<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 17, 2000
--------------
Expedia, Inc.
------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Washington
--------------------------------------------
(State or Other Jurisdiction of Incorporation)
000-27429
----------------------
(Commission File Number)
91-1996083
-------------------------------
(IRS Employer Identification No.)
13810 SE Eastgate Way, Suite 400
Bellevue, WA 98005
--------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: (425) 564-7200
--------------
N/A
-----------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
The registrant hereby amends its Current Report on Form 8-K dated April 3, 2000
as follows:
Item 7. Financial Statements and Exhibits. The following items are attached as
exhibits hereto:
(a) Financial statements of businesses acquired
<PAGE>
The financial statements of Travelscape.com, Inc. ("Travelscape") and
VacationSpot.com, Inc. ("VacationSpot") required to be filed pursuant to
Item 7(a) of Form 8-K are included as Exhibit 99.2, 99.3 and 99.4 of this
Current Report on Form 8-K/A.
(b) Pro forma financial information
The pro forma financial information required to be filed pursuant to Item
7(b) of Form 8-K is included as Exhibit 99.5 of this Current Report on Form
8-K/A.
(c) Exhibits
Exhibit 2.1* Agreement and Plan of Reorganization by and among Expedia, Travel
Enterprises, Inc., Travelscape, and certain principal
stockholders of Travelscape, dated January 31, 2000 and as
amended on March 13, 2000 and March 15, 2000.
Exhibit 2.2* Agreement and Plan of Reorganization by and among Expedia,
VacationSub, Inc., VacationSpot, and the principal stockholders
of VacationSpot, dated January 30, 2000.
Exhibit 99.1* Press release of Expedia dated March 21, 2000.
Exhibit 99.2 Combined and consolidated financial statements of Travelscape,
including combined balance sheet as of December 31, 1998,
consolidated balance sheet as of December 31, 1999, combined
statements of operations, stockholders' deficiency and cash flows
for the years ended December 31, 1997 and 1998 and consolidated
statements of operations, stockholders' deficiency and cash flows
for the year ended December 31, 1999.
Exhibit 99.3 Financial statements of VacationSpot, including balance sheets as
of June 30, 1999 and 1998 and statements of operations,
stockholders' equity and cash flows for the year ended June 30,
1999 and for the period from December 2, 1997 (inception) through
June 30, 1998.
Exhibit 99.4 Unaudited condensed financial statements of VacationSpot,
including balance sheet as of December 31, 1999 and statements of
operations, stockholders' equity and cash flows for the six month
period ended December 31, 1999.
Exhibit 99.5 Unaudited proforma condensed consolidated balance sheet of the
Registrant, Travelscape, and VacationSpot as of December 31, 1999
and unaudited proforma consolidated statements of operations of
the Registrant, Travelscape and VacationSpot for the year ended
June 30, 1999 and for the six month period ended December 31,
1999.
* Previously filed as an Exhibit to the original Form 8-K filed on April 3,
2000.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EXPEDIA, INC.
/s/ Gregory S. Stanger
--------------------------
Name: Gregory S. Stanger
Title: Vice President and Chief Financial Officer
Dated: May 15, 2000
3
<PAGE>
EXHIBIT 99.2
[LOGO]
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Financial Statements
December 31, 1998 and 1999
(With Independent Auditors' Report Thereon)
<PAGE>
Report of Independent Auditors
The Board of Directors
Las Vegas Reservation Systems, Inc.,
Travelscape.com, Inc. (a Nevada corporation),
Professional Travel Services, Inc. and
Travelscape.com (a Delaware corporation):
We have audited the accompanying combined balance sheet of Las Vegas Reservation
Systems, Inc., Travelscape.com, Inc. (a Nevada corporation) and Professional
Travel Services, Inc. as of December 31, 1998 and the related combined
statements of operations, stockholders' deficiency and cash flows for the years
ended December 31, 1997 and 1998 and the consolidated balance sheet of
Travelscape.com Inc. (a Delaware corporation) as of December 31, 1999 and the
related statements of operations, stockholders' deficiency and cash flows for
the year then ended. The combined and consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the combined and consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined and consolidated financial statements referred to
above present fairly, in all material respects, the combined financial position
of Las Vegas Reservation Systems, Inc., Travelscape.com, Inc. and Professional
Travel Services, Inc. as of December 31, 1998 and the results of their
operations and their cash flows for the years ended December 31, 1997 and 1998
and the consolidated financial position of Travelscape.com, Inc. as of December
31, 1999 and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ KMPG LLP
Las Vegas, Nevada
February 18, 2000
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Combined (1998) and Consolidated (1999) Balance Sheets
December 31, 1998 and 1999
<TABLE>
<CAPTION>
Assets 1998 1999
--------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 265,674 4,701,950
Officer receivable -- 234,988
Prepaid expenses 177,788 1,630,976
Other current assets -- 177,859
--------------- --------------
Total current assets 443,462 6,745,773
Property, plant and equipment, net (notes 2, 5 and 10) 2,647,401 3,453,257
Other assets (note 8) 752,853 2,720,689
Intangible assets, net -- 1,761,356
--------------- --------------
$ 3,843,716 14,681,075
=============== ==============
Liabilities and Stockholders' Deficiency
Current liabilities:
Borrowings under lines of credit (note 4) $ 91,144 34,737
Current portion of notes payable (note 5) 32,926 37,409
Current portion of capital lease obligations (notes 2 and 10) 182,274 293,025
Accounts payable 2,063,549 7,274,624
Accrued room payable 660,571 3,813,884
Accrued expenses 461,072 1,453,927
Deferred revenue 1,983,472 10,572,246
--------------- --------------
Total current liabilities 5,475,008 23,479,852
Notes payable, less current portion (note 5) 1,399,524 7,901,176
Capital lease obligations, less current portion (notes 2 and 10) 528,815 358,122
Related party loan (note 3) 46,684 --
--------------- --------------
Total liabilities 7,450,031 31,739,150
--------------- --------------
Stockholders' deficiency (note 6):
Common stock, $.01 par value. Authorized 50,000,000 shares;
issued and outstanding 15,042,500 shares -- 150,425
Common stock, no par value. Authorized 2,500 shares; issued
and outstanding 200 shares -- --
Common stock, $.001 par value. Authorized 25,000,000 shares;
issued and outstanding 5,000,000 shares 5,000 --
Common stock, no par value. Authorized 2,500 shares;
issued and outstanding 1,000 shares 40,000 --
Preferred stock, $.01 par value. Authorized 1,272,569 shares;
issued and outstanding 1,272,569 shares -- 5,611,604
Additional paid-in capital 2,623,305 8,558,891
Deferred stock compensation (note 9) -- (2,179,134)
Stockholder loans (note 3) (91,786) (65,266)
Accumulated deficit (6,182,834) (29,134,595)
--------------- --------------
Net stockholders' deficiency (3,606,315) (17,058,075)
Commitments, contingencies and subsequent event (notes 6, 8, 10 and 11)
--------------- --------------
$ 3,843,716 14,681,075
=============== ==============
</TABLE>
See accompanying notes to combined and consolidated financial statements.
2
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Combined (1997 and 1998) and Consolidated (1999) Statements of Operations
Years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
Revenues:
Room sales $ 11,715,836 18,851,718 60,449,327
Airfare sales 716,121 2,027,067 6,377,871
Other sales -- -- 200,535
------------ ----------- -----------
Total revenues 12,431,957 20,878,785 67,027,733
Cost of sales 8,200,004 14,697,664 48,817,357
------------ ----------- -----------
Gross profit 4,231,953 6,181,121 18,210,376
------------ ----------- -----------
Operating expenses:
General and administrative 3,065,933 5,420,838 12,002,277
Sales and marketing 990,601 4,109,105 23,159,686
Systems development 114,896 896,753 2,365,182
Stock compensation -- -- 1,141,474
------------ ----------- -----------
Total operating expenses 4,171,430 10,426,696 38,668,619
------------ ----------- -----------
Operating income (loss) 60,523 (4,245,575) (20,458,243)
------------ ----------- -----------
Other income (expense):
Interest expense, net (76,602) (183,949) (1,158,741)
Other income (loss) 17,994 2,884 (1,133,940)
Loss on sale of equipment -- -- (200,837)
------------ ----------- -----------
Total other income (expense) (58,608) (181,065) (2,493,518)
------------ ----------- -----------
Net income (loss) $ 1,915 (4,426,640) (22,951,761)
============ =========== ===========
</TABLE>
See accompanying notes to combined and consolidated financial statements.
