds generated
by this Offering. This amount is projected not to exceed $50,000 at our minimum
subscription, and $250,000 at
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our maximum subscription. We may elect to use other consideration for
acquisitions such as stock and/or other securities. If we issue additional stock
or securities to make an acquisition, your share position likely will be
diluted.
There are no assurances that, if we seek to pursue any acquisition, we
will be able to assemble the stock, securities or other consideration needed to
complete the acquisition. If we are unable to assemble the needed consideration,
we may be unable to implement an acquisition strategy. You should not subscribe
to this Offering with the expectation that we will be able to grow based upon an
acquisition strategy.
WE MAY ISSUE ADDITIONAL STOCK IN FUTURE YEARS AS PART OF OUR OVERALL
AGENCY RECRUITMENT EFFORTS.
In order to recruit retail travel agencies into the TravelnStore.com
Co-host Agency program and the TravelnStore.com World Key Branded Agency program
we may offer stock incentives to individual travel agencies. Assuming that these
offers may average 2,000 shares per agency, vest over a four-year period, and be
offered to a maximum of 2,500 agencies, this would require that we issue up to
1,.250,000 additional shares per year for each of the four years. Whatever
shares are issued in conjunction with these recruitment programs will dilute the
ownership of the then existing stockholders.
HISTORICALLY, THE TRAVEL INDUSTRY HAS BEEN SUBJECT TO CYCLICAL TRENDS THAT
IMPACT THE PERFORMANCE OF BUSINESSES OPERATING IN THE TRAVEL INDUSTRY.
There are traditional cycles and fluctuations that can adversely affect
the travel industry. Leisure travel is dependent upon personal discretionary
spending levels and is sensitive to changes in economic conditions. Travel
purchases tend to decline during general economic downturns and recessions. The
travel industry is highly susceptible to unforeseen events such as political
instability, regional hostilities, fuel price escalation, travel-related
accidents and unusual weather patterns. Also, governmental regulations can
directly or indirectly increase the cost of travel or influence the way people
travel and/or their respective destinations. Any event which results in
decreased travel generally likely would adversely effect our business.
TRAVEL SERVICE PROVIDERS DO NOT HAVE TO MAKE THEIR SERVICES AVAILABLE TO
VISITORS TO TRAVELNSTORE.COM.
If there were a substantial change in the marketing methodology of one
or more travel service providers, we may not be able to offer their services
through our Web site. If this were to happen, it could severely restrict the
scope of the travel services which could be accessed through TravelnStore.com.
This could reduce the volume of our business and adversely effect our revenues.
WE WILL COMPETE WITH COMPANIES THAT ARE ESTABLISHED AND BETTER FINANCED.
AS THE SUCCESS OF A WEB SITE OFTEN IS DIRECTLY RELATED TO THE PROMOTION
OF SUCH WEB SITE, THESE ESTABLISHED COMPANIES MAY BE ABLE TO ESTABLISH
MARKET DOMINANCE THROUGH THEIR PROMOTIONAL ACTIVITIES.
Many of the travel related Web sites on the Internet are owned and
operated by companies who are established and better financed than are we. Many
have already obtained exclusive agreements with the large portal sites and have
already invested considerably in establishing their brand names on the Internet.
We must invest in advertising, promotion and establishing any strategic
relationships to effectively compete for Internet consumers. We may not be able
to compete at a level that will be sufficient to execute our business plan.
THE GROWTH OF THE INTERNET AND E-COMMERCE MAY BE ADVERSELY EFFECTED OR
RESTRICTED BY GOVERNMENT REGULATIONS OR TAXES THAT ARE ADOPTED IN THE
FUTURE.
Currently there are few laws or regulations that specifically regulate
communications or commerce on the Internet. As a result, customer access to Web
sites generally is unrestricted and the use of the Internet has grown
dramatically. Laws and regulations may be adopted in the future that tax
Internet transactions and/or address issues such as user privacy, pricing, and
the characteristics and quality of products and services. Any new laws or
regulations relating to the Web could restrict access to the Internet and
thereby adversely affect our business.
WE RELY ON THIRD PARTY SERVICE PROVIDERS TO MAINTAIN OUR WEB SITE AND DO
NOT HAVE AN IN-HOUSE STAFF WHO ARE CAPABLE OF MAINTAINING OUR WEB SITE
OR INFORMATION SYSTEMS.
We rely on third parties for our Web site operations. If our Web site or
information systems fail, they could disrupt or delay user traffic, which could
impair our business. Substantially all of our Web site communications hardware
and computer hardware
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operations are located at Zest.Net's facilities in Ventura, California. Zest.Net
provides Web site hosting services. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems and cause interruptions in our services. Computer viruses, electronic
break-ins or other similar disruptive problems could result in the reduction or
termination of our services by our customers or otherwise adversely affect our
Web site. Our business could be adversely affected if our systems were affected
by any of these occurrences. We currently do not maintain insurance to cover
these business risks. We do not have a formal disaster recovery plan.
Our Web site must be able to accommodate a high volume of traffic and
deliver frequently updated information. Our Web site has experienced, and may in
the future experience, slower response times or decreased traffic for a variety
of reasons. In addition, our users depend on Internet service providers, online
service providers and other Web site operators for access to our Web site. Many
of them have experienced, and could experience in the future outages, delays and
other difficulties due to system failures unrelated to our systems. Moreover,
the Internet network infrastructure may not be able to support continued growth.
Any of these problems could adversely affect our business.
RISKS ASSOCIATED WITH THIS OFFERING
WE ARE OFFERING AND SELLING THE SHARES COVERED BY THIS OFFERING
OURSELVES AND YOU DO NOT HAVE THE BENEFIT OF DEALING WITH AN UNDERWRITER
OR BROKER/DEALER TO ASSIST IN THE EVALUATION OF THIS OFFERING OR OUR
BUSINESS.
We are making this Offering without the benefit of an underwriter.
Underwriters typically review a company in great detail as part of their due
diligence process. No underwriter has reviewed TravelnStore.com, our management,
business plan, operations, financials or competitiveness in our marketplace.
Consequently, you must rely solely on your own due diligence and review of such
matters and judge the likelihood of our success in our marketplace and
opportunity for profitable operation.
THIS IS A "MINIMUM/BEST EFFORTS" OFFERING AND THERE CAN BE NO ASSURANCE
THAT WE WILL BE ABLE TO SELL ALL OF THE SHARES COVERED BY THE OFFERING.
We are making this Offering on a minimum/best efforts basis. This means
that we must sell a minimum amount of stock but we may not sell all of the stock
that is being offered. If we sell only the minimum number of shares, this
Offering will raise sufficient capital for us to operate for twelve (12) months.
There can be no assurance that, regardless of the amount of the proceeds raised
in the Offering, we will be able to achieve profitable operations.
We have set a minimum of $2,000,000 of stock to be sold in this
Offering. Until acceptable subscriptions for such minimum amount have been
received, all subscriptions will be held in an escrow account. Once deposited,
these funds will only be returned to the investor if the minimum amount of
$2,000,000 is not subscribed in the 90 day Offering period.
Investors who subscribe for shares in the earlier stages of the
Offering, will assume a greater risk than investors who subscribe for shares
later in the Offering as subscriptions approach the maximum level of $6,500,000.
This is because as we approach the maximum level we have more promotional and
operating capital to use.
We are not presently aware that any of our officers, directors or
principal stockholders, or any of their affiliates, intend to purchase any
shares in the offering or that any of them intend to purchase any shares in the
offering in order for us to be able to reach the minimum investment of
$2,000,000 required to closing the Offering. It is possible that one or more of
such persons may purchase shares in the Offering and that such purchases may
facilitate our reaching the minimum required investment to close the Offering.
Any purchases by any such persons will be subject to the same terms and
conditions as those applicable to other investors.
WE ARBITRARILY SET THE PRICE OF THE SHARES WE ARE OFFERING BASED UPON
THE AMOUNT OF CAPITAL WE WISHED TO RAISE AND THE PERCENTAGE OF OUR
COMPANY THAT WE WERE WILLING TO SELL.
We established the price of the shares and the value of TravelnStore.com
without independent appraisal. The price has no relationship to book value per
share, current earnings or other generally accepted measurement of value. You
should only invest if you agree the price we have set is reasonable based upon
our prospects.
WE HAVE THE RIGHT TO USE THE PROCEEDS FROM THIS OFFERING IN ANY MANNER
THAT WE DEEM MOST EFFECTIVE IN EXECUTING OUR BUSINESS PLAN.
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We have set forth in the "Use of Proceeds" section the primary areas of
operation in which we expect to use the proceeds. The proportional amounts that
we allocate to each area will be determined as we encounter changing
circumstances and opportunities. We can make no guarantees that the decisions on
allocations will result in profitable operations. If we are unable to allocate
our capital effectively, it will adversely affect our business, revenues,
profitability and financial condition.
WE WILL HAVE TO USE $26,000 OF THE PROCEEDS OF THIS OFFERING TO PAY
ACCRUED SALARIES TO OUR OFFICERS AND ACCRUED FEES TO TWO CONSULTANTS WHO
ARE PRINCIPAL STOCKHOLDERS.
Under its Employment Agreement with its executive officers and
Independent Contractor Agreements with two of our principal stockholders, we
will use $26,000 of the proceeds to pay accrued salaries to our executive
officers and $50,000 of the proceeds to pay accrued fees to the principal
stockholders for services rendered prior to the effective date of this Offering.
THERE WILL BE NO PUBLIC MARKET FOR RESALE OF OUR SHARES UNTIL OUR SHARES
ARE LISTED ON AN EXCHANGE OR QUOTED THROUGH NASDAQ.
Because we are directly selling our stock, we have provided that our
Offering may remain open for up to 90 days after our Offering becomes effective.
It is doubtful that you could sell your shares for more than the initial
offering price of $6.50 per share while our Offering is still open. As such, you
may be required to hold your shares for a period of three (3) months or more
from your purchase date.
Provided we have reached a subscription amount sufficient to achieve a
minimum tangible net worth of $2,000,000, (approx. $2,500,000 in total net
proceeds), we will apply for listing on the Philadelphia Stock Exchange.
However, there are many requirements which we may or may not be able to meet at
the time we wish to apply for listing. If our application for listing is
rejected we will be required to arrange for trading of the shares on the OTCBB.
Trading activity on the OTCBB will not provide the liquidity for the shares that
would be available through listing on the Philadelphia Stock Exchange or another
regional or national exchange.
We do not anticipate applying to list our common stock on any exchange
or on the OTCBB system until we have received acceptable subscriptions for at
least $2,500,000. Should we not receive such amount until the end of the 90-day
offering period, such listing may not be effective until 30 days after we file
the application. Therefore, it is possible that even if we are able to list our
common stock such listing would not be effective until four (4) months after the
effective date of this registration statement.
INTERNET RELATED STOCKS HAVE BEEN VERY VOLATILE. OUR SHARES WILL BE
CONSIDERED AN INTERNET RELATED STOCK AND WILL BE SUBJECT TO THIS
VOLATILITY.
Recent stock market activity shows that shares of businesses marketing
products or services through the online commerce industry can be subject to
greater volatility than those of businesses in more established fields such as
manufacturing or traditional forms of sales or services. Stock investments
within the online commerce industry, should be considered highly speculative and
are appropriate only for investors who can bear significant risks.
EVEN IF WE SELL THE MAXIMUM NUMBER OF SHARES COVERED BY THIS OFFERING,
OUR CURRENT STOCKHOLDERS AND OUR MANAGEMENT TEAM WILL CONTINUE TO HOLD
APPROXIMATELY 90% OF THE OUTSTANDING COMMON STOCK.
This means that they will be able to elect a majority of our Board of
Directors and control other actions which require a vote of the stockholders.
WE MUST INSURE THAT OUR E-COMMERCE AND INFORMATION SYSTEMS WILL NOT BE
ADVERSELY EFFECTED BY THE MILLENNIUM DATE CHANGE THAT WILL OCCUR AT THE
END OF THIS YEAR.
We are aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The year 2000 problem is
pervasive and complex. Virtually every computer operation will be affected in
some way by the rollover of the two digit year value to "00." The issue is
whether computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. We are
reviewing both our information technology and our non-information technology
systems to determine which are not year 2000 compliant. We have not made any
material expenditures to address the year 2000 problem and we do not anticipate
that we will be required to make any such material expenditures in the future.
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We are contacting all of our significant suppliers and service providers
to determine the extent to which we are vulnerable to their failure to address
the year 2000 problem. Although we do not believe our operations will be
significantly disrupted even if third-parties with whom we have relationships
are not year 2000 compliant, we can not guarantee that any year 2000 compliance
problems of third persons will not adversely affect our business or financial
performance. Because uncertainty exists concerning the potential costs and
effects associated with any year 2000 compliance, we intend to continue to make
efforts to ensure that third-parties with whom we have relationships are year
2000 compliant.
A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK COULD BE SOLD INTO
THE PUBLIC MARKET AFTER THIS OFFERING, WHICH SALES COULD DEPRESS OUR
STOCK PRICE.
Of the 9,400,000 shares of common stock presently outstanding, all of
the shares are "restricted securities" and under certain circumstances may be
sold in compliance with Rule 144 adopted under the Securities Act of 1933, as
amended. Future sales of such shares will in all likelihood depress the market
price of our common stock.
WE HAVE AUTHORIZED A CLASS OF UNDESIGNATED PREFERRED STOCK WHICH WE
COULD ISSUE IN THE FUTURE WITHOUT STOCKHOLDER APPROVAL.
Our Articles of Incorporation authorize the issuance of up to 1,000,000
shares of preferred stock, the terms, preferences, rights and restrictions of
which may be established by its Board of Directors. Other companies on occasion
have issued series of such preferred stock with terms, rights, preferences and
restrictions that could be considered to discourage other persons from
attempting to acquire control of such companies and thereby insulate incumbent
management. It is possible we could issue shares of our preferred stock for such
a purpose. Issuance of the preferred stock for such purposes could have a
depressant effect on the market value of the common stock.
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements," which may include
the following:
- our business strategy;
- timing of and plans for the introduction or phase-out of
products, services, enhancements;
- plans for hiring additional personnel;
- entering into strategic alliances; and
- the adequacy of anticipated sources of funds, including the
proceeds from this offering, to fund our operations for at least
the 12 months following the date of this prospectus.
Other statements about our plans, objectives, expectations and
intentions contained in this prospectus that are not historical facts may also
be forward-looking statements. When used in this prospectus, the words
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions are generally intended to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, actual results could differ materially from those expressed or
implied by these forward-looking statements for a number of reasons, including
those discussed under "Risk Factors" and elsewhere in this prospectus. We assume
no obligation to update any forward-looking statements.
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DIVIDENDS
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors. No dividends have been paid on the common
stock and no dividends are anticipated to be paid in the foreseeable future. We
intend to retain all earnings to finance the development and expansion of our
operations.
We are authorized to issue shares of preferred stock. Any shares of
preferred stock that we issue may preclude the payment of any dividends on the
common stock until dividends in a certain amount have been paid on the preferred
stock. We do not have any present plans to issue any additional shares of
preferred stock.
USE OF PROCEEDS
We estimate the net proceeds to TravelnStore.com from this Offering,
after deducting the expenses of the Offering, will be $1,841,840 if we raise
only the minimum amount, and $5,980,000, if we raise the maximum amount. Such
proceeds will be applied substantially as follows.
<TABLE>
<CAPTION>
APPROXIMATE DOLLAR AMOUNT
APPLICATION OF PROCEEDS MINIMUM MAXIMUM
<S> <C> <C>
Enhance and Market Web site $ 808,840 $3,714,000
Officer Salaries(1) $ 276,000 $ 276,000
Co-host Agency Recruitment $ 125,000 $ 250,000
Additional Staff & Management $ 80,000 $ 285,000
Strategic Relationships(2) $ 25,000 $ 225,000
Trademark License Fee $ 25,000 $ 25,000
Payments to Principal Stockholders(3) $ 50,000 $ 50,000
Additional Equipment $ 20,000 $ 45,000
Facilities Expansion $ 90,000 $ 90,000
Retirement of Trade Debt $ 75,000 $ 75,000
Payment of Convertible Notes(4) $ 67,000 $ 67,000
Working Capital Reserves(5) $ 200,000 $ 878,000
TOTALS $1,841,840 $5,980,000
</TABLE>
- ----------
(1) Officer Salaries include the salaries of Jim B. Tyner, CEO, John R. Toal,
President and Yula Greco, Vice President and Secretary who are also principal
stockholders
(2) Strategic Relationships may include establishing joint ventures, long-term
marketing relationships, web site links, and acquisition of companies or assets
in both the Internet and travel industries. It is typical for companies engaged
in e-commerce business on the Internet, a new and fast growing business medium,
to expand and solidify their market position through strategic alliances,
mergers and consolidations. We anticipate that we also might facilitate
achieving our business plan through strategic alliances or consolidation with
other companies operating in the travel industry or over the Internet.
Accordingly, we have targeted a portion of the proceeds of this offering for
such purposes. While we anticipate that we may use a portion of the proceeds of
this offering in connection with our establishing one or more strategic
relationships, we are not presently negotiating or discussing a strategic
relationship with any particular person and we anticipate that the total amount
of the proceeds of this offering that might be used for such purposes would not
exceed $50,000, if we raise only the minimum proceeds, and $250,000, if we raise
the maximum proceeds.
(3) Payments to Principal Stockholders refers to compensation due two principal
stockholders under Consulting Agreements.
(4) This assumes that the holders of the Notes do not convert the Notes to
shares of common stock.
(5) Working Capital Reserves are held against operating losses, non-budgeted,
extraordinary expenses and capital expenditures.
The amounts actually expended for any of the foregoing purposes may vary
significantly from those listed above, and will depend on a number of factors,
including the amount of our future revenues and other factors described under
"Risk Factors".
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Accordingly, we will retain broad discretion in the allocation and
application of the net proceeds of this offering. A portion of the net proceeds
may also be used to acquire or invest in complementary businesses, technologies,
product lines or products. We currently have no agreements or commitments with
respect to any such acquisitions. Pending such uses, we intend to invest the net
proceeds of the offering in investment-grade, interest-bearing securities.
If we are able to raise only the minimum amount set forth above, our
ability to grow and expand our business may be significantly limited. A
significant portion of the proceeds of the offering will be used to enhance and
market our Web site, to hire additional staff and management personnel and to
develop strategic relationships with other Internet and travel service
companies. Our ability to accomplish these activities will contribute
significantly to our ability to achieve our business plan and to the overall
growth and success of the Company.
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DILUTION
At August 31, 1999, the pro forma net tangible book deficit of
TravelnStore.com, Inc. was ($564,690), or approximately ($0.06) per share of
common stock based on 9,400,000 shares of common stock outstanding. The net
tangible book deficit per share represents the amount of TravelnStore.com's
total assets less the amount of its intangible assets and liabilities, divided
by the number of shares of common stock outstanding. After giving effect to the
receipt of the maximum net proceeds (estimated to be approximately $5,980,000)
from the sale of the shares offered hereby, the pro forma net tangible book
value of TravelnStore.com at August 31, 1999, would be $5,415,310, or
approximately $0.58 per share of common stock. This would result in dilution to
the public investors (i.e., the difference between the estimated public offering
price per share and the net tangible book value per share after giving effect to
this offering) of approximately $5.92 per share, approximately 91% of the
offering price. If we receive only the minimum subscription our pro forma net
tangible book value would be $1,270,150, or approximately $0.14 per share, and
the public investors would have dilution of $6.36 per share, approximately 98%
of the offering price. The following table illustrates the per share dilution:
<TABLE>
<S> <C>
Assumed public offering price $ 6.50
Pro forma net tangible book deficit per share
at August 31, 1999 $ (564,690)
Increase in pro forma net tangible book value
per share attributable to new investors $ 5,980,000
Pro forma net tangible book value per share
after this offering $ 0.58
Dilution of net tangible book value per shares
to new investors $ 5.92
</TABLE>
For purposes of the foregoing discussion we have assumed that the
offering price will be $6.50 per share.
The 9,400,000 shares of common stock issued to the principal stockholder
in exchange for their equity interests in TravelnStore, LLC upon the merger of
TravelnStore, LLC into TravelnStore.Com, Inc. The total consideration paid by
the principal stockholders for their equity interests in TravelnStore, LLC was
$200.00.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and related notes included elsewhere in this
prospectus. Except for historical information contained herein, the discussion
in this prospectus contains certain forward-looking statements that involve
risks and uncertainties. TravelnStore.com's actual results could differ
materially from those discussed below. Factors that could cause or contribute to
such differences include, among others, those discussed below, in "Risk Factors"
and elsewhere in this prospectus. TravelnStore.com does not intend to update
these forward-looking statements.
OVERVIEW
TravelnStore.com was founded in July of 1998 as a limited liability
corporation. In April of 1999 it was acquired by a California corporation. We
created, maintain and promote the TravelnStore.com Web site which acts as a
navigational site to the Web sites created by a wide array of travel service
providers, such as cruise lines, tour companies, car rental firms, destination
resorts and hotel groups. Visitors to the TravelnStore.com Web site can print
out Certificates of Value for various travel services to which our site provides
links. These Certificates may be redeemed for discounts, upgrades or other
premiums designed to encourage the visitor to book a particular travel service.
Certificates may be redeemed at any of the 29,000 retail travel agencies
through-out the United States. We receive a commission or override from the
travel service provider for each Certificate that is redeemed. We also recruit
individual travel agencies to co-host our Web site within their market areas.
Agencies subscribe for ZIP codes within their market. When a visitor to our Web
site logs in from a subscribed ZIP code, that agency is graphically presented as
the local TravelnStore.com co-host agency. While Certificates may be redeemed at
any agency, a local co-host agency is presented as a preferred redemption
location. Using these methodologies, we are able to link the graphic
presentation of travel services on the Internet with the existing, retail
distribution infrastructure represented by the 29,000 retail travel agencies in
the United States.
RESULTS OF OPERATIONS
The financial statements contained in this prospectus represent our
operations from July 6, 1998 through December 31, 1998, and January 1, 1999
through August 31, 1999. As a new company, a significant portion of our
operations pertained to physically constructing our work environment, installing
our information systems, designing and testing our Web site and recruiting and
training employees. We also designed and structured our marketing program to
recruit our co-host agencies and designed and structured a development program
to negotiate agreements with various travel service providers to participate in
the TravelnStore.com Web site. These activities required the expenditure of
$326,356 through December 31, 1998 and an additional $355,536 from January 1,
1999 through August 31, 1999.
Because the TravelnStore.com Web site is a navigational site to the
proprietary sites of various travel service providers, its structure is
relatively simple. Consequently, we were able to have the first version
operational by November 1, 1998. The launch of the site coincided with the
appearance of our first advertisements in the in-flight magazines of United
Airlines, American Airlines, Delta Airlines, Southwest Airlines, U.S. Airways,
Continental Airlines, America West Airlines and TWA. We also promoted the launch
of the TravelnStore.com Web site by participating in two prestigious trade
shows, the ASTA World Congress in Los Angeles and the United States Tour
Operators Association show in Las Vegas.
In September of 1998, in advance of the launch of our Web site, we were
able to initiate recruitment of co-host agencies. Because of the simplicity and
compelling concept of the TravelnStore.com Web site, we were able to recruit
approximately 100 agencies prior to the launch of the Web site. Travel agencies
pay a minimum $60.00 registration fee and $36.00 quarterly fee to participate as
co-host agencies. Pricing for the co-host fees is designed to primarily offset
the direct costs of operating the TravelnStore.com Web site. We were pleased
that income from co-host agency fees generated $23,128 through December 31, 1998
and $31,934 from January 1, 1999 through August 31, 1999. This reduced our
operating loss to $303,228 through December 31, 1998 and to $385,602 for the
period January 1, 1999 through August 31, 1999.
During 1999, we have continued to expand our co-host agency network on a
selective basis and further develop our travel service provider relationships.
This has resulted in our being able to post a broader spectrum of Certificates
of Value. We have also invested in refining the database tracking methodologies
of TravelnStore.com to better implement targeted marketing opportunities with
individual travel service providers. We have also initiated a limited online
advertising program to test the efficiencies of various online advertising
opportunities.
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Our primary anticipated revenue model is reliant upon the receipt of
overrides and commissions through the use of our Certificates of Value. However,
we do not anticipate any significant income from the Certificates of Value prior
to fourth-quarter, 1999. This is because the overrides and commissions do not
become payable until after the related travel service is used by the purchaser
and we will not be able to build significant site traffic until the successful
completion of this Offering. Leisure travel purchases are often made 2 - 6
months in advance. Our overrides generally range from 1% to 5% of the total
travel purchase and our commissions generally range from 5% to 10% of the total
travel purchase.
