<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 27, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SKYAUCTION.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 22-3713780
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
501 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 486-1250
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MICHAEL N. HERING
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SKYAUCTION.COM, INC.
501 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 486-1250
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
JEFFREY A. HORWITZ, ESQ. ALLEN L. WEINGARTEN, ESQ.
PROSKAUER ROSE LLP MORRISON & FOERSTER LLP
1585 BROADWAY 1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10104
(212) 969-3000 (212) 468-8000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
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 number for the same offering. / /
------------------------
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
------------------------
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C>
Common Stock, par value $.01......................................................... $70,000,000 $18,480
</TABLE>
(1) Includes shares of Common Stock which the underwriters have the option to
purchase to cover over-allotments, if any.
(2) Calculated pursuant to Rule 457(o) under the Securities Act based on an
estimate of the proposed maximum aggregate offering price.
------------------------
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 AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT 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 OFFERS TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
------------------------
This is an initial public offering of shares of common stock of
SkyAuction.com, Inc. We are selling all the shares of common stock offered under
this prospectus.
There is currently no public market for our shares. We currently anticipate that
the initial public offering price of our common stock will be between $ and
$ per share. We have applied to list our common stock on The Nasdaq
National Market under the symbol "AUXN."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT RISKS YOU SHOULD CONSIDER
BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public offering price.................................................................. $ $
Underwriting discounts and commissions................................................. $ $
Proceeds, before expenses, to us....................................................... $ $
</TABLE>
------------------------
We have granted the underwriters a 30-day option to purchase up to an additional
shares of common stock from us at the initial public offering price
less the underwriting discount. The underwriters expect to deliver the shares on
, 2000.
------------------------
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
DLJDIRECT INC.
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE>
[INSIDE FRONT COVER--PHOTOS/GRAPHICS/DISCLOSURE TO COME]
<PAGE>
PROSPECTUS SUMMARY
We have highlighted in this summary information found in greater detail
elsewhere in this prospectus. You should carefully read the entire prospectus,
including the risks of investing in our common stock discussed under "Risk
Factors" and the financial statements and the notes to those statements, before
you decide to buy our stock.
SKYAUCTION.COM, INC.
OUR COMPANY
We are a leading online marketer and distributor of travel products and
services using a no-reserve auction format. Our no-reserve auction format allows
our customers to bid competitively while viewing all current bids in real time,
without obligating them to meet a minimum bid requirement, or reserve, for any
of our auctions. Through our Web site, www.skyauction.com, we offer excess
travel inventory from leading airlines, hotels, resorts and tour operators. Our
customers bid on a wide variety of quality products and services, such as
airline tickets on scheduled flights, hotel and resort accommodations, tour
services and comprehensive travel packages. A registered user can participate in
an ongoing auction by placing a starting bid of at least $1. Registered users
bid, and auction winners ultimately pay, only the amount which they perceive to
be a good value for the product or service purchased. We are exclusively focused
on travel and leisure, and our strategic objective is to become the leading
Internet travel auction site offering a global marketplace for excess travel
inventory.
We believe that traditional distribution channels for travel products and
services have constraints and inefficiencies that limit their ability to become
an effective channel through which suppliers of travel products and services can
sell their excess inventory. Our auction format provides suppliers of travel
products and services an alternative distribution channel to sell excess
capacity or inventory that may otherwise have gone unsold. As a result, we are
able to generate incremental revenue and demand for our suppliers without
undermining the integrity of their traditional pricing structures, established
sales channels and brand names. Our suppliers include over 30 domestic and
international airlines, such as Continental Airlines, Japan Airlines, KLM,
Lufthansa, Northwest Airlines, TWA and Virgin Atlantic. We also have
relationships with over 20 hotel and resort companies worldwide, individual
hotels or hotel groups and a timeshare company, including Allegro Resorts, Best
Western, Choice Hotels, Superclubs, and Resort Condominiums International, or
RCI, which together manage over 10,000 properties, representing over 700,000
rooms.
We believe that we are the only significant e-commerce company that
conducts no-reserve auctions of travel products and services. We also believe
that we differentiate ourselves from other providers of travel products and
services by offering the following:
o a no-reserve auction format in which bids on all of our products and
services start as low as $1;
o travel packaging abilities, which allow us to create added value for
our customers, a wider variety of product offerings and more
profitable products for our business;
o flexibility of travel dates and/or brand choice of provider;
o eligibility to participate in most frequent travel membership and
other customer loyalty programs;
o management expertise in the travel industry, including the 20 years
of experience and long-standing relationships within the industry
which each of our two principal executives brings to our business;
and
o a customer service-oriented, easy-to-use Web site which allows our
customers to view all current bids in real time.
During an ongoing auction, our Web site provides information such as the
dollar amounts of the highest current bids, the amount of time to elapse before
the close of an auction and an e-mail notification if a bidder's maximum bid has
been exceeded to permit the bidder to increase his maximum bid. Our customers
can also view completed auctions and research the prices at which similar
auctions have been won in the
1
<PAGE>
past. We also believe that our no-reserve auction process helps attract users to
our site by creating a level of excitement and interest that
encourages dynamic bidding through competition with other users.
We offer not only air travel and accommodations, but we also use our
industry expertise to combine these components to create unique travel packages
to better meet customer needs and generate incremental demand for our suppliers'
excess inventory. We have offered sun packages, ski packages, European packages
and specialty tours to many different locations throughout the United States and
North America, the Caribbean, Europe and Africa.
Since the launch of our operations in February 1999, our Web site has
experienced significant growth in traffic and the quantity of travel products
and services sold. Since our inception and through March 31, 2000, over 120,000
users had registered on our Web site, and we had hosted over 28,000 auctions.
OUR OPPORTUNITY
The travel industry suffers from numerous inefficiencies related to the
expiring nature of travel products and services. An airline seat or hotel room
that remains unsold past the date of its availability will not generate any
revenue for the supplier. In 1999, approximately $34.4 billion of airline seats
were unsold, according to data from the Air Transport Association, and
approximately $42.1 billion in hotel accommodations were unsold, according to
Smith Travel Research, an independent market research firm. We believe that
these inefficiencies can be effectively addressed through the Internet. The
dramatic increase in households that use the Internet to purchase goods and
services has led to a significant growth in online travel sales. Online travel
sales are expected to increase from approximately $7.8 billion in 1999 to
approximately $30 billion in 2003, according to Forrester Research Inc., an
independent market research company. As the online travel market develops, we
believe that significant opportunities exist for an Internet-based company that
can establish and operate an online travel marketplace to efficiently sell
excess travel inventory without undermining suppliers' current pricing policies
or distribution channels or the integrity of their brand names.
OUR GROWTH STRATEGY
Our objective is to continue to provide suppliers and registered users with
a global online marketplace for travel products and services and to establish
our company as the leading Internet travel auction site. To achieve this
objective, we plan to:
o enhance and expand relationships with travel suppliers to increase
the quantity and quality of our offerings;
o increase our travel package offerings by building on our experience
and allocating additional resources to enhance our packaging
capabilities;
o expand internationally to capitalize on the global nature of the
demand for travel products and services by creating geographically
specific auction sites using local languages and currencies;
o develop additional revenue streams through ancillary travel product
offerings such as travel insurance, books and maps, currency
exchange services, limousine services, public transportation
tickets, entertainment event tickets and restaurant reservations, as
well as the sale of advertising;
o further develop our technology to improve the functionality of our
Web site, increase sales and streamline our operations;
o strengthen the SkyAuction.com brand to attract new registered users
and to generate repeat purchases from our customers through mass
market and targeted advertising, promotions and press coverage; and
o develop distribution and marketing relationships with hotel, travel
and entertainment Web sites to increase sales and consumer awareness
of our Web site.
2
<PAGE>
CORPORATE INFORMATION
Our principal executive offices are located at 501 Madison Avenue, New
York, New York 10022, and our telephone number is (212) 486-1250. Our Web site
is www.skyauction.com. Information contained on our Web site does not constitute
a part of this prospectus.
We were incorporated in New York on February 12, 1999. We were
reincorporated in Delaware under our current name, SkyAuction.com, Inc., on
December 27, 1999.
SKYAUCTION.COM(TM) is a trademark of SkyAuction.com, Inc.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered...................... shares
Common stock to be outstanding after the
offering................................ shares
Use of proceeds........................... We expect to use the net proceeds of this offering for general
corporate purposes, including working capital to support the
continued expansion of our operations, expenses associated with
enhancing our technology infrastructure and Web site, advertising
campaigns and marketing efforts and capital expenditures. We may also
use a portion of the net proceeds for strategic acquisitions,
although we currently have no commitments to make any acquisitions.
Proposed Nasdaq National Market symbol.... AUXN
</TABLE>
------------------
The number of shares of common stock to be outstanding after this offering
excludes:
o shares of common stock issuable upon the exercise of
outstanding stock options as of July 1, 2000 with an exercise price
of $ per share;
o shares of common stock issuable upon the exercise of
outstanding warrants at an exercise price of $ per share;
and
o shares of common stock reserved for issuance under
our 2000 Omnibus stock option plan.
------------------
Except as otherwise indicated, information in this prospectus:
o reflects a -for-one stock split of all outstanding shares of
our common stock to be effected prior to completion of this
offering;
o gives effect to the conversion of all outstanding shares of Series A
convertible preferred stock into an aggregate of shares of our
common stock, which will occur automatically upon completion of this
offering;
o assumes that our common stock will be sold at $ per share,
which is the mid-point of the range shown on the cover of this
prospectus; and
o assumes that the underwriters do not exercise their over-allotment
option to purchase additional shares in this offering.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table summarizes our financial data for the period from
February 12, 1999, the date of our inception, to December 31, 1999; the period
from February 12, 1999 to March 31, 1999; and the three months ended March 31,
2000, which have been derived from our financial statements and their notes. For
a more detailed explanation of the financial data, see "Selected Financial Data"
and our financial statements and related notes located elsewhere in this
prospectus.
<TABLE>
<CAPTION>
FEBRUARY 12, 1999 FEBRUARY 12, 1999 THREE MONTHS
(INCEPTION) TO (INCEPTION) TO ENDED
DECEMBER 31, 1999 MARCH 31, 1999 MARCH 31, 2000
----------------- ----------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues........................................................... $ 6,720 $ 186 $ 5,300
------- ----- --------
Operating expenses:
Cost of travel................................................... 5,711 152 4,577
Credit card, fulfillment and shipping costs...................... 515 19 361
Selling, general and administrative expenses (excluding
non-cash stock-based compensation)............................. 2,114 196 1,577
Non-cash stock-based compensation................................ 712 153 --
Depreciation and amortization.................................... 40 2 114
------- ----- --------
Total operating expenses.................................. 9,092 522 6,629
------- ----- --------
Loss from operations............................................... (2,372) (336) (1,329)
Interest income.................................................... 5 -- 11
------- ----- --------
Net loss........................................................... $(2,367) $(336) $ (1,318)
======= ===== ========
Preferred stock dividends.......................................... -- -- 14
------- ----- --------
Net loss available to common stockholders(1)....................... $(2,367) $(336) $ (1,332)
======= ===== ========
Basic net loss per share(1)........................................
Weighted average number of shares of common stock outstanding(1)...
Pro forma basic net loss per share(2)..............................
Pro forma weighted average number of shares of common stock
outstanding(2)...................................................
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $10,841 $ 16,639
Working capital..................................................... 8,597 15,034
Total assets........................................................ 13,577 19,375
Total stockholders' equity.......................................... 9,044 15,481
</TABLE>
------------------
(1) We calculate basic net loss per share by dividing the net loss available to
common stockholders by the weighted average number of shares of common
stock outstanding. We do not include outstanding common stock options,
warrants or Series A convertible preferred stock in the basic net loss per
common share calculation, as their effect is anti-dilutive.
(2) Pro forma basic net loss per share has been calculated assuming the
conversion of all previously outstanding Series A convertible preferred
stock into common stock, as if the shares had converted immediately upon
their issuance. See note 2 to the financial statements for an explanation of
the determination of the number of shares used in computing pro forma basic
net loss per share.