3
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Combined (1997 and 1998) and Consolidated (1999) Statements of Stockholders'
Deficiency (Notes 8 and 9)
Years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Common
stock/
additional Deferred Net
Preferred paid-in stock Stockholder Accumulated stockholders'
stock capital compensation loans deficit deficiency
------------- ------------ ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ -- 40,000 -- -- (965,703) (925,703)
Net income -- -- -- -- 1,915 1,915
Distributions -- -- -- -- (792,406) (792,406)
------------- ------------ ----------- ------------ ------------- --------------
Balance at December 31, 1997 -- 40,000 -- -- (1,756,194) (1,716,194)
Net loss -- -- -- -- (4,426,640) (4,426,640)
Contributions -- 2,628,305 -- (91,786) -- 2,536,519
------------- ------------ ----------- ------------ ------------- --------------
Balance at December 31, 1998 -- 2,668,305 -- (91,786) (6,182,834) (3,606,315)
Net loss -- -- -- -- (22,951,761) (22,951,761)
Contributions (notes 3 and 6) 5,611,604 -- -- 26,520 -- 5,638,124
Deferred stock compensation (note 9) -- 3,184,650 (2,179,134) -- -- 1,005,516
Stock warrants (note 5) -- 844,403 -- -- -- 844,403
Stock awards and warrants (note 6) -- 135,958 -- -- -- 135,958
Reorganization adjustment (note 1) -- 1,876,000 -- -- -- 1,876,000
------------- ------------ ----------- ------------ ------------- --------------
Balance at December 31, 1999 $ 5,611,604 8,709,316 (2,179,134) (65,266) (29,134,595) (17,058,075)
============= ============ =========== ============ ============= ==============
</TABLE>
See accompanying notes to combined and consolidated financial statements.
4
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Combined (1997 and 1998) and Consolidated (1999) Statements of Cash Flows
Years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
------------- ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,915 (4,426,640) (22,951,761)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Loss on sale of equipment -- -- 200,837
Depreciation and amortization 96,836 160,444 656,530
Amortization of debt discount and issuance costs -- -- 550,041
Stock compensation -- -- 1,141,474
Changes in operating assets and liabilities:
Increase in officer receivable -- -- (234,988)
Increase in prepaid expenses and other current assets (54,818) (99,700) (1,631,047)
Increase (decrease) in other assets 198,751 (417,621) (1,690,347)
Increase (decrease) in accounts payable and accrued
expenses 913,683 1,376,452 9,357,243
Increase in deferred revenue 169,581 1,205,770 8,588,774
------------ ----------- -------------
Net cash provided by (used in) operating activities 1,325,948 (2,201,295) (6,013,244)
------------ ----------- -------------
Cash flows from investing activities:
Acquisition of property and equipment (2,036,228) (66,877) (1,412,106)
Sale of investments 32,310 -- --
Proceeds from sale of equipment -- -- 50,950
------------ ----------- -------------
Net cash used in investing activities (2,003,918) (66,877) (1,361,156)
------------ ----------- -------------
Cash flows from financing activities:
(Distributions to) contributions from stockholders, net (792,406) 2,536,519 5,611,604
Repayments of loan from stockholders (9,800) (21,791) (20,164)
Advances from (repayments of) line of credit, net 35,780 (6,436) (56,407)
Proceeds from (repayments of) notes payable 1,470,390 (37,940) 6,998,703
Payment of debt issuance costs -- -- (475,695)
Repayments of capital lease obligations -- -- (247,365)
------------ ----------- -------------
Net cash provided by financing activities 703,964 2,470,352 11,810,676
------------ ----------- -------------
Net increase in cash and cash equivalents 25,994 202,180 4,436,276
Cash and cash equivalents:
Beginning of year 37,500 63,494 265,674
------------ ----------- -------------
End of year $ 63,494 265,674 4,701,950
============ =========== =============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 8,722 85,613 --
============ =========== =============
Supplemental disclosures of noncash financing activities:
Equipment acquired under capital lease $ -- 711,089 187,423
Stockholder loans -- 91,786 --
Deferred compensation -- -- 2,179,134
Stock awards and warrants -- -- 135,958
Original issue discount -- -- 844,403
Intangible assets -- -- 1,876,000
============ =========== =============
</TABLE>
See accompanying notes to combined and consolidated financial statements.
5
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Notes to Combined and Consolidated Financial Statements
December 31, 1998 and 1999
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation and Description of Business
For 1997 and 1998, the accompanying financial statements combine the
accounts of Las Vegas Reservation Systems, Inc. (LVRS),
Travelscape.com, Inc. (a Nevada corporation) and Professional Travel
Services, Inc. (PTS) (collectively referred to as the Company). The
entities were owned and controlled principally by common ownership and
management and part of a reorganization. Following the reorganization,
the accompanying 1999 consolidated financial statements include the
accounts of Travelscape.com, Inc. (a Delaware corporation) and its
wholly owned subsidiaries. All intercompany transactions have been
eliminated in combination and consolidation.
LVRS, a Nevada corporation, sells hotel room packages in Las Vegas,
Reno, Laughlin and Lake Tahoe to individual and group customers. In
the normal course of business, certain hotel properties require cash
deposits or letters of credit to secure hotel room inventory.
In March 1998, LVRS established its web site www.lvrs.com to sell
rooms over the Internet. The success of the web site prompted
management to begin an effort to replicate its Las Vegas based system
across the United States through Old Travelscape, which was created in
April 1998. Travelscape.com, Inc. (a Nevada corporation) created its
own web site www.travelscape.com in which it offers its services. The
Internet offers the Company advertising and distribution means to
market and sell its rooms to a worldwide audience in a cost-effective
manner.
Effective September 30, 1998, LVRS merged with Fort Apache, Inc. whose
principal business was to hold a building and land in Las Vegas. Fort
Apache, Inc. shared common owners with LVRS; accordingly, the
transaction was recorded as a reorganization of entities under common
control and the historical-cost basis of the net assets of Fort
Apache, Inc. was carried over to LVRS. Prior year financial statements
have been restated to reflect this reorganization.
PTS operates a travel agency in Las Vegas. PTS provides transportation
arrangements primarily for business travel.
On January 21, 1999, the Company completed a reorganization whereby
LVRS, Travelscape.com, Inc. (a Nevada Corporation) (Old Travelscape)
and PTS became wholly owned subsidiaries of Travelscape.com, Inc.
(Travelscape), a Delaware corporation. The transaction was accounted
for principally as a reorganization of entities under common control.
Accordingly, the combined financial statements of LVRS, Old
Travelscape and PTS for the years presented herein are predecessor
operations to the comparable entity which exists after January 21,
1999. At the time of the reorganization, 20% of the common stock of
Old Travelscape was not owned by the common control group. The
exchange of Travelscape shares for this 20% interest was considered a
purchase of a minority interest. The consideration exceeded historical
book value by $1,876,000 which was allocated to goodwill in the
accompanying balance sheet. Goodwill is amortized on a straight-line
basis over 15 years.
6
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Notes to Combined and Consolidated Financial Statements
December 31, 1998 and 1999
The financial statements as of and for the year ended December 31,
1999 are combined through January 22, 1999 (the date of the
organizational restructuring) and consolidated through and as of
December 31, 1999.
(b) Cash Equivalents
Cash equivalents include highly liquid investments purchased with an
original maturity date of three months or less.
(c) Property, Plant and Equipment
Property and equipment are recorded at cost and depreciated on a
straight-line basis over estimated useful lives ranging from 3-20
years. Expenditures for maintenance and repairs are expensed when
incurred. Property and equipment under capital leases are stated at
the present value of minimum lease payments.
Amortization of property and equipment held under capital leases and
leasehold improvements is computed on a straight-line basis over the
shorter of the lease term or estimated useful lives of the asset.
(d) Revenue Recognition
Revenues from sales of hotel rooms and airline tickets, as well as the
related cost of sales, including the associated taxes, and other
travel products and services for which the Company is the credit card
merchant of record, are recorded at the aggregate retail value upon
booking. Such revenues are deferred until the customer checks in to
the hotel or completes their air travel. Revenues earned from sales of
travel products and services in which the travel provider is the
credit card merchant of record are recognized upon receipt of cash and
are recorded at the commission amount.
(e) Systems Development
Systems development expenses are comprised primarily of compensation
to the Company's information systems and technical staff, payments to
outside contractors for information systems and technical services,
data communications lines, web hosting services and other expenses
associated with operating the Company's web sites.
(f) Use of Estimates
Management of the Company has made estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period to prepare these financial statements in
conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
7
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Notes to Combined and Consolidated Financial Statements
December 31, 1998 and 1999
(g) Income Taxes
Prior to January 22, 1999, LVRS and PTS were taxed as S Corporations
under provisions of the Internal Revenue Code. Under these provisions,
LVRS and PTS do not pay income tax on their income. Instead, the
stockholders of LVRS and PTS were liable for income tax on the taxable
income as it effects the stockholders' income tax returns.
Accordingly, a provision for income taxes has not been included in the
accompanying combined financial statements for LVRS and PTS as of and
for the years ended December 31, 1997 and 1998.
Old Travelscape is a Nevada C Corporation which is subject to federal
income tax. Old Travelscape accounted for income taxes under the asset
and liability method whereby deferred income taxes are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years those temporary differences are expected
to be recovered or settled. The effect on deferred taxes of a change
in the tax rates is recognized in income for the period that includes
enactment date.
Effective with the reorganization, LVRS, Old Travelscape and PTS
became wholly owned subsidiaries of Travelscape, and accordingly,
Travelscape recorded net deferred tax assets of $1,200,000 related to
the cumulative differences between the basis of certain assets and
liabilities for financial reporting and income tax purposes.
Travelscape recorded a corresponding 100% valuation allowance due to
the uncertainty regarding Travelscape's ability to utilize its
deferred tax assets to offset future tax liabilities.
(h) Start-Up Costs
Start-up costs are expensed as incurred.
(i) Sales and Marketing Expenses
The Company expenses advertising as incurred. Advertising expense
aggregated $990,601, $4,109,105 and $23,159,686 for the years ended
December 31, 1997, 1998 and 1999, respectively.