SOURCE OF FUNDS
We were fortunate to initially maintain the integrity of our equity
structure by funding TravelnStore.com through a combination of straight debt and
convertible debt. Since September 1, 1998, we have borrowed a total of $490,000
through the issuance of 33 convertible promissory notes. However, through August
31, 1999, of the 33 convertible notes issued in these private placements, 29
have already elected to convert to common shares effective as of the effective
date of this offering. We also have converted the original $140,000 of
stockholder loans to preferred stock. This has had the effect of transferring
$570,000 from debt to equity on our Balance Sheet. We undertook these
conversions to improve our financial position and to facilitate our efforts to
list our common stock on the Philadelphia Stock Exchange or another regional
stock exchange. We anticipate that the remaining four noteholders will also
convert into shares of common stock. However, we have made contingent allowances
in both stock and cash as may be required under terms of the remaining
convertible notes.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have primarily financed our operations through
the issuance of debt instruments, including straight notes and convertible
notes. In connection with this Offering, the holders of a total of $570,000 of
Notes payable by us have agreed to convert such Notes as of the closing of this
offering into an aggregate of 315,378 shares of common stock and 8,154 shares of
Series A Preferred Stock. As a result, as of August 31, 1999, and after giving
effect to the conversion of the loans from two of our stockholders in the
aggregate principal amount of $140,000, our total liability for borrowed money
was $490,000 in principal amount. In addition, after giving effect to the
conversion as of the effective date of this offering of 29 Convertible
Promissory Notes in the aggregate principal amount of $430,000, our total
liability for borrowed money should be $60,000 in principal amount.
Since our initial organization, we have occupied offices for which World
Key, Inc., a related party, was the master lessee. We have been and continue to
be obligated to reimburse World Key, Inc., for a portion of the leasehold rent,
officers' salaries and other facilities expenses. As of August 31, 1999, we were
current in our obligations to World Key, Inc., and World Key, Inc. owed us a
total of $44,371 for cash advances made by us to World Key, Inc.
At the conclusion of this Offering, assuming we sell the minimum amount
of stock to close the offering, we will have approximately $1,834,840 of capital
to execute our business plan. If we sell the maximum amount of stock in this
Offering, we will have approximately $5,973,000 of capital to execute our
business plan. The minimum amount is sufficient, in our opinion, to finance our
operations over the next 12 months. The majority of capital which we raise over
the minimum amount of the Offering will be used to further promote the
TravelnStore.com Web site. The accelerated promotion of the Web site should
accelerate the growth of our business requiring us to more rapidly expand our
physical work environment and add personnel. It is our goal to reach 300,000
visitors to the TravelnStore.com Web site each month and recruit a minimum of
2000 affiliated travel agencies. At our minimum funding, we believe we can reach
that goal within 12 months. At our maximum funding, we believe we can reach our
goal more quickly.
Should we reach our minimum funding prior to the expiration of 90 days
after our effective date, and if we perceive that there is continuing demand, we
intend to keep our Offering open for a period of time to fill that demand.
However, we will give serious consideration to the effort required to continue
marketing the Offering compared to the benefits of closing the Offering and
redirecting the time and resources invested in continuing the Offering to
executing the business plan.
We anticipate that our receipt of the minimum funding will provide
sufficient liquidity for our cash needs for the next 12 months regardless of
cash flow and income generation from operations. We also anticipate that our
receipt of funding in excess of the minimum, up to and including the maximum
funding, will also provide sufficient liquidity for a minimum of 12 months
allowing for the increased investment in promotion and the resultant increased
operating expenses incurred to support the increased business activity which
should result from accelerated promotion.
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NEED FOR ADDITIONAL CAPITAL
In the event that the proceeds from this Offering are insufficient to
grow our business to the point of profitability, it would be doubtful that we
would be able to obtain substantial conventional loan financing to provide
additional liquidity. Should we require additional funding, it is more probable
that we would seek those funds in the form of additional equity investment from
public and/or private offerings of equity or convertible securities. The ability
to obtain additional equity investment is dependent upon many factors ranging
from the condition of the general economy to specific considerations about our
company, and its prospects, at the point in time which funding is sought. Many
of the factors are beyond our control. Consequently, there are substantial and
numerous uncertainties in satisfying future liquidity requirements through the
issuance of additional equity instruments. Further, the issuance of those
instruments would have the effect of diluting the positions of the existing
stockholders.
GOING CONCERN QUALIFICATION IN AUDITORS REPORT
Our plans are dependent upon our closing of this Offering for no less
than $2,000,000 in gross proceeds and $1,841,840 in net proceeds to us. We
believe that this will be sufficient to meet our capital requirements for a
minimum of twelve months. However, as an early stage Company we have yet to
generate sufficient operating revenue to offset our operating losses. To date,
we have funded our start-up costs and our operating losses from capital obtained
primarily through the issuance of straight and convertible debt instruments.
Because we have not raised sufficient capital, prior to this Offering, to
provide for our capital needs for a minimum of twelve months, our independent
auditors have qualified their report with inclusion of a "Going Concern"
statement. The purpose of this Offering is to raise sufficient capital to
continue our operations and execute our business plan. To assure that this
Offering raises the minimum capital which we believe is necessary to continue
operations and execute our business plan we set a minimum of $2,000,000. If we
do not reach this goal within 90 days from the effective date of this Offering,
all investor funds will be promptly returned without deduction.
YEAR 2000 COMPLIANCE
COMPLIANCE. Many currently installed computer systems and software
products are coded to accept or recognize only two digit entries in the date
code field. These systems and software products will need to accept four digit
entries to distinguish 21st century dates from 20th century dates. As a result,
computer systems and/or software used by many companies and governmental
agencies may need to be upgraded to comply with such Year 2000 requirements or
risk system failure or miscalculations causing disruptions of normal business
activities.
STATE OF READINESS. We have made a preliminary assessment of the Year
2000 readiness of our operating financial and administrative systems, including
the hardware and software that support our systems. We have developed an
assessment plan consisting of the following:
- quality assurance testing of our internal software;
- contacting third-party vendors and licensors of material
hardware, software and services that are related to the delivery
of our services;
- assessing repair or replacement requirements; and
- implementing repair or replacement.
COSTS. To date, we have not incurred any material expenditures in
connection with identifying, evaluating or addressing Year 2000 compliance
issues. Most of our expenses have related to, and are expected to continue to
relate to, the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. At this time, we
do not possess the information necessary to estimate the potential costs of
revisions to our systems should such revisions be required or of the replacement
of third-party software, hardware or services that are determined not to be Year
2000 compliant.
RISKS. We are not currently aware of any Year 2000 compliance problems
relating to our systems that would have a material adverse effect on our
business, results of operations and financial condition, without taking into
account our efforts to avoid or fix such problems. There can be no assurance
that we will not discover Year 2000 compliance problems in our systems that will
require substantial revision. In addition, there can be no assurance that
third-party software, hardware or services incorporated into our material
systems will not need to be revised or replaced, all of which could be
time-consuming and expensive. Our failure to fix or
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replace our internally developed systems or third-party software, hardware or
services on a timely basis could result in lost revenues, increased operating
costs, the loss of customers and other business interruptions, any of which
could have a material adverse effect on our business, results of operations and
financial condition. In addition, there can be no assurance that governmental
agencies, utility companies, Internet access companies, third-party service
providers and others outside of our control will be Year 2000 compliant. The
failure by such entities to be Year 2000 compliant could result in a systemic
failure beyond our control, such as a prolonged Internet, telecommunications or
electrical failure, which could also prevent us from providing our services,
decrease the use of the Internet or prevent users from accessing our Web site,
which could have a material adverse effect on our business, results of
operations and financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standard Board ("FASB") recently issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes to equity (net assets)
during a period from non-owner sources. SFAS No. 130 is effective for financial
statements for fiscal years beginning after December 15, 1997. To date,
TravelnStore.com has not had any transactions that are required to be reported
in comprehensive income.
The FASB recently issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports. SFAS
No. 131 is effective for financial statements for fiscal years beginning after
December 15, 1997. TravelnStore.com has determined that it does not have any
separately reportable business segments.
The American Institute of Certified Public Accountants issued Statement
of Position ("SOP") No. 98-1, "Software for Internal Use," which provides
guidance on accounting for the cost of computer software developed or obtained
for internal use. SOP No. 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998. TravelnStore.com does not expect that
the adoption of SOP No. 98-1 will have a material impact on its financial
statements.
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BUSINESS
The following discussion contains forward-looking statements that
involve risks and uncertainties. These forward-looking statements are usually
accompanied by words such as "believes," "anticipates," "plans," "expects" and
similar expressions. Our actual results may differ materially from the results
discussed in the forward-looking statements because of factors such as the risks
described in "Risk Factors" beginning on page 10.
OUR BUSINESS
In July, 1998, we commenced operations through TravelnStore, LLC, a
California limited liability company. We launched the TravelnStore.com Web site
on November 1, 1998. In April, 1999 we completed a merger transaction in which
our new California corporation, TravelnStore.com, Inc acquired all of the
business, assets and liabilities of TravelnStore, LLC.
INTRODUCTION
Our founders backgrounds include experience in the retail travel agency
industry both at the individual agency level and at the national, multi-agency
and consortium level. We believed that if we linked the graphical presentation
of travel services on the Internet with the personalized service available from
professional, experienced travel agents working in the 29,000 retail travel
agencies in the U.S., consumers would receive maximum value in their travel
arrangements.
Studies which have been conducted by national research firms such as
Forrester Research and Jupiter Communications have shown that only a relatively
small percentage of Internet users actually book travel online. The majority use
the Internet to research their planned trips and comparison shop the various
travel service providers who offer travel services that meet their needs. Having
completed their research and shopping, the majority tend to book with a local
travel agent. The more complex or expensive their itinerary, the more likely
they are to use the services of a professional travel agent.
We designed the TravelnStore.com Web Site as a database driven site.
This means that the information that we present graphically on the site is
generated out of a database of information. This flexibility allows us to add,
change and delete information quickly and economically. While we developed the
site, we began recruiting travel agencies into our co-host agency program and
negotiating with travel service providers to enter into contracts that would pay
us commissions and/or overrides for sales of their services generated through
our Web Site. We also negotiated with the travel service providers for
discounts, gifts or upgrades to be used as incentives for consumers to use a
local, retail travel agency to complete their travel service purchase
transaction.
OUR CONCEPT
We created, maintain and promote the TravelnStore.com Web site as a
navigational site to the Web sites owned by a wide array of travel service
providers, such as cruise lines, tour companies, car rental firms, airlines,
destination resorts and hotel groups. Visitors to our Web site can print
Certificates of Value for travel services of the providers that are linked to
our Web site. These Certificates may be redeemed at the local retail travel
agency for discounts, upgrades or other premiums designed to encourage the
visitor to book a particular travel service. We receive a commission or override
from the travel service provider for each Certificate that is redeemed.
We also recruit individual travel agencies to co-host the
TravelnStore.com Web site within their own market areas. Agencies subscribe for
their local market ZIP codes so that when a visitor to our Web site logs in from
a subscribed ZIP code, that agency is graphically presented as the local co-host
agency. While Certificates may be redeemed at any agency, a local co-host agency
is presented as a preferred redemption location.
Using these methodologies, we are able to link the graphic presentation
of travel services on the Internet with the existing, retail distribution
infrastructure represented by the 29,000 retail travel agencies in the United
States.
OUR COMPETITION
We do not directly sell travel. However, our revenue is derived from
travel sales wherein Internet users print and redeem our Certificates of Value
at local, retail travel agencies. Consequently, we compete, directly or
indirectly, with every other travel services distributor. Because we bridge the
online presentation of travel services on the Internet with the brick and mortar
physical locations of
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retail travel agencies, we are competing with both online and offline
distribution channels. These channels include not only travel agencies but also
direct sales from travel service providers to the public.
While in the broadest sense, we compete with other travel sales
distribution channels, we have not been able to identify a direct competitor for
our online services. There is no proprietary nature to our methodologies. We
must rely on our first-to-market position and our ability to maintain our
first-to-market position as imitators launch competing Web sites.
ONLINE AGENCIES
Several companies, such as Preview Travel, Microsoft Expedia, and
Travelocity, have been established in the last three years to act as online
travel agencies. They primarily generate revenue by consumers making their own
bookings online by selecting the travel service, creating a record and
presenting payment. Through the investment of hundreds of millions of dollars to
generate consumer traffic to their Web sites, they sold on average, $250 million
in bookings of travel services in 1998.
To this point in time, none of the online travel agencies have achieved
profitability. A major reason for this is that over 80% of the sales which they
have generated have been airline tickets averaging about $350 per ticket.
Airlines have placed a limit of only $10.00 of commission for each ticket sold.
This amount is insufficient to cover their fully loaded transaction costs.
Consequently, we do not sell airline tickets. The balance of their bookings have
been hotel reservations and car rentals. These usually generate commissions
between 5% and 10% of the amount of the bookings which average about $200 for
hotel bookings and $150 for car rentals. Less than 3% of their bookings can be
classified as higher value and higher commission leisure travel bookings.
Online travel agencies have had to invest significant capital in
creating content for their Web sites. They have also had to design software and
hardware to process online bookings and integrate those with the reservation
systems used by various travel service providers. In addition they have had to
hire, train, equip and manage staff to become travel agents to interact with
consumers over the telephone.
OUR DIFFERENCE
We do not sell travel services directly to customers and therefore have
not incurred capital expenditures to set up an online travel agency. Because
TravelnStore.com is a navigation site that directs consumers to the proprietary
Web sites of various travel service providers, the travel service providers make
all of the investment in Web site content. Because TravelnStore.com is a
database driven site, we can add, change or delete a travel service provider in
a matter of minutes without requiring the skills of a graphic artist or
programmer.
All sales of products or services consist of two major components. The
first part is the presentation and consideration of the various attributes of
the product or service and the determination by the buyer that the product or
service meets their needs. The second is the transactional part of the purchase
where money is exchanged for the product or service. In effect, look in the
barrel, pick out the apple that is most appealing, take it to the counter, pay
for it, have it put in a bag. This presentation/decision, transaction/completion
is often bridged by specific questions that the purchaser has for the seller.
The more complex the product or service, the more likely the need for questions
and answers. This is true of Internet travel sales as well.
In the our system, the first part of the purchase is accomplished
primarily by the Web sites of the travel service providers. The second part,
which includes answering specific questions and the paperwork, is performed by
the experienced travel agents in the local, retail travel agencies.
We think the Internet can be used effectively to graphically present a
lot of information on which the user can make a decision about travel. We know
that once a person has used the Internet to research their trip, they prefer to
use a travel agent to complete their purchase. Our goal is to tie the two
together in creative and productive ways.
OUR MARKET CONSTITUENCIES
To execute our business plan, we must continually expand and strengthen
our relationships with our three market constituencies. The three constituencies
are as follows.
- TRAVEL SERVICE PROVIDERS. Travel service providers include major hotel
chains, car rental agencies, cruise ship operators and tour companies. We
contract with these travel service providers to receive commissions and/or
overrides for travel sales
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resulting from consumers accessing their proprietary Web sites through our
TravelnStore.com Web site. Overrides typically range from 1% to 5% of the total
sale. Commissions typically range from 5% to 15% of the total sale. We
anticipate that the overrides will average about 2% and the commissions will
average about 10%.
These commissions and override contracts are a standard part of the
travel industry. They first came into being approximately 20 years ago as groups
of retail travel agencies were assembled into consortiums. These consortiums
negotiate with travel service providers for higher commission levels for their
member agencies and overrides for themselves based upon the volume of business
that is directed by the member agencies to that particular travel service
provider. Consortiums range from a few hundred agencies up to a few thousand.
Because our Certificates of Value can be redeemed at any of the 29,000 domestic
travel agencies, TravelnStore.com is like a cyber consortium with 29,000
physical locations.
We also negotiate with the travel service providers to underwrite our
Certificates of Value. Certificates can be printed directly from our Web site by
the consumer. They may represent a discount, an upgrade, or a premium on the
services purchased from the travel service providers. Travel service providers
provide the value of the Certificate to incentivize the consumer to purchase
their services. For example, a consumer might print a Certificate which they may
redeem for a two cabin upgrade at the retail agency of their choice. When the
consumer uses a Certificate, it places that sale into our consortium contract.
In so doing, we receive our negotiated override from that travel service
provider.
A simple example demonstrates the mechanics of this process.
A consumer accesses several competing travel service providers' Web
sites, navigating to those sites using our Web site. After comparison shopping,
the consumer selects a two-week stay at a resort hotel and prints out the
Certificate for the hotel. The consumer then takes the Certificate to a travel
agency. The agency books the hotel stay with the travel service provider. The
travel service provider flags its accounting system to pay us the override at
the conclusion of the trip. The agency receives the booking or confirmation
number from the travel service provider. The agency enters on the Certificate
the booking number and the agency identification information. The Certificate is
then faxed to us where it is entered into our accounting and tracking system.
Because the travel agency has used our Certificate procedure, it is entitled to
an enhanced commission from the service provider. When the consumer takes the
trip and the commission becomes due, we receive our override.
One of the reasons that travel service providers have accepted our
concept is that they have invested millions of dollars educating, cultivating
and motivating retail travel agencies to sell their services. Particularly in
the leisure segment of the industry, where products tend to be more complex and
more expensive, travel service providers realize that, while the Internet is
very good at graphically presenting their services to an unlimited number of
consumers, they are sensitive to their competing with their travel agency
distribution network by taking bookings directly over the Internet.
Our concept of bridging the distribution of information using the
Internet with the existing transactional infrastructure of the retail agency
industry allows travel service providers to enjoy the advantages of the Internet
while maintaining and protecting their substantial investments in their retail
travel agency distribution networks.
- TRAVEL AGENCIES. Our second constituency is the 29,000 domestic,
retail travel agencies. It has been speculated that the advent of the Internet
purchases of travel services online directly by consumers would have a profound
negative effect on retail travel agencies. This does not appear to be the case.
It is estimated that in 1998 approximately $2 billion of travel services were
booked online. This compares with approximately $135 billion of travel services
booked by retail travel agencies. It has been projected that in the year 2000 as
much as $7 billion of travel services may be booked online. However, sales by
retail agencies should surpass $145 billion in the year 2000. Clearly, retail
travel agencies will retain a vast majority of travel sales.
Our business plan includes retail travel agencies in two important ways.
First, retail agencies represent the redemption site for our Certificates of
Value. As agencies come to recognize the Certificates and become familiar with
our program, we believe that agencies will also use our Web site to generate
Certificates for their clients who do not use the Internet. This will expand the
scope of our business beyond just those consumers who use our Web site. It is in
our best interest to continue to educate a broad section of the retail travel
industry to our program through the use of trade publications, trade shows and
other marketing initiatives.
Secondly, the agencies can participate in our Co-host Agency Program.
Our Web site is what is called a framed site. This means that as a visitor
navigates from one travel service provider site to another, a thin band of
information containing the TravelnStore.com logo always remains at the top of
the computer screen. This information band contains buttons that allow the
visitor to navigate back through our Web site to other travel service provider
sites. This band also presents the names, addresses and
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telephone numbers of our co-host agencies. As a consumer visits the various
proprietary sites of travel service providers, the co-host agency is
continuously being presented as an immediate contact to purchase whatever travel
service the consumer is reviewing.
Travel agencies join our Co-host Program by subscribing for their local
market Zip codes. We usually limit an agency to three Zip codes. When a visitor
logs into our Web site, they are asked for a Zip code. If an agency has
subscribed that Zip code, then that agency is presented in the navigation band
as our local Co-host Agency. This gives an individual travel agency all the
market power of TravelnStore.com but is presented only to those consumers who
live or work in a physical proximity to that individual travel agency.
Our Certificate of Value redemption program and our Co-host Agency
Program allows us to achieve both a cyber presence on the Internet and a
physical presence on Main Street. We believe that, as the use of the Internet as
a commerce tool matures, this dual presence will give us additional business
opportunities that companies with just an Internet presence will not enjoy.
- CONSUMERS. Our third constituency is the consumers who use the
Internet to shop and purchase travel services. With annual Internet travel sales
estimated at $2 billion, travel became the number one consumer product purchased
on the Internet in 1998. While this is a fraction of the $135 billion annually
sold by retail travel agencies, it is a significant amount. By example, a 2%
override on $2 billion is $40 million. This $2 billion is expected to reach $7
billion in 2000. Clearly, our market is growing at a compound rate. We intend to
continue to position TravelnStore.com to take advantage of this growing market.
Because of the rapid growth of travel sales on the Internet, there have
been numerous studies conducted by major research organizations to define the
trends in this emerging business. The majority of this research has focused on
statistical analyses of what consumers are buying, how they are buying and from
whom they are buying. Not surprising, the statistical evidence relating to
Internet travel sales reflects the statistical profile of e-commerce in general.
Even in the relatively short period of time (three years) that travel sales have
been heavily promoted online, some very clear trends have been established.
In formulating the TravelnStore.com concept of using the Internet for
the presentation of travel services and connecting that presentation to the
transactional infrastructure of the retail agency industry, we have been able to
use these trends to structure our business plan. Following are some of the
trends which we believe to be very significant.
- Looks But Does Not Book. E-commerce sites that have tracked their
productivity have found that, on average, 2.7% of their site
visits actually result in a sale. Further, the more complex or
higher valued the product, the lower the purchase percentage. In
keeping with these statistical trends, online travel services
experience purchase percentages of 1% to 2%. This reflects that a
consumer may visit a site multiple times prior to actually
completing a transaction.
- Most Do Not Purchase Online. In the context of the online travel
industry, current statistics show that only 18% of travel site
visitors have ever made an online booking. Again, this reflects
general e-commerce findings. Reasons given for not booking online
are transactional security, which includes credit card fraud, and
concern that the product purchased will not be received, the lack
of personal attention and advice in relationship to a complex
product such as travel, and insecurity on the part of the
consumer that they will make a mistake in the selection process
or the transaction process.
- Most Purchase From Travel Agents. Of the remaining 82% of the
visitors that looked but failed to book online, 27% made no
bookings, 28% contacted the supplier directly to make a booking
and 39% took their business to a travel agency. In general, this
indicates that the online looker/off-line booker market is 3.7
times larger than the online booker market. It also indicates
that travel agencies continue to get the lion's share of this
market.
- Online Bookings Are Heavily Weighted To Commodity Type Travel.
Major online travel sites such as Preview Travel, Travelocity and
Expedia, report that over 80% of their bookings are for airline
tickets with simple itineraries. These tickets average only
$350.00 per ticket. Only 3% of their bookings can be classified
as leisure travel services, such as cruises and tours. The
balance are for short-term car rentals and hotel stays.
- Leisure Sales Weighted Heavily To Travel Agencies. If only 3% of
online bookings represent leisure sales, then the 39% of online
lookers who book off-line are more likely booking the higher
value and higher commission rate leisure sales with their local
travel agent. This follows the general e-commerce profile of
higher value, more complex products being researched online but
actually purchased off-line.
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While the volume of on-line travel bookings has grown rapidly, the
statistics reflect that this growth has been primarily in low value, commodity
type bookings and that the retail travel agencies have retained substantially
all of the high value, complex leisure bookings.
Our conclusions are that consumers will increasingly use the Internet to
research their travel plans and comparison shop for travel services but that
their preference will be to complete their transactions off-line, enjoying the
transactional security of dealing with a local business and receiving the advice
and expertise of a professional travel agent.
OUR INDUSTRY
GENERAL OVERVIEW
- THE INTERNET. Initially, the Internet consisted of a linkage of
computers utilized by the U.S. government and certain academic institutions to
publish and exchange information and communicate via what is today known as
e-mail. Today, the Internet is a collection of computer networks linking
millions of public and private computers around the world.
- THE WORLDWIDE WEB (WWW). While the term Internet refers to the linkage
of computers enabling the free flow of information electronically, it is the
concept known as the Web which gives the Internet its content. A Web site refers
to a program of information developed, maintained and updated by its creator to
provide information to others who are able to access the site through the
Internet. The term "Internet" has become the inclusive term for both the
Worldwide Web and the Internet.
- GENERAL INTERNET USAGE TRENDS. Morgan Stanley Research estimates that
the number of Internet users will surpass 150 million worldwide by the year
2000. The United States accounts for a significant majority of the users. The
growth of the Internet has been facilitated by its ability to offer a more
appealing, efficient and less costly means of engaging in and performing a
myriad of functions traditionally the province of the telephone, television and
postal and courier services. However, the major, driving force behind the
explosive growth of the Internet has been the ability of the worldwide computer
industry to produce personal computers at a price point that allowed one out of
every three U.S. households in 1997 to own a personal computer. It is projected
that this will increase to 50% of all U.S. households by the year 2000, 98% of
all U.S. households within the next 10 to 20 years.
- E-COMMERCE. Our business is to bridge the presentation of travel
services on the Internet with the established, physical infrastructure of the
traditional retail travel industry. This opportunity has arisen due to the rapid
growth of the Internet as a vehicle for commerce in general and travel sales
specifically. Commonly called e-commerce, the selling of goods over the Internet
is creating new retailing and wholesaling business models in numerous fields. In
1998 the sale of travel services via the Internet became the largest segment of
e-commerce, surpassing computers and software.