(3) Pro forma to give effect to the conversion of our outstanding Series A
convertible preferred stock into shares of common stock upon completion of
this offering and to give effect to the net proceeds of $5.0 million from
the issuance of Series A convertible preferred stock in April 2000 and
subscriptions received for approximately $787,000 of Series A convertible
preferred stock issued in March 2000, which were not received until April
2000.
(4) As adjusted on a pro forma basis to give effect to this offering, assuming
an initial public offering price of $ per share after deducting
estimated underwriting discounts and commissions and estimated offering
expenses payable by us, and the application of the net proceeds from this
offering.
5
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the following information about these risks, together
with the other information contained in this prospectus, before you decide
whether to buy our common stock. If any of the following risks actually occur,
our business, results of operation and financial condition may suffer. In any
such case, the market price of our common stock could decline, and you may lose
all or part of the money you paid to buy our common stock.
The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties, including those not presently known to us or
that we currently view as immaterial, may also result in decreased revenues,
increased expenses or other events which could result in a decline in the market
price of our common stock.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.
Our company began operations in February 1999. As a result, we have only a
limited operating history on which you can evaluate our business, strategies and
prospects. Our prospects must be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies in
their early stages of development, particularly companies in the new and rapidly
evolving online commerce market.
IT IS DIFFICULT TO EVALUATE OUR BUSINESS BECAUSE OUR BUSINESS MODEL IS NOVEL AND
UNPROVEN.
Our service is based on a novel and unproven business model. Prior to the
launch of our service, consumers had limited experience buying travel products
and services through a no-reserve auction process over the Internet. We will be
successful only if customers become familiar with, accept and actively use our
service. It is impossible to predict the degree to which consumers will use our
service.
WE ARE NOT PROFITABLE AND EXPECT TO CONTINUE TO INCUR LOSSES.
We have incurred net losses of $2.4 million during the period from
February 12, 1999, the date of our inception, through December 31, 1999, and net
losses of $1.3 million during the three months ended March 31, 2000. We expect
to continue to incur losses for the foreseeable future. The principal causes of
our losses have been and are likely to continue to be significant expenditures
on salaries and benefits, brand development and marketing and promotion.
Almost all of our revenues to date have been derived from sales of airline
tickets, hotel and resort accommodations and travel packages. In order to
continue the expansion of our business, we expect to significantly increase our
operating expenses and capital expenditures in order to support our growing
infrastructure, expand our customer base and enhance our brand image.
WE DEPEND ENTIRELY ON THIRD-PARTY SUPPLIERS FOR OUR INVENTORY. IF WE DO NOT
MAINTAIN OUR RELATIONSHIPS WITH SUPPLIERS AND EXPAND OUR SUPPLIER BASE, WE MAY
BE UNABLE TO INCREASE THE ATTRACTIVENESS OF OUR PRODUCTS AND SERVICES, WHICH MAY
REDUCE OUR POTENTIAL REVENUES.
Some of our suppliers, such as airlines and hotel and resort companies,
offer their products or services directly to customers through the Internet. It
is also possible that suppliers may choose not to distribute their products and
services through our Web site, or through the Internet at all. Suppliers could
elect to pursue relationships with our competitors, to develop or acquire
services that compete with our services or to sell exclusively through other
sales and distribution channels. If airlines and other travel suppliers choose
to distribute all or substantial quantities of their products and services
through alternative channels, we may be unable to maintain or expand our
supplier relationships or selection of products and services.
In addition, if we do not maintain or expand our supplier relationships,
the products and services that we offer could significantly decrease. As a
result, we may be unable to maintain or increase the attractiveness of our
products and services, which would limit our ability to attract new customers
and maintain or increase our potential market share and revenue. Most of our
travel service supplier arrangements are short-term in
6
<PAGE>
nature and can be terminated by either party at any time or upon short notice.
If one or more of our suppliers were to cancel any of these arrangements or were
to refuse to renew or were to renegotiate arrangements on terms substantially
less favorable to us, we could lose important sources of our products and
services. Furthermore, none of our suppliers is under any obligation to offer
its products and services through our Web site.
CONSOLIDATION IN THE AIRLINE INDUSTRY MAY HARM OUR ABILITY TO SELL OUR PRODUCTS
AND SERVICES.
Mergers, acquisitions and personnel changes at major airlines may adversely
affect our business. In the three months ended March 31, 2000, airline tickets,
excluding airline tickets that were sold as part of our travel packages,
accounted for approximately 70% of our revenues. Currently, the airline industry
is undergoing consolidation, which has resulted in a decline in the number of
airlines. Our revenues or profits could decrease if the combined airlines
determine that it is more efficient to sell their inventory through their own
Web sites or to our competitors. In addition, our revenues or profits could
decrease if the combined airlines are able to negotiate higher prices for their
inventory or choose to discontinue selling inventory to us.
BECAUSE WE USE A NO-RESERVE AUCTION PROCESS, WE MAY SELL SOME OF OUR TRAVEL
PRODUCTS AND SERVICES BELOW OUR COST, WHICH MAY CAUSE OUR BUSINESS TO SUFFER.
All of our auctions start with a $1 bid. If the bidding level does not meet
or exceed our cost, we will incur a loss on the auction. Several factors can
cause this situation to occur, such as a lack of interest on the part of
bidders, a perception that the travel product or service offered is too
expensive relative to other options available, or technical problems with the
Internet or our Web site.
DUE TO THE EXPIRING NATURE OF OUR INVENTORY, OUR BUSINESS MAY SUFFER IF WE ARE
UNABLE TO SELL OUR INVENTORY IN A TIMELY MANNER.
The travel industry suffers from numerous inefficiencies relating to the
expiring nature of travel products and services. An airline seat or hotel room
that remains unsold past the date of its availability will not generate any
revenue for the supplier. We purchase some of our inventory from our suppliers
prior to its sale on our auction site. If we overestimate the demand for a
certain product and are unable to sell it before the inventory expires, we will
suffer a loss which may harm our operating results and revenues.
OUR REVENUES MAY FAIL TO GROW OR MAY DECLINE IF WE DO NOT OFFER ATTRACTIVE NEW
PRODUCTS AND SERVICES.
We plan to introduce new products and expanded services. Our inability to
generate revenues from these products or expanded services sufficient to offset
their development or offering costs could hurt our business. We expect that new
products and services will become a significant part of our revenue growth. We
may not be able to offer such services in a cost-effective or timely manner, and
our efforts to introduce these services may not be successful. Further, any new
service that is not favorably received by customers could damage our reputation
or brand name. Expansion of our services could also require significant
additional expenses and may strain our management, financial and operational
resources. If we cannot offer new products and services in the future, we may
not be able to grow our revenues.
IF OUR SYSTEMS ARE UNABLE TO PROVIDE ACCEPTABLE PERFORMANCE AS THE USE OF OUR
SERVICES INCREASES, WE MAY NOT BE ABLE TO ATTRACT NEW CUSTOMERS AND SUPPLIERS
AND MAY LOSE EXISTING CUSTOMERS AND SUPPLIERS TO OUR COMPETITORS.
If we are unable to provide our customers reliable, easy access to our
products and services, we may not be able to attract new customers and suppliers
and may lose our existing customers and suppliers to our competitors. As our
operations grow in both size and scope, we will need to improve and upgrade our
systems and infrastructure.
We have at times experienced unreliable service levels or insufficient
capacity. We have also experienced computer system interruptions, and these
interruptions may reoccur. Our servers are vulnerable to computer bugs, viruses,
physical or electronic break-ins and similar disruptions. Our systems and
operations are also vulnerable to damage or interruption from a number of
sources, including fire, flood, power loss,
7
<PAGE>
telecommunications failure, physical and electronic break-ins and other similar
events. Any substantial disruption of this nature could significantly impair our
ability to generate sales from our Web site. We do not presently have a
comprehensive disaster recovery plan in effect and do not carry sufficient
business interruption insurance to compensate for all losses that could occur.
IF OUR NEW SOFTWARE THAT WE INTEND TO INTRODUCE BY THE FOURTH QUARTER OF 2000
DOES NOT FUNCTION PROPERLY, OUR CUSTOMERS AND SUPPLIERS MAY NOT USE OUR WEB
SITE, AND WE MAY HAVE TO INCREASE SPENDING ON SOFTWARE DEVELOPMENT.
We intend to introduce new software for our Web site by the fourth quarter
of 2000. It is difficult to predict how our new software will function after
implementation. As a result, it is possible that our customers may not be able
to access our Web site for periods of time or may not be able to execute
transactions, and we may have to revert to our previous architecture on a
temporary basis. If there are any difficulties in the introduction of our new
design, our customers and suppliers may not use our service. Furthermore, we may
have to increase spending on development to maintain our previous architecture
and to resolve problems with our new architecture.
IF OUR BRAND DOES NOT ACHIEVE BROAD RECOGNITION, OUR REVENUES MAY NOT GROW.
We believe that broader recognition and a favorable consumer perception of
the SkyAuction.com brand are essential to our future success, particularly
because there are a number of Web sites that offer competing services.
Accordingly, we intend to pursue an aggressive brand-enhancement strategy, which
will include mass market and multimedia advertising, promotional programs and
public relations activities. There can be no assurance that we will be able to
maintain or increase our brand recognition.
Advertising and marketing expense was approximately $530,000 during the
three months ended March 31, 2000. To increase awareness of the SkyAuction.com
brand and expand it to a wider range of products and services, we will need to
spend significantly greater amounts on advertising and promotions. These
expenditures may not result in a sufficient increase in revenues to cover such
advertising and promotions expenses. In addition, even if our brand recognition
increases, we may not be able to increase our revenues.
OUR OPERATING RESULTS IN FUTURE PERIODS MAY FLUCTUATE AND BE UNPREDICTABLE.
Our quarterly operating results may fluctuate because our business is
seasonal and is subject to supply constraints and other factors. We expect our
business to be subject to the seasonal characteristics of the travel industry,
in which the demand for leisure travel increases for summer vacations and
holidays. We may also be impacted by seasonal fluctuations in inventory
available from suppliers. As demand increases over holiday periods, especially
in the fourth quarter, for full-fare airline tickets, less excess inventory may
be available to us or certain fares or routes may be blacked out or otherwise
unavailable. In addition, during holiday periods we may experience a lower level
of bidding on our auctions because many customers are away from home.
Our operating results are difficult to predict due to a variety of other
factors, many of which are outside of our control. These factors include:
o the number of trips we are able to sell;
o our ability to retain or expand our supplier arrangements, obtain
satisfactory discounts or obtain sufficient inventory;
o our ability to develop strong brand recognition and customer
loyalty;
o our ability to increase the level of traffic on our Web site;
o the announcement or introduction of lower prices or new travel
products and services by our competitors;
o our ability to expand into new markets; and
8
<PAGE>
o the occurrence of events influencing travel such as bad weather,
natural disasters, fuel price increases, travel-related accidents or
terrorism.
It is possible that in one or more future quarters our operating results
will fall below the expectations of securities analysts and investors. If this
happens, the price of our common stock is likely to be adversely affected.
OUR PLANS FOR EXPANSION CANNOT BE IMPLEMENTED IF WE LOSE OUR KEY PERSONNEL OR
CANNOT RECRUIT ADDITIONAL PERSONNEL.
We depend substantially on the continued services and performance of our
senior management, particularly our founders, Mr. Michael Hering, our President
and Chief Executive Officer, Mr. Salvatore Esposito, our Executive Vice
President and Chief Operating Officer, and Mr. Don Freno, our Executive Vice
President, Operations. While we have employment agreements with each of them,
these agreements do not prevent these executives from terminating their
employment with us at any time. As a result, these executives may elect to
pursue other opportunities at any time. If one or more of these individuals
choose to leave our company, we may lose a significant number of supplier
relationships and operating expertise which they have developed over many years
and which would be difficult to replace. The loss of the services of any
executive officer or other key employee could hurt our business.
In addition, as our business expands, we will need to add new information
technology and engineering personnel to maintain and expand our Web site and
systems and customer support personnel to serve our growing customer base. If we
are unable to hire and successfully train employees or contractors in these
areas, users of our Web site may have negative experiences and we may lose
customers, which would diminish the value of our brand and harm our business.