(j) Stock Compensation
The Company has adopted Statement of Financial Accounting Standards
Statement, or SFAS, No. 123, Accounting for Stock-Based Compensation,
and has elected to measure compensation cost under Accounting
Principles Board Opinion No. 25 and comply with the pro forma
disclosure requirements of SFAS No. 123, except for options and
warrants granted to nonemployees, which are accounted for under SFAS
No. 123.
8
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Notes to Combined and Consolidated Financial Statements
December 31, 1998 and 1999
(k) Long-Lived Assets
The Company accounts for long-lived assets at amortized costs. As part
of an ongoing review of the valuation and amortization of long-lived
assets, management assesses the carrying value of such assets if facts
and circumstances suggest that such assets may be impaired. If this
review indicates that the assets will not be recoverable, as
determined by the nondiscounted cash flow analysis over the remaining
amortization period, the carrying value of the assets would be reduced
to its estimated fair market value, based on discounted cash flows.
(2) Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1998 1999
------------------- -------------------
<S> <C> <C>
Land $ 408,000 408,000
Building and improvements 1,549,756 1,621,539
Computer hardware and software 729,807 1,706,656
Furniture and office equipment 263,817 415,428
------------------- -------------------
2,951,380 4,151,623
Less accumulated depreciation and amortization 303,979 698,366
------------------- -------------------
$ 2,647,401 3,453,257
=================== ===================
</TABLE>
Future minimum capital lease payments as of December 31, 1999 are:
<TABLE>
<CAPTION>
Capital Operating
leases leases
------------------- -------------------
<S> <C> <C>
Year ending December 31:
2000 $ 309,740 89,566
2001 207,997 88,989
2002 130,704 88,989
2003 108,920 88,989
2004 -- 49,810
------------------- -------------------
Net minimum lease payments 757,361 $ 406,343
===================
Less amounts representing interest 106,214
-------------------
Present value of net minimum capital lease payments 651,147
Less current portion of obligations under capital leases 293,025
-------------------
Obligations under capital leases excluding current
portion $ 358,122
===================
</TABLE>
9
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Notes to Combined and Consolidated Financial Statements
December 31, 1998 and 1999
The Company leases office equipment under operating leases, which expire in
2001. Rent expense for the years ended December 31, 1997, 1998 and 1999 was
$25,510, $24,603 and $25,283, respectively.
(3) Stockholder Transactions
At December 31, 1998, PTS had loans from the stockholders of $46,684 for
start-up costs of the business. This non-interest bearing loan with no
fixed repayment terms was repaid during 1999. As of December 31, 1998, Old
Travelscape had loans of $91,786 to officers of the Company for the
purchase of common stock. As of December 31, 1999, the remaining balance
was $65,266 which is due in 2001. This amount is reported as an increase in
stockholders' deficiency.
(4) Borrowings under Lines of Credit
Borrowings under unsecured lines of credit with various financial
institutions are as follows:
<TABLE>
<CAPTION>
1998 1999
------------------- -------------------
<S> <C> <C>
Wells Fargo Bank, interest is 11.25% at December 31, 1999,
expires on June 30, 2000 $ 41,144 34,737
Bank West of Nevada, expired on March 27, 1999 50,000 --
------------------- -------------------
$ 91,144 34,737
=================== ===================
</TABLE>
The Bank West of Nevada line of credit was not renewed. The Wells Fargo
Bank credit line has a borrowing capacity of $50,000.
(5) Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
1998 1999
-------------------- -------------------
<S> <C> <C>
First mortgage note payable in monthly installments of $7,681, at an
interest rate of prime plus 1.5% (9.5% as of December 31, 1999),
maturity date of June 30, 2017, secured by real property $ 801,687 782,545
First mortgage note payable in monthly installments of $4,781, at an
interest rate of 6.85%, maturity date of November 11, 2017, secured
by real property 609,645 592,862
Second mortgage note payable in monthly installments of $303, at an
interest rate of prime plus 1.5% (9.5% as of December 31, 1999),
maturity date of June 30, 2007, secured by real property 21,118 19,047
</TABLE>
10
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Notes to Combined and Consolidated Financial Statements
December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
------------------- -------------------
<S> <C> <C>
Senior notes payable, net of discount, at an interest rate of 10%
for initial 12 months and 12% for the subsequent 12 months,
maturity date in February 2001, unsecured $ -- 7,036,700
Less original issue discount -- (492,569)
------------------- -------------------
1,432,450 7,938,585
Less current portion 32,926 37,409
------------------- -------------------
$ 1,399,524 7,901,176
=================== ===================
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1999 are as follows:
2000 $ 37,409
2001 7,077,176
2002 43,801
2003 47,406
2004 51,316
Thereafter 1,174,046
------------
$ 8,431,154
============
During February 1999, Travelscape completed a private placement of 70.367
units of Travelscape senior notes and common stock purchase warrants were
subscribed for a total value of $100,000 per unit or $7,036,700. Each unit
consists of a note with a face value of $100,000 bearing interest at 10%
prior to February 2000 and 12% thereafter and a warrant to purchase 7,500
shares of Travelscape common stock, par value $.01 per share. The notes
have a stated maturity of two years from the date of issuance. The notes'
maturity accelerates and the warrants convert to common stock at a "trigger
event," which is generally defined as either an initial public offering of
the Company's common stock or a sale of the Company. The fair value of the
warrants issued in connection with the private placement of $844,403 has
been allocated to a debt discount and will be amortized over the effective-
interest method. The warrants are exercisable over three years. Warrants
for a total of 527,752 shares of common stock were issued in connection
with the private placement. The fair value of the warrants was determined
pursuant to Black-Scholes model for calculating the fair value of equity
instruments. The discount will be amortized to interest expense over the
term of the senior notes using the effective-interest method. Upon
repayment prior to the due date, any outstanding balance of the discount
will be written off to interest expense. The aforementioned share numbers
have been adjusted to give effect to a 3-for-2 split of Travelscape's
common stock. As a result of the pending sale of the Company (see note 11),
the notes will mature on March 15, 2000 and convert to common stock on this
date.
11
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Notes to Combined and Consolidated Financial Statements
December 31, 1998 and 1999
(6) Stockholders' Deficiency
(a) Preferred Stock
During December 1999, Travelscape completed a private placement for
$5,611,604 in net proceeds through the sale of 1,272,569 shares of
Series A Convertible Preferred Stock with a par value of $.01 per
share. Holders of preferred stock are entitled to receive dividends
when and if declared by the Board of Directors.
Preferred stock may be converted at the option of the holder at a rate
of one share of preferred stock to one share of common stock.
Holders of preferred stock have a liquidation preference over common
stock holders. Upon liquidation, holders of preferred stock shall be
entitled to receive $4.44 per share.
The preferred stock will automatically convert to common stock upon
the consummation of certain events. As a result of the pending sale of
the Company (see note 11), the preferred stock will be converted to
common on March 15, 2000.
(b) Common Stock
Effective April 24, 1999, Travelscape's Board of Directors approved an
increase in the number of authorized shares from 25,000,000 to
50,000,000 shares. The financial statements reflect this increase. The
number of shares outstanding of Travelscape.com, Inc. common stock
reflects the effect of a 3-for-2 split of common stock completed in
June 1999.
(c) Stock Warrants
The Company issued stock warrants to purchase 475,833 shares of common
stock at exercise prices that range from $4 - $7 per share to third
parties in lieu of services rendered. The fair value of the stock
warrants of $19,508 has been recognized in additional paid-in capital
and stock compensation expense. Of the total stock warrants, 400,000
are subject to certain vesting conditions. As of December 31, 1999,
none of the 400,000 stock warrants had vested. The warrants vest
immediately if there is a certain change in the control of the
Company. As a result of the pending sale of the Company (see note 11),
the warrants will become fully vested on March 15, 2000.
In addition, the Company issued stock awards of 42,500 shares of
common stock for a total fair value of $116,450.
12
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Notes to Combined and Consolidated Financial Statements
December 31, 1998 and 1999
(7) Income Taxes
The components of the net deferred taxes are as follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------------
1998 1999
------------------- -------------------
<S> <C> <C>
Net operating loss carryforwards $ 1,152,615 8,419,059
Deferred revenue (98,644) (137,681)
Other 166,014 240,116
------------------- -------------------
1,219,985 8,521,494
Valuation allowance (1,219,985) (8,521,494)
------------------- -------------------
Deferred tax asset, net of valuation allowance $ -- --
=================== ===================
</TABLE>
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 generation of future taxable income. A 100%
valuation allowance has been provided for the net deferred tax assets since
the likelihood of taxable income sufficient enough to realize the entire
balance of deferred tax assets in the future is uncertain.
At December 31, 1999, the Company has approximately $24,500,000 of net
operating loss carryforwards available for federal tax reporting purposes,
which expire in 2014. The ultimate realization of the net operating loss
carryforwards will be subject to certain limitations due to changes in the
Company's ownership and will be dependent upon the Company attaining future
taxable earnings.
If certain substantial changes in the Company's ownership should occur,
there would be an annual limitation on the amount of the tax loss
carryforwards that can be utilized, which could result in such losses
expiring before they are used.
(8) Commitments and Contingencies
(a) Litigation
The Company is involved in legal proceedings from outside parties
involving routine business matters. Management believes that the
ultimate resolution of these matters will not have a material adverse
affect on the Company's financial condition or results of operations.