- ONLINE TRAVEL SALES. The travel segment of the e-commerce industry has
encountered many of the same challenges faced by other categories of products
sold online. We believe that the continued growth and eventual success of
e-commerce, inclusive of travel sales, is dependent upon Internet users
adjusting to the limitations of e-commerce and the ability of e-commerce
companies to realistically assess how they can use the Internet to meet the
needs of consumers. There is perhaps no more graphic example of the inherent
limitations of e-commerce as a retail tool than in the travel sector wherein
consumers use the Internet to gather travel information but choose to book their
travel with an agency salesperson knowledgeable in the complexities of travel
services.
We believe that the ability to consummate a transaction for the purchase
of many kinds of goods and services is compromised because of the inability of
the Internet to provide the advantages of an interactive medium. Consequently,
we recognize that the Internet is an excellent medium for the graphic
presentation of travel services and that its interactive limitations can be
overcome by connecting the online marketing of travel services with the
transactional abilities of local, retail travel agents.
E-COMMERCE, THE ONLINE COMMERCE INDUSTRY
- RETAIL SALES COMPARISONS. The sale of goods and services online in the
U.S. during 1998 totaled approximately $13 billion. This figure must be
considered in light of the fact that overall personal consumption in the U.S.
during just the second quarter of 1998 reached an annual rate of $5.13 trillion.
While 25% of North American adults are "wired" or technologically capable of
purchasing online, only one-fifth of these adults did so in 1997. Most online
commerce is actually business to business, which accounted for $8 billion
(approximately 62%) of the 1998 sales and is projected to grow to $327 billion
in 2002, whereas retail or
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business to consumer sales totaled $4.8 billion in 1998 (approximately 37%) and
is projected to grow more modestly to $17.4 billion in 2002. Breaking down
retail sectors, it is estimated that 43% of online sales will be travel related
by 2002 with all other sectors accounting for the remaining 57%. This would
place the dollar amount of online sales of consumer travel services in the year
2002 in the range of $7.5 billion.
- WIRED CONSUMERS AND LOOK TO BOOK RATIOS. There are particularly
troubling issues facing the retail sector of the online commerce industry. These
issues involve what are known as "wired" customers or travelers and "look to buy
or book" ratios.
Wired customers are those who have Internet access, and, in the case of
the travel industry, and who are likely to travel.
To evaluate the Internet as a retail sales tool, a distinction must be
made between customers who purchase online ("buy") or, in the case of travel
purchases ("book"), and those who merely visit the Internet ("look") to seek
information or comparison shop after which they either make no purchase or book
off line. Online retailers who track both lookers and buyers report they average
a conversion rate of looker to buyers of only 2.7%. This means that, of 100
shoppers who visit an e-commerce site, less than three actually make a purchase.
The reasons given for such a low percentage of buyers are credit card
security, transactional security, unfamiliarity with anonymous Internet
companies, lack of personal attention, inefficiencies in delivery, and
inefficiencies in getting questions answered.
Industry recommendations to increase patronage of e-commerce sites
include making Web sites more user friendly, offering discounts as incentives to
purchase and, following the lead of the travel industry, rewarding repeat
customers for their patronage, such as, in the case of the airlines, frequent
flyer miles. As e-commerce develops, the industry must shift its focus from
customer acquisition to customer retention.
The TravelnStore.com concept of presenting information on the Internet,
but completing the transaction at a local travel agency directly answers many of
the reasons given for not buying online and implements many of the
recommendations to incentivize and retain online customers.
THE TRAVEL INDUSTRY
RETAIL TRAVEL INDUSTRY
- RETAIL TRAVEL AGENCIES. Historically, individual travel agencies have
been classified as commercial travel agencies or leisure travel agencies.
Commercial agencies tend to be larger and focus on commercial accounts whose
primary travel is for business purposes. Leisure agencies primarily deal with
the general public for personal travel needs.
- RETAIL AGENCY INDUSTRY PROFILE. The latest U.S. Travel Agency survey
reported that the number of retail agencies had declined between 1995 and 1997.
However, the survey also showed a 25% annual increase in travel agencies' gross
sales from 1995-1997. This dramatic increase in sales has occurred despite the
competitive threat posed by emerging online travel companies and a host of other
factors including reductions in commissions paid by airlines and many
initiatives undertaken by travel service providers to do business directly with
the travel consumer. Moreover, the number of travel agencies reported as
profitable has steadily increased from 71% in 1995 to 73% in 1996 to 76% in
1997.
The attrition rate for travel agencies is influenced primarily by sales
volume. In 1997, for example, 9 out of every 10 agencies with gross sales in
excess of $5 million were profitable; a number which fell to eight out of 10 for
agencies doing between $2 to $5 million and seven out of 10 for agencies in the
$1 to $2 million range. Only six out of 10 agencies selling less than $1 million
were profitable.
Not surprisingly, the greatest attrition has been with the smaller
travel agencies. In 1995, for example, 30% of the travel agencies had less than
$1 million in sales. While these agencies constituted the largest single
category of agencies, they only accounted for 6% of the total retail agency
sales. In contrast, in 1997, 19% of the travel agencies had less than $1,000,000
in sales and these agencies accounted for only 3% of the total retail agency
sales.
These figures reflect a strong consolidation trend in the retail travel
agency industry. Smaller agencies are disappearing to the benefit of larger
agencies. Larger agencies are enjoying increased profitability as their volumes
increase. We expect this consolidation to continue and view it as a positive
trend.
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- TRANSITION TO LEISURE TRAVEL. The travel agencies have responded to
these challenges by increasing their attention to the sale of the more lucrative
leisure and vacation travel. This has been particularly evident in the
commercial agency sector as agencies have expanded their leisure travel
offerings and targeted their corporate client bases. For example, air travel
sales by agencies have dropped as a percentage of gross sales from 61% in 1995
to 56% in 1997, while income from leisure travel sales increased from 49% in
1995 to 51% in 1997.
In 1997, for the first time since 1974, income from leisure travel sales
by agencies exceeded 50% of gross revenues. Agencies typically receive 12% to
20% commission on leisure sales. TravelnStore.com is specifically designed to
address the leisure travel market which continues to grow as the baby boom
generation matures and uses its discretionary income for travel purchases.
- CONSORTIUMS AND FRANCHISES. A recent survey by Travel Weekly showed
that in 1997, 54% of all agency locations were affiliated with a leisure
oriented consortium. Ten years earlier, in 1987, only 36% of agency locations
had such affiliations. In addition, 14% of agencies were affiliated with
franchises such as Uniglobe, Carlson Wagonlit Travel and American Express.
Consortiums are able to negotiate for travel service providers to pay higher
commission levels to their travel agency members.
In addition to the higher commission levels for the member agencies, the
consortium typically receives an override commission based upon the total sales
of its member agencies.
These overrides typically range between 1% and 5% of gross sales.
- BRICK AND MORTAR AGENCY SALES VS. ONLINE TRAVEL SALES. Just as online
retail sales compose only a small percentage of overall consumer spending,
online travel sales represent only a small portion of overall travel industry
gross receipts. For example, travel agents accounted for $126 billion in sales
in 1997 whereas online travel sales amounted to only $654 million (approximately
0.5% of total receipts). Just the annual growth in agency sales of 5% or $6.3
billion between 1997 and 1998, is more than three times 1998 total online travel
sales gross revenue. Many analysts have pointed out that rumors about the demise
of travel agencies in the face of online sales competition are greatly
exaggerated.
WHOLESALE TRAVEL INDUSTRY
- TRAVEL SERVICE PROVIDERS. Travel service providers include cruise
lines, package tour companies, car rental companies, hotel groups, destination
resorts and airlines. The retail travel agency industry has traditionally
supplied the major distribution infrastructure for travel service providers.
Consequently, travel service providers have invested heavily in cultivating,
educating and motivating travel agents to sell their products.
- AGENCY COMPETITORS. In most cases, travel service providers also
distribute their products directly to consumers. Traditionally this has been
accomplished through consumer direct advertising and the use of in-house
reservation centers or employees to field in-coming 800# telephone calls. This
direct competition has always been a point of contention between travel agencies
and travel service providers. Consequently, travel service providers have been
judicious in their use of direct consumer marketing, oftentimes referring
inquiries first to travel agencies and then to their own reservations staff.
- INTERNET MARKETING INITIATIVES. Virtually all types of travel service
providers are using online commerce to offer their services. The travel industry
has embraced the Internet because it is a perfect medium for the inexpensive
distribution of large amounts of information. Because the presentation of travel
services has always employed photographs and maps, the graphical nature of the
Internet is a perfect fit for the distribution of travel information.
However, the Internet is not a conversive medium. What is presented is
what is presented. To make an inquiry requires the use of email which usually
has a long response cycle or the consumer must make a direct telephone call to
the travel service provider. Consequently, only very simple travel services can
easily be sold online. For this reason, the more complex and expensive leisure
travel services continue to be sold by retail travel agencies on a person to
person basis.
- INTERNET COMPETITION SENSITIVITY. Internet market initiatives by
travel service providers have also been burdened by their desire to not appear
overly competitive with their existing retail travel agency distribution
networks. This is particularly true of leisure travel service providers.
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THE EMERGING ONLINE TRAVEL INDUSTRY
- MAJOR PLAYERS. The online commerce sector of the travel industry is
dominated by three companies, Preview Travel, Travelocity and Expedia.com. Each
of these recorded sales of approximately $250 million in 1998. Each of them also
lost tens of millions of dollars. Together they share 40% of a market projected
to grow to $7 billion in the year 2000. These three companies have rapidly
solidified their position of dominance by obtaining so-called "portal"
agreements to be the travel service providers for many of the major access sites
to the Internet. For example, Preview Travel has portal agreements with AOL.com,
Excite.com, Lycos.com and Webcrawler.com, Expedia is paired with Microsoft.com,
Infoseek.com and MSN.com and Travelocity links with Yahoo.com and Netscape.com.
All told, Web site portals garner over 150 million visits per month by
prospective consumers, any of whom, depending upon which site they have
accessed, can click directly into Preview, Expedia or Travelocity to make a
travel purchase or obtain travel related information.
- ONLINE LOSSES. The reasons online travel agencies have incurred
substantial losses is that they have substantial expenses. Multi-million dollar
costs associated with acquiring and maintaining portal agreements and other
advertising and promotional expenses to generate traffic volume to their sites
have insured that these large online agencies will not turn a profit in the
foreseeable future. In addition, they have incurred the expenses of setting up
the online agency, acquiring and training travel agents and other significant
operating expenses.
- ONLINE COMPETITION. Online travel companies must bear the burden of
both the competitive factors they share with brick and mortar travel agencies
and also the competitive factors unique to the Internet. For example, airlines
are encouraging consumers to purchase their tickets from their own Web sites by
offering increased frequent flyer miles for online purchases. Further, because
over 80% of online travel sales are airline tickets, continued erosion in this
segment of the online agency business is magnified as consumers purchase
directly from the airlines' Web sites.
- ONLINE CONSUMER PROFILES. To gauge the effectiveness of the Internet
for travel sales, the industry has measured the patronage of "wired travelers";
U.S. adults with Internet access who have traveled by air in the last year and
visited a Web site in the past month. In a recent survey of 500 wired travelers,
an independent research firm found that 80% of wired travelers visited at least
one Internet travel site, 58% went so far as to check prices and 18% actually
booked travel online. Of the 58% who looked but did not book online, 67% bought
services later from another source such as a travel agency or from the supplier.
What is significant is that 75% of these motivated lookers said they were
unlikely to use the Internet to actually purchase travel in the near future.
They cited concerns over credit card security (82%), personal privacy (79%) or
said they would rather speak with a knowledgeable salesperson (77%).
SUMMARY
Today's travel industry, can be summarized as follows.
- Sales of all categories of goods and services online represent
only a fraction of the total dollar volume of U.S. personal
consumption.
- While over 40% of online retail sales consist of travel products,
gross travel sales over the Internet currently represent less
than 2% of the sales recorded by travel agents.
- The vast majority of those who shop on the Internet look but do
not buy.
- Traditional travel agency business is generally strong. Travel
agents sold $132 billion of travel services in 1998, up over 30%
from 1995.
- Both traditional travel agencies and online agencies face
increasing competition directly from travel service providers.
- Travel agencies have moved away from lower commission travel
services and have focused increased attention on leisure travel.
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Our goal is to structure the TravelnStore.com concept to take aggressive
advantage both of the strengths of the Internet and the traditional travel
industry. Our concept answers specific needs of both our retail agency and
travel service provider constituencies. We believe that by pursuing these
advantages we are avoiding the weaknesses exhibited by the online travel agency
business of low look to book ratios and reduced commissions.
OUR COMPANY
OUR STRATEGY
For us to maintain and expand our unique position of linking Internet
travel shoppers to local travel agencies, we must continue to grow at an
increasing rate. Consequently, the major component of our business plan is our
growth strategy. We anticipate that we should be able to grow proportionately to
the compound growth rate of Internet usage. Our goal is to exceed that rate by
increasing traffic to our Web site by established Internet users.
GROWTH STRATEGY
As outlined above, our business addresses three constituencies; travel
service providers, retail travel agencies and consumers. To grow, we must grow
our relationships with these three constituencies. Each of these requires
specific marketing strategies. Because these constituencies are interactive,
success with each begets additional success with the others. Our Web site
provides both a contact point and an interface mechanism for these three
constituencies. As the volume of site participants from these three
constituencies increases, so will the use of our Certificates of Value. This
will result in increased revenues to TravelnStore.com.
- TRAVEL SERVICES PROVIDERS. Our smallest constituency is the travel
service providers. We have already established contractual and working
relationships with many of the major travel service providers. Consequently,
continued growth within this constituency will consist primarily of adding the
more specialized types of travel service providers or destination specific
travel service providers such as all-inclusive resorts.
Even though we will not be adding a significant number of additional
travel service providers, it is important that we continue to mature and expand
our relationships with our current travel service providers. This includes our
demonstration that our Web site is an increasingly important factor in their
overall Internet marketing programs. As our Web site adds value to their online
presence, we should be able to negotiate enhanced overrides and Certificates of
Value.
Because travel service providers provide the content for
TravelnStore.com and also the incentive of the Certificates of Value, they are a
key element in our success.
- RETAIL TRAVEL AGENCIES. Continued growth within the retail travel
agency constituency will come in the form of additional direct contractual
relationships with individual retail agencies to participate as co-host
agencies. Presently, over 300 travel agencies have joined as co-host agencies.
These agencies receive a guaranteed geographical territory based upon their
subscription for their local market Zip codes. We estimate that we may
eventually have as many as 2,500 agencies in this program.
Our Certificates of Value can be redeemed at any of the 29,000 travel
agencies in the United States. As Certificates are redeemed, more agencies will
become cognizant of our business. Even if an agency does not elect to join our
co-host program, that agency can still participate by proactively printing out
Certificates of Value for its clients as sales opportunities present themselves.
We believe that many agencies will take advantage of the availability of the
Certificates of Value to provide additional value to their existing and walk-in
clientele. We intend to encourage agencies to use the Certificates of Value for
their clients. In so doing, they will be generating income for us that is not
dependent upon consumers who are shopping for travel on the Internet.
In addition to the recruitment of TravelnStore.com co-host agencies, we
are also seeking to undertake the recruitment of retail travel agencies to
operate as World Key branded agencies. As a World Key agency, a travel agency
would be able to participate in both online and off-line marketing initiatives
to drive additional leisure travel business to the participating, branded
agencies. This additional business would also increase our advertising and
commission override revenues.
We have selected the World Key name as an appropriate brand name for
off-line marketing initiatives in that brick and mortar travel agencies would be
at a disadvantage adding a Web address type of name such as TravelnStore.com to
their established, existing retail identification. The name "Smith World Key
Travel" is a more becoming name for a retail travel agency than "Smith
TravelnStore.com Travel". For example, by having a brand name affiliation, it
allows us to advertise a particular cruise departure or
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special travel offer as being exclusively available at "your local World Key
affiliated travel agency".
To recruit agencies into adopting the World Key brand, we have
determined to offer each agency 2,000 shares of TravelnStore.com stock to be
vested over a four-year period of time at 500 shares per year. By having an
ownership interest in TravelnStore.com, we believe that agencies will be
significantly more motivated to participate in our branding and marketing
initiatives. We believe that, as agencies are motivated to generate more revenue
from our branded marketing initiatives, they will direct a greater percentage of
their sales to TravelnStore.com, thereby increasing our revenues. Further, to
compensate these agencies for the direct expense of re-branding, such as signage
and stationery, we will offer to reimburse them $1,000.
It should be noted that any shares issued in conjunction with this
program will dilute the then outstanding shares as we do not anticipate
requiring that the agencies pay a cash purchase price for the shares.
We expect to begin recruiting these agencies in October of this year
through a series of trade advertisements, direct contact and seminars in most
major cities. Because any branding initiative will require that we provide
protected geographic territories for the participating agencies, and that we
will select professional, established and market aggressive agencies, the
recruitment process will require a minimum of three months to judge its
effectiveness.
This branded program also has required us to arrange for the licensing
of the World Key trademark from World Key, Inc. We have entered into a Trademark
License Agreement with World Key, Inc. under which we have the right to
sublicense of the World Key trademark to the participating agencies. We do not
have to pay World key, Inc. any royalty or other consideration until we grant
our first sublicense. At that time we will pay World Key, Inc. $25,000 in cash.
Thereafter, we will pay World Key, Inc. an annual royalty of $250 for each
sublicense that we have granted. We have an option to purchase the World Key
trademark and brand name at a price equal to $2,500 for each agency sublicense
granted, or to be granted through September 30, 2004, up to a maximum of 2,500
sublicenses. We must exercise this option, if at all, within the first 36 months
of the Trademark License Agreement, that is by September 30, 2002.
Our growth strategy, as it pertains to retail travel agencies, is
focused on expanding our co-host agency network and encouraging all agencies to
use the Certificates for their existing clientele. Because the retail agency
industry is well-established in physical locations with readily available
telephone and fax numbers, marketing to travel agencies can be focused as to
geography and demographic profile of targeted agencies.
- CONSUMERS. The major growth we seek to generate is with the consumer
constituency. Regardless of the number of agencies or travel service providers
who participate with us, ultimately it is the use of the TravelnStore.com Web
site by consumers which will generate our revenue growth. Growth in this
constituency will be directly related to the amount of traffic that we can
generate to our Web site and how well those visitors accept the opportunities to
utilize the Certificates of Value. Advertising online includes using banner ads,
sponsorships and direct links and establishing strategic relationships with
non-competing, high traffic volume sites.
The most immediate methodology to generate traffic to the
TravelnStore.com site is to employ a comprehensive offline and online
advertising program. Funding of this advertising program is the primary use of
proceeds of this Offering. Advertising offline in various media, such as
in-flight magazines and publications, is designed to communicate to travelers
who use the Internet. Online advertising is more directed to Internet users who
travel. Both are important segments of the consumer constituency.
Our goal is to generate 300,000 unique visitors, per month, to our Web
site by the end of 1999. Success of our business plan is dependent on consumers
using the Certificates of Value as part of their travel purchases. Whatever
percentage of visitors to our Web site use the Certificates, the actual number
of Certificates used is directly related to the total traffic to the site.
Consequently, the main growth challenge that the we face is to generate as much
growth in our visitor counts as possible. Fortunately, it has been the
experience of most Web sites that given sufficient promotional funds, visitor
counts increase proportionately to the amount of money invested in advertising
and promoting the site.
MARKETING STRATEGY
Our marketing strategy can also be defined within the parameters of our
three constituencies. We have already successfully implemented marketing
strategies for the solicitation and acquisition of retail agencies to
participate in the co-host agency program. We have had a good response to our
invitations to agencies to co-host the TravelnStore.com Web site because most
agents realize that the Internet presents a good marketing opportunity. Further,
travel service providers are investing in the quality and quantity of their
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proprietary Web sites. Because of this, we have enjoyed a good reception by
travel service providers. We are also confident that once consumers become
accustomed to using TravelnStore.com to navigate travel sites on the Internet,
they will return whenever they have need to purchase travel services.
- RETAIL TRAVEL AGENCIES. Central to our strategy is the operation of
our co-host agency sales team. Leads for the sales team are generated by a
variety of promotional activities, including of the use of broadcast faxes,
online advertising on selected Internet travel agency sites, traditional
advertising in trade publications, press releases, referrals from affiliated
organizations, and direct telephone solicitation. Part of the proceeds from this
offering will be directed to expanding the sales team and increasing these
promotional activities.
We will also undertake a major trade publication and broadcast fax
marketing program designed to make all agencies aware of the opportunity for
agencies to use our Certificates of Value for their non-Internet clientele. This
program should increase the awareness of the retail travel industry as to how
our Certificate program works and that agencies will receive enhanced
commissions on travel sales generated by TravelnStore.com.
- TRAVEL SERVICE PROVIDERS. Our marketing to the travel service
providers is designed to expand the scope of services and destinations
represented on our Web site. We have already participated as an exhibitor in
major trade shows to raise the awareness of the travel industry of the
TravelnStore.com concept. We will continue to develop new travel service
provider relationships as an ongoing strategy to broaden the appeal of our Web
site. However, unlike many other travel sites that seek to link to an endless
chain of informational sites of both a general and destination specific nature,
we will retain our philosophy of only linking to the proprietary sites of travel
service providers.
- CONSUMERS. The majority of the proceeds from this offering are
earmarked for the promotion of our Web site to Internet users. While we will use
proven advertising strategies both in off-line publications and in the online
communities, we also have some unique strategies to generate new traffic to our
Web site and to build site loyalty. A key component of our non-advertising
strategies is our Affinity Program. Because our Web site is structured as a
database driven site, we are able to identify and track all registered visitors
to our Web site. This tracking extends to the eventual travel sales in which a
Certificate of Value is used. If the travel service purchaser has been
identified as part of a particular group or porting to our Web site from another
Web site, we have the capability to pay the group or the Web site a portion of
our commission or override.
Recently we launched THE TRAVELNSTORE.COM AFFINITY PROGRAM (TAP). The
goal of TAP is to substantially increase awareness of our Web site and provide
incentives for using the site by TAP members. TAP's initial focus is alumni
associations of major colleges and universities throughout the United States.
Under the TAP alumni program, an academic institution enters into a standard
agreement with us wherein our Web site is promoted by the institution in a
variety of ways. This includes being featured on the institution's Web site and
in campus and alumni publications to encourage those affiliated with the
institution to use our Web site for their travel needs. Under our agreement with
a specific institution, we remit to the institution a percentage of each
commission or override earned by TravelnStore.com as the result of the use of a
Certificate of Value by the institution's alumni or supporters.
While there are almost unlimited opportunities to expand TAP beyond the
alumni associations of colleges and universities, we selected such associations
for the initial launch of TAP for a number of significant reasons.
- Alumni associations have one of the highest percentages of
Internet users with a high demographic travel profile.
- Colleges and universities spend a great deal of time and money
keeping current with the whereabouts of their alumni. Therefore,
their publications have a high probability of reaching those who
previously attended the institution.
- By contracting with academic institutions, TAP facilitates the
exposure of our Web site to a substantial number of individuals.
- We are able to publicize TravelnStore.com to an institution's
alumni and resident population efficiently and inexpensively by
tagging onto existing programs the institution uses to
communicate with its affinity population; e.g. the institution's
Web site and campus and alumni newsletters, newspapers and
magazines, all of which are targeted to various sectors of the
institution's overall current and former population.
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We believe that by the end of 1999 we can have agreements in place
promoting our Web site to several million TAP members. We also intend to use a
modified model of this program to enter into associate relationships with a wide
variety of Internet sites whereby users of those sites porting to our Web site
will generate revenue back to the originating Web site through the use of our
Certificates.
Overall, the growth of TravelnStore.com is clearly defined by the
requirements of marketing to our three constituencies. Fortunately, each of our
constituencies is easily identified and has well-established conduits of
contact. With the funding from this offering, we will be able to implement our
marketing strategies targeted at each of our constituencies. Provided our
efforts are effective, we should experience the growth necessary for our company
to be increasingly valuable to its customers, employees and stockholders.
OPERATIONS
Our operations are reasonably simple. They involve promoting our Web
site, providing our Web site and Certificate of Value services to our travel
agency and travel service provider constituencies, and accounting for our
revenues and expenses. As we do not provide travel services directly to
consumers, we avoid the most labor-intensive component of the travel service
business.
Our revenues will come primarily from the commissions and overrides from
the travel service providers who honor our Certificates of Value. We anticipate
having profitable operations by limiting the labor intensive services that we
provide and automating the processing and accounting for our Certificates of
Value. While we anticipate high volume use of our Certificates, the dollar
amount of each commission and override will be low (the overrides likely will be
between 2% and 5% of the cost of the travel service) and we must control the
cost of processing each Certificate. As we do not sell travel services directly
to consumers, we will avoid the high-cost, labor-intensive services of most
existing online travel service companies.
Our operational costs consist primarily of the following items:
- The cost of equipping our Web site and providing the bandwidth
needed for efficient and user friendly access to our Web site
information;
- The cost of the staff to deal with our customers, the retail
travel agencies and the travel service providers;
- The cost of processing and accounting for our Certificates of
Value; and
- The cost of promoting our Web site and increasing site traffic.
Our business model should let us control and minimize these cost
components and maximize our profit potential.