The market for recruiting qualified information technology and other personnel
is extremely competitive, and we may experience difficulties in attracting and
retaining employees. Should we fail to retain or attract qualified personnel, we
may not be able to compete successfully or implement our plans for expansion.
THE MARKET FOR ONLINE TRAVEL PRODUCTS AND SERVICES IS HIGHLY COMPETITIVE, AND IF
WE DO NOT COMPETE EFFECTIVELY, WE MAY LOSE CUSTOMERS.
The market for online travel products and services is new, highly
competitive and rapidly evolving, and we expect competition to intensify in the
future. Some of our competitors and potential competitors have significantly
greater financial resources and name recognition than we do. In addition, many
of these companies have more technical, marketing and sales personnel and more
established customer support and services than we do. They may also have the
ability to enter into strategic or commercial relationships with larger, more
established and well-financed companies. Potential competitors, such as online
providers of indirect goods and services, may incorporate online travel-related
services into their existing product offerings. Our failure to compete
effectively could harm our business and operating results. Increased competition
is likely to result in reduced gross profits, loss of market share and dilution
of our brand name, which could harm our revenues and operating results.
IF OUR THIRD-PARTY TICKETING AGENTS LOSE THEIR LICENSES, WE MAY EXPERIENCE
TEMPORARY DIFFICULTY IN FURNISHING TICKETS TO OUR CUSTOMERS.
We rely on third-party ticketing agents, primarily Magical Holidays, a
travel business owned since 1981 by Mr. Hering, our President and Chief
Executive Officer and a former executive officer of Magical Holidays, to issue
our customers' airline tickets for flight reservations made through our Web
site. Travel agent licensing requirements in the United States require that each
of our ticketing agents meet certain criteria to operate as a travel agent and
to issue airline tickets. If our third-party ticketing agents were to lose their
licenses or accreditations, we would not be able to issue tickets to our
customers until we retain substitute agents to provide ticketing services.
Furthermore, the terms and conditions of any substitute arrangements may not be
on the same terms or on terms as favorable as our arrangements with our current
ticketing agents.
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WE RELY ON THIRD-PARTY SYSTEMS TO CONDUCT OUR BUSINESS, AND OUR REVENUES AND
MARKET SHARE MAY DECREASE IF THESE SYSTEMS ARE UNAVAILABLE IN THE FUTURE OR IF
THEY NO LONGER OFFER QUALITY PERFORMANCE.
We rely on third-party computer systems and third-party service providers,
including the central reservation systems of airlines and hotels, to make
airline ticket and hotel room reservations and credit card verifications and
confirmations, to host our Web site and to advertise and deliver the products
sold on our Web site to customers. We also rely on third-party licenses for
components of the software underlying our technology platform. Any interruption
in our ability to obtain the products or services of these or other third
parties or deterioration in their performance could impair the timing and
quality of our own service. If our service providers fail to deliver
high-quality products and services in a timely manner to our customers, our
services will not meet the expectations of our customers and our reputation and
brand will be damaged. Furthermore, if our arrangements with any of these third
parties are terminated, we may not find an alternate source of systems support
on a timely basis or on terms as advantageous to us.
ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS.
The secure transmission of confidential information over the Internet is
essential in maintaining consumer and supplier confidence in our service.
Substantial or ongoing security breaches on our system or other Internet-based
systems could significantly harm our business. We rely on licensed encryption
and authentication technology to effect secure transmission of confidential
information, including credit card numbers. It is possible that advances in
computer capabilities, new discoveries or other developments could result in a
compromise or breach of the technology we use to protect customer transaction
data.
A party that is able to circumvent our security systems could steal
proprietary information or cause interruptions in our operations. Security
breaches also could damage our reputation and expose us to a risk of loss or
litigation and possible liability. Our insurance policies carry low coverage
limits, which may not be adequate to reimburse us for losses caused by security
breaches. We cannot guarantee that our security measures will prevent security
breaches.
We also face risks associated with security breaches affecting third
parties conducting business over the Internet. Consumers generally are concerned
with security and privacy on the Internet and any publicized security problems
could inhibit the growth of the Internet and, therefore, the sale of our
products and services.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO MEET OUR FUTURE CAPITAL
REQUIREMENTS.
Based on our current operating plan, we anticipate that the net proceeds of
this offering, together with our available funds, will be sufficient to satisfy
our anticipated needs for working capital, capital expenditures and business
expansion for at least the next 18 months. We may need to raise additional funds
sooner than expected in order to fund more rapid expansion, to develop new or
enhanced services, to further improve our technology infrastructure or to
respond to competitive pressures. If we raise additional funds by issuing equity
or convertible debt securities, the percentage ownership of our stockholders
will be diluted. Furthermore, any new securities could have rights, preferences
and privileges senior to those of our common stock.
We currently do not have any commitments for additional financing. We
cannot be certain that additional financing will be available when and to the
extent required or that, if available, it will be on acceptable terms to us. If
adequate funds are not available on acceptable terms, we may not be able to fund
our expansion, offer additional products or services or respond to competitive
pressures.
OUR BUSINESS COULD BE HURT IF WE MAKE ACQUISITIONS THAT ARE NOT SUCCESSFUL.
In the future, we may broaden the scope and content of our business through
the acquisition of existing businesses. We may not be successful in overcoming
problems encountered in connection with any acquisitions, and our inability to
do so could hurt our business.
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Although we are not currently contemplating any acquisitions, in the future
we may consider the acquisition of companies providing similar services in
international markets or in other sectors of the travel industry. Future
acquisitions would expose us to increased risks. These include risks associated
with:
o the assimilation of new operations, Web sites and personnel;
o the diversion of resources from our existing business, Web site and
technologies;
o the inability to generate revenues from new sites or content
sufficient to offset associated acquisition costs;
o the maintenance of uniform standards, controls, procedures and
policies; and
o the impairment of relationships with employees, customers and
suppliers as a result of integration of new businesses.
OUR BUSINESS COULD BE HURT IF OUR INTERNATIONAL EXPANSION IS NOT SUCCESSFUL.
One component of our growth strategy is to expand internationally.
International expansion will present us with unique challenges, including
adapting to foreign business customs and regulations. If we do not address these
and other problems adequately, our international expansion may not produce
desired results and could hurt our business. We may expend significant financial
resources to create localized user interfaces and comply with local customs and
regulations. If the revenues generated by these international operations are
insufficient to offset the expense of establishing and maintaining them, our
business could be hurt. To date, we have no experience in developing localized
versions of our Web site and only limited experience in marketing and
distributing our travel services internationally. We may not be able to expand
our operations successfully in any international markets. Conducting business on
an international level also involves inherent risks, such as unexpected changes
in regulatory requirements, tariffs and other trade barriers, difficulties in
staffing and managing foreign operations, political instability, currency rate
fluctuations, seasonality in leisure travel in certain countries and potentially
adverse tax consequences.
THE SUCCESS OF OUR BUSINESS WILL DEPEND ON THE CONTINUED GROWTH OF INTERNET
COMMERCE.
The market for the purchase of products and services over the Internet is
new and emerging. As an Internet commerce business, our future revenues and
profits are substantially dependent upon the widespread acceptance and use of
the Internet and other online services as a medium for commerce. If acceptance
and growth of Internet use does not occur, our business and financial
performance will suffer. Rapid growth in the use of and interest in the Internet
and other online services is a recent phenomenon. This growth may not continue.
A sufficiently broad base of consumers may not adopt, or continue to use, the
Internet as a medium of commerce. Demand for and market acceptance of recently
introduced products and services over the Internet are subject to a high level
of uncertainty, and there are few proven products and services.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend upon the development and maintenance of the Internet's
infrastructure to meet this increased traffic. This will require a reliable
network backbone with the necessary speed, data capacity and security, and the
timely development of complementary products, such as high-speed modems, for
providing reliable Internet access and services.
The Internet has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure and could face outages and
delays in the future. Outages and delays are likely to affect the level of
Internet usage and the processing of transactions on our Web site. It is
unlikely that the level of bidding lost in those circumstances could be made up
by alternative methods. In addition, the Internet could lose its viability due
to delays in the development or adoption of new standards to handle increased
levels of activity or due to increased government regulation. The adoption of
new standards or government regulation may require us to incur substantial
compliance costs.
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RISKS RELATED TO LEGAL UNCERTAINTY
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR COMPETITORS MAY GAIN
ACCESS TO OUR TECHNOLOGY AND OTHER PROPRIETARY INFORMATION.
We regard some of our content and technology as proprietary and try to
protect our intellectual property rights by relying on trademark and copyright
protection and confidentiality laws and contracts. If we are unable to protect
our intellectual property, it would be possible for someone else to copy or
otherwise obtain and use our proprietary content and technology without our
authorization or to develop a similar business model independently. Any
misappropriation could have a negative effect on our business, our operating
results and the value of our brand. There may not be effective trademark,
copyright and confidentiality protection in every country in which our services
are made available, and policing unauthorized use of proprietary information is
difficult and expensive.
The steps we have taken may be inadequate to prevent the misappropriation
of our proprietary information. Furthermore, in the future, we may need to go to
court to enforce our intellectual property rights, to protect our trade secrets
or to determine the validity and scope of the proprietary rights of others.
Litigation relating to our intellectual property might result in substantial
costs and diversion of resources and management attention, even if we are
successful.
We currently hold the Internet domain name "skyauction.com". Domain names
ending in ".com" are regulated by the Internet Corporation for Assigned Numbers
and Names, or ICANN. Top-level domains in other countries may be regulated by
other regulatory bodies. The regulation of domain names in the United States and
in foreign countries may change. Regulatory bodies could establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we may not acquire or
maintain the "skyauction" second-level domain name in all of the countries in
which we intend to conduct business.
The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear. We could be
unable to prevent third parties from acquiring domain names that infringe or
otherwise decrease the value of our trademarks and other proprietary rights.
OUR BUSINESS MAY BE HARMED IF WE ARE FOUND TO INFRINGE PROPRIETARY RIGHTS OF
OTHERS.
Third parties may claim infringement by us with respect to past, current or
future proprietary rights. We expect that participants in our industry will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any claim, whether meritorious or
not, could be time-consuming, result in costly litigation or arbitration and
diversion of technical and management personnel or require us to develop
non-infringing technology or to enter into royalty or licensing agreements.
These royalty or licensing agreements, if required, may not be available on
terms acceptable to us, or at all, and could significantly harm our business and
operating results.
REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS.
The products and services we offer through our service are regulated by
federal and state governments. Our ability to provide such products and services
is and will continue to be affected by such regulations. The implementation of
unfavorable regulations or unfavorable interpretations of existing regulations
by courts or regulatory bodies could require us to incur significant compliance
costs, cause the development of the affected markets to become impractical and
otherwise adversely affect our financial performance.
The laws and regulations applicable to the travel industry affect us and
our travel suppliers. We must comply with laws and regulations relating to the
sale of travel services, including those prohibiting unfair and deceptive
practices and may be required to register as a seller of travel. In addition,
many of our travel suppliers and computer reservation systems providers are
heavily regulated by the United States and other governments. Our services are
indirectly affected by regulatory and legal uncertainties affecting the
businesses of our travel suppliers and computer reservation systems providers.
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Numerous states have regulations regarding the manner in which "auctions"
may be conducted and the liability of "auctioneers" in conducting such auctions.
We do not believe that these regulations, which were adopted prior to the
widespread use of the Internet, govern the operations of our business nor are we
aware of any claims that may have been filed by any state implying that our
business is subject to this legislation. There can be no assurance, however,
that a state will not attempt to impose these regulations upon us in the future.
Any imposition may have a material adverse effect on our company's business,
results of operations and financial condition. We must also comply with laws and
regulations applicable to businesses generally and online commerce. Currently,
few laws and regulations directly apply to the Internet and commercial online
services. Moreover, there is currently great uncertainty about whether or how
existing laws governing issues such as property ownership, sales and other
taxes, libel and personal privacy apply to the Internet and commercial online
services. It is possible that laws and regulations may be adopted to address
these and other issues. Further, the growth and development of the market for
online commerce may prompt calls for more stringent consumer protection laws.