13
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Notes to Combined and Consolidated Financial Statements
December 31, 1998 and 1999
(b) Advertising Contracts
The Company has entered into several advertising contracts, including
various Internet web sites, which run through the year 2001. The
agreements provide for monthly and quarterly payments and are
summarized as follows as of December 31, 1999:
Year ending December 31:
2000 $ 22,790,254
2001 152,000
-------------
$ 22,942,254
=============
(c) Letters of Credit
The Company has an agreement with Bank West of Nevada to extend
letters of credit on behalf of the Company to certain hotel properties
to secure payment for the potential purchase of blocks of hotel rooms.
Letters of credit with Bank West of Nevada at December 31, 1999 were
$2,059,000. The letter of credit agreements require the Company to
place 100% of a required hotel deposit in a certificate of deposit
with the bank. If the Company were to default on the payment of a
block of rooms, the hotel would exercise the letter of credit. As of
December 31, 1999, the Company has placed $2,059,000 in a certificate
of deposit under this arrangement. These deposits are restricted and
are included in other assets.
(9) Stock Options
The Financial Accounting Standards Board issued SFAS No. 123 which defines
a fair-value method of accounting for an employee stock option or similar
instrument and encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, it allows an
entity to continue to measure the compensation cost for these plans using
the intrinsic-value-based method of accounting prescribed by Accounting
Principles Board Opinion, or APB, No. 25, Accounting for Stock Issued to
Employees. Entities electing to remain with the accounting in APB No. 25
must make pro forma disclosures of net earnings and earnings per share, as
if the fair-value-based method of accounting defined in SFAS No. 123 had
been applied.
14
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Notes to Combined and Consolidated Financial Statements
December 31, 1998 and 1999
Stock options outstanding are as follows:
<TABLE>
<CAPTION>
Weighted-average
Number of shares exercise price
------------------- -------------------
<S> <C> <C>
Balance at December 31, 1997 -- $ --
Granted 1,027,500 1.33
------------------- -------------------
Balance at December 31, 1998 1,027,500 1.33
Granted 3,127,500 3.18
Canceled (185,000) (1.33)
------------------- -------------------
Balance at December 31, 1999 3,970,000 $ 2.79
=================== ===================
</TABLE>
Stock options outstanding are as follows:
<TABLE>
<CAPTION>
Outstanding at Weighted- Weighted-
Range of December 31, average average
prices 1999 exercise price contract life
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C>
$ 1.33 - 6.00 3,970,000 $ 2.79 3
================= ================= ================== ==================
</TABLE>
Old Travelscape accounted for these options pursuant to APB No. 25. These
options were issued with an option price substantially equal to the fair
value of the common stock on the date of the grant. The options vest over a
three-year period.
As a result of the 1999 option grants, the Company recorded compensation
expense of $1,005,516 for the year ended December 31, 1999 and will
amortize deferred stock compensation expense of $2,179,134 over the future
vesting period of the options, calculated under APB No. 25 for employees
and SFAS No. 123 for nonemployees. The deferred stock compensation is
recorded as a component of net stockholders' deficiency in the accompanying
balance sheet. The total number options exercisable was 1,114,413 at
December 31, 1999.
All outstanding options to purchase common stock prior to January 21, 1999
were assumed by Travelscape and will retain all of the same terms included
in the initial grant.
15
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. (A NEVADA CORPORATION),
PROFESSIONAL TRAVEL SERVICES, INC. AND
TRAVELSCAPE.COM, INC. (A DELAWARE CORPORATION)
Notes to Combined and Consolidated Financial Statements
December 31, 1998 and 1999
Had the Company complied with SFAS No. 123 for financial reporting
purposes, the impact on net loss for the year ended December 31, 1999 would
be to increase the net loss to $23,269,105. The granting of options in 1998
did not give rise to any additional compensation expense as none of the
options were exercisable at December 31, 1998. The pro forma net loss is
based on the following assumptions: risk-free interest rate of 6.5%,
volatility of 20%, dividend yield of 0% and economic life of the option of
four years.
(10) Lease Commitments
The Company is obligated under various capital leases, for certain office
equipment, that expire at various dates through 2003. The gross amount of
office equipment and related accumulated depreciation capitalized and
recorded under capital leases at December 31, 1999 was as follows:
Office equipment $ 248,940
Less accumulated depreciation 93,385
-------------
$ 155,555
=============
(11) Subsequent Event
On January 31, 2000, the Company was acquired by Expedia, Inc. for total
consideration aggregating approximately $100 million. As a result of this
acquisition, Expedia, Inc. will record the assets and liabilities of the
Company at their respective fair values. No adjustments have been made to
the accompanying financial statements for this transaction. As a result of
this acquisition, certain equity and debt instruments will become fully
vested and/or be converted to common stock.
16
<PAGE>
EXHIBIT 99.3
VACATIONSPOT.COM, INC.
FINANCIAL STATEMENTS FOR THE
YEAR ENDED JUNE 30, 1999, AND THE
PERIOD FROM DECEMBER 2, 1997 (inception) TO
JUNE 30, 1998, AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
VacationSpot.com, Inc.
Seattle, Washington
We have audited the accompanying balance sheets of VacationSpot.com, Inc. as of
June 30, 1999 and 1998, and the related statements of operations, stockholders'
equity, and cash flows for the year ended June 30, 1999, and the period from
December 2, 1997 (inception) through June 30, 1998. These financial statements
are the responsibility of VacationSpot.com, Inc.'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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of VacationSpot.com, Inc. as of June 30, 1999
and 1998, and the results of its operations and its cash flows for the year
ended June 30, 1999, and the period from December 2, 1997 (inception) through
June 30, 1998, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 17, 2000
<PAGE>
VACATIONSPOT.COM, INC.
BALANCE SHEETS
JUNE 30, 1999 AND 1998
================================================================================
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,593,492 $ 178
Accounts receivable 29,796
Prepaid expenses 29,126 1,400
----------- ---------
Total current assets 6,652,414 1,578
PROPERTY AND EQUIPMENT, net (Note 2) 179,729 28,870
INTANGIBLE ASSETS, net (Note 3) 805,042 441,875
----------- ---------
TOTAL $ 7,637,185 $ 472,323
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 187,446 $ 33,620
Accrued expenses 74,792 3,365
Unearned revenue 93,084
----------- ---------
Total current liabilities 355,322 36,985
COMMITMENTS (Note 4)
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $0.0001 par value - Authorized,
1,346,666 shares; issued and outstanding, 1,010,000 shares
with liquidation preference of $0.50 per share 101
Series A-1 convertible preferred stock, $0.0001 par value -
Authorized, 1,346,666 shares; none issued and outstanding
liquidation preference of $0.50 per share
Series B convertible preferred stock, $0.0001 par value - Authorized,
4,600,000 shares; issued and outstanding, 3,562,500 shares
with liquidation preference of $2.00 per share 356
Series B-1 convertible preferred stock, $0.0001 par value -
Authorized, 4,600,000 shares; none issued and outstanding
with liquidation preference of $2.00 per share
Common stock, $0.0001 par value - Authorized, 30,000,000 shares;
issued and outstanding, 6,314,350 shares 631
Additional paid-in capital 11,042,882
Member contributions 705,000
Unearned stock-based compensation (102,931)
Notes receivable from affiliated parties (Note 8) (114,510) (115,694)
Accumulated deficit (3,544,666) (153,968)
----------- ---------
Total stockholders' equity 7,281,863 435,338
----------- ---------
TOTAL $ 7,637,185 $ 472,323
=========== =========
</TABLE>
See notes to financial statements.
2
<PAGE>
VACATIONSPOT.COM, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1999, AND
PERIOD FROM DECEMBER 2, 1997 (inception) TO JUNE 30, 1998
================================================================================
1999 1998
---- ----
NET REVENUES $ 360,169 $ 28,606
COST OF REVENUES (975,639) (29,279)
----------- ---------
Gross margin (615,470) (673)
OPERATING EXPENSES:
Product development 715,692 65,710
Sales and marketing 1,403,192 21,857
General and administrative 713,622 65,705
----------- ---------
2,832,506 153,272
----------- ---------
LOSS FROM OPERATIONS (3,447,976) (153,945)
OTHER INCOME (EXPENSE) 57,278 (23)
----------- ---------
NET LOSS $(3,390,698) $(153,968)
=========== =========
See notes to financial statements.