Our equipment costs include primarily the costs of obtaining and
maintaining the computer servers and telecommunications equipment required to
maintain our Web site. As our Web site is a navigational site through which
consumers can access the database Web sites of the travel service providers, we
avoid the high equipment costs often associated with Internet e-commerce
companies. We have an extremely low cost of content, as the participating travel
service providers provide all content. Similarly, as we deliver only our
"frame", the bandwidth required for the consumer's efficient review of the
available travel services is provided primarily by the Web sites of the
participating travel service providers. This means that we can handle
significant site traffic with a minimum investment of Webmaster time and a
minimum investment in hardware and software. The major function of our Web site
is one of client database acquisition and management.
Similarly, as we do not provide reservation or similar service to the
travel consumer, we do not have to invest in the order-processing and
confirmation computer hardware and software and other ticketing equipment that
is required with these operations.
Our labor costs will consist primarily of the cost of the staff to
perform the following functions:
- Processing and accounting for our Certificates of Value;
- Developing and maintaining our relationships with our travel
agency and travel service provider constituencies; and
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- Promoting our Web site and increasing site traffic.
As we do not sell travel services directly with consumers, our staff can
be compact and focused and we do not have to invest in training our staff on the
intricacies of travel services.
Because of the complexities of travel, companies that sell travel
services directly to consumers must have a highly trained, knowledgeable and
experienced staff who can efficiently explain the services to the consumer.
Companies that sell travel services online, such as Preview Travel, Travelocity
and Expedia, must have the same highly trained, knowledgeable and experienced
staff. These online companies have had to invest significant capital to equip
their operations and to acquire and train a workforce.
As we do not sell travel services directly to consumers, we have been
able to avoid the cost of training our staff in the intricacies of travel and
have been able to keep our labor costs low.
The processing and accounting for our Certificates of Value is primarily
a tracking function. We must properly record each Certificate that is sent to us
by a travel agent, must monitor our receipt of the commissions and overrides
from the travel service providers and must account to the travel agent for any
monies due to the agent from the travel service provider. These functions can be
automated with existing, off-the-shelf computer software. We do not anticipate
having to invest in proprietary hardware or software to handle these functions.
Through the automation of the processing and accounting for our
Certificates of Value, we anticipate that we can profitably operate a
high-volume, low-cost service business.
The costs of developing and maintaining our relationships with the
travel agencies and travel service providers can not be accurately predicted.
However, we anticipate that these costs can be managed so that they can be
covered through the net commissions and overrides realized from our Certificates
of Value. We will be facilitating the services provided by both the agencies and
the providers and will not be competing with either. As a result, we anticipate
that both constituencies will be receptive to our services and that we will not
have to invest significant sums in developing proprietary products or services
for either constituency.
Our principal labor cost will be the cost of promoting our Web site and
increasing site traffic. This cost is, in a sense, a discretionary cost and is
not directly tied to the cost of generating revenues from any particular
Certificate of Value. However, our revenues will be directly proportional to the
volume of Certificates that are used and such volume should also be proportional
to the amount of traffic to our site. We intend to devote substantial resources
to this function and anticipate that it will be our primary cost of operations.
Studies of e-commerce have shown that site traffic is directly related
to the amount of promotion of the site. The more potential users who are aware
of the site, the greater the site traffic. So long as the site traffic generates
profitable operations, the cost of promoting the site can be managed within an
overall profitable operation. We anticipate that our processing of each
Certificate of Value can be done profitably through automation. Our challenge
then becomes one of sufficiently promoting our site to generate increased
traffic while keeping the promotional costs within the net profit realized from
processing the Certificates.
EXAMPLE OF POTENTIAL OPERATIONAL PERFORMANCE
The following example illustrates how our business model operates. This
is only an example and, because of the changing e-commerce market and the
vagaries of travel service in general, likely will not reflect actual
operations. The assumptions underlying our example are based on information from
various Internet travel industry research and financial reports of other
Internet travel sites.
Research indicates that approximately 67% of on-line travel shoppers
eventually book travel offline and that the type of travel that is booked
offline is significantly weighted towards more complex leisure travel, such as
cruises and tours. For this example we have made the following assumptions.
This example illustrates the total revenue that might be generated from
traffic to our Web site. As the example revenue would be generated from the
visitor eventually booking the travel services offline, the example can not be
used to illustrate our likely revenue for any particular month. Also, we are
developing traffic to our Web site and currently we have several thousand
visitors to our Web site each month. We do not anticipate averaging 100,000
visitors per month until at least the fourth quarter of 1999.
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- AMOUNT OF AND REVENUE FROM TRAVEL SERVICES BOOKED OFFLINE
- 67% of the visitors to our Web site will eventually book travel
services offline;
- 10% of the on-line looker/off-line booker visitors to our web
site will use a certificate of value.
- The eventual offline bookings will be for the following types of
services:
- 65% for leisure travel at an average value of $2,500;
- 20% for hotel accommodations at an average value of $200; and
- 15% for car rentals at an average value of $150;
- 1.75% is the average net override payable to TravelnStore.com
from use of a Certificate; and
- Our revenues will be proportional regardless of the actual amount
of site traffic.
- DIRECT COSTS OF PROCESSING CERTIFICATES OF VALUE
- 10 minutes of processing time for each Certificate;
- $30 per hour as the cost of clerical labor to process
Certificates;
- $5 per Certificate as the labor for processing each Certificate;
EXAMPLE:
- Of 100,000 visitors to our Web site, 67,000 will book travel
services offline;
- Of the 67,000 visitors who book services offline, 6,700 will use
a Certificate of Value;
- Of the 6,700 visitors who use a Certificate of Value, 4,355 (or
65%) will book leisure travel services;
- Total bookings for leisure travel in which a Certificate is used
is $10,887,500 (i.e., 4,355 trips x $2,500 per trip);
- Total bookings for hotel accommodations in which a Certificate is
used is $268,000 (i.e., 1,340 bookings x $200 per booking);
- Total bookings for car rentals in which a Certificate is used is
$150,750 (i.e., 1,005 bookings x $150 per booking);
- Total revenues from offline bookings is $11,306,250;
- Overrides paid to TravelnStore.com from offline bookings is
$197,860 (i.e., $11,306,250 x 1.75%); and
- Override per visitor is $1.97.
GOVERNMENTAL REGULATIONS
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. The United States Congress
has enacted Internet laws regarding children's privacy, copyrights and taxation.
Such legislation could dampen the growth in use of the Internet generally and
decrease the acceptance of the Internet as a communications, commercial and
advertising medium. Although our transmissions originate in California, the
governments of other states or foreign countries might attempt to regulate our
transmissions or levy sales or other taxes relating to our activities. The
European Union recently enacted
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its own privacy regulations that may result in limits on the collection and use
of certain user information. The laws governing the Internet, however, remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet and Internet advertising.
The growth and development of the market for Internet commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies conducting
business over the Internet. Furthermore, the Federal Trade Commission has
recently investigated the disclosure of personal identifying information
obtained from individuals by Internet companies. In the event the Federal Trade
Commission or other governmental authorities adopt or modify laws or regulations
relating to the Internet, our business, results of operations and financial
condition could be adversely affected. See "Risk Factors -- Governmental
Regulation of the Web."
INTELLECTUAL PROPERTY RIGHTS
We have filed for registration of the service mark "TravelnStore.com"
with the United States Trademark Office. We are the registered owner of the
"TravelnStore.com" Internet domain name.
We have not filed for patent protection of any of our technology or
business systems with the United States Patent Office or any foreign patent
office. We believe that our success will be dependent on our operation of a
user-friendly Web site that offers superior services and information. We do not
believe that such user-friendly site or superior services and information are
dependent on our obtaining and enforcing patent protection for our technology
and business systems.
We have determined that we wish to utilize the World Key trademark held
by World Key, Inc. as part of agency recruitment efforts and as the brand-name
for a World Key Branded Agency program. In addition to our Co-host Agency
Program, under which local retail travel agencies sponsors our Web site and is
given priority for up to three Zip codes, we intend to pursue establishing under
a common brand name a network of local retail travel agencies with whom our Web
site customers can deal for purposes of booking travel identified through our
Web site. We intend to use the "WORLD KEY" trademark as the brand name under
which this network will be organized.
Under a Trademark License Agreement with World Key, Inc. dated September
24, 1999, we acquired the exclusive right to use the "WORLD KEY" trademark and
service mark in the United States. The principal terms of the Trademark License
Agreement are as follows.
- The term of the license is perpetual, subject to the right of
either party to terminate the license for cause.
- The licensed territory is the Untied States.
- We have the right to sublicense the Trademark for use by retail
travel agencies participating in our network of agencies.
- The royalties that we have to pay are as follows:
- We do not have to pay any royalties until we grant our
first sublicense.
- When we grant our first sublicense, we will pay a royalty
of $25,000; and
- Thereafter, we have to pay an annual royalty of $250 per
retail travel agency who is participating in our network
and to whom we have sublicensed the Trademark.
- We have the option to acquire the Trademark from World Key on the
following terms:
- We must exercise the option within 36 months after the
date of the Trademark License Agreement, that is by
September 30, 2002;
- We must pay World Key a purchase price equal to the sum
of:
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- The product obtained by multiplying $2,500, by the number
of sublicenses that are outstanding as of the date of the
exercise of the option; and
- The product obtained by multiplying $2,500, by the number
of sublicenses that are granted after the date of the
exercise of the option and prior to September 30, 2004;
and
- We can pay the purchase price either in cash or, so long as the
trading price of our common stock is at least $5.00 per share, in
shares of common stock which have an aggregate value equal to the
purchase price.
We believe that the "WORLD KEY" trademark has significant value and will
facilitate our establishment of the retail travel agency network. At the same
time, we have attempted to structure the Trademark License Agreement so that our
obligations are manageable and are proportionate to our use of the Trademark and
the benefit we realize from the agency network.
Jim Tyner, Yula Greco, John Toal, Donald G. Scanlin and Stevan Saylor
are principal stockholders of TravelnStore.com Inc. and are principal
stockholders of World Key, Inc.. Of a total of 6.0 million shares of World Key,
Inc., Jim Tyner is the beneficial owner of 1.8 million shares; Yula Greco is the
beneficial owner of 1.4 million shares; John Toal is the beneficial owner of
120,000 shares; Donald G. Scanlin is the beneficial owner of 1.4 million shares;
and Stevan Saylor is the beneficial owner of 225,000 shares. Jim Tyner and Yula
Greco are also officers of World Key, Inc.
EMPLOYEES
As of August 31,1999, TravelnStore.com had 12 employees consisting of 4
executive officers, and 6 administrative support personnel. We anticipate that
by December 31, 1999, we will have a total of approximately 16 employees
consisting of 6 executive officers and 10 administrative and support personnel.
FACILITIES/PROPERTIES
Our principal offices are located at 1320 Flynn Road, Suite 402,
Camarillo, California 93012. In anticipation of the need for additional space,
we executed only a twelve month lease in July of 1998 terminating June 30, 1999.
The monthly rental is $1,300. We have retained this space on a month to month
holdover arrangement pending the close of this Offering and a move to larger
facilities. We also lease office space at 900 Avenida Acaso, Suite J, Camarillo,
California 93012. This office is approximately three blocks from our principal
office and consists of approximately 650 square feet. We rent this office space
on a month to month basis for $700 per month from World Key, Inc., an affiliated
company. We anticipate that we will require additional office space of
approximately 4,500 square feet within the next six months. Office space of this
size is readily available in the proximity of our location. We have
preliminarily reviewed suitable facilities and have determined that suitable
space may be acquired for approximately $1.50 per square foot, per month
inclusive of taxes, services and utilities. This would increase our monthly cost
for facilities from $2,000 per month to approximately $6,750 per month. Any
negotiation which we undertake prior to the close of this Offering will be made
contingent on the close of this Offering. We will seek to coincide the
acquisition and move-in to the new space concurrently with the expiration of the
Flynn Road lease.
Upon the successful completion of this Offering at the minimum
subscription for $2,000,000, we expect to relocate to a larger office facility.
We are currently involved in lease negotiations on two different locations both
of which consist of approximately 5,000 square feet. Upon completion of the
negotiation we will select one of these two locations from which to conduct our
business. We anticipate that this amount of space will be suitable for the
foreseeable future. Based upon these negotiations, we expect to sign a lease for
a period of three to five years at approximately $1.50 per square foot per month
inclusive of all services and utilities. Consequently, we anticipate that our
annual facilities cost will be approximately $90,000 per year. The potential
landlords have no existing relationships with any Officer, Director or Principal
Stockholder of TravelnStore.com
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
TravelnStore.com's officers and directors and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jim B. Tyner 50 Chairman, Chief Executive Officer and Director
John R. Toal 60 President, Chief Operating Officer and Director
Yula Greco 53 Vice President, Secretary, Controller and Director
Richard Bush 41 Vice President, Chief Financial Officer and
Director
E. Heinz Niederhoff 60 Independent Director
James Kingzett 55 Independent Director
</TABLE>
JIM B. TYNER is a co-founder of TravelnStore.com. From 1969 to 1976, he was
involved in the brokerage and sale of homes and agricultural investment
properties. In 1976, he founded a California licensed, independent escrow
company, which he built into a multi-location firm. He sold the escrow company
in 1989, having completed over 20,000 real estate transactions. Mr. Tyner
purchased two general travel agencies in 1981, which he grew from $600,000
annual sales to $3.5 million in four years. Mr. Tyner sold these agencies in
1985. From 1990 to 1995, Mr. Tyner was involved in real estate development and
brokerage, and served as the Managing Partner of 250,000 square feet of office,
industrial and commercial buildings. Mr. Tyner founded World Key, Inc. in 1994
as a specialized travel agency for travel to Great Britain. He continues as
Chairman of World Key, Inc. Mr. Tyner has been active in community affairs,
serving on the Board of Regents of California Lutheran University, as President
of the Camarillo Chamber of Commerce, as President of the Ventura County Escrow
Association and the Independent Escrow Association and on the Executive Board of
the California Escrow Association. Mr. Tyner is a graduate of California
Lutheran University.
JOHN R. TOAL is a co-founder of TravelnStore.com and has served as President and
Chief Operating Officer of TravelnStore.com since its inception. Prior to
joining TravelnStore, Mr. Toal was a Director and President of Impactor
Environmental Products, Inc., a publicly held company and the parent company of
Environmental Glass, Inc. Prior to his involvement with Impactor Environmental
Products, Inc. he served as President of Toal and Associates, a media
advertising and design consulting firm, which he founded in 1960. He has
lectured at UCLA and other venues on the topics of Advertising and Marketing. He
is a graduate of the American Academy of Art in Chicago.
YULA GRECO is a co-founder of TravelnStore.com and has served as Vice President,
Controller and Secretary since its inception. She is a co-founder of World Key,
Inc. and has served as Controller and Secretary since its founding in 1994. From
1981 to 1989 she served as Controller of Coronado Escrow Inc. and World Key
Travel, Inc. From 1989 to 1996 she served as Controller for several real estate
partnerships controlled by Jim B. Tyner. She holds a degree in accounting from
Ventura Community College.
RICHARD A. BUSH graduated with honors from Indiana University in 1980. He
qualified as a Certified Public Accountant in 1980. He spent 10 years with
Arthur Andersen & Company. He held the position of Manager, Audit Financial
Consulting Practice in its Chicago office. Mr. Bush joined the Aerospace
Division of Abex, Inc. as Controller in 1990. He also served as a Co-General
Partner, with Mr. Tyner, in several, large commercial real estate syndication's.
He currently serves as Vice President of Finance of Fairfield Manufacturing
Company Inc., a $175 million per year manufacturing company located in West
Lafayette, Indiana. He will serve as the interim CFO on a consulting basis until
such time as we require a full-time CFO.
E. HEINZ NIEDERHOFF served as a Vice President for Sitmar Cruises from
1976-1979. From 1980 through 1982 he held the position of Vice President,
Western U.S., for Kuoni Tours. From 1982 to 1996 he served as President of DER
Travel Service, Inc., Los Angeles. DER is a major European tour operator with
annual sales in excess of $75 million. At present, he serves as Vice President,
Sales and Marketing for Kemwel Holiday Autos, LLC, one of the largest rental car
marketing firms with offices worldwide. He is past Chairman and CEO of the
United States Tour Operators Association in 1994/1995.
JAMES M. KINGZETT is a graduate of Carroll College and the University of Montana
School of Law. He has over 25 years experience in real estate acquisition,
development, management and disposition with specialized experience in the
coordination of design, planning and permitting functions of real estate
development. He has founded and directed successful businesses, both on the U.S.
mainland and in the Pacific Basin. From 1992 to present, he is served as
President of Pro-United Inc., a Texas Corporation, involved in real estate
investment, development and brokerage in Texas and South Eastern United States.
From 1981 to present, he
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has also served as an officer and director of Pacific Endeavors, Ltd. which is
engaged in the export and brokerage of food and building materials throughout
the South Pacific. He is a resident of Gardnerville, NV.
We have not established separate Audit, Compensation or other Committees
of the Board of Directors. The functions of these Committees presently are being
performed by the full Board of Directors. We anticipate appointing such
Committees during calendar 1999.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Our only compensation obligation to any of our Executive Officers is to
pay them the salary compensation described below. We have not established any
employee benefit or insurance plans or other forms of long-term benefits for any
of our Executive Officers or other employees. Accordingly, we have not included
a Summary Compensation Table, which would include only the listed salary, and
instead have separately described the compensation payable to our Executive
Officers. We anticipate that, after the completion of this offer, we may
establish one or more employee benefit or insurance plans of the type that would
be disclosed in the Summary Compensation Table.
CASH COMPENSATION
Neither our Chief Executive Officer, President nor any other Executive
Officer received or is entitled to receive for either fiscal year 1998 or fiscal
year 1999 compensation of $100,000 or more. We have no obligation to pay any
Executive Officer any deferred compensation for any period prior to the date of
this Prospectus. The compensation payable during fiscal 1999 to our Executive
Officers is as follows:
<TABLE>
<CAPTION>
COMPENSATION
NAME & POSITION FISCAL 1999
--------------- -------------
<S> <C>
Jim B. Tyner, CEO $84,000
John R. Toal, President $72,000
Yula Greco Sr. V.P., Secretary $72,000
and Controller
Richard Bush, CFO $48,000
</TABLE>
All of the foregoing compensation is payable as salary. We have no
obligation to pay any cash bonuses in fiscal 1999, although we may pay cash
bonuses in fiscal 1999 if our performance and the Executive Officer's
performance warrant a bonus.
STOCK OPTIONS
We have not granted any stock options, stock appreciation rights or
other stock incentives to any of the Executive Officers. In the future we may
grant stock options, stock appreciation rights and other stock rights to any or
all of the Executive Officers
EMPLOYMENT AGREEMENTS
We have entered into written Employment Agreements with the Executive
Officers. Each of the Employment Agreements has the following principal terms:
- The term of the Agreement is one year beginning July 1, 1999 and
ending June 30, 2000, and neither party is obligated to renew the
Agreement for any period after June 30, 2000;
- The annual salary is payable semi-monthly;
- We will annually review the Employee's salary and determine
whether it should be increased or decreased for the following
year;
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<PAGE> 40
- We shall annually review the Employee's performance and determine
whether or not the Employee is entitled to receive a cash bonus;
- The Employee is entitled to participate in our Stock Option Plan
and other fringe benefits, although we are not obligated to grant
the Employee any option or an option covering any particular
number of shares of common stock; and
- We may terminate the Agreement only for cause.
The annual salary payable to each of Messrs. Tyner and Toal and Ms.
Greco is as follows:
- Mr. Tyner - $84,000 per year;
- Mr. Toal - $72,000 per year; and
- Ms. Greco - $72,000 per year.
As of August 31, 1999, we were obligated to pay the foregoing Executive
Officers a total of $26,000 in salary accrued and unpaid for the period July 1
to August 31, 1999.
DIRECTORS' COMPENSATION
We do not pay any of the Directors any compensation, whether in cash or
other property, for their attendance at any meetings of the Board of Directors.
We provide cash reimbursements for each of the Directors for expenses incurred
in attending any such meetings. We anticipate that, after the closing of this
Offering and depending on our results of operations, we may compensate the
non-management Directors for their attendance at such meetings.
STOCK OPTION PLANS
1999 EQUITY INCENTIVE PLAN
In April 1999, we adopted the 1999 Equity Incentive Plan (the "Plan").
The purposes of the Plan are to provide an additional incentive for directors,
employees and consultants to further our growth, development and financial
success by personally benefiting through the ownership of our securities, and to
enable us to obtain and retain the services of directors, employees and
consultants considered essential to our long-term success.
We have reserved a total of 1,000,000 shares of common stock for
issuance under the Plan (after giving effect to the 2-for-1 stock split effected
August 25, 1999) either upon the exercise of options or as shares of restricted
stock. The Plan provides for adjustment in the number of shares of common stock
covered by the Plan in the event of, among other things, any stock splits or
stock dividends and any combinations or reclassifications of our common stock.
Currently the Plan is administered by the Board of Directors, although
the Board may appoint a Committee to administer the Plan. The administrator has
authority to construe and implement the Plan, to select the individuals eligible
for the grant of options and the award of stock, to determine the amount and
exercise price of options and other shares to be granted, to impose restrictions
on the transferability of the options and shares and to prescribe all other
terms and conditions of each option granted under the Plan.
The administrator may grant options and award shares to our employees,
officers, directors, non-employee directors and consultants. As of the date
hereof, no employees, Directors or consultants have been granted any options or
issued any shares under the Plan nor are they entitled to receive the grant of
an option or the award of any shares under the Plan.
STOCK OPTIONS
Options granted under the Plan may be incentive stock options or
non-statutory stock options for federal and state income tax purposes. Options
granted under the Plan are not transferable, except in the event of the
Optionee's death, and options may be exercised only within the period prescribed
by the administrator. The maximum term of any option is ten (10) years.
The administrator of the Plan has the discretion to establish the
vesting schedule for any options. Generally options will vest at the rate of 20%
after each year of employment but, in the event of our merger or reorganization,
the administrator may accelerate
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<PAGE> 41
the vesting of the Options. The administrator may provide that the option will
become fully vested on the occurrence of a Change in Control, which would
generally include (a) a person's acquisition of 25% or more of our outstanding
voting securities; (b) the stockholders' approval of our merger or consolidation
with or into another corporation in which our existing stockholders do not own
at least 65% of the voting securities of the surviving entity; or (c) over any
two (2) year period, a change in the majority of our Board of Directors that is
not approved by at least two-thirds (2/3) of the Directors then in office.
The expiration of any option is accelerated if the optionee's employment,
status as a director or consultant terminates for any reason. The option must be
exercised within thirty (30) days following such termination, unless the
termination is as a result of the optionee's death or disability, in which case
the option must be exercised within one (1) year after the date of termination.
The exercise price of an option is set by the administrator at the time of
grant. The option price may not be less than 100% of the fair market value of
common stock on the date of grant. Payment of the exercise price of an option
may be made in whole or in part in the form of cash or our stock (valued at its
then fair market value).
RESTRICTED STOCK
The administrator may award shares under the Plan on such terms and
conditions as it deems appropriate. The shares may be awarded either as a stock
bonus for which the recipient shall not be obligated to pay a purchase price or
as a stock purchase in which case the recipient shall be obligated to pay a
purchase price established by the administrator, which price may be less than
the then fair market value of the common stock.
The recipient will be entitled to vote all of the shares immediately
upon the award of the shares. The Administrator may provide that the recipient's
economic interest in the shares will vest over a period of time; provided that
such period shall not be longer than 20% per year over five years.
In the event of the termination of the stockholder's employment or
status as a director or consultant, we shall have the right to repurchase any
unvested shares at a price equal to the purchase price paid by the stockholder.
The administrator also may provide that, on the occurrence of any such
termination, we will have the right to repurchase, at its then fair market
value, any vested shares.
ANTI-TAKEOVER IMPACT OF CHANGE OF CONTROL PROVISION
The Plan permits the administrator to accelerate the vesting of any
option and any shares on the occurrence of a Change in Control. Such
acceleration of vesting could have an anti-takeover effect and could make it
more difficult for a third party to acquire TravelnStore.com. We are not
currently discussing or negotiating with any other person regarding the
acquisition of TravelnStore.com or any similar transaction that would result in
a Change in Control.
AMENDMENT AND TERMINATION
We may amend or terminate the Plan at any time, provided that no
outstanding option or shares may be adversely affected without the optionee's or
the stockholder's consent. The approval of our stockholders is required only for
amendments that increase the number of shares available for issuance under the
Plan other than as a result of stock split, recapitalization or other change in
our capital structure. The Plan will automatically terminate on December 31,
2009, unless it has previously been terminated; but options and shares then
outstanding may be exercised and will remain outstanding until they expire or
are terminated in accordance with their terms.