New laws or different applications of existing laws would likely impose
additional burdens on companies conducting business online and may decrease the
growth of the Internet or commercial online services. In turn, this could
decrease the demand for our products and services or increase our cost of
operations.
WE MAY BE SUBJECT TO LITIGATION FOR CONTENT PROVIDED OR REPRESENTATIONS MADE ON
OUR WEB SITE, WHICH MAY BE COSTLY AND TIME-CONSUMING TO DEFEND.
Our Web site contains links to other Web sites, which may contain links to
additional Web sites. As a result, we may be subject to claims alleging that, by
directly or indirectly providing links to other Web sites, we are liable for
intellectual property right infringement or the wrongful actions of third
parties through their Web sites.
In addition, successful actions for defamation have been brought against
services providers in the past in the United States and other jurisdictions in
which we operate or may operate in the future. It is also possible that if any
information accessible on our Web site contains errors or false or misleading
information, or if we are negligent in providing information, third parties
could take action against us for losses incurred in reliance on this
information.
Our general liability insurance will not cover all potential claims of
third parties to which we are exposed.
OUR BUSINESS IS SUBJECT TO TAX UNCERTAINTIES.
Potential Federal Air Transportation Tax Liability
A federal air transportation tax is imposed upon the amount paid for
airline tickets and generally is collected by the airlines selling the tickets.
Because of the unique pricing structures employed in our service, it is not
clear how this federal tax should be calculated when sales occur using our
service. A future ruling by the Internal Revenue Service may be unfavorable to
us and may require us to collect the federal air transportation tax on the total
amount paid by consumers for air travel, rather than the amount charged by the
airlines for tickets. If the Internal Revenue Service issues an unfavorable
ruling that is upheld by the courts, we could owe additional taxes, a possible
liability for which we have estimated and accrued. We expect that this amount
could increase significantly as our business grows, and we may be subject to
penalties and interest on any amounts owed.
State Taxes
We do not collect sales or other similar taxes for transactions conducted
through our Web site other than the federal air transportation tax referred to
above. Many states impose sales tax collection obligations on hotel services and
overnight stays that are components of travel packages that we offer, although
such taxes typically are collected from the hotel owed at the time of the
overnight stay. Numerous states have made proposals to impose additional income
tax obligations or sales tax collection obligations on out-of-state companies
such as ours which engage in or facilitate online commerce. These proposals, if
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adopted, could substantially impair the growth of online commerce and adversely
affect our ability to become profitable.
Through October 21, 2001 the Internet Tax Freedom Act exempts electronic
commerce, including Internet access, from state and local taxes where these
taxes are discriminatory. Failure to renew this legislation would allow the
imposition of state and local taxes on Internet-based commerce. The imposition
of these taxes could impair the growth of online commerce and adversely affect
our ability to become profitable.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AND SUBJECT TO WIDE
FLUCTUATIONS, WHICH COULD LEAD TO LOSSES FOR OUR STOCKHOLDERS.
The market price of our common stock is likely to be highly volatile and is
likely to continue to be subject to wide fluctuations in response to factors
such as the following, some of which are beyond our control:
o quarterly variations in our operating results;
o operating results that vary from the expectations of securities
analysis and investors;
o changes in expectations as to our future financial performance,
including financial estimates by securities analysts and investors;
o loss of a major supplier, such as an airline or hotel chain;
o changes in market valuations of other online commerce or travel
companies;
o announcements of technological innovations or new services by us or
our competitors;
o announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o changes in the status of our intellectual property rights;
o announcements of significant claims or proceedings against us;
o additions or departures of key personnel; and
o future sales of our common stock.
In addition, the trading prices of online commerce company stocks in
general have experienced extreme price and volume fluctuations recently. These
fluctuations often have been unrelated or disproportionate to the operating
performance of these companies. The valuations of many Internet stocks are
extremely high based on conventional valuation standards, such as price to
earnings and price to sales ratios. Any negative change in the public's
perception of the prospects of Internet or online commerce companies could
depress our stock price in the future, regardless of our results. Other broad
market and industry factors may decrease the market price of our common stock,
regardless of our operating performance. Market fluctuations, as well as general
political and economic conditions, such as a recession or interest rate or
currency rate fluctuations, also may negatively affect the market price of our
common stock.
In the past, securities class action litigation often has been brought
against a company following periods of volatility in the market price of their
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE COULD CAUSE OUR COMMON STOCK PRICE TO DECLINE.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could decline. These sales also might make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate. Upon completion of this offering, we will have
outstanding shares of common stock, assuming no
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exercise of outstanding options and warrants. Of these shares, the shares
sold in this offering will be freely tradable, and additional shares of
common stock will be available for sale in the public market 180 days after the
date of this prospectus following the expiration of lock-up agreements between
our stockholders and the underwriters. These stockholders may be released from
their lock-up agreements with the underwriters at any time and without notice,
which would allow for the earlier sale of shares in the public market.
CONCENTRATED CONTROL COULD ADVERSELY AFFECT STOCKHOLDERS.
Upon completion of this offering, Mr. Hering, our President and Chief
Executive Officer, and Mr. Esposito, our Executive Vice President and Chief
Operating Officer, together with their respective affiliates, will beneficially
own approximately and percent of our outstanding common stock,
respectively. As a result, if Mr. Hering acts together with Mr. Esposito or with
any other significant stockholder, they will have the ability to control the
outcome on all matters requiring stockholder approval, including the election
and removal of directors and any merger, consolidation or sale of all or
substantially all of our assets, and the ability to control our management and
affairs. Such control could discourage others from initiating potential merger,
takeover or other change of control transactions. As a result, the market price
of our common stock could be adversely affected.
ANTI-TAKEOVER PROVISIONS AFFECTING US COULD PREVENT OR DELAY A CHANGE OF
CONTROL.
Provisions of our amended and restated certificate of incorporation and
by-laws and provisions of applicable Delaware law may discourage, delay or
prevent a merger or other change of control that a stockholder may consider
favorable. Our board of directors has authorized shares of preferred
stock of our company and has determined the price and terms, including
preferences and voting rights, of those shares without stockholder approval.
Although we have no current plans to authorize any additional shares or to issue
any shares of our preferred stock, any such authorization and issuance could:
o have the effect of delaying, deferring or preventing a change of
control of our company;
o discourage bids for our common stock at a premium over the market
price; or
o adversely affect the market price of, and the voting and other
rights of the holders of, our common stock.
We are subject to certain Delaware laws that could have the effect of
delaying, deterring or preventing a change in control of our company. One of
these laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless certain conditions are met. In
addition, provisions of our amended and restated certificate of incorporation
and by-laws, and the significant amount of common stock held by Messrs. Hering
and Esposito and their affiliates, could together have the effect of
discouraging potential takeover attempts or making it more difficult for
stockholders to change management.
OUR MANAGEMENT HAS BROAD DISCRETION OVER USE OF THE PROCEEDS FROM THIS OFFERING,
AND YOU MAY NOT AGREE WITH HOW WE USE SUCH PROCEEDS.
The net proceeds of our sale of shares of common stock in this
offering are estimated to be approximately $ million, at an assumed initial
public offering price of $ per share and after deducting underwriting
discounts and commissions and estimated offering expenses. Our management will
retain broad discretion as to the use of the proceeds of this offering. The
failure of management to use the proceeds of the offering effectively could
adversely affect our business and results of operations.
IF YOU INVEST IN THIS OFFERING, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
We expect that the initial public offering price of our common stock will
be substantially higher than the book value per share of the outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution. In the past, we issued options to
acquire our common stock at prices significantly below the initial public
offering price. To the extent these outstanding
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options are ultimately exercised, there will be further dilution to investors in
this offering. The section headed "Dilution" appearing elsewhere in this
prospectus contains more information regarding the dilution you will experience
if you invest in this offering.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Some of the information in this prospectus contains forward-looking
statements. These statements include, among others, statements relating to
expenditure levels, the adequacy of capital resources and plans for expansion of
our marketing and sales efforts, risk factors, use of proceeds, liquidity,
strategy, sales and technology and operations. These statements may be found
under Prospectus Summary, Risk Factors, Management's Discussion and Analysis of
Financial Condition and Results of Operations and Business. Forward-looking
statements are typically identified by the use of terms such as "may," "will,"
"expect," "intend," "anticipate," "estimate" and similar words, although some
forward-looking statements are expressed differently. You should be aware that
our actual results could differ materially from those contained in the
forward-looking statements due to a number of factors, including changes in
external competitive market factors, changes in our business strategy, our
inability to execute our strategy, unanticipated changes in the travel industry,
the economy in general and changes in the use of the Internet. We cannot
guarantee future results, levels of activity, performance or achievements. You
should also consider carefully the statements under "Risk Factors" and other
sections of this prospectus, which address additional factors that could cause
our actual results to differ from those set forth in the forward-looking
statements.
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USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock
offered by us are estimated to be approximately $ million, or $ if
the underwriters' over-allotment option is exercised in full, based on an
assumed initial public offering price of $ and after deducting estimated
offering expenses of $ million and the underwriting discounts and
commissions payable by us. We intend to use the net proceeds for general
corporate purposes, including working capital to support the continued expansion
of our operations, expenses associated with enhancing our technology
infrastructure and Web site, advertising campaigns and marketing efforts and
capital expenditures. We may also use a portion of the net proceeds for
strategic acquisitions, although we currently have no commitments to make any
acquisitions.
Our management will have broad discretion in the application of the net
proceeds. Pending such uses, we intend to invest the net proceeds from this
offering in short-term, interest-bearing, investment-grade commercial paper.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
our inception and do not expect to pay any cash dividends on our capital stock
in the foreseeable future. We currently intend to retain future earnings, if
any, to finance the expansion of our business.
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CAPITALIZATION
The following table shows our cash and cash equivalents and capitalization
as of March 31, 2000:
o on an actual basis;
o on a pro forma basis to give effect to:
o the conversion of all of our outstanding Series A convertible
preferred stock into a total of shares of common stock upon
the completion of this offering;
o the net proceeds from the issuance of shares of Series A
convertible preferred stock in April 2000 and subscriptions
received for Series A convertible preferred stock in March 2000,
for which the cash was not received until April 2000; and
o on a pro forma as adjusted basis to reflect the issuance and sale of
shares of common stock by us in this offering at an assumed initial
public offering price of $ per share less estimated
underwriting discounts and commissions and estimated offering
expenses payable by us.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
---------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
------- --------- ---------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents........................................... $10,841 $16,639
======= =======
Stockholders' equity:
Series A convertible preferred stock, $.01 par value; shares
authorized and shares issued and outstanding actual, no
shares issued and outstanding pro forma and pro forma as
adjusted.......................................................... $ 2 $ --
Common stock, $.01 par value; shares authorized;
shares issued and outstanding actual, shares issued and
outstanding pro forma, shares issued and outstanding pro
forma as adjusted................................................. 10 13
Additional paid-in capital.......................................... 13,428 19,077
Warrants............................................................ 90 90
Subscription receivable--Series A convertible preferred stock....... (787) --
Accumulated deficit................................................. (3,699) (3,699)
------- -------
Total stockholders' equity........................................ 9,044 15,481
------- -------
Total capitalization........................................... $ 9,044 $15,481
======= =======
</TABLE>
------------------
The outstanding share information in the above table excludes:
o shares of common stock issuable upon the exercise of
outstanding stock options as of March 31, 2000 with an exercise
price of $ per share;
o shares of common stock issuable upon the exercise of
outstanding warrants; and
o shares of common stock reserved as of March 31, 2000 for
issuance under our 2000 Omnibus stock option plan.