3
<PAGE>
VACATIONSPOT.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1999, AND
PERIOD FROM DECEMBER 2, 1997 (inception) TO JUNE 30, 1998
================================================================================
<TABLE>
<CAPTION>
Series A Series B
convertible convertible
Common stock preferred stock preferred stock
------------ --------------- ---------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 2, 1997 - $ - - $ - $ - $ -
Issuance of membership
units to founders
Issuance of preferred
membership units
Notes receivable from
affiliated parties
Net loss
BALANCE, June 30, 1998
Conversion of founders'
membership units to
common stock 4,000,000 400
Conversion of preferred
membership units to
Series A preferred stock
and common stock warrants 1,010,000 101
Issuance of common stock 1,855,570 185
Issuance of common stock
for asset purchases 458,780 46
Issuance of Series B
preferred stock 3,562,500 356
Capitalization of stock-based
compensation
Recognition of stock-based
compensation
Payment on notes receivable
from affiliated parties
Net loss
---------- ------ --------- ------ --------- ------
BALANCE, June 30, 1999 6,314,350 $ 631 1,010,000 $ 101 3,562,500 $ 356
========== ====== ========= ====== ========= ======
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Notes
Additional Unearned receivable
paid-in Member stock-based from affiliated Accumulated Stockholders'
capital contributions compensation parties deficit equity
------- ------------- ------------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 2, 1997 $ - $ - $ - $ - $ - $ -
Issuance of membership
units to founders 200,000 200,000
Issuance of preferred
membership units 505,000 505,000
Notes receivable from
affiliated parties (115,694) (115,694)
Net loss (153,968) (153,968)
------------- ---------------- ------------ -------------
BALANCE, June 30, 1998 705,000 (115,694) (153,968) 435,338
Conversion of founders'
membership units to
common stock 199,600 (200,000)
Conversion of preferred
membership units to
Series A preferred stock
and common stock warrants 880,282 (505,000) 375,383
Issuance of common stock 2,087,323 2,087,508
Issuance of common stock
for asset purchases 526,457 526,503
Issuance of Series B
preferred stock 7,124,644 7,125,000
Capitalization of stock-based
compensation 224,576 (224,576)
Recognition of stock-based
compensation 121,645 121,645
Payment on notes receivable
from affiliated parties 1,184 1,184
Net loss (3,390,698) (3,390,698)
----------- -------------- ----------- --------------- ------------ -------------
BALANCE, June 30, 1999 $11,042,882 $ - $ (102,931) $(114,510) $ (3,544,666) $ 7,281,863
=========== ============== =========== =============== ============ =============
</TABLE>
4
<PAGE>
VACATIONSPOT.COM, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, 1999, AND
PERIOD FROM DECEMBER 2, 1997 (inception) TO JUNE 30, 1998
================================================================================
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(3,390,698) $(153,968)
Adjustment to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 1,000,155 67,875
Recognition of stock-based compensation 121,645
Recognition of sales and marketing expense for
warrants for common stock 375,383
Cash provided (used) by changes in operating assets
and liabilities:
Accounts receivable and prepaid expenses (57,522) (1,400)
Accounts payable and accrued expenses 225,253 36,985
Unearned revenue 93,084
----------- ---------
Net cash used by operating activities (1,632,700) (50,508)
INVESTING ACTIVITIES:
Additions to property and equipment (266,431) (33,620)
Purchase of intangible assets (833,000)
----------- ---------
Net cash used by investing activities (1,099,431) (33,620)
FINANCING ACTIVITIES:
Member contributions 1,184 84,306
Proceeds from issuance of common and preferred stock 9,324,261
----------- ---------
Net cash provided by financing activities 9,325,445 84,306
----------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,593,314 178
CASH AND CASH EQUIVALENTS:
Beginning of period 178
----------- ---------
End of period $ 6,593,492 $ 178
=========== =========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING
ACTIVITIES:
Issuance of equity for advertising $ - $ 505,000
Receivable from affiliated parties 115,694
Issuance of equity for intangible assets 414,750
Conversion of member contributions to common stock 705,000
</TABLE>
See notes to financial statements.
5
<PAGE>
VACATIONSPOT.COM, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1999, AND
PERIOD FROM DECEMBER 2, 1997 (inception) TO JUNE 30, 1998
================================================================================
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business: VacationSpot.com, Inc. (the Company) was originally
formed as Reservation Works LLC, a Washington Limited Liability Corporation
(LLC), on December 2, 1997. On April 21, 1999, Rezworks Corporation filed a
Certificate of Incorporation in Delaware, and shares of Rezworks Corporation
common stock were issued in exchange for the outstanding membership units of
Reservation Works LLC. On December 1, 1999, Rezworks Corporation changed its
name to VacationSpot.com, Inc.
The Company is an online reservation network for vacation homes, rental
condos, inns, villas, and bed and breakfasts around the world, offering more
than 100,000 leisure lodging units in 44 countries via the Internet. The
Company operates its own website, located at VacationSpot.com, and derives its
revenues from listing fees associated with the leisure lodging units hosted on
its website and commissions from lodgings booked via its website. The Company
also develops and sells a comprehensive software solution for independent
lodging establishments that facilitates online reservations via the Internet.
Estimates and assumptions: Preparing financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses. Actual results could differ from those
estimates.
Cash and cash equivalents: The Company considers all highly liquid
instruments purchased with original maturities of 90 days or less to be cash
equivalents.
Property and equipment: Property and equipment consists primarily of computer
equipment, furniture and fixtures, and purchased software, which are stated at
cost. Property and equipment is depreciated using the straight-line method
over the estimated useful lives of the assets, which range from one to five
years.
Intangible assets: Intangible assets consist of an advertising agreement as
of June 30, 1998, as well as permits and licenses, proprietary rights,
contracts and commitments, noncompete agreements, and customer lists as of
June 30, 1999. Intangible assets are being amortized on a straight-line basis
over lives ranging from one to five years.
Revenue recognition: Revenues from listing fees are recognized ratably over
the listing period. Commission revenues from lodgings booked are recognized
either on receipt of the commission payment or on notification of entitlement
by a third party. Software sales are recognized as the software is shipped,
in compliance with American Institute of Certified Public Accountants (AICPA)
Statement of Position (SOP) 97-2, Software Revenue Recognition, and SOP 98-9,
Modification of SOP 97-2, With Respect to Certain Transactions.
Product development: Product development costs consist primarily of payroll
and related expenses for website and software development, and are expensed as
incurred.
Capitalized software costs: Financial accounting standards require the
capitalization of certain software product costs after technological
feasibility of the software is established. To date, the period between
achieving technological feasibility and the general availability of such
software has been short and
6
<PAGE>
software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs.
Advertising costs: The Company expenses advertising costs as incurred.
Income taxes: Prior to April 21, 1999, the Company was an LLC under provisions
of the Internal Revenue Code. Under these provisions, the Company did not pay
income taxes on its income. Instead, the taxable loss of the Company was
passed to the shareholders of the LLC. Subsequent to April 21, 1999, the
Company recognized a taxable loss for the period ended June 30, 1999, and,
therefore, no current tax provision was recorded. A net deferred tax asset has
been recognized by the Company aggregating $250,000, which consists primarily
of net operating loss carryforwards of $700,000 which expire in 2019. A 100%
valuation allowance has been provided against the net deferred tax assets
since the likelihood of taxable income sufficient enough to realize the entire
balance of the deferred tax assets in the future is uncertain.
Stock-based compensation: The Company accounts for stock-based compensation
arrangements in accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and complies
with the disclosure provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation.
Segment information: The Company has organized and managed its operations in
a single reportable segment providing travel-related services and licenses for
related software products. Revenues from customers outside of the United
States were less than 10% of net revenues for all periods presented in the
accompanying statements of operations.
Recent accounting pronouncements: In March 1998, the AICPA issued SOP 98-1,
Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 will be effective for the Company's fiscal year ending
June 30, 2000. SOP 98-1 provides guidance on accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The Company will begin
capitalizing these costs in the fiscal year ending June 30, 2000. In April
1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-Up
Activities, effective for the Company's fiscal year ending June 30, 2000. SOP
98-5 provides guidance on the financial reporting of start-up costs and
organization costs. It requires the costs of start-up activities and
organization costs to be expensed as incurred. The Company's organization
costs were expensed as incurred.
NOTE 2: PROPERTY AND EQUIPMENT, NET
A summary of property and equipment at June 30 is as follows:
1999 1998
--------- -------
Furniture and fixtures $ 15,295 $ -
Computer equipment 204,756 33,620
Software 80,000
--------- -------
300,051 33,620
Accumulated depreciation (120,322) (4,750)
--------- -------
Property and equipment, net $ 179,729 $28,870
========= =======
7
<PAGE>
NOTE 3: INTANGIBLE ASSETS
A summary of intangible assets at June 30, is as follows:
1999 1998
---- ----
Permits and licenses $ 11,000 $ -
Advertising agreement 505,000 505,000
Proprietary rights 185,000
Contracts and commitments 365,000
Noncompete agreements 31,250
Customer lists 655,500
---------- --------
1,752,750 505,000
Accumulated amortization (947,708) (63,125)
---------- --------
Intangible assets, net $ 805,042 $441,875
========== ========
NOTE 4: COMMITMENTS
The Company is obligated under various operating leases for office space and
various office equipment. Future minimum lease payments under these operating
leases as of June 30, 1999, are as follows:
Years ending June 30
--------------------
2000 $219,916
2001 133,770
2002 136,500
2003 141,960
2004 147,420
--------
$779,566
========
Rent expense under leases for office space for the periods ended June 30, 1999
and 1998, was $82,285 and $10,589, respectively, net of $27,479 and $5,713,
respectively, received under sublease agreements.
NOTE 5: LINE OF CREDIT
In September 1998, the Company entered into a line-of-credit agreement with a
bank with a maximum principal of $150,000 with annual interest at prime plus 1%
(8.75% at June 30, 1999), which expired in September 1999. No principal was
outstanding at June 30, 1999.
NOTE 6: STOCKHOLDERS' EQUITY
The authorized capital of the Company is 30,000,000 shares of common stock and
18,000,000 shares of preferred stock. The Company's authorized capital, and the
accompanying financial statements, reflect a two-for-one stock split which was
authorized by the Board of Directors on June 3, 1999, and effected in July 1999.