BENEFIT PLANS
We have not established any pension, profit-sharing, 401(k) or similar
benefit plans for our employees. We anticipate that we will establish one or
more of such plans after the completion of this Offering. Our provision of such
plans may be important in attracting and retaining the employees that we will
need to achieve our business plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our Articles of Incorporation limits the liability of directors to the
maximum extent permitted by California law. California law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (a) any
breach of their duty of loyalty to the corporation or its stockholders, (b) acts
or omissions not in
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<PAGE> 42
good faith or which involve intentional misconduct or a knowing violation of
law, (c) unlawful payments of dividends or unlawful stock repurchases or
redemption's or (d) any transaction from which the director derived an improper
personal benefit. Such limitation of liability does not apply to liabilities
arising under the federal securities laws and does not affect the availability
of equitable remedies such as injunctive relief or rescission.
Our Articles of Incorporation and Bylaws provide that we will indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our Bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether or not California law would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our Bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for certain expenses, including attorneys fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding, including any action by or in the right of TravelnStore.com, arising
out of such person's services as an director or executive officer of
TravelnStore.com, any of our subsidiaries or any other company or enterprise to
which the person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
TravelnStore.com pursuant to the provisions of our charter documents, California
law or the agreements described above, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
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<PAGE> 43
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common
stock as of August 25, 1999 and as adjusted to reflect the sale of the shares of
common stock offered hereby by:
- each person or entity who is known by us to beneficially own more
than 5% of our outstanding common stock;
- the CEO, each of the named executive officers and each of our
directors; and
- all executive officers and directors as a group.
Unless otherwise indicated, the address for each of the named
individuals is c/o TravelnStore.com, Inc., 1320 Flynn Road, Suite 402,
Camarillo, California 93012. Except as otherwise indicated, and subject to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock held by
them.
Applicable percentage ownership in the table is based on 9,715,378
shares of common stock and 8,154 shares of Series A Preferred Stock outstanding
as of August 25, 1999 and 10,715,378 shares of common stock and 8,154 shares of
Series A Preferred Stock outstanding immediately following the completion of
this offering. (All of the share figures reflect the 2-for-1 stock split that we
effected August 25, 1999.) For purposes of calculating beneficial ownership:
- we have included in the outstanding shares 315,378 shares of
common stock reserved for issuance upon conversion of $430,000 in
principal amount of Convertible Promissory Notes currently
outstanding and with respect to which the holders have advised us
that they will convert the Notes as of the effective date of this
offering; and
- we have excluded from the outstanding shares (i) up to 153,847
shares issuable upon exercise of outstanding Stock Option; and
(ii) 30,767 shares of common stock reserved for issuance upon
conversion of $60,000 in principal amount of Convertible
Promissory Notes currently outstanding.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. None of the persons listed below hold any
options or other rights to acquire any additional shares of our common stock. To
the extent that any shares are issued upon exercise of options, warrants or
other rights to acquire our capital stock that are presently outstanding or
granted in the future or reserved for future issuance under our stock plans,
there will be further dilution to new public investors.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
EXECUTIVE OFFICERS, DIRECTORS PRIOR TO OFFERING AFTER THE OFFERING
AND 5% STOCKHOLDERS ------------------------- -------------------------
----------------------------- NUMBER PERCENTAGE NUMBER PERCENTAGE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Jim B. Tyner 3,603,846 37.00% 3,603,846 33.56%
Scanlin 1989 Trust** 2,116,107 21.73% 2,116,107 19.70%
Stevan Saylor** 1,912,201 19.63% 1,912,201 17.80%
John R. Toal 900,000 9.24% 900,000 8.38%
Yula Greco 900,000 9.24% 900,000 8.38%
Richard Bush -0- 0.0% -0- 0.0%
E. Heinz Niederhoff -0- 0.0% -0- 0.0%
James Kingzett -0- 0.00% -0- 0.00%
All Executive Officers and Directors
as a group (6 persons) 9,432,154 96.84% 9,432,154 87.82%
</TABLE>
* Includes 3,846 shares of common stock issuable to Mr. Tyner upon conversion of
a Convertible Promissory Note jointly held by Mr. Tyner and Mr. Saylor.
** Includes 16,107 shares of common stock issuable to the Scanlin 1989 Trust
upon conversion of the shares of Series A Preferred Stock held by him.
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*** Includes (a) 3,846 shares of common stock issuable to Mr. Saylor upon
conversion of a Convertible Promissory Note jointly held by Mr. Saylor and Mr.
Tyner and (b) 8,355 shares of common stock issuable to Mr. Saylor upon
conversion of the shares of Series A Preferred Stock held by him.
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<PAGE> 45
CERTAIN TRANSACTIONS
TravelnStore, LLC, a California limited liability company, was organized
on August 18, 1998, and is our predecessor. By a merger of TravelnStore, LLC
into us effective as of April 15, 1999, we acquired all of its business, assets
and liabilities. In connection with the merger, we issued to the members of the
LLC a total of 4,500,000 shares of common stock. The members of the LLC had made
an aggregate cash contribution to the LLC of $200 in exchange for their
membership interests in the LLC. The persons who were the members of the LLC
currently hold a majority of our outstanding common stock. (See, "PRINCIPAL
STOCKHOLDERS.")
LOAN TRANSACTION
In separate private placements commenced in September 1998, January 1999
and June 1999, we issued a total of 33 Convertible Promissory Notes (the
"Notes") in the aggregate principal amount of $490,000. Each Note has a face
value of $15,000, $85,000 of the Notes have a coupon rate of 8% per annum,
$405,000 of the Notes have a coupon rate of 6% per annum and all of the Notes
are all due and payable on December 31, 2000. One of the Notes was only
partially funded to the extent of $10,000, as of the date of the financial
statements. Accordingly we have recorded a liability only for the funded portion
of the Note. We believe that the remaining $5,000 unfunded amount will be
liquidated in the fourth quarter of 1999. We used the proceeds of these Loans to
cover our initial operating expenses and for general working capital purposes,
including the payment of officers salaries. No significant portion of the
proceeds were used to fund the acquisitions of capital equipment. Each of the
Notes was issued in exchange for cash, the forgiveness of debt or a combination
thereof in an amount equal to the principal amount of the Note. Under each of
the placements, the amount payable at December 31, 2000 on maturity of the Notes
will depend on whether or not we have affected a registered public offering of
our common stock. If we have not affected a registered public offering of our
common stock on or before December 31, 2000, we will be obligated to pay an
amount equal to the sum of the entire unpaid principal balance of the Notes, all
accrued interest thereon, and a premium equal to $15,000. If we have affected a
registered public offering of our common stock on or before December 31, 2000,
and have raised at least $2,000,000 in such offering, we will be obligated to
pay an amount equal to the sum of the entire unpaid principal balance of the
Notes, all accrued interest thereon, and a premium equal to $7,500.
The Notes issued under each of the placements may be converted into
shares of common stock following the date on which a registered public offering
of our common stock is declared effective. For the Notes issued under the
placement commenced in September, 1998, the holder may convert the Note into
that number of shares of common stock determined by dividing the sum of $150,000
by the price at which we issue the shares of common stock in the registered
offering; provided that the number of shares that are issuable upon such
conversion shall be appropriately pro-rated to reflect any partial payments on
the Note prior to the date of conversion. For the Notes issued under the
placements commenced in January, 1999 and June 1999, the holder may convert the
Note into that number of shares of common stock determined by dividing the sum
of $50,000 by the price at which we issue the shares of common stock in the
registered offering; provided that the number of shares that are issuable upon
such conversion shall be appropriately pro-rated to reflect any partial payments
on the Note prior to the date of conversion. In anticipation that the offering
price for any shares issued in a registered offering would be $6.50 per share,
we had reserved for issuance on conversion of the Notes a total of 346,145
shares of common stock. We will appropriately adjust the number of shares
reserved to reflect the actual offering price and the then aggregate amount
payable under the Notes.
Holders of 29 Notes, in the aggregate principal amount of $430,000, have
committed to convert, as of the effective date of this offering, their Notes
into an aggregate of 315,378 shares of common stock. Such conversion will be
effected in order to improve our financial position and to facilitate this
offering. One of the Notes which will be converted is jointly held by Jim Tyner,
our Chief Executive Officer, and Stevan Saylor, one of our principal
stockholders. On the conversion of such Note, each of Mr. Tyner and Mr. Saylor
will receive 3,846 shares of common stock. As of August 15, 1999, and after
giving effect to the foregoing conversions, there remained outstanding 4 Notes
in the aggregate principal amount of $60,000 and with respect to which we have
reserved for issuance a total of 30,767 shares of common stock.
OPTION SWEEPSTAKES
In connection with the commencement of our Web site, we conducted a
sweepstakes under which we solicited entries from visitors to our Web site. We
granted to one visitor whose name we drew at random from the list of all
participating visitors an Option to purchase that number of shares of our common
stock as is determined by dividing $1,000,000 by the price at which the shares
of common stock covered by this offering are issued to the public. We have
reserved for issuance under the Option 153,847 shares of common stock. The
aggregate exercise price of the Option is $100.00. The person to whom the
Option was granted has agreed that:
- without our prior consent she will not transfer all or any portion of
her interest in the Option other than by will or the laws of descent
and distribution; and
- in connection with this offering, without our prior written consent,
she will not publicly offer or sell any shares of common stock
acquired on exercise of the Option for a period of 180 days after the
registration statement is declared effective.
If we do not effect a public offering of our common stock by December 31, 2000,
the Option will expire on December 31, 2000 and we will pay the holder of the
Option $25,000 in cash.
We commenced the sweepstakes on November 1, 1998 and made the drawing on
January 31, 1999. Entrant's were required merely to register at our Web site by
leaving their email address and were not obligated, then or thereafter, to
provide any other
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particular information to us, purchase any goods or services, pay us any amount
or otherwise provide us any particular consideration. We do not intend to
conduct any other sweepstakes in which we will grant any options or issue any
other securities to any participant It is possible that our grant of the Option
did not comply with the registration requirements of the Securities Act of 1933.
Because we granted only one Option, did not receive, and will not receive, any
tangible property on the grant or exercise of the Option, we do not intend to
offer the holder of the Option the right to rescind the grant of the Option.
STOCKHOLDER LOANS
In connection with our borrowing a total of $140,000 from two of our
principal stockholders, we issued to such stockholders, as additional
consideration for the loans, a total of 400,000, after giving effect to the
2-for-1 stock split effective as of August 25, 1999, shares of common stock.
Notes issued for a total of $100,000 were due and payable on June 30, 1999, and
bearing interest at the rate of 10% per annum. One of the Notes issued for
$40,000 was due and payable on December 31, 1999, bearing interest at the rate
of 10% per annum and is convertible at the holder's option into Convertible
Notes issued in the September 6, 1998 private placement (which is described
above) in the aggregate principal amount of $75,000. Effective as of August 25,
1999, all of these Notes were converted into an aggregate of 8,154 shares of
Series A Preferred Stock. The shares of Series A Preferred Stock are convertible
into 24,462 shares of common stock. Such conversion was effected in order to
improve our financial position and to facilitate this offering.
CONSULTANCY AGREEMENTS
On July 6, 1998, TravelnStore, LLC, the predecessor to TravelnStore.com,
entered into Independent Contractor Agreements with Stevan M. Saylor and Donald
G. Scanlin. Both Mr. Scanlin and Mr. Saylor were founders of TravelnStore LLC
and are principal stockholders of TravelnStore.com. Under these Agreements, Mr.
Scanlin and Mr. Saylor provided consultancy services to TravelnStore, LLC during
its formation and through the period ended June 30, 1999. Each of the Consulting
Agreements has terminated and we are not obligated to retain or to employ either
or both of Messrs. Scanlin and Saylor. Both Mr. Scanlin and Mr. Saylor have
significant business experience from which TravelnStore, LLC, and subsequently
TravelnStore.com, have benefited. Their duties under the Agreements, were to
provide general business and marketing advice at the request and direction of
the officers of TravelnStore.com. For their services, each is to receive $25,000
payable on the successful completion of this Offering. TravelnStore.com does not
anticipate renewing or negotiating any further consultancy agreements with
either Mr. Scanlin or Mr. Saylor in that the services which they have provided
have or will be assumed by full-time employees of the Company.
TRADEMARK LICENSE AGREEMENT
We entered into a Trademark License Agreement with World Key, Inc. dated
September 24 1999. Under the License Agreement we have the exclusive right to
use the "WORLD KEY" trademark. The principal terms of the License Agreement are
as follows.
- The term of the license is perpetual, subject to the right of
either party to terminate the license for cause.
- The licensed territory is the Untied States.
- We have the right to sublicense the Trademark for use by retail
travel agencies participating in our network of agencies.
- The royalties that we have to pay are as follows:
- When we grant our first sublicense, we will pay a royalty of
$25,000; and
- Thereafter, we will pay an annual royalty of $250 per
sublicensee.
- We have the option to acquire the Trademark from World Key on the
following terms:
- We must exercise the option by September 30, 2002;
- We must pay a purchase price equal to the sum of:
- The product obtained by multiplying $2,500, by the
number of sublicenses that are outstanding as of the
date of the exercise of the option; and
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- The product obtained by multiplying $2,500, by the
number of sublicenses that are granted after the date
of the exercise of the option and prior to September
30, 2004; and
- We can pay the purchase price either in cash or, so long as
the trading price of our common stock is at least $5.00 per
share, in shares of common stock which have an aggregate
value equal to the purchase price.
Jim Tyner, Yula Greco, John Toal, Donald G. Scanlin and Stevan Saylor
are principal stockholders of TravelnStore.com Inc. and are principal
stockholders of World Key, Inc.. Of a total of 6.0 million shares of World Key,
Inc., Jim Tyner is the beneficial owner of 1.8 million shares; Yula Greco is the
beneficial owner of 1.4 million shares; John Toal is the beneficial owner of
120,000 shares; Donald G. Scanlin is the beneficial owner of 1.4 million shares;
and Stevan Saylor is the beneficial owner of 225,000 shares. Jim Tyner and Yula
Greco are also officers of World Key, Inc.
APPROVAL OF TRANSACTIONS
Our Board of Directors presently consists of five Directors, three of
who are officers of TravelnStore.Com and two of whom are independent directors.
All of the transactions described above were approved by the Board of Directors.
None of our Directors had a material financial interest in any of the
transactions described above, except that Jim Tyner, our Chief Executive
Officer, is a joint owner of our Convertible Promissory Note in the amount of
$15,000 issued in June 1999, and, through their stock interests in World Key,
Inc., the stockholders identified above have an indirect interest in the
Trademark License Agreement with World Key, Inc. The Trademark License Agreement
with World Key, Inc., was approved by a majority of the disinterested directors.
The merger of TravelnStore, LLC into TravelnStore.com, Inc., effected only a
change in the form of the entity and did not change any person's percentage
equity interest in the equity. Any future transactions in which any Director has
a material financial interest must be approved, after full disclosure of all
relevant information, by both a majority of the entire Board of Directors and a
majority of the disinterested directors.
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<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will
consist of 20,000,000 shares of common stock, no par value, and 1,000,000 shares
of preferred stock, no par value. As of August 25, 1999, there were outstanding
9,400,000 shares of common stock held of record by 5 stockholders of record and
8,154 shares of Series A Preferred Stock held of record by 2 stockholders. Of
the 20,000,000 shares of common stock authorized, 1,000,000 shares are reserved
for issuance pursuant to the 1999 Equity Incentive Plan, 153,847 are reserved
for issuance on the outstanding Stock Option, 346,145 are reserved for issuance
upon conversion of the Convertible Promissory Notes, 24,462 are reserved for
issuance on conversion of the Series A Preferred Stock, and 1,000,000 are being
offered herein. The foregoing number of shares reflect the 2-for-1 stock split
on the common stock that was effected August 25, 1999.
COMMON STOCK
The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of our stockholders. Subject
to preferences applicable to any outstanding shares of preferred stock, the
holders of common stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of any funds legally available. In the
event of our liquidation, dissolution or winding up, holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any outstanding shares of preferred stock.
Holders of common stock have no preemptive rights and no right to convert their
common stock into any other securities. There are no redemption or sinking fund
provisions applicable to our common stock. All outstanding shares of common
stock are, and all shares of common stock to be outstanding upon the closing of
this offering will be, fully paid and nonassessable. The rights, preferences and
privileges of holders of our common stock are subject to the rights of holders
of shares of any series of our preferred stock which we may designate and issue
in the future.
PREFERRED STOCK
Pursuant to our Articles of Incorporation, the Board of Directors has
the authority, without further action by the stockholders, to issue up to
1,000,000 shares of preferred stock in one or more series and to fix the rights,
preferences and privileges of such stock, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of the common stock. Without
stockholder approval, we may issue preferred stock with voting, conversion or
other rights that could adversely affect the voting power and other rights of
the holders of common stock. preferred stock could thus be issued quickly with
terms which could delay or prevent a change in control of TravelnStore.com or
make removal of management more difficult. Additionally, the issuance of
preferred stock may have the effect of decreasing the market price of the common
stock and may adversely affect the voting and other rights of the holders of
common stock. Upon the closing of this Offering, there will be 8,154 shares of
Series A Preferred Stock outstanding, and we do not currently have plans to
issue any of our preferred stock.
A total of 8,154 shares of preferred stock have been designated as
Series A Preferred Stock. There are no other shares of preferred stock
outstanding and there are no current plans to issue any shares of Preferred
Stock other than the shares offered hereby.
Holders of Series A Preferred Stock will have the following rights,
preferences and privileges:
- they will be entitled to receive non-cumulative dividends prior
and in preference to any payment of dividends (except dividends
payable in shares of common stock) on common stock, when, as, and
if declared by the Board of Directors;
- on liquidation of the TravelnStore.com, they will be entitle to
receive before any distribution to holders of common stock, an
amount equal to $20 per share of Series A Preferred Stock. After
provisions for payment of the preferential amounts to the holders
of Series A Preferred Stock, all remaining assets shall then be
distributed to the holders of common stock;
- each share of Series A Preferred Stock is convertible into three
(3) shares of common stock. The conversion rate is subject to
adjustment in certain events, including the issuance of common
stock as a stock dividend or combinations or subdivisions of
common stock; and
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<PAGE> 49
- in addition to voting rights given by law to the holders of
preferred stock, the holders of Series A Preferred Stock will be
entitled to the voting rights described below.
VOTING RIGHTS
Except as otherwise required by law or as set forth in our Articles of
Incorporation, the holders of shares of common stock and the holders of shares
of Series A Preferred Stock will vote together as a single class on all matters
submitted for approval by the stockholders. The holders of common stock will be
entitled to our vote per share. The holders of the Series A Preferred Stock will
be entitled to that number of votes per share as equals the number of shares of
common stock into which the Series A Preferred Stock is then convertible.
Initially each share of Series A Preferred Stock is convertible into three
shares of common stock.
Prior to the election of directors, any stockholder may cumulate votes
for any nominees, if, prior to the voting, a stockholder has given notice that
he intends to cumulate his votes. In cumulative voting, each stockholder is
entitled in the election of directors to one vote for each voting share held by
him multiplied by the number of directors to be elected and may cast all such
votes for a single nominee for director or may distribute them among any two or
more nominees as he sees fit. Those receiving the highest number of votes up to
the number of directors to be elected are elected as directors.
Stockholder approval of most actions, other than election of directors,
requires the approval of a majority of the shares present, whether in person or
by proxy, assuming a quorum was present. A quorum is the representation at a
meeting of holders of more that 50% of the outstanding shares. California law
requires the approval of at least the holders of more than 50% of the
outstanding shares for certain matters, including certain reorganizations and
sales of all or substantially all of the Company's assets, the dissolution of
the Company and amendments to the Articles of Incorporation, certain amendments
to the Bylaws, and in certain cases, certain class votes.
In addition to the foregoing, so long as any shares of Series A
Preferred Stock shall be outstanding, the Company shall not take any of the
following actions without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least fifty percent (50%) of
the outstanding shares of Series A Preferred Stock:
- Alter or change the rights, preferences, or privileges of the
Series A Preferred Stock so as materially and adversely to affect
the Series A Preferred Stock; or
- Increase the authorized number of shares of Series A Preferred
Stock; or
- Create any new class or series of shares having preferences over,
or being on a parity with, Series A Preferred Stock then
outstanding; or
- Do any act or thing which would result in taxation of the holders
of shares of Series A Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any successor
provision thereof).
STOCKHOLDER PROPOSALS
Our Bylaws set forth specific procedures for a stockholder's submission
of any matter to be acted upon at any meeting of stockholders.
- If the stockholder wishes to nominate a person for election as a
director, the stockholder must deliver to us notice of the
nomination generally not less than thirty (30) days nor more than
sixty (60) days prior to the date of the meeting at which
Directors are to be elected. The stockholder must include with
the notice certain information about the nominee and his or her
prior experience.
- If the stockholder wishes to present any other matter for action
at the stockholder meeting, the stockholder must deliver to us
notice of such matter generally not less than thirty (30) days
nor more than sixty (60) days prior to the date of the meeting.
The stockholder must include with the notice certain information
about the matter to be acted upon and his or her interest in such
matter.
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CONVERTIBLE NOTES
We had issued in three private placements a total of 33 Convertible
Promissory Notes in the aggregate principal amount of $490,000. Effective as of
August 15, 1999, the holders of $430,000 in principal amount of such Convertible
Promissory Notes have agreed to convert such Notes into a total of 315,378
shares of common stock as of the effective date of the Offering. We have
reserved for issuance on conversion of the 4 remaining Convertible Promissory
Notes a total of 30,767 shares of common stock, although we have not received
from the holders of such Notes notice of their intention to convert such Notes
at the effective date of this offering or otherwise.
In connection with our borrowing of a total of $140,000 from two of our
principal stockholders, we issued to such stockholders, as additional
consideration for the loans, a total of 200,000 shares of common stock.
Effective as of August 25, 1999, the Promissory Notes evidencing the foregoing
loans were paid in full through the issuance of 8,154 shares of Series A
Preferred Stock. The shares of Series A Preferred Stock are convertible into a
total of 24,462 shares of common stock. (See, "CERTAIN TRANSACTIONS-Stockholder
Loans".)
TRANSFER AGENT AND REGISTRAR
We will not list the shares of common stock issued in this offering on
any exchange or in the Nasdaq quotation service including after the offering.
Until such time as we list our shares of common stock on an exchange or in the
Nasdaq quotation service, we will act as the transfer agent and registrar for
our common stock.
STOCKHOLDER COMMUNICATIONS
Following the completion of this offering, we will provide to our
stockholders the periodic reports required under the Securities Exchange Act of
1934, including quarterly and annual reports. We also intend to provide to our
stockholders prior to our merger with or acquisition of another business entity
complete disclosure documentation regarding such business entity, including
audited financial statements.
POTENTIAL ACQUISITION TRANSACTIONS
We anticipate that we may pursue one or more acquisitions or business
combinations for the purposes of facilitating our growth and our achievement of
our business plan. As is common in the e-commerce industry, the most effective
means for us to expand into particular industry segments may be for us to
combine with another company which is already operating in that segment. There
are no preliminary agreements, understandings or negotiations between
TravelnStore.com and any of our officers, directors or principal stockholders,
any of their affiliates or any other persons regarding our possible merger with
or acquisition of any other business or company.
While we anticipate that we will pursue one or more acquisitions and
that we may use a portion of the proceeds of this offering in connection with
such acquisitions, we are not presently negotiating or discussing a strategic
relationship with any particular person and we anticipate that the total amount
of the proceeds of this offering that might be used for such purposes would not
exceed $50,000, if we raise only the minimum proceeds, and $250,000, if we raise
the maximum proceeds.
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PLAN OF DISTRIBUTION
The shares of common stock covered by this Offering are being offered
directly by us. Our officers and directors who will act on our behalf in
connection will be Jim B. Tyner, Chairman and Chief Executive Officer. John R.
Toal, President and Chief Operating Officer, and Peggy Murray, Director of
Investor Relations. We have not employed the services of an underwriter to
market the shares, although we have reserved the right to employ one or more
underwriters and brokers. If we employ any broker/dealers to assist in the offer
and sale of the shares, we will employ only broker/dealers who are licensed with
the Securities and Exchange Commission and all applicable state securities
agencies all are in good standing with the NASD. Prior to agreeing to pay
compensation to a broker/dealer, we will obtain from the NASD confirmation that
they have no obligation to the terms of such compensation. If and when we employ
any broker/dealer, we will file a past-effective amendment to the registration
statement covering this offering to identify the broker/dealer and to disclose
the compensation payable to him. It is the position of the Commission's Division
of Corporation Finance that broker/dealers who we retain to assist in the offer
and sale of the shares will be deemed to be "underwriters" within the meaning of
Section 2(11) of the securities Act of 1933.
We have established the following procedures for directly offering and
selling the shares covered by this Offering.
- INVESTOR RELATIONS DEPARTMENT. Our Investor Relations Department
consists of a Director of Investor Relations and an Investor
Relations Associate. The Director and Associate have a
comprehensive understanding of TravelnStore.com, our operations,
market strategies, and the market in which we compete. The
Director and Associate have received specific training about this
offering and the rules under which we are making this offering.
- MARKETING. We intend to use the Internet, direct-mail and
traditional media to solicit investors using the following
strategies.
- THE INTERNET. We have established a procedure on our Web site
through which a prospective investor may download a copy of this
Prospectus and subscribe for shares by following the instructions
posted on the Web site. Our Investor Relations Department will
follow-up with each person who contacts the Web site to pursue
such person's investment in this offering.