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DILUTION
The pro forma net tangible book value of our common stock as of ,
2000 was $ million, or $ per share. The pro forma net tangible book
value per share is determined by dividing the pro forma number of outstanding
shares of common stock, including the number of shares of common stock that will
be issued upon the automatic conversion of our Series A convertible preferred
stock upon completion of this offering into the net tangible book value of our
common stock, which is total tangible assets less total liabilities. Assuming
our sale of the shares of common stock offered by this prospectus at an
assumed initial public offering price of $ per share and after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us, the adjusted pro forma net tangible book value of our common stock as of
, 2000 would have been approximately $ million, or $ per
share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution of
$ per share to new investors purchasing shares in this offering. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................................... $
Pro forma net tangible book value per share as of , 2000................. $
Increase in pro forma net tangible book value per share attributable to new
investors.......................................................................
------
Adjusted pro forma net tangible book value per share after the offering..............
------
Dilution per share to new investors.................................................. $
======
</TABLE>
The following table summarizes the difference between the number of shares
of common stock purchased from us, the total consideration paid to us, and the
average price per share paid by existing stockholders and by new investors, at
an assumed initial public offering price of $ per share, before deduction of
underwriting discounts and commissions and estimated offering expenses payable
by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................ % $ % $
New investors........................ $
---------- ----- ----------- ----- -------
Total equity....................... 100% $ 100%
========== ===== =========== =====
</TABLE>
The number of shares of common stock to be outstanding after this offering
excludes:
o shares of common stock issuable upon the exercise of
outstanding stock options as of March 31, 2000 with an exercise
price of $ per share;
o shares of common stock issuable upon the exercise of
outstanding warrants; and
o shares of common stock reserved as of March 31, 2000 for
issuance under our 2000 Omnibus stock option plan.
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<PAGE>
SELECTED FINANCIAL DATA
Shown below are selected financial data for the period from February 12,
1999, the date of our inception, to December 31, 1999, for the period from
February 12, 1999 to March 31, 1999 and for the three months ended March 31,
2000, which have been derived from our financial statements appearing elsewhere
in this prospectus. Deloitte & Touche LLP, independent auditors, have audited
the financial statements for the period from February 12, 1999 to December 31,
1999. The financial statements for the period from February 12, 1999 to
March 31, 1999 and the three-month period ended March 31, 2000 have been derived
from our unaudited financial statements. These unaudited financial statements
have been prepared on substantially the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments that we consider necessary for a fair presentation of financial
position and results of operations for the periods. The results of operations
for the three months ended March 31, 2000 are not necessarily indicative of
results to be expected for any future period. The information shown below is
qualified by reference to and should be read together with the financial
statements and their notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
FEBRUARY 12, 1999 FEBRUARY 12, 1999 THREE MONTHS
(INCEPTION) TO (INCEPTION) TO ENDED
DECEMBER 31, 1999 MARCH 31, 1999 MARCH 31, 2000
----------------- ----------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................................................ $ 6,720 $ 186 $ 5,300
------- ----- --------
Operating expenses
Cost of travel.................................................... 5,711 152 4,577
Credit card, fulfillment and shipping costs....................... 515 19 361
Selling, general and administrative expenses (excluding non-cash
stock-based compensation)....................................... 2,114 196 1,577
Non-cash stock-based compensation................................. 712 153 --
Depreciation and amortization..................................... 40 2 114
------- ----- --------
Total operating expenses........................................ 9,092 522 6,629
------- ----- --------
Loss from operations................................................ (2,372) (336) (1,329)
------- ----- --------
Interest income..................................................... 5 -- 11
------- ----- --------
Net loss............................................................ $(2,367) $(336) $ (1,318)
======= ===== ========
Preferred stock dividends........................................... -- -- 14
------- ----- --------
Net loss available to common stockholders(1)........................ $(2,367) $(336) $ (1,332)
======= ===== ========
Basic net loss per share(1).........................................
Weighted average number of shares of shares of common stock
outstanding(1)....................................................
Pro forma basic net loss per share(2)...............................
Pro forma weighted average number of shares of common stock
outstanding(2)....................................................
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 1,313 $ 10,841
Working capital................................................................. (466) 8,597
Total assets.................................................................... 2,070 13,577
Total stockholders' equity (deficit)............................................ (255) 9,044
</TABLE>
------------------
(1) We calculate basic net loss per share by dividing the net loss available to
common stockholders by the weighted average number of shares of common stock
outstanding. We do not include outstanding common stock options, warrants
or Series A convertible preferred stock in the basic net loss per common
share calculation, as their effect is anti-dilutive.
(2) Pro forma basic net loss per share has been calculated assuming the
conversion of all previously outstanding Series A convertible preferred
stock into common stock, as if the shares had converted immediately upon
their issuance. See Note 2 to the financial statements for an explanation of
the determination of the number of shares used in computing pro forma basic
net loss per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of our company should be read in conjunction with the "Selected
Financial Data" and the accompanying financial statements and the notes to those
statements appearing elsewhere in this prospectus. The following discussion
contains forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those discussed in
these forward-looking statements. Factors that could cause or contribute to such
differences include but are not limited to, those discussed below and elsewhere
in this prospectus, particularly under the caption "Risk Factors."
OVERVIEW
We are a leading online marketer and distributor of travel products and
services using a no-reserve auction process. Our Web site, www.skyauction.com,
launched in February 1999, allows our customers to bid on auctions for airline
tickets, hotel and resort accommodations, tour services and comprehensive travel
packages.
All of our auctions begin with a minimum bid of $1, and a bidder must be a
registered user to participate in the auction. We had approximately 76,000
registered users at December 31, 1999 and approximately 120,000 at March 31,
2000. From February 1999 through December 31, 1999, we hosted approximately
15,000 auctions for items such as airline tickets, hotel and resort
accommodations, tour services and comprehensive travel packages. We hosted
approximately 13,600 auctions in the three months ended March 31, 2000. We had
an average of 50 auctions ending each day in 1999 and an average of 150 each day
in the three months ended March 31, 2000. Each auction typically lasts from two
days to one week, which enables us to offer a changing inventory mix on a daily
basis.
Substantially all of our revenue is derived from successfully completed
auctions of airline tickets, hotel and resort accommodations, tour services and
comprehensive travel packages. We recognize revenue after all of the following
have occurred: a bidder wins and confirms an auction, we place orders with
ticket agents or third-party suppliers, we notify the winning bidder that the
auction has been fulfilled, and we believe collection is reasonably assured.
Revenues include service, shipping and handling charges and cancellation fees.
We establish a reserve for estimated cancellations at the time revenues are
recorded. Since bidding on all of our auctions begins with a minimum bid of $1,
we bear the risk of loss on most of our auctions.
With the exception of one agreement, under which we purchase resort
condominium rooms, we do not typically pay for airline tickets or hotel or
resort accommodation costs in advance. Therefore, we maintain a low inventory
at-risk position. We pay no commissions since we are not an agent of any
airline, hotel or resort supplier. Our arrangements with our suppliers are
typically short-term in nature and can be terminated by either party at any time
upon short notice.
Cost of travel represents our cost for airline tickets, hotel and resort
accommodations and tour packages based upon our individual supplier pricing
arrangements with airlines, hotel and resort companies, tour providers and other
travel consolidators or distributors. Amounts charged to us by ticketing agents
for issuing airline tickets are included in credit card, fulfillment and
shipping costs. Our selling, general and administrative expenses represent our
operating and overhead expenses including such categories as advertising,
personnel-related, technology and professional fees.
RESULTS OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1999
During the period from inception through December 31, 1999, we incurred a
net loss of $2.4 million, resulting primarily from our start-up activities,
including making initial investments in personnel, marketing and promotion and
technology.
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<PAGE>
Revenues. Revenues from inception to December 31, 1999 were $6.7 million.
During this period, we experienced revenue growth each month as a result of the
increase in the number of items listed for auction on our Web site and in the
number of registered users bidding on auctions that were confirmed and ticketed.
Cost of Travel. Cost of travel for the period ended December 31, 1999 was
$5.7 million and represents our actual cost for airline tickets, hotel and
resort accommodations, tour packages and other tour components.
Credit Card, Fulfillment and Shipping Costs. Credit card, fulfillment and
shipping costs for the period ended December 31, 1999 were $515,000. We pay fees
to credit card processing companies on all transactions. Magical Holidays, Inc.,
a company owned by Mr. Hering, our President and Chief Executive Officer,
charged us $254,000 in fulfillment fees in connection with the issuance of more
than 10,000 airline tickets sold to our customers. Magical Holidays acted as our
primary ticketing agent in the period ended December 31, 1999 and provided
services to us at fair market value. Shipping costs consist principally of
amounts paid for the delivery of tickets to our customers.
Selling, General and Administrative Expenses (excluding non-cash
stock-based compensation). Selling, general and administrative expenses,
excluding non-cash stock-based compensation for the period ended December 31,
1999 were $2.1 million. During this period we engaged in start-up activities,
and our expenses primarily consisted of $870,000 of personnel-related costs,
$520,000 of advertising and public relations expense, $390,000 of software and
technology-related costs and additional amounts related to professional fees and
other operating expenses. Included in the above selling, general and
administrative expenses are $700,000 of expenses charged by Magical Holidays
related to office space which we occupy, charges for reception and clerical
services, salary expense for some of our employees which Magical Holidays paid
on our behalf, and charges for shared phone and computer systems.
Non-Cash Stock-Based Compensation. We recognized $712,000 of non-cash
stock-based compensation expense for the period ended December 31, 1999, all of
which related to services provided to us in 1999. Of this amount, $100,000
related to stock options granted in exchange for consulting and financial
advisory services performed in 1999, $373,000 related to options granted by
Mr. Hering, our President and Chief Executive Officer, for the purchase of
shares of common stock owned by him, to suppliers of services provided to us,
and $239,000 related to stock options granted in exchange for services performed
by certain employees of Magical Holidays.
Depreciation and Amortization. Depreciation and amortization for the
period ended December 31, 1999 was $40,000 and primarily related to the
amortization of capitalized software, including our online fulfillment software.
We expect to replace our software in the fourth quarter of 2000, and our
software is being amortized over a period commensurate with its useful life.
THREE MONTHS ENDED MARCH 31, 2000
Because we only had 47 days of operations during the first quarter of 1999
and 91 days in the first quarter of 2000, any comparison with prior periods is
not meaningful. During the three months ended March 31, 2000, we incurred a net
loss of $1.3 million as we continued to expand personnel, marketing and
promotional campaigns and investments in technology.
Revenues. Revenues for the three months ended March 31, 2000 were
$5.3 million and continued to increase each month since our inception. We hosted
13,600 auctions during the three months ended March 31, 2000, and the number of
our registered users grew from 76,000 at December 31, 1999 to 120,000 at March
31, 2000.
Cost of Travel. Cost of travel for the three months ended March 31, 2000
was $4.6 million. The relationship between cost of travel and revenue will be
subject to some variation from quarter to quarter as the proportion of air,
hotel and resort, and travel package products that we sell in the respective
period changes.
Credit Card, Fulfillment and Shipping Costs. Credit card, fulfillment and
shipping costs for the three months ended March 31, 2000 were $361,000. We pay
fees to credit card processing companies on all
22
<PAGE>
transactions. Magical Holidays charged us $201,000 in fulfillment fees in
connection with the issuance of approximately 8,000 airline tickets sold to our
customers. Magical Holidays acted as our primary ticketing agent during this
period and provided these services to us at fair market value. Shipping costs
consist principally of amounts paid for the delivery of tickets to our
customers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1.6 million for the three months ended March 31,
2000. These expenses primarily consisted of $690,000 of personnel-related costs
and $530,000 of advertising and public relations expense. The remaining expenses
for this period related to professional fees and other recurring operating
expenses.
Depreciation and Amortization. Depreciation and amortization for the three
months ended March 31, 2000 was $114,000 and primarily related to the
amortization of capitalized software, including our online fulfillment software.
We expect to replace this software in the fourth quarter of 2000, and our
software is being amortized over a period commensurate with its useful life.
PERIOD FROM FEBRUARY 12, 1999 THROUGH MARCH 31, 1999
During this period we primarily engaged in start-up activities and the
launch of our Web site. We generated $186,000 of revenue during this period and
incurred a net loss of $336,000.