8
<PAGE>
The preferred stock is nonredeemable and comprised of the following series with
the rights and preferences as indicated:
Series A preferred stock: 1,346,666 shares authorized, 1,010,000 shares
issued and outstanding to an affiliated party as of June 30, 1999. Series A
preferred stockholders have a dividend preference over common stockholders of
$0.04 per share per annum, a liquidation preference over common stockholders
of $0.50 per share, plus declared and unpaid dividends with rights to
remaining assets in aggregate of $1.00 per share, and a conversion ratio of
1:1 to exchange Series A preferred stock to common stock. The holder of each
share of Series A stock has voting rights equal to each share of common stock
into which such preferred stock can be converted. The affiliated party has
elected one member to the Board of Directors and is entitled to this election
while owning at least 700,000 shares of Series A preferred stock.
Series A-1 preferred stock: 1,346,666 shares authorized, none issued and
outstanding as of June 30, 1999. Series A-1 preferred stockholders have a
dividend preference over common stockholders of $0.04 per share per annum, a
liquidation preference over common stockholders of $0.50 per share plus
declared and unpaid dividends with rights to remaining assets in aggregate of
$1.00 per share, and a conversion ratio of 1:1 to exchange Series A preferred
stock to common stock. The holder of each share of Series A stock has voting
rights equal to each share of common stock into which such preferred stock
could then be converted.
Series B preferred stock: 4,600,000 shares authorized, 3,562,500 shares
issued and outstanding as of June 30, 1999. Series B preferred stockholders
have a dividend preference over common stockholders of $0.16 per share per
annum, a liquidation preference over common stockholders of $2.00 per share
plus declared and unpaid dividends with rights to remaining assets in
aggregate of $4.00 per share, and a conversion ratio of 1:1 to exchange
Series B preferred stock to common stock. The holder of each share of Series
B stock has voting rights equal to each share of common stock into which such
preferred stock could then be converted. The Series B stockholders have
elected two members to the Board of Directors and is entitled to this election
while owning at least 700,000 shares of Series B preferred stock.
Series B-1 preferred stock: 4,600,000 shares authorized, none shares issued
and outstanding as of June 30, 1999. Series B-1 preferred stockholders have a
dividend preference over common stockholders of $0.16 per share per annum, a
liquidation preference over common stockholders of $2.00 per share plus
declared and unpaid dividends with rights to remaining assets in aggregate of
$4.00 per share and a conversion ratio of 1:1 to exchange Series B-1 preferred
stock to common stock. The holder of each share of Series B-1 stock has
voting rights equal to each share of common stock into which such preferred
stock could then be converted.
In December 1999, the Board of Directors approved another series of preferred
stock with the rights and preferences as indicated:
Series C and C-1 preferred stock: 3,000,000 shares authorized for each in
December 1999; no shares authorized, issued, or outstanding as of June 30,
1999. Series C and C-1 preferred stockholders have a dividend preference over
common shareholders of $0.32 per share per annum, a liquidation preference
over common stockholders of $4.00 per share plus declared and unpaid dividends
with rights to remaining assets in aggregate of $8.00 per share, and a
conversion ratio of 1:1 to exchange Series C and C-1 preferred stock to common
stock. The holder of each share of Series C and C-1 stock has voting rights
equal to each share of common stock into which such preferred stock could then
be converted.
At June 30, 1999 and 1998, warrants to purchase 49,000 and -0- shares,
respectively, of common stock at a purchase price of $1.125 per share were
outstanding. In November 1999, warrants were exercised to purchase 34,300
shares of common stock.
9
<PAGE>
NOTE 7: EMPLOYEE BENEFIT PLANS
401(k) savings plan: VacationSpot.com, Inc. has a savings plan which
qualifies under 401(k) of the Internal Revenue Code. Participating employees
may defer up to 15% of their pretax salary, but not more than statutory
limits. The Company contributes a matching dollar for each dollar a
participant contributes, with a maximum matching contribution of 5% of a
participant's earnings. Matching contributions for employees of the Company
were $-0- and $11,173 in 1998 and 1999, respectively. In March 2000, the
Company's 401(k) savings plan was terminated in conjunction with the
acquisition of the Company by Expedia, Inc. (Note 9).
Stock option plan: In April 1999, the Board of Directors of the Company
adopted the 1999 Stock Option Plan (the 1999 Stock Option Plan). The 1999
Stock Option Plan replaced the 1998 Unit Incentive Plan of the predecessor
company, Reservation Works LLC, with the same number of stock options having
similar terms and conditions being issued to replace the then outstanding
partnership unit options. A total of 2,500,000 shares of common stock have
been reserved for issuance under the 1999 Stock Option Plan for grants to
employees, officers, and directors of the Company. The majority of stock
options issued under the 1999 Stock Option Plan are intended to qualify as
incentive stock options, as provided in the Internal Revenue Code of 1986, as
amended. Options granted generally vest over four years, with certain
acceleration provisions, and expire after 10 years.
The following information represents the Company's outstanding stock options
for the period from inception to June 30, 1999. Upon the conversion of the
Company from an LLC to a C corporation on April 21, 1999, options covering
1,268,220 units of the LLC were exchanged for options covering shares of the C
corporation with substantially the same terms and conditions, and are included
below as April 21, 1999, cancellations and grants.
Options outstanding
-------------------
Weighted
average
Number exercise
outstanding price
----------- -----
Inception, December 2, 1997
Granted 72,000 $ 0.64
----------
Balance, June 30, 1998 72,000 0.64
Granted 1,547,220 0.99
April 21, 1999, cancellation of LLC options (1,268,220) 0.94
April 21, 1999, grant of corporation options 1,268,220 0.94
Cancelled (35,000) 0.50
----------
Balance, June 30, 1999 1,584,220 0.98
==========
10
<PAGE>
At June 30, 1999, options outstanding and exercisable are as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------- -------------------
Weighted
Weighted average Weighted
average remaining average
Number exercise contractual Number exercise
Exercise prices outstanding price life outstanding price
---------------- ----------- ----- ---- ----------- -----
<S> <C> <C> <C> <C> <C>
$0.50 353,220 $0.50 9.4 years 170,110 $0.50
1.12 1,231,000 1.12 9.9 60,875 1.12
--------- -------
1,584,220 230,985
========= =======
</TABLE>
Fair value disclosures: Under SFAS No. 123, employee stock options are valued
at the grant date using the Black-Scholes valuation model and the related
compensation cost is recognized ratably over the vesting period. Net loss for
the period from December 2, 1997 (inception) to June 30, 1998, and the fiscal
year ended December 31, 1999, would not have been significantly impacted had
compensation cost been determined based on the Black-Scholes value at the
grant dates for awards as prescribed by SFAS No. 123.
The Company calculated the minimum fair value of each option grant at the date
of grant using the Black-Scholes pricing model with the following assumptions:
No dividends, zero expected volatility, an expected life of five years, and a
risk-free interest rate of 4.9% and 5.7% for the year ended June 30, 1999, and
the period from December 2, 1997 (inception) to June 30, 1998, respectively.
NOTE 8: RELATED PARTY TRANSACTIONS
Notes receivable from officers of the Company are due on demand with 7.5%
interest charged per annum.
In March 1998, the Company granted an equity interest to Expedia, Inc., an
operating unit of Microsoft Corporation, in exchange for a link on the Expedia
website to the VacationSpot.com website to be provided over a two-year period.
In October 1999, Microsoft Corporation contributed the assets of Expedia, Inc.
to Expedia, Inc., including the aforementioned equity interest. An executive
officer of Expedia, Inc. is a member of the Company's Board of Directors. The
fair value of the stock issued to Expedia, Inc. was estimated at $505,000.
Expedia, Inc. received warrants to purchase 336,666 shares of common stock at a
purchase price of $0.01 per share. During the year ended June 30, 1999, the
Company recognized noncash sales and marketing expense of $375,383 related to
these warrants.
NOTE 9: SUBSEQUENT EVENTS
In July 1999, VacationSpot.com, Inc. issued 1,609,946 shares of common stock and
799,998 shares of Series B preferred stock, with a combined value of
approximately $4,800,000 in exchange for approximately 96.4% of the outstanding
stock and warrants of VHR International, s.a. in a transaction that was
accounted for under the purchase method of accounting. The 3.6% of the
outstanding stock of VHR International, s.a. not originally purchased by
VacationSpot.com, Inc. is owned by a founder of VHR International, s.a. and is
subject to a call option via a July 1999 shareholders' agreement between the
Company and the shareholder. Under the terms of the agreement, the Company may
acquire the remaining 3.6% (or 1,000 shares) of VHR International, s.a. for
90,055 shares of VacationSpot.com, Inc. common stock and $15,000 on or before
August 31, 2000.
On March 17, 2000, the Company was acquired by Expedia, Inc. All of the
outstanding shares, options, and warrants of the Company were exchanged for
approximately $82,877,000 of 2,600,000 unregistered Expedia, Inc. shares and
options.