- DIRECT-MAIL. We will use traditional surface mail and email to
contact retail travel agencies and travel service providers. We
believe that the owners, management and staff of travel agencies
and travel service providers are in a position to easily
understand our objectives and opportunities. We intend to contact
both agencies and providers with whom we have existing
relationships and those with whom we do not have relationships.
We will also use traditional surface mail and email to contact
other potential investors. We intend to limit such mail and email
contacts to potential investors and groups of investors who we
have pre-qualified as knowledgeable about the travel industry
and/or the conduct of the e-commerce on the Internet.
- TRADITIONAL MEDIA. We intend to use traditional media both in the
form of paid advertisements and press releases to promote the
availability of this Offering to potential investors.
- UP-DATED INFORMATION. We will post on our Web site copies of all
amendments and supplements to this Prospectus contemporaneously
with our filing of such amendments and supplements with the
Commission. In addition, and in order to insure that all
prospective investors timely receive a copy of each such
amendment and supplement, we will highlight on our Web site
notice of such filing and will send to each prospective investor
notice of such filing by mail or email, in accordance with our
prior means of communication with the investor. If we previously
have delivered to the investor only printed copies of the
Prospectus, we will send to the investor with the written notice
of the filing a printed copy of the amendment or supplement.
- ESCROW ACCOUNT. To reduce the risk to early investors, we have
set a minimum offering amount of $2,000,000. We anticipate that
amount will be sufficient to fund our operations for twelve (12)
months. Until the minimum subscriptions are received, all funds
received from investors will be placed in an escrow account with
Santa Barbara Bank & Trust, an FDIC insured commercial bank with
more than $50,000,000 in assets. The subscription funds will not
be released to us until we have received acceptable subscriptions
for at least $2,000,000. We will deliver the investor funds to
the escrow agent no later than 12:00 noon, California time, on
the business day following the date
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on which we receive the funds. If we have not received acceptable
subscriptions for at least $2,000,000 by __________, ________
(i.e., 90 days after the effective date of the offering), the
funds will be promptly returned to the investors, without
interest. We will not be deemed to have accepted any subscription
until we have accepted the subscription in writing and, if
appropriate, delivered instructions to the escrow agent to
release the funds from escrow. The escrow agreement provides that
once the account balance reaches $2,000,000, all funds will be
released to us and the escrow account closed. All charges and
fees associated with the escrowing of the funds will be paid by
us with no deductions or offsets available against the deposited
funds.
Once the minimum amount of $2,000,000 is met all further subscriptions
will be directly deposited for use by us.
SECONDARY MARKET
This is the initial public offering of our common stock. Currently our
common stock is neither traded or any national or regional stock exchange nor
listed Nasdaq or any other stock quotation service. We have not undertaken any
obligation to list our common stock or any national or regional stock exchange
or on Nasdaq or any other quotation service.
At such time as we have a minimum tangible net worth of at least $2,000,000,
requiring that we raise approximately $2,500,000 in this offering, and otherwise
appear to satisfy the other listing requirements, we will seek to list our
common stock on the Philadelphia Stock Exchange. The Exchange's acceptance of
our application for listing will depend on our satisfaction of all of the
Exchange's listing criteria, rules and regulations and the Exchange's
discretion. If our application for listing on the Philadelphia Stock Exchange is
denied, we will seek to trade our stock on the OTC Electronic Bulletin Board.
We do not intend to list on our Web site a list of potential buyers and
sellers of our common stock or to implement on our Web site a system for
matching potential buyers and sellers of our common stock.
MINIMUM INVESTMENT
Each investor must subscribe for at least Three Hundred (300) shares of
common stock, for a minimum investment of $1,950.00
INTERIM CLOSINGS
We will not close on any subscriptions until we have received
subscriptions for at least 308,000 shares. If we do not receive such
subscriptions by _____________, _______, we will promptly refund all monies,
without interest, and terminate this offering. After accepting subscriptions for
a minimum of 308,000 shares, we may accept subscriptions for additional shares
as they are received. We will not accept any subscriptions after
_________, ______.
We are not presently aware that any of our officers, directors or
principal stockholders, or any of their affiliates, intend to purchase any
shares in the offering or that any of them intend to purchase any shares in the
offering in order for us to be able to reach the minimum investment of
$2,000,000 required to closing the offering. It is possible that one or more of
such persons may purchase shares in the offering and that such purchases may
facilitate our reaching the minimum required investment to close the offering.
Any purchases by any such persons will be subject to the same terms and
conditions as those applicable to other investors.
THERE CAN BE NO ASSURANCE THAT WE WILL BE ABLE TO SELL MORE THAN THE
MINIMUM NUMBER OF SHARES COVERED BY THIS OFFERING.
SUITABILITY STANDARDS
We have determined that investment in the shares of common stock covered
by this offering is suitable only for persons of adequate financial means who
have no need for liquidity with respect to this investment and who can bear the
economic risk of loss of their investment. The shares will be sold only to
investors who are or whom we reasonably believe satisfy one or more of the
standards described below. These suitability standards represent minimum
suitability standards for prospective investors. The satisfaction of such
standards by a prospective investor does not necessarily mean that the shares
are a suitable investment for such prospective investor and does not obligate us
to accept any subscription. We may reject subscriptions, in whole or in part, in
our absolute discretion.
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We will require each investor to represent in writing, among other
things, that:
- either alone or with investor's professional advisors, the
investor is capable of evaluating the merits and risks of an
investment in the shares and of protecting his or her own
interests in connection with the transaction;
- the investor is acquiring the shares for his or its own account,
for investment only and not with a view toward the resale or
distribution thereof; and
- the investor meets the suitability standards set forth below.
Each investor must represent in writing that such investor satisfies one
or more of the following:
- INDIVIDUAL INVESTOR: if the investor is an individual, either
alone or jointly with his or her spouse, one or more of the
following and the total investment does not represent more than
10% of the investor's net worth:
- The investor has a net worth of at least $250,000.00
exclusive of personal residence, home furnishings and
automobiles ; or
- The investor has a net worth of at least $150,000.00 and had
gross income for each of the 1997 and 1998 tax years of at
least $50,000.00 and the investor anticipates having at
least that level of gross income for the 1999 tax year; or
- ENTITY INVESTOR: if investor is not an individual, that either
the entity's total assets exceed $250,000 or that the amount of
the investment does not exceed 5% of the entity's total assets;
and
- PERCENTAGE OF NET WORTH: the amount of the investment by any
investor may not exceed 10% of such investor's net worth. We
reserve the right, in our sole discretion, to approve or
disapprove each investor and to reject subscriptions in whole or
in part for any reason.
SUBSCRIPTION PROCEDURE
An investor who desires to purchase any of the shares offered hereby
should do all of the following.
- Complete, date, execute, and deliver to us two copies of the
Subscription Agreement.
- Deposit to the "TravelnStore.com Investor Account" the full
amount of the offering price of the shares which the investor
proposes to purchase.
Subscriptions will be accepted or rejected in our sole discretion. We
reserve the right to reject any subscription in whole or in part. All funds
received from investors will be held in an escrow account pending acceptance by
us of subscriptions in the amount of at least $2,000,000. Promptly after our
acceptance of any subscription, we will issue and deliver to the investor,
certificates for the shares.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have outstanding a total of
10,715,378 shares of common stock and 8,154 shares of Series A Preferred Stock,
assuming the sale of all of the shares covered by this offering. Of these
shares, the 1,000,000 shares offered hereby will be freely tradable without
restriction or further registration under the Securities Act 1933, as amended
(the "Act"), unless held by "affiliates" of TravelnStore.com, as that term is
defined in Rule 144 under the Act ("Rule 144"). The remaining 9,715,378 shares
of common stock and the 8,154 shares of Series A Preferred Stock outstanding
upon completion of the Offering are "restricted securities" as that term is
defined in Rule 144.
In additions, we have reserved a total of 23,076 shares of common stock
for issuance upon conversion of the outstanding Convertible Notes, 153,847 for
issuance upon exercise of the outstanding Stock Option. (See, "CERTAIN
TRANSACTIONS".) The shares of common stock issuable upon such conversion and
exercise will be "restricted securities", and may be resold upon compliance with
the holding period, volume limitations, manner of sale and other provisions of
Rule 144. Generally, the holding period for the shares issuable on such
conversion or exercise will not begin until the effective date of such
conversion or exercise.
The principal stockholders of TravelnStore.com have entered into a
Lock-up Agreement in regards to the shares they hold in TravelnStore.com. In
addition to the provisions of Rule 144, the Agreement provides that, during the
term of their employment, principal stockholders who are also officers of
TravelnStore.com may not sell more than 2.5% of the shares which they
beneficially own, as of the close of this Offering, in any calendar quarter
during the first two years following the close of this Offering. Subsequently,
they may not sell more than 5% of such shares in any calendar quarter. Should a
principal stockholder who is an officer resign as an officer and terminate his
employment, then from that point forward, that principal stockholder shall be
governed by the provisions of the Lock-up Agreement which pertain to principal
stockholders who are not officers of the Corporation.
Principal stockholders who are not officers may not sell more than 2.5%
of shares which they beneficially own as of the close of this Offering, in any
calendar quarter during the first two years following the close of this
Offering. Subsequently, they may not sell more than 10% of such shares in any
calendar quarter.
The Lock-up Agreement provides that shares which are registered in a
subsequent public offering may be excluded from the lock-up provisions. However,
no principal stockholder may offer for sale, as a selling stockholder, in a
registered public offering, more than 15% of the shares which they own either
directly or beneficially at the time of the registration. The provisions of the
Lock-up Agreement encumber all shares beneficially owned by the principal
stockholders, as of the close of this Offering and any shares which they
transfer to an immediate family member or trust in which the principal
stockholder or immediate family members are the beneficiaries.
The Lock-up Agreement provides that should TravelnStore.com be acquired
by another Corporation, either through purchase or merger, in which the
principal stockholders are not principal stockholders in the acquiring
Corporation, then all lock-up provisions are terminated.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned the stock for at least one year is entitled to sell in
"broker's transactions" or to market makers, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares of
stock that does not exceed the greater of (a) one percent of the number of
shares of common stock then outstanding, or (b) the average weekly trading
volume in the common stock during the four calendar weeks preceding the required
filing of a Form 144 with respect to such sale. Sales under Rule 144 are
generally subject to the availability of current public information about
TravelnStore.com. Persons other than affiliates who have beneficially owned such
stock for at least two years are not subject to the notice, manner of sale,
volume or public information requirements and may sell such shares immediately
following the Offering.
Prior to the Offering, there has not been any public market for the
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the prevailing market prices and impair our
ability to raise capital through the sale of equity securities.
LEGAL MATTERS
The legality of our securities offered will be passed on for
TravelnStore.com by Reicker, Clough, Pfau & Pyle, LLP, 1421 State Street, Suite
B, Santa Barbara, California 93102.
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EXPERTS
The audited financial statements of TravelnStore.com included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Farber & Hass,, LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form SB-2 relating to the shares covered by this offering. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules filed therewith. For further information with respect to
TravelnStore.com and the shares offered hereby, reference is made to such
Registration Statement and such exhibits and schedules. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. For
further information with respect to TravelnStore.com and the shares, reference
is made to the Registration Statement and the exhibits and schedules thereto.
You may read any document we file with the Commission at its public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the Commission at 1-800-SEC-0330 for further information about the public
reference rooms. Our filings with the Commission also are available to the
public from the Commission's Web site at http://www.sec.gov.
After the completion of this offering, we will be subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, and in accordance therewith will file periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected or copied at the Commission's
public reference rooms and through the Commission's Web site
(http.//www.sec.gov).
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS
Balance Sheet, May 31, 1999 F-2 to F-3
Statements of Operations
for the Periods August 18, 1998 (Date of
Inception) to December 31, 1998 and
January 1, 1999 to May 31, 1999 F-4
Statements of Stockholders' Deficit
for the Periods August 18, 1998 (Date of
Inception) to December 31, 1998 and
January 1, 1999 to May 31, 1999 F-5
Statement of Cash Flows
for the Periods August 18, 1998 (Date of
Inception) to December 31, 1998 and
January 1, 1999 to May 31, 1999 F-6 to F-7
Notes to Financial Statements F-8 to F-17
UNAUDITED INTERNAL FINANCIAL STATEMENTS:
Balance Sheet, August 31, 1999 F-18
Statement of Operations
For the Period January 1, 1999
to August 31, 1999 F-19
Statement of Stockholders' Deficit
For the Period January 1, 1999
to August 31, 1999 F-20
Statement of Cash Flows
For the Period January 1, 1999
to August 31, 1999 F-21
Notes to Financial Statements F-22 to F-30
</TABLE>
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TRAVELNSTORE.COM, INC.
FINANCIAL STATEMENTS
AS OF MAY 31, 1999 AND
FOR THE PERIODS AUGUST 18, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
AND JANUARY 1, 1999 TO MAY 31, 1999
AND INDEPENDENT AUDITORS' REPORT
<PAGE> 58
TRAVELNSTORE.COM, INC.
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS:
Balance Sheet, May 31, 1999 F-2 - 3
Statements of Operations
for the Periods August 18, 1998 (Date of
Inception) to December 31, 1998 and
January 1, 1999 to May 31, 1999 F-4
Statements of Stockholders' Deficit
for the Periods August 18, 1998 (Date of
Inception) to December 31, 1998 and
January 1, 1999 to May 31, 1999 F-5
Statements of Cash Flows
for the Periods August 18, 1998 (Date of
Inception) to December 31, 1998 and
January 1, 1999 to May 31, 1999 F-6 - 7
Notes to Financial Statements F-8 - 17
- --------------------------------------------------------------------------------
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Travelnstore.com, Inc.:
We have audited the accompanying balance sheet of Travelnstore.com, Inc. (the
"Company") as of May 31, 1999 and the related statements of operations,
stockholders' deficit and cash flows for the periods August 18, 1998 (date of
inception) to December 31, 1998 and January 1, 1999 to May 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 present fairly, in all material
respects, the financial position of Travelnstore.com, Inc. as of May 31, 1999
and the results of its operations and its cash flows for the periods August 18,
1998 (date of inception) to December 31, 1998 and January 1, 1999 to May 31,
1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses from operations since
inception, has a working capital deficit of $262,864 and has stockholders'
deficit of $556,075. These conditions raise substantial doubt about its ability
to continue as a going concern. Management's plans regarding those matters also
are described in Note 11. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Farber & Hass LLP
July 15, 1999
Oxnard, California
F-1
<PAGE> 60
TRAVELNSTORE.COM, INC.
BALANCE SHEET
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable $ 185
Due from related parties 127,660
Prepaid expenses and other current assets 73,019
---------
Total current assets 200,864
---------
PROPERTY AND EQUIPMENT 18,387
Less accumulated depreciation (3,204)
---------
Property and equipment, net 15,183
---------
OTHER ASSETS 2,696
---------
TOTAL ASSETS $ 218,743
=========
</TABLE>
(Continued)
F-2
<PAGE> 61
TRAVELNSTORE.COM, INC.
BALANCE SHEET - CONTINUED
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 195,804
Income taxes payable 889
Notes payable, related parties 100,000
Convertible note payable, related party 40,000
Due to related party 1,050
Accrued expense, related party 110,250
Deferred income 15,735
-----------
Total current liabilities 463,728
-----------
CONVERTIBLE NOTES PAYABLE 310,000
-----------
OTHER LIABILITIES 1,090
-----------
STOCKHOLDERS' DEFICIT:
Preferred stock, no par value; 1,000,000 shares
authorized; no shares issued or outstanding
Common stock, no par value; 20,000,000 shares
authorized; 9,400,000 shares issued and outstanding;
1,178,309 shares reserved for future issuance 1,344,200
Accumulated deficit (1,900,275)
-----------
Total stockholders' deficit (556,075)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 218,743
===========
</TABLE>
See independent auditors' report and notes to financial statements.
- --------------------------------------------------------------------------------
F-3
<PAGE> 62
TRAVELNSTORE.COM, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIODS AUGUST 18, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
AND JANUARY 1, 1999 TO MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
SALES $ 21,390 $ 23,128
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 257,059 326,356
----------- -----------
LOSS FROM OPERATIONS (235,669) (303,228)
----------- -----------
OTHER EXPENSE:
Interest expense:
Convertible debentures (1,340,000)
Other (16,492) (4,086)
----------- -----------
Total other expense (1,356,492) (4,086)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (1,592,161) (307,314)
PROVISION FOR INCOME TAXES 800
----------- -----------
NET LOSS $(1,592,161) $ (308,114)
=========== ===========
BASIC LOSS PER COMMON SHARE $ (0.17) $ (0.03)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 9,200,000 9,000,000
=========== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
- --------------------------------------------------------------------------------
F-4
<PAGE> 63
TRAVELNSTORE.COM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIODS AUGUST 18, 1998
(DATE OF INCEPTION)
TO DECEMBER 31, 1998 AND
JANUARY 1, 1999 TO MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
---------------------------------
Shares Accumulated
Outstanding Amount (Deficit) Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT AUGUST 18, 1998
(DATE OF INCEPTION OF LLC) $ 200 $ 200
NET LOSS $ (308,114) (308,114)
----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 200 (308,114) (307,914)
COMMON STOCK ISSUED TO ACQUIRE
TRAVELNSTORE LLC 9,000,000
FAIR VALUE OF BENEFICIAL CONVERSION
FEATURE ON CONVERTIBLE DEBENTURES 1,340,000 1,340,000
STOCK DIVIDEND TO CONVERTIBLE NOTE
HOLDERS 400,000 4,000 4,000
NET LOSS (1,592,161) (1,592,161)
----------- ----------- ----------- -----------
BALANCE AT MAY 31, 1999 9,400,000 $ 1,344,200 $(1,900,275) $ (556,075)
=========== =========== =========== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
F-5
<PAGE> 64
TRAVELNSTORE.COM, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS AUGUST 18, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
AND JANUARY 1, 1999 TO MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,592,161) $ (308,114)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 1,532 1,672
Interest expense:
Common stock 4,000
Convertible debentures 1,340,000
Changes in operating assets and liabilities:
Accounts receivable (185)
Prepaid expenses and other assets (72,769) (2,946)
Accounts payable and accrued expenses 170,610 136,494
Income taxes payable 889
Deferred income (3,729) 19,464
Other liabilities (6,947) 8,037
----------- -----------
Net cash used by operating activities (159,464) (144,689)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Capital expenditures (18,387)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable borrowings 225,000 85,000
Net borrowings (repayments) from
related parties (84,396) 96,736
Proceeds from issuance of common stock 200
----------- -----------
Net cash provided by financing activities 140,604 181,936
----------- -----------
NET INCREASE (DECREASE) IN CASH (18,860) 18,860
CASH, BEGINNING OF PERIOD 18,860 0
----------- -----------
CASH, END OF PERIOD $ 0 $ 18,860
=========== ===========
</TABLE>
(Continued)
F-6
<PAGE> 65
TRAVELNSTORE.COM, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE PERIODS AUGUST 18, 1998
(DATE OF INCEPTION)
TO DECEMBER 31, 1998 AND
JANUARY 1, 1999 TO MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 31, December 31,
1999 1998
-------------- ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ -0- $4,086
Income taxes $ -0- $ 800
</TABLE>
NON-CASH FINANCING ACTIVITY:
In January 1999, the Company issued 400,000 shares (after giving effect to the
Company's August 1999 two-for-one stock split) of common stock as a dividend to
two noteholders.
See independent auditors' report and notes to financial statements.
- --------------------------------------------------------------------------------
F-7
<PAGE> 66
TRAVELNSTORE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Travelnstore.com, Inc. (the "Company") is a
provider of a specialized internet website, which acts as a
navigational site to other websites owned by an array of travel
service providers and agencies. The Company's fiscal year-end is
December 31.
In March 1999, the Company acquired 100% of the members' interest in
Travelnstore LLC in exchange for 9,000,000 shares (adjusted for the
stock split on August 25, 1999) of the Company's common stock. The
Company's shareholders owned 100% of the members' interest in
Travelnstore LLC.
Because Travelnstore LLC was acquired from related parties, the
acquisition was reflected using the recorded assets and liabilities
of Travelnstore LLC and accounted for in a manner similar to a
pooling of interest. The Company had no operations prior to the
acquisition of Travelnstore LLC. The financial statements include the
operational results of Travelnstore LLC since inception (August 18,
1998).
The Company has incurred net operating losses since inception and
expects to continue to incur such losses unless and until its website
successfully achieves commercial viability. In addition, a
significant portion of its contributed capital was advanced to a
related party (see Note 2). These and other factors have caused a
liquidity problem at the Company. As discussed in Note 11, management
of the Company plans to make a Direct Public Offering ("DPO") of the
Company's common stock to raise between $2.0 million and $6.5
million.
The accompanying financial statements were prepared assuming the
Company will continue to operate on a going concern basis and do not
include any adjustments to the recorded amounts of assets or to the
recorded amounts or classification of liabilities which would be
required if the Company were unable to realize its assets and satisfy
its liabilities and obligations in the normal course of business.
CONCENTRATION OF CREDIT RISK - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of advances which are due from a related party
(see Note 2).
F-8
<PAGE> 67
PERVASIVENESS OF ESTIMATES - The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Based on borrowing rates
currently available to the Company, the carrying value of all
financial instruments potentially subject to valuation risk
(principally consisting of accounts receivable, accounts payable,
accrued expenses and convertible notes payable) approximates fair
value.
NET LOSS PER SHARE - The Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" ("EPS") that established standards for the computation,
presentation and disclosure of earnings per share, replacing the
presentation of Primary EPS with a presentation of Basic EPS. It also
requires dual presentation of Basic EPS and Diluted EPS on the face
of the income statement for entities with complex capital structures.
Basic EPS is based on the pro-forma weighted average number of common
shares outstanding during the period, which totalled 9,200,000 and
9,000,000 for 1999 and 1998, respectively. The Company did not
present Diluted EPS, since the result was anti-dilutive.
OPERATING SEGMENT INFORMATION - The Company predominantly operates in
one industry segment, travel industry websites. Substantially all of
the Company's assets and employees are located at the Company's
headquarters in Camarillo, California.
ACCOUNTING FOR CONVERTIBLE DEBT SECURITIES - The Company has issued
convertible debt securities with a non-detachable conversion feature
that was "in the money" at the date of issue. The Company accounts
for such securities in accordance with Emerging Issues Task Force
Topic D-60. The Company has recorded the fair value of the beneficial
conversion feature as interest expense and an increase to common
stock.
ACCOUNTING FOR STOCK BASED COMPENSATION - Stock option grants are set
by the Company's Board of Directors based upon their fair market
valuation of the Company's common stock on the day prior to the date
of grant. Therefore, under the principles of APB Opinion No. 25, the
Company does not recognize compensation expense associated with the
grant of stock options. SFAS No. 123, "Accounting for Stock-Based
Compensation," requires the use of option valuation models to provide
supplemental information regarding options granted after 1994.
F-9
<PAGE> 68
The fair value of the options was estimated at the date of grant
using a Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rates of 6.0%;
dividend yields of 0% for 1999 and 1998; volatility factors of the
expected market price of the Company's common stock of 50% for 1998
and 1997; and expected life of the options of two years. These
assumptions resulted in weighted average fair values of $0.00 per
share for stock options granted in 1999 and 1998. Therefore, the
Company has not presented pro-forma information regarding net income
and earnings per share.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. The Company's stock
options have characteristics significantly different from those of
traded options such as vesting restrictions and extremely limited
transferability.
Information regarding stock options outstanding as of May 31, 1999 is
as follows:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------
Weighted Weighted Average
Average Remaining
Price Range Shares Exercise Price Contractual Life
----------- ------- -------------- ----------------
<S> <C> <C> <C>
$6.50 153,846 $6.50 0.6 years
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
------------------------
Weighted
Average
Price Range Shares Exercise Price
----------- ------ --------------
<S> <C> <C>
N/A -0- N/A
</TABLE>
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost
with depreciation provided over the estimated useful life of 5 years
using the straight-line method.
INCOME TAXES - The Company accounts for its income taxes under the
provisions of Statement of Financial Accounting Standards 109 ("SFAS
109"). The method of accounting for income taxes under SFAS 109 is an
asset and liability method. The asset and liability method requires
the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between tax
bases and financial reporting bases of other assets and liabilities.
The 1998 provision for income taxes represents the California
corporate minimum franchise tax.
F-10
<PAGE> 69
REVENUE RECOGNITION - The Company sells a monthly subscription to
participating travel agencies. The fee is billed in advance in
quarterly installments that allows online bookings through the
Travelnstore.com website. Monthly subscription revenues are deferred
and recognized on a straight-line basis over the remaining lives of
the advanced fee subscriptions. Revenues from initial registration
fees are recognized at contract inception. The Company believes that
this method more clearly matches the non-refundable fee with the
related cost to acquire an agency as a subscriber. The total
registration fee revenue has amounted to approximately $5,800 since
inception. The Company further believes that such fees will continue
to be immaterial to total revenue.