SEASONALITY
Our limited operating history and rapid growth make it difficult to assess
the impact of seasonality on the results of our operations. Nevertheless, we
expect our business to be subject to the seasonal characteristics of the travel
industry where demand for leisure travel increases for summer vacations and
holidays. Additionally, we may be impacted by seasonal fluctuations in inventory
available from suppliers. As demand increases over holiday periods, especially
in the fourth quarter, for full-fare airline tickets, less excess inventory may
be available to us or certain fares or routes may be blacked out or otherwise
unavailable. Furthermore, during holiday periods, we may experience a lower
level of bidding on our auctions because many customers are away from readily
available Internet access.
LIQUIDITY AND CAPITAL RESOURCES
Initial financing for our company was provided by Mr. Hering, our
President, Chief Executive Officer and principal stockholder. In December 1999,
we received a capital contribution of $1.4 million from a private investor for
which we issued preferred equity securities in connection with the private
placement of our Series A convertible preferred stock. Our Series A convertible
preferred stock is convertible into common stock on a one-for-one basis at any
time by the shareholder and will automatically convert into shares of common
stock upon the consummation of an initial public offering with aggregate cash
proceeds to us of at least $50 million. We received approximately $19.2 million
in gross proceeds from our sale of Series A convertible preferred stock, of
which approximately $12.8 million was received prior to March 31, 2000.
Net cash provided by operating activities was $151,000 for the period ended
December 31, 1999, and net cash used in operating activities was $1.4 million
for the three months ended March 31, 2000. Net cash provided by or used in
operating activities resulted primarily from net loss before non-cash charges
and changes in working capital.
Net cash used in investing activities was $238,000 for the period ended
December 31, 1999 consisting principally of $202,000 of capitalized software
costs relating to our proprietary online fulfillment system and purchased
auction software and $36,000 of capital expenditures for computer equipment,
furniture and fixtures. Net cash used in investing activities was $306,000 for
the three months ended March 31, 2000 and consisted of $239,000 of capitalized
software costs relating to our proprietary online fulfillment system and $67,000
of capital expenditures for computer equipment, furniture and fixtures.
Net cash provided by financing activities for the period ended December 31,
1999 consisted of $1.4 million, which represents a capital contribution by a
private investor for which shares of Series A convertible preferred stock were
issued in connection with our Series A convertible preferred stock private
placement in March and April 2000. Net cash provided by financing activities for
the three months ended
23
<PAGE>
March 31, 2000 was $11.3 million representing the net proceeds from the Series A
convertible preferred stock private placement.
We had no material commitments for capital expenditures as of March 31,
2000, but we expect to incur approximately $4.0 million throughout the remainder
of 2000 primarily for technology upgrades, with additional amounts allocated for
leasehold improvements and furniture and fixtures. As of March 31, 2000, we had
commitments to purchase approximately $545,000 of resort accommodations from one
of our vendors.
We expect to experience growth in our working capital needs for the
foreseeable future in order to execute our business plan. We anticipate that
operating activities, as well as planned capital expenditures, will constitute a
material use of our cash resources.
We had $10.8 million of cash and cash equivalents available as of March 31,
2000, which, along with the $5.8 million of net proceeds received in the second
quarter relating to the Series A convertible preferred stock private placement,
served as our principal source of liquidity. We believe that the net proceeds
from this offering, together with our current cash and cash equivalents, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 18 months. If we require further capital
resources in excess of the net proceeds of this offering to grow our business,
execute our business plan or acquire strategic businesses at any time in the
future, we may seek to sell additional equity or debt securities, which may
result in additional dilution to our stockholders. If additional funding is
required, we cannot be certain that it will be available on acceptable terms, or
at all.
MARKET-RELATED RISKS
We do not hold any derivative financial instruments, and we have no debt
outstanding. Accordingly, we have not been exposed to effects of changes in
interest rates or other market prices. We do not have significant foreign
sourced income and therefore changes in exchange rates do not have a direct
impact on our financial position.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133, as
amended by SFAS No. 137, is effective for fiscal years beginning after June 15,
2000. Generally, it requires that an entity recognize all derivatives as either
an asset or a liability and measure those instruments at fair value, as well as
identify the conditions for which a derivative may be specifically designed as a
hedge. We have not participated in any derivative instruments or hedging
activities, and therefore believe that there will be no financial statement
impact.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which summarizes certain areas of the Commission's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. We believe that our current revenue recognition policies
comply with SAB No. 101.
24
<PAGE>
BUSINESS
OVERVIEW
We are a leading online marketer and distributor of travel products and
services using a no-reserve auction format. We offer excess travel inventory
from leading airlines, hotels, resorts and tour operators. Our customers bid on
a wide variety of quality products and services, such as airline tickets on
scheduled flights, hotel and resort accommodations, tour services and
comprehensive travel packages, on a competitive basis, which enables them to
acquire these products and services at attractive prices. We are exclusively
focused on travel and leisure, and our strategic objective is to become the
leading Internet travel auction site offering a global marketplace for excess
travel inventory.
We believe that we have created a compelling purchasing experience for our
customers. In addition to good value on travel products and services, our Web
site, www.skyauction.com, offers our customers the following benefits:
o a broad selection of products and services, with flexibility on
dates of travel, brand choice of provider, or both;
o a no-reserve auction format through which customers make competitive
bids;
o our travel packaging capabilities, which allow us to create a wider
variety of product offerings;
o eligibility to participate in most frequent travel membership
programs and customer loyalty programs; and
o a customer-service oriented, easy-to-use Web site which allows our
customers to view all current bids in real time.
In addition to the benefits we offer our customers, we believe that our Web
site provides travel industry suppliers with a unique sales channel that can
efficiently sell their excess capacity in a manner which does not undermine
their current pricing policies or distribution channels or the integrity of
their brands. We believe that we generate incremental revenues for our suppliers
from their inventory that may have otherwise gone unsold.
We believe we are the only significant e-commerce company that conducts
no-reserve auctions of travel products and services. Since launching our Web
site in February 1999, we have experienced significant growth in traffic and the
amount of travel products and services purchased through our site. Since our
inception and through March 31, 2000, over 120,000 users had registered on our
Web site, and we had hosted over 28,000 auctions.
INDUSTRY BACKGROUND
Travel Industry Size, Growth and Sales Structure
The travel and tourism industry represents one of the largest consumer
markets in the United States. The Travel Industry Association of America, or
TIAA, estimates that in 1999, travel-related expenditures within the United
States totaled $519 billion.
The travel industry suffers from expiring inventories, which means that an
airline seat or hotel room that remains unsold past the date of its availability
will not generate any revenue for the supplier. Due to this perishable nature of
airline and hotel inventory, suppliers face increasing pressure to sell
merchandise before the last date on which it could be used. Suppliers are
typically able to predict the availability of their excess inventory in advance
of expiration based on various historical load factors of airline seats and
occupancy rates of hotel rooms. According to a study by the Air Transport
Association, in 1999 the airline travel industry generated approximately
$84.2 billion in sales. It is also estimated that the airline industry's load
factor for that year was 71.0%. These figures represent approximately
$34.4 billion of unsold airline seats. According to a study by Smith Travel
Research, an independent market research firm, U.S. hotel room sales in 1999
totaled approximately $72.3 billion, while the hotel occupancy rate in the
United States was 63.2%, generating approximately $42.1 billion worth of unsold
hotel rooms.
25
<PAGE>
The distribution channels for travel are highly fragmented. Travel service
suppliers, such as airlines, hotels and rental car companies, sell travel
services directly to consumers and indirectly through retail travel agencies and
travel wholesalers. According to a study published by PhoCusWright Information
Services, an independent market research firm, sales of travel services directly
from airline, hotel and car rental suppliers were $90.6 billion in 1999, while
travel agency sales were $139 billion. Most of these transactions are conducted
by traditional pricing methods, in which suppliers market products to customers
under published brand names at fixed prices.
Traditional distribution channels of travel products and services have
constraints and inefficiencies that limit their ability to become an efficient
channel through which suppliers of travel products can sell their excess
inventory:
o Travel service suppliers selling their services directly to
customers generally offer only their own services at a retail or
published rate.
o Whether selling directly to customers or indirectly through retail
travel agencies, suppliers risk disruption of their existing
distribution channels and damage to their brand integrity and
pricing structures by selling their inventory at discounted or
promotional prices.
o Travel wholesalers generally rely on retail travel agencies to sell
their products and services and lack the infrastructure and
expertise to interact directly with customers. In addition, travel
wholesalers must publish and disseminate rate and availability data
to their travel agency networks in advance, which restricts
wholesalers' ability to adjust prices in response to distressed
inventory. Despite potential advantages for travel wholesalers of
selling directly to customers, they are generally reluctant to
develop this channel because doing so could jeopardize their
relationships with their existing retail distribution networks that
generate most of their sales.
Growth of Online Travel Services
The traditional travel industry is one in which the customer is faced with
numerous choices of schedules, prices and reservation availability. This market
complexity makes the Internet a particularly well-suited medium for the customer
to conduct research, make informed buying decisions and enjoy a quick,
convenient means to make travel plans. For suppliers, the Internet is an
efficient distribution channel to reach more travelers and which permits
dynamic, real time updating of pricing and availability and targeted marketing
of last-minute "specials" to maximize occupancy and revenues.
As customers have embraced the Internet, travel has become the largest
online retail category, with online travel sales reaching almost $7.8 billion in
1999, more than double the sales of $3.1 billion in 1998, according to Forrester
Research Inc., an independent market research company. Online travel sales
currently surpass the volume of online sales of software, books, music, apparel,
games, toys, videos and sporting goods combined. Forrester projects that online
travel bookings will increase to approximately $30 billion in 2003, representing
a compound annual growth rate of 40.0%.
According to Forrester, nine million U.S. households, or 20.3% of current
Internet users, have used the Internet or an online service to make travel
reservations in 1999. The average annual income of households who use the
Internet to make travel reservations is $71,000. The average age of online
travel purchasers is 35 years, and the mean number of leisure trips per year
taken by online purchasers is 3.1 trips per year.
Online Auctions
Internet auctions have become increasingly popular with customers in recent
years. The Internet auction format offers customers easy access to a wide range
of products and services at attractive prices. Customers also benefit from the
convenience and enjoyable purchasing experience provided by the Internet auction
format. The auction format creates a distinctive environment that entertains
customers and establishes procedural rules to facilitate sales. The auction
format encourages a sense of competition and urgency among buyers to bid for
offerings, thus creating an entertaining and compelling experience. In addition,
customers benefit from the auction model because it provides them with a
well-organized marketplace to access high-quality items at prices which they
perceive to be good value.
26
<PAGE>
We believe that online auctions are particularly suitable for the sale of
travel products and services. Auctions provide an efficient channel for
suppliers of travel products and services to quickly dispose of perishable,
excess inventory while responding to customers' individual requirements and
preferences, such as price, timing, location and brand name.
OUR OPPORTUNITY
As the online travel market develops, we believe significant opportunities
exist for an Internet-based company that can:
o reduce the inefficiencies that exist in traditional distribution
channels of the travel industry by providing an alternative
distribution channel for excess inventory that does not undermine
suppliers' current pricing policies;
o establish and operate an online marketplace to efficiently sell
travel inventory that may have otherwise gone unsold;
o capitalize on the growth in online travel expenditures;
o create a recognized marketplace where customers consistently receive
good value on a wide range of travel products and services that are
of high quality and attractively priced; and
o establish a brand that has a reputation for reliability and customer
service that users trust.
OUR COMPETITIVE STRENGTHS
We have created an online marketplace that enables customers to purchase a
wide range of travel products and services from numerous suppliers. Registered
users bid and ultimately pay only the amount which they perceive to be a good
value for the product or service. Our Web site offers suppliers of travel
products and services an alternative distribution channel to generate
incremental demand and revenue while maintaining the integrity of their sales
channels, pricing structures and brands. With excess inventory that is
perishable, suppliers of travel products and services face increasing pressure
to sell merchandise as time passes. We effectively create targeted demand and
provide a distribution channel distinct from the supplier's traditional sales
channels.