11
<PAGE>
EXHIBIT 99.4
VACATIONSPOT.COM, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
SIX-MONTH PERIODS ENDED
DECEMBER 31, 1999 AND 1998 (unaudited)
<PAGE>
VACATIONSPOT.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND JUNE 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1999 1999
- ------ ---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $11,442,269 $ 6,593,492
Accounts receivable 128,112 29,796
Prepaid expenses 56,890 29,126
----------- -----------
Total current assets 11,627,271 6,652,414
PROPERTY AND EQUIPMENT, net 335,427 179,729
GOODWILL, net 4,665,708
INTANGIBLE ASSETS, net 677,732 805,042
----------- -----------
TOTAL $17,306,138 $ 7,637,185
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 472,439 $ 187,446
Accrued expenses 271,669 74,792
Unearned revenue 108,851 93,084
----------- -----------
Total current liabilities 852,959 355,322
COMMITMENTS
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $0.0001 par value - Authorized,
1,346,666 shares; issued and outstanding, 1,010,000 shares
with liquidation preference of $0.50 per share 101 101
Series A-1 convertible preferred stock, $0.0001 par value -
Authorized, 1,346,666 shares; none issued and outstanding
liquidation preference of $0.50 per share
Series B convertible preferred stock, $0.0001 par value - Authorized,
4,600,000 shares; issued and outstanding, 4,362,498 and 3,562,500 shares,
respectively, with liquidation preference of $2.00 per share 436 356
Series B-1 convertible preferred stock, $0.0001 par value -
Authorized, 4,600,000 shares; none issued and outstanding
with liquidation preference of $2.00 per share
Series C convertible preferred stock, $0.0001 par value - Authorized, 200
3,000,000 shares; issued and outstanding, 1,999,900 shares with
liquidation preference of $4.00 per share
Series C-1 convertible preferred stock, $0.0001 par value - Authorized,
3,000,000 shares; none issued and outstanding with liquidation
preference of $4.00 per share
Common stock, $0.0001 par value - Authorized, 30,000,000 shares;
issued and outstanding, 8,067,996 and 6,314,350 shares, respectively 806 631
Additional paid-in capital 23,943,759 11,042,882
Unearned stock-based compensation (102,931) (102,931)
Notes receivable from affiliated parties (114,510) (114,510)
Accumulated deficit (7,190,408) (3,544,666)
Accumulated other comprehensive loss:
Cumulative currency translation adjustment (84,274)
----------- -----------
Total stockholders' equity 16,453,179 7,281,863
----------- -----------
TOTAL $17,306,138 $ 7,637,185
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
VACATIONSPOT.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX-MONTH PERIODS ENDED DECEMBER 31, 1999 AND 1998 (unaudited)
==============================================================================
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
NET REVENUES $ 479,595 $ 143,560
COST OF REVENUES (1,258,836) (53,829)
----------- -----------
Gross margin (779,241) 89,731
OPERATING EXPENSES:
Product development 1,057,166 454,872
Sales and marketing 1,332,452 531,305
General and administrative 654,602 377,973
----------- -----------
3,044,220 1,364,150
----------- -----------
LOSS FROM OPERATIONS (3,823,461) (1,274,419)
OTHER INCOME 177,719 19,513
----------- -----------
NET LOSS (3,645,742) $(1,254,906)
===========
OTHER COMPREHENSIVE LOSS:
Currency translation adjustment (84,274)
-----------
COMPREHENSIVE LOSS $(3,730,016)
===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
VACATIONSPOT.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX-MONTH PERIOD ENDED DECEMBER 31, 1999 (unaudited)
==============================================================================
<TABLE>
<CAPTION>
Series A Series B
convertible convertible
Common stock preferred stock preferred stock
------------ --------------- ---------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1999 6,314,350 $631 1,010,000 $101 3,562,500 $356
Issuance of Series C preferred stock
Issuance of stock related to acquisition of VHR
International, s.a. 1,609,946 161 799,998 80
Issuance of common stock 143,700 14
Other comprehensive loss:
Currency translation adjustment
Net loss
--------- ---- --------- ---- --------- ----
Balance, December 31, 1999 8,067,996 $806 1,010,000 $101 4,362,498 $436
========= ==== ========= ==== ========= ====
</TABLE>
<TABLE>
<CAPTION>
Series C
convertible Additional Unearned
preferred stock paid-in stock-based
---------------
Shares Amount capital compensation
------ ------ ------- ------------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1999 $11,042,882 $(102,931)
Issuance of Series C preferred stock 1,999,900 $200 7,999,400
Issuance of stock related to acquisition of VHR
International, s.a. 4,819,647
Issuance of common stock 81,830
Other comprehensive loss:
Currency translation adjustment
Net loss
--------- ---- ----------- ---------
Balance, December 31, 1999 1,999,900 $200 $23,943,759 $(102,931)
========= ==== =========== =========
</TABLE>
<TABLE>
<CAPTION>
Notes
receivable Cumulative
from affiliated Accumulated translation Stockholders'
parties deficit adjustment equity
------- ------- ---------- ------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1999 $(114,510) $(3,544,666) $ 7,281,863
Issuance of Series C preferred stock 7,999,600
Issuance of stock related to acquisition of VHR
International, s.a. 4,819,888
Issuance of common stock 81,844
Other comprehensive loss:
Currency translation adjustment $(84,274) (84,274)
Net loss (3,645,742) (3,645,742)
--------- ----------- -------- -----------
Balance, December 31, 1999 $(114,510) $(7,190,408) $(84,274) $16,453,179
========= =========== ======== ===========
</TABLE>
See notes to consolidated financial statements.
-4.
<PAGE>
VACATIONSPOT.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX-MONTH PERIODS ENDED DECEMBER 31, 1999 AND 1998 (unaudited),
==============================================================================
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(3,645,742) $(1,254,906)
Adjustment to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 316,149 404,522
Recognition of sales and marketing expense for
warrants for common stock 86,411
Cash provided (used) by changes in operating assets
and liabilities, net of effects of purchase of VHR
International, s.a.
Accounts receivable and prepaid expenses (212,491) (23,837)
Accounts payable and accrued expenses 481,870 12,751
Unearned revenue 15,767 52,715
----------- -----------
Net cash used by operating activities (2,958,036) (808,755)
INVESTING ACTIVITIES:
Additions to property and equipment (190,357) (158,814)
Purchase of intangible assets (1,199,854)
----------- -----------
Net cash used by investing activities (190,357) (1,358,668)
FINANCING ACTIVITIES:
Member contributions 2,894,277
Proceeds from issuance of common and preferred stock 8,081,444
----------- -----------
Net cash provided by financing activities 8,081,444 2,894,277
EFFECT OF FOREIGN EXCHANGE RATES CHANGES ON CASH
AND CASH EQUIVALENTS (84,274)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,848,777 726,854
CASH AND CASH EQUIVALENTS:
Beginning of period 6,593,492 178
----------- -----------
End of period $11,442,269 $ 727,032
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
VACATIONSPOT.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by accounting principles generally accepted in the United States
of America for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Consolidated operating results for
the six month period ended December 31, 1999 are not necessarily indicative of
the results that may be expected for the year ending June 30, 2000. For further
information, refer to the financial statements for the year ended June 30, 1999
and for the cumulative period from December 2, 1997 (inception) to June 30, 1998
and notes thereto included herein.
PREFERRED STOCK
In December 1999, the Company issued 1,999,900 shares of Series C preferred
stock. Proceeds received from the offering totaled approximately $8,000,000.
ACQUISITION
In July 1999, VacationSpot.com, Inc. issued 1,609,946 shares of common stock and
799,998 shares of Series B preferred stock, with a combined value of
approximately $4,800,000 in exchange for approximately 96.4% of the outstanding
stock and warrants of VHR International, s.a. in a transaction that was
accounted for under the purchase method of accounting. The 3.6% of the
outstanding stock of VHR International, s.a. not originally purchased by
VacationSpot.com, Inc. is owned by a founder of VHR International, s.a. and is
subject to a call option via a July 1999 shareholders' agreement between the
Company and the shareholder. Under the terms of the agreement, the Company may
acquire the remaining 3.6% (or 1,000 shares) of VHR International, s.a. for
90,055 shares of VacationSpot.com, Inc. common stock and $15,000 on or before
August 31, 2000.
SUBSEQUENT EVENT
On March 17, 2000, the Company was acquired by Expedia, Inc. All of the
outstanding shares, options, and warrants of the Company were exchanged for
approximately $82,877,000 of 2.6 million unregistered Expedia, Inc. shares and
options.
6
<PAGE>
Exhibit 99.5
Unaudited Pro Forma Condensed Consolidated Financial Statements
The following unaudited proforma condensed consolidated financial statements
give effect to the acquisitions of Travelscape.com, Inc. and VacationSpot.com,
Inc. The acquisitions have been accounted for under the purchase method of
accounting in accordance with APB Opinion No. 16. Under the purchase method of
accounting, the purchase price is allocated to the assets acquired and
liabilities assumed based on their estimated fair values. The estimated fair
values contained herein are preliminary in nature, and may not be indicative of
the final purchase price allocation, which will be based on an assessment of
fair value to be performed by an independent appraiser. Such preliminary
estimates of the fair values of the assets and liabilities of Travelscape.com,
Inc. and VacationSpot.com, Inc. have been consolidated with the recorded values
of the assets and liabilities of Expedia, Inc. in the unaudited proforma
condensed consolidated financial statements.
The accompanying unaudited pro forma condensed consolidated financial statements
include the accounts of Expedia, Inc., Travelscape.com, Inc. and
VacationSpot.com, Inc. after elimination of all significant intercompany
accounts and transactions.