NEW ACCOUNTING PRONOUNCEMENTS - SFAS No. 130, "Reporting
Comprehensive Income", establishes standards for reporting and
displaying comprehensive income and its components in financial
statements. The Company adopted the provisions of SFAS No. 130 in
1998, but has had no elements of comprehensive income since
inception.
SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information", establishes a new model for segment reporting,
called the "management approach" and requires certain disclosures for
each segment. The management approach is based on the way the chief
operating decision-maker organizes segments within a company for
making operating decisions and assessing performance. The Company
adopted the provisions of SFAS No. 131 in 1998, but currently
operates in only one industry segment.
2. DUE FROM RELATED PARTY
The Company makes periodic working capital advances to World Key,
Inc., a related party. The advances are repaid when funds are
available and are payable upon demand.
3. PROPERTY AND EQUIPMENT
Property and equipment at May 31, 1999 consists of the following:
<TABLE>
<S> <C>
Furniture and fixtures $ 2,764
Office equipment 15,623
--------
Total property and equipment 18,387
Less accumulated depreciation (3,204)
--------
Property and equipment, net $ 15,183
========
</TABLE>
F-11
<PAGE> 70
4. NOTES PAYABLE - RELATED PARTIES
Notes payable at May 31, 1999 consists of:
Two notes ($25,000 each) payable to two stockholders,
issued in July 1998; unsecured; payable in full,
including interest at 8%, due on demand $50,000
Two notes ($25,000 each) payable to two stockholders,
issued in December 1998; unsecured; payable in full,
including interest at 10%, due on demand 50,000
--------
Total $100,000
========
Each December 1998 noteholder was granted the unilateral right to
receive 100,000 shares (total of 200,000 shares) of the Company's
common stock, after giving effect to the Company's two-for-one stock
split, at the time that the Company converted from an LLC to a "C"
corporation (January 1999). The Company determined the fair value of
the common stock right to be $0.01 per share at the grant date.
In August 1999, the noteholders entered into an agreement with the
Company to convert each note into Series A Preferred Stock (see Note
12), contingent upon the successful sale of the minimum amount of
shares in the Company's Initial Public Offering. The two July 1998
notes were each converted into 1,400 preferred shares. The two August
1998 notes will each be converted into 1,385 preferred shares. Each
share of Series A Preferred Stock may be repurchased by the Company
for $20 per Series A Preferred share at the shareholder's request,
contingent upon the Company having $2.3 million in cash or cash
equivalents at the time of the shareholder request.
F-12
<PAGE> 71
5. CONVERTIBLE NOTE PAYABLE - RELATED PARTY
Note payable to a stockholder; unsecured; payable in full
on December 31, 1999 including accrued interest at 10%.
The note may be converted, at the noteholder's option, at
any time prior to maturity, into 5 convertible notes
issued by the Company during its September 15, 1998
Private Placement for Convertible Notes (Note 6) $ 40,000
========
Additionally, the noteholder was granted the unilateral right to
receive 200,000 shares of the Company's common stock, after giving
effect to the Company's two-for-one stock split, at the time that the
Company converted from an LLC to a "C" corporation (January 1999).
The Company determined the fair value of the common stock right to be
$0.01 per share at the grant date.
In August 1999, the noteholder entered into an agreement with the
Company to convert the note into Series A Preferred Stock (see Note
12), contingent upon the successful sale of the minimum amount of
shares in the Company's Initial Public Offering. The note will be
converted into 2,584 preferred shares. Each share of Series A
Preferred Stock may be repurchased by the Company for $20 per Series
A Preferred share at the shareholder's request, contingent upon the
Company having $2.3 million in cash or cash equivalents at the time
of the shareholder request.
6. CONVERTIBLE NOTES PAYABLE
SEPTEMBER 1998 PRIVATE PLACEMENT (SERIES ONE) In
September 1998, the Company issued six notes payable to
individuals of various amounts ranging from $7,500 to
$15,000 issued in connection with the Company's September
1998 Private Placement Offering; unsecured; payable in
full, with interest accruing at 8%, upon the earlier of
1) public sale of registered shares of the Company, or 2)
December 31, 2000. The face value of each note may be
converted into ten times the dollar amount of the note of
the Company's common stock at the time of a successful
public stock offering. The number of shares issued is
based on the converted dollar amount divided by the same
offering price in the public stock offering. In August
1999, the six noteholders expressed the intent to convert
their notes into common stock at $6.50 per share,
contingent upon the successful completion of the
Company's Initial Public Stock Offering. $ 85,000
F-13
<PAGE> 72
JANUARY 1999 PRIVATE PLACEMENT (SERIES TWO) In January
1999, the Company issued fifteen notes payable to
individuals with an individual face value of $15,000
issued in connection with the Company's January 1999
Private Placement Offering; unsecured; payable in full,
with interest accruing at 6%, upon the earlier of 1)
public sale of registered shares of the Company, or 2)
December 31, 2000. Each note may be converted into
$50,000 of the Company's common stock at the time of a
successful public stock offering at the same per share
price as the offering price. In August 1999, twelve of
the fifteen noteholders expressed the intent to convert
each note into 7,692 shares of common stock at $6.50 per
share, contingent upon the successful completion of the
Company's Initial Public Stock Offering. 225,000
--------
Total $310,000
========
In June 1999, the Company issued a third private placement offering
(see Note 12).
7. INCOME TAXES
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets at May 31, 1999 are
substantially composed of the Company's net operating loss
carryforward, for which the Company has made a full valuation
allowance.
The valuation allowance increased approximately $100,000 since the
Company's inception, representing primarily net taxable loss. In
assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax assets, projected future taxable income and
tax planning strategies in making this assessment.
At May 31, 1999, the Company had a net operating loss carryforward
for Federal and state income tax purposes of approximately $100,000
and $50,000, respectively, which is available to offset future
taxable income, if any, through 2014.
The provision for income taxes in 1998 represents the California
corporate minimum franchise tax.
F-14
<PAGE> 73
8. RELATED PARTY TRANSACTIONS
For the period August 18, 1998 (date of inception) to May 31, 1999,
the Company accrued a management fee of $85,250 payable on demand to
World Key, Inc., a related party (see Note 2) for common overhead
expenses such as rent, utilities and payroll. Rent and utilities are
allocated based upon square foot utilization.
Payroll expense for certain officers was paid by World Key, Inc., and
charged to the Company for reimbursement. Management believes that
the allocation method is appropriate based on time and resources
used.
For the period August 18, 1998 (date of inception) to May 31, 1999,
the Company made periodic working capital advances to World Key Inc.,
a related party (Note 2), totalling $217,845 and received repayments
of $91,175.
In December 1998, an officer of the Company made an unsecured working
capital loan to the Company in the amount of $1,050. The loan is
payable upon demand and bears no interest.
Jim Tyner is Chief Executive Officer of Travelnstore.com, Inc. and is
also Chairman and President of World Key, Inc. Mr. Tyner owns 38.3%
and 30%, respectively, of the outstanding common stock of
Travelnstore.com, Inc. and World Key, Inc.
Yula Greco is Vice President, Secretary and Controller of
Travelnstore.com, Inc. and is also Vice President and Secretary of
World Key, Inc. Ms. Greco owns 9.6% and 23.3%, respectively, of the
outstanding common stock of Travelnstore.com, Inc. and World Key,
Inc.
Donald Scanlin is a trustee of the Scanlin 1989 Trust that
beneficially owns 22.45% of the outstanding common stock of
Travelnstore.com, Inc. Mr. Scalin also owns 23.33% of World Key, Inc.
Stevan Saylor beneficially owns 20.25% and 3.75%, respectively, of
the outstanding common stock of Travelnstore.com, Inc. and World Key,
Inc.
9. STOCK OPTIONS
In April 1999, the Board of Directors approved an Incentive Stock
Option Plan (the "Plan") under which options to purchase up to
500,000 shares of the Company's common stock may be granted to
employees, directors and consultants at not less than the fair market
value on the date of grant. Options granted under the Plan are
generally exercisable five to ten years after the date of grant and
expire December 31, 2009. Options are granted at the discretion of
the Board of Directors or Committee. No options have been issued
since the Plan's inception.
F-15
<PAGE> 74
On January 15, 1999, the Company initiated an Internet Stock Option
Sweepstakes. The winner of the sweepstakes was given the option to
purchase up to $1,000,000 of Company stock at the public issuing
price. Should the Company not make a public offering prior to
December 31, 2000, the option may be redeemed for $25,000.
10. YEAR 2000 COMPLIANCE (UNAUDITED)
The Company utilizes computer hardware and software in its
operations. Any of the Company's programs that recognize a date using
"00" as the year 1900 rather than the year 2000 could result in
errors or system failures.
The Company has completed an evaluation of its computer hardware and
software and believes that its mission critical systems are Year 2000
compliant.
11. MANAGEMENT PLANS
Management has evaluated the Company's current financial position and
its available resources and plans to make a direct public offering of
the Company's stock during the third quarter of 1999. The Company
plans to raise between $2.0 million and $6.5 million in the offering
by selling between 307,692 and 1 million shares of its common stock.
Should the Company be unsuccessful in raising the minimum offering of
$2.0 million, it is unlikely that the Company will continue
operations beyond December 31, 1999 without additional borrowings
from related or unrelated parties and the extension of the due dates
on its current debt.
12. SUBSEQUENT EVENTS (UNAUDITED)
In August 1999, the Company created a new class of preferred stock
entitled "Series A Preferred". The Company may issue up to 8,154
shares of this new class. This class has a $20 per share liquidation
preference, receives dividends at the same rate as common
shareholders, has preferential voting rights on certain shareholder
issues and may be converted into 3 shares of common stock at the
preferred shareholders' option.
On August 25, 1999, the Company declared a 2 for 1 stock split for
all common shareholders of record at that date. The effect of the
stock split has been reflected retroactively in the financial
statements.
F-16
<PAGE> 75
JUNE 1999 PRIVATE PLACEMENT (SERIES THREE)
On June 15, 1999, the Company initiated the sale of a third series of
private placement convertible notes. Each note has a face value of
$15,000 and a coupon rate of 6%. Each $15,000 note may be converted,
at the noteholder's option, at any time prior to maturity, into
$50,000 of the Company's common stock at the time of a successful
public stock offering at the same per share price as the offering
price. A total of 12 notes were sold during the offering which
expired July 31, 1999. Half of one note has been sold to an officer
of the Company in lieu of $7,500 of the officer's salary.
- --------------------------------------------------------------------------------
F-17
<PAGE> 76
TRAVELNSTORE.COM, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS:
Balance Sheet, August 31, 1999 F-20
Statement of Operations
For the Period January 1, 1999
to August 31, 1999 F-21
Statement of Stockholders' Deficit
For the Period January 1, 1999
to August 31, 1999 F-22
Statement of Cash Flows
For the Period January 1, 1999
to August 31, 1999 F-23
Notes to Financial Statements F-24 - 32
</TABLE>
- --------------------------------------------------------------------------------
F-18
<PAGE> 77
TRAVELNSTORE.COM, INC.
BALANCE SHEET
AUGUST 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 21,236
Accounts receivable 185
Due from related parties 147,660
Prepaid and other current assets 95,114
-----------
Total current assets 264,195
-----------
PROPERTY AND EQUIPMENT 18,387
Less accumulated depreciation (4,104)
-----------
Property and equipment, net 14,283
-----------
OTHER ASSETS 2,696
-----------
TOTAL ASSETS $ 281,174
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 239,700
Income taxes payable 889
Convertible notes payable 490,000
Due to related party 2,550
Accrued expense, related party 102,300
Deferred income 10,425
-----------
Total current liabilities 845,864
-----------
STOCKHOLDERS' DEFICIT:
Preferred stock class A, no par value; 8,154
shares authorized; 8,154 shares issued and
outstanding 150,887
Preferred stock, no par value; 1,000,000 shares
authorized; no shares issued or outstanding
Common stock, no par value; 20,000,000 shares
authorized; 9,400,000 shares issued and
outstanding; 1,178,309 shares reserved for
future issuance 1,764,200
Accumulated deficit (2,479,777)
-----------
Total stockholders' deficit (564,690)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 281,174
===========
</TABLE>
- --------------------------------------------------------------------------------
F-19
<PAGE> 78
TRAVELNSTORE.COM, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1999 TO AUGUST 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SALES $ 31,934
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 417,536
-----------
LOSS FROM OPERATIONS (385,602)
-----------
OTHER EXPENSE:
Interest expense:
Convertible debentures - beneficial
conversion feature (1,760,000)
Other (26,061)
-----------
Total other expense (1,786,061)
-----------
NET LOSS $(2,171,663)
===========
BASIC LOSS PER COMMON SHARE $ (0.23)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING 9,400,000
===========
</TABLE>
- --------------------------------------------------------------------------------
F-20
<PAGE> 79
TRAVELNSTORE.COM, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD JANUARY 1, 1999 TO AUGUST 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Class A Common Stock
-------------------------- ------------------------
Shares Shares Accumulated
Outstanding Amount Outstanding Amount (Deficit) Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1999 $ 200 $ (308,114) $ (307,914)
PREFERRED CLASS A
NOTE CONVERSION 8,154 $ 150,887 150,887
COMMON STOCK ISSUED
TO ACQUIRE
TRAVELNSTORE LLC 9,000,000
FAIR VALUE OF BENEFICIAL
CONVERSION FEATURE ON
CONVERTIBLE DEBENTURES:
Series One 815,000 815,000
Series Two 525,000 525,000
Series Three 420,000 420,000
STOCK DIVIDEND TO
CONVERTIBLE NOTE
HOLDERS 400,000 4,000 4,000
NET LOSS (2,171,663) (2,171,663)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT
AUGUST 31, 1999 8,154 $ 150,887 9,400,000 $ 1,764,200 $(2,479,777) $ (564,690)
=========== =========== =========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
F-21
<PAGE> 80
TRAVELNSTORE.COM, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1999 TO AUGUST 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,171,663)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 2,432
Interest expense:
Common stock 4,000
Convertible debentures 1,760,000
Other 13,871
Changes in operating assets and liabilities:
Prepaid and other assets (94,864)
Accounts payable and accrued expenses 206,572
Deferred income (9,039)
Other liabilities (8,037)
------------
Net cash used by operating activities (296,728)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable borrowings 405,000
Net repayments from related parties (105,896)
------------
Net cash provided by financing activities 299,104
-----------
NET INCREASE IN CASH 2,376
CASH, BEGINNING OF PERIOD 18,860
------------
CASH, END OF PERIOD $ 21,236
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -0-
Income taxes $ -0-
</TABLE>
NON-CASH FINANCING ACTIVITY
In July 1999, two shareholders exercised options to convert $150,887 of
convertible debt and interest into Series A Preferred Stock (see Notes 4 and 5).
In January 1999, the Company issued 400,000 shares (after giving effect to the
Company's August 1999 two-for-one split) of common stock as a dividend to two
noteholders.
- --------------------------------------------------------------------------------
F-22
<PAGE> 81
TRAVELNSTORE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Travelnstore.com, Inc. (the "Company") is a
provider of a specialized internet website, which acts as a
navigational site to other websites owned by an array of travel
service providers and agencies. The Company's fiscal year-end is
December 31. The information furnished reflects all adjustments (all
of which were of a normal recurring nature) which, in the opinion of
management, are necessary to fairly present the financial position,
results of operations, and cash flows on a consistent basis.
Operating results for the eight months ended August 30, 1999, are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1999.
In March 1999, the Company acquired 100% of the members' interest in
Travelnstore LLC in exchange for 9,000,000 shares (adjusted for the
stock split on August 25, 1999) of the Company's common stock. The
Company's shareholders owned 100% of the members' interest in
Travelnstore LLC.
Because Travelnstore LLC was acquired from related parties, the
acquisition was reflected using the recorded assets and liabilities
of Travelnstore LLC and accounted for in a manner similar to a
pooling of interest. The Company had no operations prior to the
acquisition of Travelnstore LLC. The financial statements include the
operational results of Travelnstore LLC since inception (August 18,
1998).
The Company has incurred net operating losses since inception and
expects to continue to incur such losses unless and until its website
successfully achieves commercial viability. In addition, a
significant portion of its contributed capital was advanced to a
related party (see Note 2). These and other factors have caused a
liquidity problem at the Company. As discussed in Note 11, management
of the Company plans to make a Direct Public Offering ("DPO") of the
Company's common stock to raise between $2.0 million and $6.5
million.
The accompanying financial statements were prepared assuming the
Company will continue to operate on a going concern basis and do not
include any adjustments to the recorded amounts of assets or to the
recorded amounts or classification of liabilities which would be
required if the Company were unable to realize its assets and satisfy
its liabilities and obligations in the normal course of business.
F-23
<PAGE> 82
CONCENTRATION OF CREDIT RISK - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of advances which are due from a related party
(see Note 2).
PERVASIVENESS OF ESTIMATES - The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Based on borrowing rates
currently available to the Company, the carrying value of all
financial instruments potentially subject to valuation risk
(principally consisting of accounts receivable, accounts payable,
accrued expenses and convertible notes payable) approximates fair
value.
NET LOSS PER SHARE - The Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" ("EPS") that established standards for the computation,
presentation and disclosure of earnings per share, replacing the
presentation of Primary EPS with a presentation of Basic EPS. It also
requires dual presentation of Basic EPS and Diluted EPS on the face
of the income statement for entities with complex capital structures.
Basic EPS is based on the weighted average number of common shares
outstanding during the period, which totalled 9,400,000 for 1999. The
Company did not present Diluted EPS, since the result was
anti-dilutive.
OPERATING SEGMENT INFORMATION - The Company predominantly operates in
one industry segment, travel industry websites. Substantially all of
the Company's assets and employees are located at the Company's
headquarters in Camarillo, California.
ACCOUNTING FOR CONVERTIBLE DEBT SECURITIES - The Company has issued
convertible debt securities with a non-detachable conversion feature
that was "in the money" at the date of issue. The Company accounts
for such securities in accordance with Emerging Issues Task Force
Topic D-60. The Company has recorded the fair value of the beneficial
conversion feature as interest expense and an increase to common
stock.
ACCOUNTING FOR STOCK BASED COMPENSATION - Stock option grants are set
by the Company's Board of Directors based upon their fair market
valuation of the Company's common stock on the day prior to the date
of grant. Therefore, under the principles of APB Opinion No. 25, the
Company does not recognize compensation expense associated with the
grant of stock options. SFAS No. 123,
F-24
<PAGE> 83
"Accounting for Stock-Based Compensation," requires the use of option
valuation models to provide supplemental information regarding
options granted after 1994.
The fair value of the options was estimated at the date of grant
using a Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rates of 6.0%;
dividend yields of 0%; volatility factors of the expected market
price of the Company's common stock of 50%; and expected life of the
options of two years. These assumptions resulted in weighted average
fair values of $0.00 per share. Therefore, the Company has not
presented pro-forma information regarding net income and earnings per
share.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. The Company's stock
options have characteristics significantly different from those of
traded options such as vesting restrictions and extremely limited
transferability.
Information regarding stock options outstanding as of August 31, 1999
is as follows:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------------------
Weighted Weighted Average
Average Remaining
Price Range Shares Exercise Price Contractual Life
----------- ------- -------------- ----------------
<S> <C> <C> <C>
$6.50 153,846 $6.50 0.6 years
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
---------------------------
Weighted
Average
Price Range Shares Exercise Price
----------- ------ -------------------
<S> <C> <C>
N/A -0- N/A
</TABLE>
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost
with depreciation provided over the estimated useful life of 5 years
using the straight-line method.
F-25
<PAGE> 84
INCOME TAXES - The Company accounts for its income taxes under the
provisions of Statement of Financial Accounting Standards 109 ("SFAS
109"). The method of accounting for income taxes under SFAS 109 is an
asset and liability method. The asset and liability method requires
the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between tax
bases and financial reporting bases of other assets and liabilities.
The provision for income taxes represents the California corporate
minimum franchise tax.
REVENUE RECOGNITION - The Company sells a monthly subscription to
participating travel agencies. The fee is billed in advance in
quarterly installments that allows online bookings through the
Travelnstore.com website. Monthly subscription revenues are deferred
and recognized on a straight-line basis over the remaining lives of
the advanced fee subscriptions. Revenues from initial registration
fees are recognized at contract inception. The Company believes that
this method more clearly matches the non-refundable fee with the
related cost to acquire an agency as a subscriber. The total
registration fee revenue has amounted to approximately $5,800 since
inception. The Company further believes that such fees will continue
to be immaterial to total revenue.
NEW ACCOUNTING PRONOUNCEMENTS - SFAS No. 130, "Reporting
Comprehensive Income", establishes standards for reporting and
displaying comprehensive income and its components in financial
statements. The Company adopted the provisions of SFAS No. 130 in
1998, but has had no elements of comprehensive income since
inception.
SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information", establishes a new model for segment reporting,
called the "management approach" and requires certain disclosures for
each segment. The management approach is based on the way the chief
operating decision-maker organizes segments within a company for
making operating decisions and assessing performance. The Company
adopted the provisions of SFAS No. 131 in 1998, but currently
operates in only one industry segment.
SERIES A PREFERRED STOCK
In August 1999, the Company created a new class of preferred stock
entitled "Series A Preferred". The Company may issue up to 8,154
shares of this new class. This class has a $20 per share liquidation
preference, receives dividends at the same rate as common
shareholders, has preferential voting rights on certain shareholder
issues and may be converted into 3 shares of common stock at the
preferred shareholders' option.
F-26
<PAGE> 85
STOCK SPLIT
On August 25, 1999, the Company declared a 2 for 1 stock split for
all common shareholders of record at that date. The effect of the
stock split has been reflected retroactively in the financial
statements.
2. DUE FROM RELATED PARTY
The Company makes periodic working capital advances to World Key,
Inc., a related party. The advances are repaid when funds are
available and are payable upon demand.
3. PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1999 consists of the following:
<TABLE>
<S> <C>
Furniture and fixtures $ 2,764
Office equipment 15,623
--------
Total property and equipment 18,387
Less accumulated depreciation (4,104)
--------
Property and equipment, net $ 14,283
========
</TABLE>
4. NOTES PAYABLE - RELATED PARTIES
Each December 1998 noteholder was granted the unilateral right to
receive 100,000 shares (total of 200,000 shares) of the Company's
common stock, after giving effect to the Company's two-for-one stock
split, at the time that the Company converted from an LLC to a "C"
corporation (January 1999). The Company determined the fair value of
the common stock right to be $0.01 per share at the grant date.
In August 1999, certain convertible noteholders entered into an
agreement with the Company to convert four notes ($25,000 each) and
$7,466 in accrued unpaid interest into Series A Preferred Stock. The
two July 1998 notes were each converted into 1,400 preferred shares.
The two August 1998 notes will each be converted into 1,385 preferred
shares. Each share of Series A Preferred Stock may be repurchased by
the Company for $20 per Series A Preferred share at the shareholder's
request, contingent upon the Company having $2.3 million in cash or
cash equivalents at the time of the shareholder request.
F-27
<PAGE> 86
5. CONVERTIBLE NOTE PAYABLE - RELATED PARTY
Additionally, the noteholder was granted the unilateral right to
receive 200,000 shares of the Company's common stock, after giving
effect to the Company's two-for-one stock split, at the time that the
Company converted from an LLC to a "C" corporation (January 1999).
The Company determined the fair value of the common stock right to be
$0.01 per share at the grant date.
In August 1999, the holder of a $40,000 convertible note entered into
an agreement with the Company to convert the note and $3,421 in
accrued unpaid interest into Series A Preferred Stock. The note was
converted into 2,584 preferred shares. Each share of Series A
Preferred Stock may be repurchased by the Company for $20 per Series
A Preferred share at the shareholder's request, contingent upon the
Company having $2.3 million in cash or cash equivalents at the time
of the shareholder request.
6. CONVERTIBLE NOTES PAYABLE
SEPTEMBER 1998 PRIVATE PLACEMENT (SERIES ONE)
In September 1998, the Company issued six notes payable
to individuals of various amounts ranging from $7,500 to
$15,000 issued in connection with the Company's September
1998 Private Placement Offering; unsecured; payable in
full, with interest accruing at 8%, upon the earlier of
1) public sale of registered shares of the Company, or 2)
December 31, 2000. The face value of each note may be
converted into ten times the dollar amount of the note of
the Company's common stock at the time of a successful
public stock offering. The number of shares issued is
based on the converted dollar amount divided by the same
offering price in the public stock offering. In August
1999, the six noteholders expressed the intent to convert
their notes into common stock at $6.50 per share,
contingent upon the successful completion of the
Company's Initial Public Stock Offering. $ 85,000
F-28
<PAGE> 87
JANUARY 1999 PRIVATE PLACEMENT (SERIES TWO)
In January 1999, the Company issued fifteen notes payable
to individuals with an individual face value of $15,000
issued in connection with the Company's January 1999
Private Placement Offering; unsecured; payable in full,
with interest accruing at 6%, upon the earlier of 1)
public sale of registered shares of the Company, or 2)
December 31, 2000. Each note may be converted into
$50,000 of the Company's common stock at the time of a
successful public stock offering at the same per share
price as the offering price. In August 1999, twelve of
the fifteen noteholders expressed the intent to convert
each note into 7,692 shares of common stock at $6.50 per
share, contingent upon the successful completion of the
Company's Initial Public Stock Offering. 225,000
JUNE 1999 PRIVATE PLACEMENT (SERIES THREE)
On June 15, 1999, the Company initiated the sale of a
third series of private placement convertible notes. Each
note has a face value of $15,000 and a coupon rate of 6%.