We believe our competitive strengths include the following:
o Established relationships with leading travel industry
providers. Our two principal executives each brings to our business
over 20 years of experience in the travel industry. We have taken
advantage of the relationships that they have developed over that
period with leading travel industry suppliers. These relationships
have enabled us to offer travel products and services with over 30
domestic and international airlines, over 20 hotel and resort
companies, one time share company and six tour operators.
o Effective sales channel for our travel suppliers. We believe that
we provide our suppliers with an effective channel to distribute
their perishable, last-minute products and excess capacity caused by
seasonality, such as off-peak season, as well as other marketplace
factors, such as route-specific or geographical overcapacity. Our
no-reserve auction process provides travel suppliers with a unique
channel of distribution that is not perceived by customers as a
direct discount from the travel services supplier, thereby
protecting their traditional pricing structures, distribution
channels and brand names, while generating increased revenues to
them and incremental demand for their travel products.
o Wide variety of flexible travel products and services. We offer
seats in all classes on scheduled flights with established domestic
and international airlines, and accommodations at established hotels
and resorts in major cities and metropolitan areas as well as many
vacation destinations. Since our inception, our customers have
traveled to over 500 destinations. We typically provide our
customers with a wide variety of options and flexibility for their
reservations. Our customers
27
<PAGE>
can also participate in most of our suppliers' frequent travel
membership and other customer loyalty programs.
o No-reserve auction process. Our customers are not obligated to meet
a minimum bid requirement, or reserve, for any of our auctions. We
believe our no-reserve auction process helps attract users to our
site by creating a level of excitement and interest for customers
which cannot be matched by a reserve-driven auction process and
encourages dynamic bidding through competition with other users.
o Travel industry focus. We focus solely on providing travel products
and services, which we believe enables us to operate more
effectively in our market. We strive to create value for our
customers by offering a timely, interesting variety of products and
services. Our travel industry expertise has enabled us to design
unique travel packages that we believe create added value for our
customers. We position ourselves as a reliable marketplace for
nearly all travel needs.
o Low inventory at-risk position. We typically purchase products and
services only after they have been sold on our Web site.
o Easy-to-use Web site. We believe that our Web site is
well-organized and easy to use. We provide an automated bidding
function on our Web site which allows a bidder to set a maximum bid
and to have our Web site increase his bid by preset increments up to
the maximum bid amount set by the bidder. As a result, a bidder has
an opportunity to win an auction at the most economical price
possible without constant monitoring of the auction. At the same
time, we provide information throughout the auction process to
enhance the customer experience, such as the dollar amount of the
current winning bid, the amount of time to elapse before the auction
is closed, and an e-mail notification if a bidder's maximum bid has
been exceeded, allowing the bidder to then increase his maximum bid.
We provide descriptions for accommodations available on our Web site
and include photographs of properties when available. Because we
provide detailed information on specific products, the customer has
a clear understanding of the product for which he is bidding.
OUR GROWTH STRATEGY
Our objective is to establish our company as the leading Internet travel
auction site providing a global marketplace for excess travel inventory. The key
elements of our growth strategy are as follows:
o Enhance and expand our relationships with our travel suppliers. We
are actively working to enhance our relationships with our travel
suppliers in order to increase the number and quality of travel
products and services available to our customers. We intend to
leverage our success in marketing and distributing excess travel
inventory to establish relationships with new suppliers and to
obtain additional inventory from current suppliers. We believe that
by adding new suppliers we will be able to provide our customers
with a broader variety of travel products and services.
o Increase our travel packaging abilities. By packaging travel
products, we believe we create added value for our customers, a
wider variety of product offerings and more profitable products for
our business. Using our experience in the travel industry, we can
combine hotel and resort accommodations with airline transportation
to design unique travel packages which better meet customer demand
and improve our ability to sell our suppliers' excess inventory. We
plan to increase our ability to obtain and package travel products
and services by building on our experience and allocating additional
resources to enhance our packaging capabilities.
o Expand internationally. We believe that the scope of the Internet
and the demand for travel products and services is global in nature.
We intend to explore strategies for international expansion,
particularly in Latin America, Japan, China and Europe. In some of
these locations, we plan to create geographically specific auction
sites using local languages and currencies. We believe that joint
ventures, strategic alliances and acquisitions will present
opportunities for
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international expansion, as they will enable us to combine our
expertise in Internet auctioning with our partners' expertise in
their local markets.
o Develop additional revenue streams. We believe that there are
significant additional high-margin revenue opportunities available
to us, which we plan to capture in order to increase revenues and
gross margin. We believe we can offer additional travel products and
services to customers participating in our auctions. We plan to
offer travelers hotel rooms and car rental opportunities in
destinations where they have won airline ticket-only auctions, as
well as airline tickets to travelers who have won a land-only
auction. In addition, we plan to capitalize on other customer-based
revenue opportunities from the sale of ancillary travel services
such as travel insurance, books and maps, currency exchange
services, limousine services, local public transit tickets or
passes, theater, music event or cultural institution tickets and
restaurant reservations. As the size of our user base grows, we also
believe that advertising will represent a significant, profitable
revenue stream in the future.
o Further develop our technology. We plan to devote significant
resources to build our technology platform and to further integrate
our systems with our operations. We also plan to further improve
functionality for users of our Web site. We believe these
investments will enhance customer experience and stimulate sales. We
also believe that the further integration of our front-end and
back-office operations will enable us to reduce operating costs,
enhance customer service, improve our capabilities to manage our
inventory and increase our individually targeted marketing
capabilities.
o Strengthen the SkyAuction.com brand. We are focused on attracting
new registered users to our Web site and on generating repeat
purchases from our customers. We plan to invest in building our
marketing capabilities through traditional and online media, pursue
an aggressive brand development strategy through mass market and
targeted advertising, promotions and press coverage. We believe that
our customer service focus, reliability and strong word-of-mouth
support will be an important component in building our brand.
o Develop distribution and marketing relationships. We have already
established marketing relationships with online companies such as
Travelzoo and Smarter Living. We believe these marketing
arrangements help us to increase the consumer awareness of our Web
site at favorable costs. We plan to pursue additional marketing
relationships with hotel, travel and entertainment portals that have
customers who are likely to purchase travel products. In addition,
we plan to develop strategic relationships that will increase our
sales and brand awareness.
OUR PRODUCTS AND SERVICES
Our Web site www.skyauction.com allows our customers to access our wide
selection of travel products and services. Customers can view current ongoing
auctions based on our auction categories or search for ongoing auctions based on
a defined search criterion such as date of travel, destination, general
geographic location and class of travel. In addition, customers can view
completed auctions and research the price levels at which products have been
won. In order to place a bid on an ongoing auction, each customer must complete
a profile that includes required information such as name, street address,
e-mail address, telephone number and credit card information. Once a customer
has registered, he may begin bidding immediately and will be able to monitor
multiple auctions as well as use our automated bidding function.
All of our auctions begin with a minimum bid of $1. Through our automated
bidding function, a bidder may set a maximum bid and have our Web site increase
his bid by preset increments up to the maximum bid amount set by the bidder. As
a result, the bidder has an opportunity to win an auction at the most economical
price possible without constant monitoring of the auction. We also provide
information throughout the auction process to enhance customer enjoyment, such
as the dollar amount of the current winning bid, the amount of time to elapse
before the auction is closed, and an e-mail notification if a bidder's maximum
bid has been exceeded, allowing the bidder to then increase his maximum bid.
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Once an auction is completed, the winning bidder is notified by e-mail and
requested to submit preferred travel dates by e-mail. A customer service agent
will then work with our suppliers to confirm the requested itinerary, make the
reservation, notify the bidder, charge the customer's credit card and forward
the required information to the ticketing agent for the issuance of tickets. We
have the ability to select which supplier will be used to fulfill our auction
sales where a specific supplier was not identified in the auction. Our customers
rely on us to address date changes or cancellations.
Current Offerings
Airline tickets. We currently offer airline tickets on over 30 established
domestic and international airlines. We obtain seats on scheduled flights at a
cost that is below published fares. The seats we offer usually do not require
travel on a certain date, but rather allow for travel within a specified period
of time. In addition, our customers are eligible to participate in most airline
frequent flyer membership programs. Destinations we have served include:
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL
<S> <C> <C> <C>
Atlanta Los Angeles Amsterdam Lima
Boston Maui Athens London
Chicago Miami Bangkok Mexico City
Dallas New Orleans Berlin Paris
Denver New York Brussels Rio de Janeiro
Detroit Orlando Buenos Aires Rome
Fort Lauderdale San Diego Cancun Tel Aviv
Honolulu San Francisco Caracas Tokyo
Houston Tampa Frankfurt Vienna
Las Vegas Washington, DC Hong Kong Zurich
</TABLE>
Hotel and resort accommodations. Our hotel and resort offerings cover a
broad range of properties and market segments from budget through luxury
accommodations. We typically offer accommodations for a week or for a weekend
stay with an option to extend for a full week for an additional payment. The
accommodations are offered both for specific dates as well as within a defined
period of time. We currently offer accommodations in most major cities and
metropolitan areas, as well as many vacation destinations, including four- and
five-star hotels and resorts. We provide descriptions of the accommodations
available on our Web site and include photographs of properties when available.
Our management expertise in the travel industry and knowledge of local markets
allow us to furnish our customers with appealing accommodations to satisfy their
particular preferences and budgets. Our customers have purchased accommodations
in many destinations including the following:
<TABLE>
<S> <C> <C> <C>
Acapulco Cancun Margarita Island Rio de Janeiro
Antigua Dominican Republic Maui Rome
Aruba Honolulu Orlando St. Croix
Bahamas Ixtapa Paris St. Martin
Bermuda Jamaica Puerto Vallarta St. Thomas
Cabo San Lucas London
</TABLE>
Customized travel products and packages. Using our travel industry
expertise, we are able to combine inventory that is made available to us to
create travel packages that include both air travel and hotel or resort
accommodations. Additionally, we may offer packages that we purchase from
established tour providers. Travel packages range from a weekend stay to a
10-day tour and are offered both for specific dates as well as within a
specified period of time. We have offered sun packages, ski packages, European
packages and specialty tours throughout the world. Some of these specialty tour
products and packages that we have offered include an African safari, a tour of
Egypt including a Nile River cruise, and a tour of Rio de Janeiro and Buenos
Aires.
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SUPPLIER RELATIONSHIPS
We believe that we have built strong relationships with established
suppliers of travel products and services due to our success in marketing and
distributing excess travel inventory for our suppliers without compromising
their brands or undermining their standard pricing. As a result, we believe that
we will be able to continue to enhance relationships with our existing suppliers
and establish relationships with new suppliers.
Airlines. We currently offer tickets on over 30 airlines the we obtain
through our supply arrangements. The majority of these basic arrangements are
typically adjusted for seasonality. These arrangements are supplemented by
additional arrangements for specific inventory which provide further discounts
for specific flights or seasons. These supplier arrangements are typically
renewed annually and can be terminated by either party at any time or upon short
notice. Since we are not a licensed ticketing agent, we rely on certain
third-party ticketing agents, primarily Magical Holidays, to issue our tickets
and to obtain the specific pricing set forth in our airline arrangements. Our
airline supplier relationships include Continental Airlines, Japan Airlines,
KLM, Lufthansa, Northwest Airlines, TWA and Virgin Atlantic Airlines.
Hotels, resorts and timeshares. We have entered into arrangements with
over 20 hotel and resort companies, individual hotels or hotel groups and a
timeshare company. Through these suppliers, we have access to over 10,000
properties, representing over 700,000 rooms, ranging from budget to luxury
accommodations at four- and five-star resorts or resort condominiums, at
locations throughout the United States and North America, the Caribbean, Latin
America and Europe, as well as other international locations. This wide variety
of properties, available to us from suppliers ranging from Best Western and
Choice Hotels to Oasis Hotels, Superclubs and Allegro Resorts, as well as
numerous luxury resort condominium properties, allows us to offer our customers
appealing accommodations to satisfy their particular preferences and budgets.
We generally obtain hotel and resort accommodations based on rates that are
adjusted for seasonality, on either a per-person or per-room basis. In addition,
we obtain further discounts on excess accommodations in specific locations or
during certain seasons.