The unaudited proforma condensed consolidated balance sheet has been prepared to
reflect the acquisitions of Travelscape.com, Inc. and VacationSpot.com, Inc. as
if they occurred at December 31, 1999. The unaudited proforma consolidated
statements of operations reflect the consolidated results of operations of
Expedia, Inc., Travelscape.com, Inc. and VacationSpot.com for the year ended
June 30, 1999 and for the six months ended December 31, 1999 as if the
acquisitions had occurred at the beginning of each fiscal year presented.
The unaudited proforma condensed consolidated balance sheet and unaudited
proforma consolidated statements of operations are presented for illustrative
purposes only and are not necessarily indicative of the unaudited condensed
consolidated financial position or results of operations in future periods or
the results that actually would have been realized had Expedia, Inc.
Travelscape.com, Inc. and VacationSpot.com, Inc. been a consolidated company
during the specified periods. The unaudited proforma condensed consolidated
balance sheet and unaudited proforma consolidated statements of operations
should be read in conjunction with the historical financial statements and notes
thereto of Expedia, Inc., Travelscape.com, Inc. and VacationSpot.com, Inc.
<PAGE>
Expedia, Inc.
Unaudited Proforma Condensed Consolidated Balance Sheet
As of December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
ASSETS Pro Forma
Current assets Expedia VacationSpot Travelscape Adjustments Total Notes
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 74,127 $ 11,442 $ 4,702 $ - $ 90,271
Other current assets 12,776 185 2,044 - 15,005
----------------------------------------------------------------
Total current assets 86,903 11,627 6,746 - 105,276
Intangible assets, net - 678 1,761 98,661 101,100 (2) (3)
Goodwill, net - 4,666 - 84,072 88,738 (2) (3)
Other long term assets 2,753 335 6,174 (400) 8,862 (1)
----------------------------------------------------------------
Total assets $ 89,656 $ 17,306 $ 14,681 $ 182,333 $303,976
================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Other current liabilities $ 11,511 $ 853 $ 23,480 $ 3,734 $ 39,578 (1) (2) (3)
-
Other non current liabilities 3,719 - 8,259 - 11,978
----------------------------------------------------------------
15,230 853 31,739 3,734 51,556
----------------------------------------------------------------
Stockholders' equity
Common stock 390 1 150 (101) 440 (2) (3)
Preferred stock - 1 5,612 (5,613) - (2) (3)
Additional paid-in capital 191,598 23,944 8,559 145,441 369,542 (2) (3)
Unearned stock-based compensation (94,378) (103) (2,179) 2,282 (94,378) (2) (3)
Retained deficit (23,184) (7,191) (29,135) 36,326 (23,184) (2) (3)
Other stockholders' equity - (199) (65) 264 - (2) (3)
----------------------------------------------------------------
Total stockholders' equity 74,426 16,453 (17,058) 178,599 252,420
----------------------------------------------------------------
Total liabilities and stockholders' equity $ 89,656 $ 17,306 $ 14,681 $ 182,333 $303,976
================================================================
</TABLE>
<PAGE>
Expedia, Inc.
Unaudited Proforma Consolidated Statements of Operations
(in thousands except per share data)
<TABLE>
<CAPTION>
For the year ended
June 30, 1999
--------------------------------------------------------------------------------
Pro Forma
Expedia VacationSpot Travelscape Adjustments Total Notes
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 38,699 $ 360 $ 32,483 $ (200) $ 71,342 (7)
Cost of revenues 15,950 975 23,519 3,025 43,469 (6) (8)
--------------------------------------------------------------------
Gross profit (loss) 22,749 (615) 8,964 (3,225) 27,873
--------------------------------------------------------------------
Operating expenses
Product development 21,180 716 1,732 (216) 23,412 (6) (8)
Sales and marketing 14,888 1,403 11,943 2,408 30,642 (6) (7) (8)
General and administrative 6,283 714 8,071 (4,722) 10,346 (6) (8)
Amortization of intangibles and goodwill - - - 62,127 62,127 (4) (5)
Recognition of stock based compensation - - - - -
--------------------------------------------------------------------
Total operating expenses 42,351 2,833 21,746 59,597 126,527
--------------------------------------------------------------------
Loss from operations (19,602) (3,448) (12,782) (62,822) (98,654)
Other income/(expense), net - 57 (1,211) - (1,154)
--------------------------------------------------------------------
(19,602) (3,391) (13,993) (62,822) (99,808)
Provision for income taxes - - - - -
--------------------------------------------------------------------
Net loss $ (19,602) $ (3,391) $ (13,993) $ (62,822) $ (99,808)
====================================================================
Pro forma basic and diluted
net loss per common share $ (0.59) $ (2.72)
========== ==========
Weighted average shares used to
compute pro forma basic and
diluted net loss per common
share 33,000 36,756
========== ==========
</TABLE>
Expedia, Inc.
Unaudited Proforma Consolidated Statements of Operations
(in thousands except per share data)
<TABLE>
<CAPTION>
For the six months ended
December 31, 1999
-------------------------------------------------------------------------------
Pro Forma
Expedia VacationSpot Travelscape Adjustments Total Notes
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 33,089 $ 480 $ 46,393 $ (350) $ 79,612 (7)
Cost of revenues 12,678 1,259 34,029 3,635 51,601 (6) (8)
--------------------------------------------------------------------
Gross profit (loss) 20,411 (779) 12,364 (3,985) 28,011
Operating expenses
Product development 9,845 1,057 1,512 (508) 11,906 (6) (8)
Sales and marketing 17,316 1,332 14,268 1,372 34,288 (6) (7)
General and administrative 4,675 656 7,330 (4,781) 7,880 (6) (8)
Amortization of intangibles and goodwill - - - 31,064 31,064 (4) (5)
Recognition of stock based compensation 17,252 - 1,142 - 18,394
--------------------------------------------------------------------
Total operating expenses 49,088 3,045 24,252 27,147 103,532
--------------------------------------------------------------------
Loss from operations (28,677) (3,824) (11,888) (31,132) (75,521)
Other income/(expense), net 543 178 (1,743) - (1,022)
--------------------------------------------------------------------
(28,134) (3,646) (13,631) (31,132) (76,543)
Provision for income taxes - - - - -
--------------------------------------------------------------------
Net loss $ (28,134) $ (3,646) $ (13,631) $ (31,132) $ (76,543)
====================================================================
Pro forma basic and diluted
net loss per common share $ (0.81) $ (2.00)
========== ==========
Weighted average shares used to
compute pro forma basic and
diluted net loss per common
share 34,709 38,328
========== ==========
</TABLE>
<PAGE>
Expedia, Inc.
Notes to Unaudited Proforma Condensed Consolidated Balance Sheet
and Unaudited Proforma Consolidated Statements of Operations
The unaudited proforma condensed consolidated balance sheet and unaudited
proforma consolidated statements of operations reflect the acquisitions of
Travelscape.com, Inc. and VacationSpot.com, Inc. under the purchase method
of accounting. Under the purchase price method of accounting, the purchase
price is allocated to the assets preliminary acquired and liabilities
assumed based on their estimated fair values. The preliminary fair value of
the assets and liabilities of Travelscape.com, Inc. and VacationSpot.com,
Inc. have been consolidated with the recorded values of the assets and
liabilities of Expedia, Inc. in the unaudited proforma condensed
consolidated balance sheet at December 31, 1999.
The preliminary purchase price allocations for Travelscape and VacationSpot
at December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Travelscape VacationSpot Total
-------------------------------------------
<S> <C> <C> <C>
Current and long term assets $ 12,920 $ 11,962 $ 24,882
Intangibles and goodwill 117,268 72,570 189,838
Liabilities assumed (32,239) (1,253) (33,492)
-------------------------------------------
Purchase price 97,949 83,279 181,228
Less: Acquisition costs (2,383) (1,617) (4,000)
-------------------------------------------
Common stock issued $ 95,566 $ 81,662 $ 177,228
===========================================
</TABLE>
The unaudited proforma condensed consolidated balance sheet gives effect to
the following proforma adjustments necessary to reflect the acquisitions of
Travelscape.com, Inc. and VacationSpot.com, Inc as if they occurred at
December 31, 1999:
(1) The elimination of Expedia's investment in VacationSpot in the
amount of $400,000
(2) The issuance of approximately 3.0 million shares, stock options and
warrants of Expedia common stock and the assumption of all
outstanding shares, stock options and warrants in connection with
the acquisition of Travelscape, for an aggregate purchase price of
approximately $96 million, including approximately $2.4 million of
acquisition costs.
(3) The issuance of approximately 2.6 million shares and stock options
of Expedia common stock and the assumption of all outstanding
shares and stock options in connection with the acquisition of
VacationSpot, for an aggregate purchase price of approximately $82
million, including approximately $1.6 million of acquisition costs.
The unaudited proforma consolidated statements of operations give effect to
the following proforma adjustments necessary to reflect the acquisitions of
Travelscape.com, Inc. and VacationSpot.com, Inc. as if they occurred at the
beginning of each period presented:
(4) The recognition of goodwill being amortized on a straight line
basis over a period of 5 years.
(5) The amortization of identifiable intangibles on a straight line
basis over a period ranging from 2-4 years.
(6) Amounts necessary to conform Travelscape's and VacationSpot's
depreciation policies to Expedia's.
(7) The elimination of intercompany sales between Travelscape and
Expedia.
(8) The restatement of expenses to conform with Expedia's
classification of expenses.