Each $15,000 note may be converted, at the noteholder's
option, at any time prior to maturity, into $50,000 of
the Company's common stock at the time of a successful
public stock offering at the same per share price as the
offering price. A total of 12 notes were sold during the
offering which expired July 31, 1999. Half of one note
has been sold to an officer of the Company in lieu of
$7,500 of the officer's salary. In August 1999, eleven of
the twelve noteholders expressed the intent to convert
each note into 7,692 shares of common stock at $6.50 per
share, contingent upon the successful completion of the
Company's Initial Public Stock Offering. 180,000
--------
Total $490,000
========
7. INCOME TAXES
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets at August 31, 1999
are substantially composed of the Company's net operating loss
carryforward, for which the Company has made a full valuation
allowance.
F-29
<PAGE> 88
The valuation allowance increased approximately $100,000 since the
Company's inception, representing primarily net taxable loss. In
assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax assets, projected future taxable income and
tax planning strategies in making this assessment.
At August 31, 1999, the Company had a net operating loss carryforward
for Federal and state income tax purposes of approximately $100,000
and $50,000, respectively, which is available to offset future
taxable income, if any, through 2015.
8. RELATED PARTY TRANSACTIONS
For the period August 18, 1998 (date of inception) to August 31,
1999, the Company accrued a management fee of $108,500 payable on
demand to World Key, Inc., a related party (see Note 2) for common
overhead expenses such as rent, utilities and payroll. Rent and
utilities are allocated based upon square foot utilization.
Payroll expense for certain officers was paid by World Key, Inc., and
charged to the Company for reimbursement. Management believes that
the allocation method is appropriate based on time and resources
used.
For the period August 18, 1998 (date of inception) to August 31,
1999, the Company made periodic working capital advances to World Key
Inc., a related party (Note 2), totalling $217,845 and received
repayments of $91,175.
In December 1998 and June 1999, an officer of the Company made an
unsecured working capital loan to the Company in the amount of
$2,550. The loan is payable upon demand and bears no interest.
Jim Tyner is Chief Executive Officer of Travelnstore.com, Inc. and is
also Chairman and President of World Key, Inc. Mr. Tyner owns 38.3%
and 30%, respectively, of the outstanding common stock of
Travelnstore.com, Inc. and World Key, Inc.
Yula Greco is Vice President, Secretary and Controller of
Travelnstore.com, Inc. and is also Vice President and Secretary of
World Key, Inc. Ms. Greco owns 9.6% and 23.3%, respectively, of the
outstanding common stock of Travelnstore.com, Inc. and World Key,
Inc.
F-30
<PAGE> 89
Donald Scanlin is a trustee of the Scanlin 1989 Trust that
beneficially owns 22.45% of the outstanding common stock of
Travelnstore.com, Inc. Mr. Scalin also owns 23.33% of World Key, Inc.
Stevan Saylor beneficially owns 20.25% and 3.75%, respectively, of
the outstanding common stock of Travelnstore.com, Inc. and World Key,
Inc.
9. STOCK OPTIONS
In April 1999, the Board of Directors approved an Incentive Stock
Option Plan (the "Plan") under which options to purchase up to
1,000,000 shares of the Company's common stock may be granted to
employees, directors and consultants at not less than the fair market
value on the date of grant. Options granted under the Plan are
generally exercisable five to ten years after the date of grant and
expire December 31, 2009. Options are granted at the discretion of
the Board of Directors or Committee. No options have been issued
since the Plan's inception.
On January 15, 1999, the Company initiated an Internet Stock Option
Sweepstakes. The winner of the sweepstakes was given the option to
purchase up to $1,000,000 of Company stock at the public issuing
price. Should the Company not make a public offering prior to
December 31, 2000, the option may be redeemed for $25,000.
10. YEAR 2000 COMPLIANCE (UNAUDITED)
The Company utilizes computer hardware and software in its
operations. Any of the Company's programs that recognize a date using
"00" as the year 1900 rather than the year 2000 could result in
errors or system failures.
The Company has completed an evaluation of its computer hardware and
software and believes that its mission critical systems are Year 2000
compliant.
11. MANAGEMENT PLANS
Management has evaluated the Company's current financial position and
its available resources and plans to make a DPO of the Company's
stock during the fourth quarter of 1999. The Company plans to raise
between $2.0 million and $6.5 million in the offering by selling
between 307,692 and 1 million shares of its common stock. Should the
Company be unsuccessful in raising the minimum offering of $2.0
million, it is unlikely that the Company will continue operations
beyond December 31, 1999 without additional borrowings from related
or unrelated parties and the extension of the due dates on its
current debt.
- --------------------------------------------------------------------------------
F-31
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 204(a)(10) of the California General Corporation Law (the "GCL")
permits corporations to eliminate the liability of a Director to the corporation
or its stockholders for monetary damages for breach of the Director's fiduciary
duty of care. Our Articles of Incorporation include such a provision eliminating
the liability of Directors to the fullest extent permissible under California
law. Under the GCL directors will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (a) any
breach of their duty of loyalty to the corporation or its stockholders, (b) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) unlawful payments of dividends or unlawful stock
repurchases or redemption's or (d) any transaction from which the director
derived an improper personal benefit. Such limitation of liability does not
apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
Our Articles of Incorporation and Bylaws provide that we will indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our Bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether or not California law would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our Bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for certain expenses, including attorneys fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding, including any action by or in the right of TravelnStore.com, arising
out of such person's services as an director or executive officer of
TravelnStore.com, any of our subsidiaries or any other company or enterprise to
which the person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
We are not obligated to indemnify the indemnity with respect to (a)
acts, omissions or transactions from which the indemnity may not be relieved of
liability under applicable law, (b) claims initiated or brought voluntarily by
the indemnity and not by way of defense, except in certain situations, (c)
proceedings instituted by the indemnity to enforce the Indemnification
Agreements which are not made in good faith or are frivolous, or (d) violations
of Section 16(b) of the Securities Exchange Act of 1934 or any similar statute.
While not requiring the maintenance of directors' and officers'
liability insurance, if there is such insurance, the indemnity must be provided
with the maximum coverage afforded to Directors, officers, key employees, agents
or fiduciaries if indemnity is a Director, officer, key employee, agent or
fiduciary, respectively. Any award of indemnification to an agent would come
directly from our assets, thereby affecting a stockholder's investment.
These indemnification provisions and the Indemnification Agreements may
be broad enough to permit indemnification of our officers and Directors for
liabilities (including reimbursement of expenses) arising under the Securities
Act.
II-1
<PAGE> 91
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by
the Registrant, are as follows:
<TABLE>
<S> <C>
SEC Filing Fee $ 1,808
Nasdaq Listing Fees $ 7,500
NASD Filing Fee $ 0
Underwriter's Expense Allowance $ 0
Printing Expenses $ 20,000
Accounting Fees and Expenses $ 20,000
Legal Fees and Expenses $ 65,000
Blue Sky Fees and Expenses $ 15,000
Registrar and Transfer Agent Fees $ 0
Miscellaneous $ 5,692
Total $135,000
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Loan Transaction
In separate private placements commenced in September 1998, January 1999
and June 1999, we issued Convertible Promissory Notes (the "Notes") in the
aggregate principal amount of $490,000. Each Note has a face value of $15,000,
$90,000 of the Notes have a coupon rate of 8% per annum, $405,000 of the Notes
have a coupon rate of 6% per annum and all of the Notes are all due and payable
on December 31, 2000. One of the Notes was only partially funded to the extent
of $10,000, as of the date of the financial statements. Accordingly we have
recorded a liability only for the funded portion of the Note. We believe that
the remaining $5,000 unfunded amount will be liquidated in the fourth quarter of
1999. We used the proceeds of these Loans to cover our initial operating
expenses and for general working capital purposes, including the payment of
officers salaries. No significant portion of the proceeds were used to fund the
acquisitions of capital equipment. Each of the Notes was issued in exchange for
cash, the forgiveness of debt or a combination thereof in an amount equal to the
principal amount of the Note. Under each of the placements, the amount payable
at December 31, 2000 on maturity of the Notes will depend on whether or not we
have affected a registered public offering of our common stock. If we have not
affected a registered public offering of our common stock on or before December
31, 2000, we will be obligated to pay an amount equal to the sum of the entire
unpaid principal balance of the Notes, all accrued interest thereon, and a
premium equal to $15,000. If we have affected a registered public offering of
our common stock on or before December 31, 2000, and have raised at least
$2,000,000 in such offering, we will be obligated to pay an amount equal to the
sum of the entire unpaid principal balance of the Notes, all accrued interest
thereon, and a premium equal to $7,500.
The Notes issued under each of the placements may be converted into
shares of common stock following the date on which a registered public offering
of our common stock is declared effective. For the Notes issued under the
placement commenced in September, 1998, the holder may convert the Note into
that number of shares of common stock determined by dividing the sum of $150,000
by the price at which we issue the shares of common stock in the registered
offering; provided that the number of shares that are issuable upon such
conversion shall be appropriately pro-rated to reflect any partial payments on
the Note prior to the date of conversion. For the Notes issued under the
placements commenced in January, 1999 and June 1999, the holder may convert the
Note into that number of shares of common stock determined by dividing the sum
of $50,000 by the price at which we issue the shares of common stock in the
registered offering; provided that the number of shares that are issuable upon
such conversion shall be appropriately pro-rated to reflect any partial payments
on the Note prior to the date of conversion. In anticipation that the offering
price for any shares issued in a registered offering would be $6.50 per share,
we had reserved for issuance on conversion of the Notes a total of 346,145
shares of common stock. We will appropriately adjust the number of shares
reserved to reflect the actual offering price and the then aggregate amount
payable under the Notes.
Holders of 29 Notes, in the aggregate principal amount of $430,000, have
committed to convert, as of the effective date of this offering, their Notes
into an aggregate of 315,378 shares of common stock. Such conversion will be
effected in order to improve our financial position and to facilitate this
offering.
II-2
<PAGE> 92
One of the Notes which will be converted is jointly held by Jim Tyner, our Chief
Executive Officer, and Stevan Saylor, one of our principal stockholders. On the
conversion of such Note, each of Mr. Tyner and Mr. Saylor will receive 3,846
shares of common stock. As of August 15, 1999, and after giving effect to the
foregoing conversions, there remained outstanding 4 Notes in the aggregate
principal amount of $60,000 and with respect to which we have reserved for
issuance a total of 30,767 shares of common stock.
Option Sweepstakes
In connection with the commencement of our Web site, we conducted a
Sweepstakes under which we solicited entries from visitors to our Web site. We
granted to a visitor whose name we drew at random from the list of all
participating visitors an Option to purchase that number of shares of our common
stock as is determined by dividing $1,000,000 by the price at which the shares
of common stock covered by this offering are issued to the public. We have
reserved for issuance under the Option 153,847 shares of common stock. The
aggregate exercise price of the Option is $100.00. The person to whom the
Option was granted has agreed that:
- without our prior consent she will not transfer all or any portion of
her interest in the Option other than by will or the laws of descent
and distribution; and
- in connection with this offering, without our prior written consent
she will not publicly offer or sell any shares of common stock
acquired on exercise of the Option for a period of 180 days after the
registration statement is declared effective.
If we do not effect a public offering of our common stock by December 31, 2000,
the Option will expire on December 31, 2000 and we shall pay the holder of the
Option $25,000 in cash.
We commenced the sweepstakes on November 1, 1998 and made the drawing on
January 31, 1999. Entrant's were required merely to register at our Web site by
leaving their email address and were not obligated, then or thereafter, to
provide any other particular information to us, purchase any goods or services,
pay us any amount or otherwise provide us any particular consideration. We do
not intend to conduct any other sweepstakes in which we will grant any options
or issue any other securities to any participant It is possible that our grant
of the Option did not comply with the registration requirements of the
Securities Act of 1933. Because we granted only one Option, did not receive, and
will not receive, any tangible property on the grant or exercise of the Option,
we do not intend to offer the holder of the Option the right to rescind the
grant of the Option.
Stockholder Loans
In connection with our borrowing a total of $140,000 from two of our
principal stockholders, we issued to such stockholders, as additional
consideration for the loans, a total of 400,000 shares of common stock. Notes
issued for a total of $100,000 were due and payable on June 30, 1999, and
bearing interest at the rate of 10% per annum. One of the Notes issued for
$40,000 was due and payable on December 31, 1999, bearing interest at the rate
of 10% per annum and is convertible at the holder's option into Convertible
Notes issued in the September 6, 1998 private placement (which is described
above) in the aggregate principal amount of $75,000. Effective as of August 25,
1999, all of these Notes were converted into an aggregate of 8,154 shares of
Series A Preferred Stock. The shares of Series A Preferred Stock are convertible
into 24,462 shares of common stock. Such conversion was effected in order to
improve our financial position and to facilitate this offering.
Shares of Common Stock
Effective as of April 15, 1999, we acquired by merger all of the
business, assets and liabilities of TravelnStore.com, LLC, a California limited
liability company. In such merger we issued a total of 9,000,000 shares of
common stock to the Members of the LLC. The foregoing number of shares of common
stock reflects the 2-for-1 stock split on the common stock effected August 25,
1999.
TravelnStore.com's issuance of all of the foregoing securities were
effected in transactions exempt from registration under Section 4(2) of the
Securities Act of 1993 and Regulation D promulgated thereunder.
- The Convertible Promissory Notes were issued to a total of 38
persons, all of whom we reasonably believed to be accredited
investors within the meaning of Rule 501. In connection with the
conversion of the Notes, we provided to the Noteholders a copy of
the Registration Statement and other information about
TravelnStore.com.
II-3
<PAGE> 93
- Both of the stockholders to whom Notes were issued in connection
with our borrowing of $140,000 are accredited investors" within
the meaning of Rule 501. In connection with the conversion of the
Notes, we provided to the stockholders a copy of the Registration
Statement and other information about TravelnStore.com.
- We issued shares of common stock to a total of 5 persons in
connection with our merger with TravelnStore.com, LLC. All of
such persons were either actively involved in the conduct of the
LLC's business and continue to be actively involved in our
business or are "accredited investors" within the meaning of Rule
501.
- We neither engaged in any general advertisement or solicitation
nor retained any broker dealers with respect to any of the
foregoing issuance's.
- Sweepstakes Option. The Option was granted pursuant to the
exemption in Rule 504 of Regulation D. The sweepstakes did not
require the entrant to pay any cash or other property. We
initially concluded that the grant of the Option was not a "sale"
within the meaning of the Securities Act. We subsequently became
aware of certain "no-action" letters in which the Securities and
Exchange Commission took a contrary position. If the grant of the
Option is a "sale", it is an exempt transaction under Rule 504.
This registration statement covers the issuance of the shares of
common stock on exercise of the Option.
- We have not timely filed a Notice of transaction under Rule 503.
We have concluded that our failure to file such Notices does not
pertain to requirement that is directly intended to protect the
issuees and that such failure is insignificant with respect to
the issuance's.
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B:
<TABLE>
<S> <C>
2 Merger Agreement dated April 15, 1999, between
TravelnStore.com, LLC, a California limited liability company,
and TravelnStore.com, Inc., a California corporation
3 Charter Documents**
3.1 Articles of Incorporation as filed March 4, 1999**
3.2 Certificate of Amendment and Restatement of Articles
of Incorporation as filed August 25, 1999**
3.3 Bylaws**
4 Instruments defining rights of holders
4.1 Form of Convertible Promissory Note issued September
1998**
4.2 Form of Convertible Promissory Note issuable January
1999**
4.3 Subscription Agreement for this Offering**
4.4 Form of Certificate for common stock**
4.5 Form of Convertible Promissory note issued June 1999**
4.6 Form of Notice of Conversion regarding Convertible
Promissory Notes*
4.7 Promissory Notes issued to Scanlin 1989 Trust**
4.8 Promissory Notes issued to Stevan Saylor**
4.9 Form of Notice of Conversion regarding Promissory
Notes issued to Scanlin 1989 Trust and Stevan Saylor**
5 Opinion of Reicker, Clough, Pfau & Pyle, LLP**
10 Material Contracts
</TABLE>
II-4
<PAGE> 94
<TABLE>
<S> <C>
10.1 Escrow Agreement with Santa Barbara Bank & Trust
applicable to this Offering**
10.2 Form of Agency Co-Host Agreement**
10.3 1999 Equity Incentive Plan**
10.4 Form of Officer and Director Indemnification
Agreement**
10.5 Independent Contractor Agreement with Donald Scanlin**
10.6 Independent Contractor Agreement with Steven Saylor**
10.7 Stock Option granted to Stoltenberg**
10.8 Operating Agreement between TravelnStore.com, Inc, and
World Key, Inc. dated September 8, 1998**
10.9 Form of Lock-Up Agreement between TravelnStore.com,
Inc. and the following principal stockholders: Jim B.
Tyner, John R. Toal, Yula Greco, Scanlin 1989 Trust
and Stevan Saylor**
10.10 Employment Agreement with Jim Tyner dated August 1,
1999.**
10.11 Employment Agreement with John Toal dated August 1,
1999.**
10.12 Employment Agreement with Yula Greco dated August 1,
1999.**
10.13 Form of Lock-Up Agreement (Employee) between
TravelnStore.Com, Inc., and the following officers:
Jim B. Tyner, John R. Toal and Yula Greco.**
10.14 Trademark License Agreement between World Key, Inc.,
and TravelnStore.Com, Inc., dated September 25, 1999**
23 Consents of Experts and Counsel
23.1 Consent of Reicker, Clough, Pfau & Pyle, LLP (filed as
part of Exhibit 5 hereto)**
23.2 Consent of Farber & Hass, LLP*
</TABLE>
* Filed herewith
** Previously filed with this registration statement
ITEM 28. UNDERTAKINGS.
We undertake to provide at the initial closing and each subsequent
interim closing of this offering stock certificates in such denominations and
registered in such names so as to permit our prompt delivery of the certificates
to the investors participating in such closing.
We will file, during any period in which we offer or sell securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information 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 exceed
that which was registered) and any deviation from the
low or high end of the estimated maximum offering
range 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%n change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) include any additional or changed material information
on the plan of distribution.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or
II-5
<PAGE> 95
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-6
<PAGE> 96
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 for filing on Form SB-2 and authorized this Amendment No.
Three to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Camarillo, State of California, on
December 6, 1999.
TRAVELNSTORE.COM, INC.
By: /s/ JIM B. TYNER
--------------------------------------
Jim B. Tyner, Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. Three to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jim B. Tyner, Yula Greco, John Toal and each of
them, such person's true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments, exhibits thereto, and other documents in
connection therewith to this Registration Statement and any subsequent
registration statement filed by the Registrant pursuant to Rule 462(b) of the
Securities Act, which relates to this Registration Statement) and to file the
same with exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or any of them,
or their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Jim B. Tyner Chairman of the Board, December 6, 1999
- ---------------------------------------- Chief Executive Officer and Director
Jim B. Tyner
/s/ John R. Toal President, Chief Operating Officer and Director December 6, 1999
- ----------------------------------------
John R. Toal
/s/ Yula Greco Vice President, Secretary, Controller and Director December 6, 1999
- ---------------------------------------- (Principal Accounting Officer)
Yula Greco
/s/ Richard Bush Chief Financial Officer and Director December 6, 1999
- ---------------------------------------- (Principal Financial Officer)
Richard Bush
/s/ Heinz Niederhoff Director December 6, 1999
- ----------------------------------------
Heinz Niederhoff
/s/ James Kingzett Director December 6, 1999
- ----------------------------------------
James Kingzett
</TABLE>
II-7
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2 Merger Agreement dated April 15, 1999, between
TravelnStore.com, LLC, a California limited liability company,
and TravelnStore.com, Inc., a California corporation**
3 Charter Documents
3.1 Articles of Incorporation as filed March 4, 1999**
3.2 Certificate of Amendment and Restatement of Articles
of Incorporation as filed August 25, 1999**
3.3 Bylaws**
4 Instruments defining rights of holders
4.1 Form of Convertible Promissory Note issued September
1998**
4.2 Form of Convertible Promissory Note issuable January
1999**
4.3 Subscription Agreement for this Offering**
4.4 Form of Certificate for common stock**
4.5 Form of Convertible Promissory note issued June 1999**
4.6 Form of Notice of Conversion regarding Convertible
Promissory Notes*
4.7 Promissory Notes issued to Scanlin 1989 Trust**
4.8 Promissory Notes issued to Stevan Saylor**
4.9 Form of Notice of Conversion regarding Promissory
Notes issued to Scanlin 1989 Trust and Stevan Saylor**
5 Opinion of Reicker, Clough, Pfau & Pyle, LLP**
10 Material Contracts
10.1 Escrow Agreement with Santa Barbara Bank & Trust
applicable to this Offering**
10.2 Form of Agency Co-Host Agreement**
10.3 1999 Equity Incentive Plan**
10.4 Form of Officer and Director Indemnification
Agreement**
10.5 Independent Contractor Agreement with Donald Scanlin**
10.6 Independent Contractor Agreement with Steven Saylor**
10.7 Stock Option granted to Stoltenberg**
10.8 Operating Agreement between TravelnStore.com, Inc, and
World Key, Inc. dated September 8, 1998**
10.9 Form of Lock-Up Agreement between TravelnStore.com,
Inc. and the following principal stockholders: Jim B.
Tyner, John R. Toal, Yula Greco, Scanlin 1989 Trust
and Stevan Saylor**
10.10 Employment Agreement with Jim Tyner dated August 1,
1999.**
10.11 Employment Agreement with John Toal dated August 1,
1999.**
10.12 Employment Agreement with Yula Greco dated August 1,
1999.**
10.13 Form of Lock-Up Agreement (Employee) between
TravelnStore.Com, Inc., and the following officers:
Jim B. Tyner, John R. Toal and Yula Greco.**
10.14 Trademark License Agreement between World Key, Inc.,
and TravelnStore.Com, Inc., dated September 25, 1999**
23 Consents of Experts and Counsel
</TABLE>
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
23.1 Consent of Reicker, Clough, Pfau & Pyle, LLP (filed as
part of Exhibit 5 hereto)**
23.2 Consent of Farber & Hass, LLP*
</TABLE>
* Filed herewith
** Previously filed with this registration statement.
<PAGE> 1
EXHIBIT 4.6
Exercise of Conversion Right
To:
The Secretary to the Board of Directors
of TravelnStore.com, Inc., successor to
TravelnStore LLC.
1320 Flynn Road Suite 402
Camarillo, California 93012
By my signature set forth below I hereby elect to exercise my Conversion
Right as contained in my Convertible Note which I subscribed in the Private
Placement of TravelnStore LLC dated January 1, 1999. I hereby request the
Secretary of TravelnStore.com, Inc. to cause to be issued in the names set forth
below, share certificates of common stock of TravelnStore.com, Inc. and to
record in the books and records of the Corporation accordingly.
I understand that based upon the offering price of $6.50 per share for
the common stock of TravelnStore.com, Inc. as presented in its public offering
as filed with the Securities and Exchange Commission on May 14, 1999 that each
note will convert to 5,000 shares of common stock of TravelnStore.com, Inc.
I acknowledge that the public offering has not yet received an effective
date from the Securities and Exchange Commission. Further, I acknowledge that
the shares which will be issued in this conversion are not part of the shares
that the Company is seeking to register in the filing of May 14, 1999, and that
until such time as said shares are registered, the holders of these shares may
only sell or transfer them in a private transaction.
Executed this 8 day of July, 1999.
/s/ Frank A. Browning
- ----------------------------------- -----------------------------------
Frank A. Browning
- ----------------------------------- -----------------------------------
(Print name) (Print name)
Please issue the share certificates in the following name(s) and in the
amounts set forth in the column adjacent. (You may divide your shares in
whatever manner you wish provided that the minimum number of shares per holder
is no less than 100 and that total number of shares per holder is a multiple of
100. Add additional pages if necessary.)
Name (Please Print) Frank A. Browning
---------------------
Address 2800 28th St., Santa Monica, California 90405
-----------------------------------------------
Number of Shares 6,692
-------
Name (Please Print) Jeannette L. Browning
-----------------------
Address 4641 Van Nord, Sherman Oaks, California 91423
-----------------------------------------------
Number of Shares 1,000
-------
<PAGE> 2
I do not wish to exercise my right of conversion at this time. I intend
to hold my Note under the terms and conditions to which I subscribed.
Signed this 8 day of June 1999.
/s/ Frank A. Browning
- -----------------------------
Frank A. Browning
- -----------------------------
(print name)
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated July 15, 1999, in the Amended Registration Statement
(Form SB-2, Amendment No. 3) and related Prospectus of Travelnstore.com Inc.
for the registration of 1,153,847 shares of its common stock.
/s/ Farber & Hass LLP
Oxnard, California
December 10, 1999