In 1999 and the first quarter of 2000, we entered into agreements with RCI,
the world's largest timeshare exchange, through which we committed to purchase
an aggregate of 12,400 weeks of resort condominium accommodations through 2001.
Under these agreements, we may select the properties and locations of the
inventory we purchase.
Tour operators. We work with selected high-quality package tour operators.
Our agreements with tour operators are typically based upon rates specific to
the tour or season offered. We currently have agreements with six tour
operators, including GoGo Tours, Island Resort Tours, Marhaba Tours, Rhino
Safaris and Travel Impressions.
MARKETING AND BRAND AWARENESS
We intend to pursue an aggressive marketing strategy designed to promote
brand awareness and the concept that customers can purchase a wide range of
travel products and services through us at good values. We plan to utilize a
combination of Web-based advertising, targeted e-mail, broadcast media, print
campaigns, billboards and other media placements to further our marketing and
branding strategy.
Throughout the first and second quarters of 2000, we continued to increase
our marketing efforts to target the online travel customer through Web-based
advertising. In the second quarter of 2000, we launched a marketing campaign
which has been predominantly focused on New York City with radio and newspaper
advertising campaigns. We have also begun mass distribution of promotional
merchandise as a means to increase brand awareness and build our base of
registered users. We plan to expand our marketing campaign to Boston, Chicago,
Houston, Los Angeles and San Francisco in the third and fourth quarters of 2000.
We supplement our paid advertising and promotion with targeted media
coverage. We have been featured in publications such as The New York Times, The
Wall Street Journal, The Washington Post, Bloomberg News and Arthur Frommer's
Budget Travel. In addition, our executives have been invited to make television
appearances to discuss our business and the travel industry, or our service has
been featured, on
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segments for CNBC, CNN, MSNBC, CNNfn and the nationally syndicated television
show Live with Regis and Kathie Lee, and others.
OPERATIONS AND TECHNOLOGY
A key element of our strategy is to capitalize on our technology
investments and to continue to upgrade our technology platform. We have
developed an operating platform based on available hardware and software as well
as proprietary enhancements which increase the efficiency of our back-office
fulfillment processes. We have committed to make additional investments to
provide redundancy and to increase capacity.
We employ Internet auction technology for the presentation and distribution
of our current range of products, coupled with specialized proprietary back
office software technology to interact with winners and complete all travel
transactions. Our technology investments are primarily focused on increasing our
capacity to conduct auctions, increasing our efficiency in handling auction
winners and integrating back-office and financial systems.
We have formulated and begun implementing a software development solution
to the labor-intensive process of converting closed auctions into confirmed
reservations and documents. This application is being phased into our operation
in three stages beginning with information gathering and collection, and
advancing to include pro-active booking of travel reservations. This software is
expected to work in conjunction with our front office auction software to help
us efficiently compile and complete reservations, bookings and ticketing on all
winning bids. We believe that this enhanced technology platform will allow us to
increase the quanity of products and services offered as our labor requirements
decrease. In addition, we anticipate that this enhanced technology platform will
allow us to make significant productivity gains, since this technology will be
interactive with airline reservation systems and will take the process from
invoicing all the way through passenger confirmation of airlines seats to an
automated interactive basis.
We have retained an Internet software development company with expertise in
auction software to develop our advanced reservation software. We anticipate
that this new software will be introduced during the fourth quarter of 2000. In
conjunction with the implementation of this new software, we plan to engage a
new Internet service provider in order to expand and enhance our Web site
capacity, functionality and reliability.
By leveraging and increasing our investment in technology, we expect to be
able to increase the efficiency of our reservation agents and service staff.
Similarly, continued investment in technology will enable us to:
o respond more rapidly and effectively to customer service inquiries;
o more effectively measure and manage the profitability of individual
auctions;
o facilitate cross-marketing opportunities and the transfer of
knowledge across travel service segments;
o build a centralized database of information on travelers that can be
utilized for highly targeted marketing campaigns; and
o achieve operating leverage to support our growth.
INTELLECTUAL PROPERTY
We currently hold two U.S. trademarks and have three pending U.S. trademark
applications. We have no patents or pending patent applications.
We seek to protect our copyrights, service marks, trademarks and other
intellectual property through a combination of laws and contractual
restrictions, such as confidentiality agreements. For example, we register our
trademarks and service marks in the United States. However, effective trademark,
service mark, copyright and other intellectual property protection may not be
available in every country in which our services are made available online.
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We currently own the Internet domain name skyauction.com. Domain names
ending in ".com" are regulated by the Internet Corporation for Assigned Numbers
and Names, or ICANN. Top level domains in other countries may be regulated by
other regulatory bodies. The relationship between regulations governing domain
names and laws protecting trademarks and similar proprietary rights is unclear.
Therefore, we may be unable to prevent third parties from acquiring domain names
that infringe or otherwise decrease the value of our trademarks and other
proprietary rights.
COMPETITION
We compete with both online and traditional sellers of the products and
services offered by our Web site. The market for selling products and services
over the Internet is new, rapidly evolving and intensely competitive. Current
and new competitors can launch new sites at a relatively low cost. In addition,
the traditional retail industry for the products and services we offer is
intensely competitive.
We currently or potentially compete with a variety of companies with
respect to each product or service we offer. Our competitors include:
o providers of online travel products and services in an auction
format, such as Bid4Travel.com, Bid4Vacations.com,
Vacations4Auction.com, eBay, Egghead, and Priceline.com;
o online travel agencies, such as Microsoft's Expedia and Sabre's
Travelocity;
o consolidators and wholesalers of airline tickets and other travel
products, including online consolidators such as Cheaptickets.com;
o individual airlines, hotels and other travel service providers; and
o traditional travel service providers, including travel agencies.
While we may face competition from all of these current or potential
competitors, our business and financial position would be particularly harmed if
the airlines chose to establish their own buyer-driven commerce system to sell
excess inventory. For example, five major U.S. airlines, United, American,
Delta, Northwest and Continental, have announced plans to launch a Web site at
www.orbitz.com which will offer airfare, hotel and rental car options from
various companies. According to Orbitz, the Web site will seek to provide the
lowest publicly available rates and fares, including last-minute fares, from the
Web sites of over 30 airlines. In addition, six U.S. airlines along with Texas
Pacific Group, a private investment firm, are cooperating to establish a Web
site called Hotwire for sales of excess airline inventory. If airlines and other
travel suppliers choose to distribute all or substantial quantities of their
products and services through Orbitz, Hotwire or other alternative channels, we
may be unable to maintain or expand our supplier relationships or selection of
products and services.
We potentially face competition from a number of large Internet companies
and services that have expertise in developing online commerce and in
facilitating Internet traffic, including Amazon.com, America Online, Microsoft,
Yahoo!, Ariba and Commerce One, each of which could choose to compete with us
either directly or indirectly through affiliations with other e-commerce
companies. Other large companies with strong brand recognition, technical
expertise and experience in Internet commerce could also seek to compete with
us.
GOVERNMENTAL REGULATION
The products and services offered through our service are regulated by
federal and state governments.
Travel Services
Certain segments of the travel industry are heavily regulated by the United
States and international governments. In addition, numerous states have laws and
regulations governing the practices of travel sellers, promoters and
consultants. We do not believe that such regulations, which were adopted prior
to the widespread use of the Internet, are applicable to the operations of our
business, nor are we aware of any claims that may have been filed by any state
implying that our business is subject to such legislation. There
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can be no assurance, however, that a state will not attempt to impose these
regulations upon our company in the future or that such imposition will not have
a material adverse effect on our company's business, results of operations and
financial condition.
The International Air Transport Association, or IATA, imposes rules and
regulations regarding air travel and the issuance of airline tickets on its
members. IATA is a voluntary organization primarily concerned with
international, scheduled air transport. Most of the world's major airlines are
members. IATA operates an accredited travel agent program for those agents
selling scheduled air transport services. Although there is no legal requirement
for a company selling airline tickets to be a member of IATA, it is unlikely
that any airline would allow a non-IATA member to sell its tickets. We are not a
member of IATA; however, our ticketing agents are IATA members. Since our
ticketing agents currently carry out the actual fulfillment of airline ticketing
for our customers, we are able to rely on their memberships.
Business Qualification Laws
Because our service is available over the Internet in multiple states, and
because we sell to numerous consumers resident in such states, these
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each such state. We are qualified to do business in a
limited number of states, and failure by us to qualify as a foreign corporation
in a jurisdiction where we are required to do so could subject us to taxes and
penalties for the failure to so qualify and limit our ability to conduct
litigation in such states.
Potential Federal Air Transportation Tax Liability
A federal air transportation tax is imposed upon the amount paid for
airline tickets and generally is collected by the airlines selling the tickets.
The tax is based upon a percentage of the cost of transportation, which was 9%
for periods prior to October 1, 1998, 8% from October 2, 1998 until October 1,
1999 and 7.5% thereafter. Because of the unique pricing structures employed in
our service, such as the amount paid by the customer for a ticket being
different than the amount charged by the airline for the same ticket with the
excess payment, if any, going to us as a fee for the use of our proprietary
business method, it is not clear how this federal tax should be calculated when
sales occur using our service. We have been calculating this tax based on the
price charged by the airline for a ticket, rather than the price paid by the
customer. Potentially, the current law could be interpreted to require
computation of the tax based on the price paid by the customer to us.
Any ruling by the Internal Revenue Service may be unfavorable to us and may
require us to collect the federal air transportation tax on the total amount
paid by consumers for air travel. If the Internal Revenue Service issues an
unfavorable ruling that is upheld by the courts, we could owe additional taxes,
a potential liability for which we have estimated and accrued. We expect that
this amount could increase significantly as our business grows, and we may be
subject to penalties and interest on any amount owed.
State Taxes
We file tax returns in such states as required by law based on principles
applicable to traditional businesses. We do not collect sales or other similar
taxes in respect of transactions conducted through our service other than the
federal air transportation tax referred to above. However, many states impose
sales tax collection obligations on hotel services and overnight stays which are
components of services we offer, although such taxes typically are collected
from the hotel guest at the time of the overnight stay. In addition, one or more
states could seek to impose additional income tax obligations or sales tax
collection obligations on out-of-state companies such as ours which engage in or
facilitate online commerce. A number of proposals have been made at state and
local levels that could impose such taxes on the sale of products and services
through the Internet or the income derived from these sales. These proposals, if
adopted, could substantially impair the growth of online commerce and adversely
affect our opportunity to become profitable.
Legislation limiting the ability of the states to impose taxes on
Internet-based transactions recently has been enacted by the United States
Congress. This legislation, known as the Internet Tax Freedom Act, exempts
electronic commerce, including Internet access, through October 21, 2001 from
state and local taxes
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where these taxes are discriminatory. Failure to renew this legislation would
allow imposition of state and local taxes on Internet-based commerce.
LEGAL PROCEEDINGS
We currently are not a party to any litigation that we believe could have a
material adverse effect on us or our business.
EMPLOYEES
As of May 31, 2000, we had 50 full-time employees and 15 part-time
employees. Under a services agreement with Magical Holidays, Inc., which is
owned by Mr. Hering, our President and Chief Executive Officer, Magical Holidays
provides us with ticketing fulfillment services, transaction review services and
administrative services, including reception, clerical and other shared office
services. We have never had a work stoppage, and our employees are not
represented by any collective bargaining unit. We consider our relations with
our employees to be good.
FACILITIES
Our executive, administrative and operating offices are located in
approximately 4,500 square feet of leased office space located in New York City.
In addition, we currently occupy space leased by Magical Holidays in the same
building, for which we pay Magical Holidays rent as specified by the lease on a
pro rata basis. We anticipate that we will require additional office space in
the next year.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information regarding our directors and
executive officers as of the date of this prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------ --- -------------------------------------------------
<S> <C> <C>
Michael N. Hering................... 47 President, Chief Executive Officer and Director
Salvatore P. Esposito, Jr........... 41 Executive Vice President, Chief Operating Officer
and Director
Mark Hirschhorn..................... 36 Vice President, Finance and Chief Financial
Officer
Don Freno........................... 30 Executive Vice President, Operations
Gerald L. Rydberg................... 62 Chief Technology Officer
Leonard Schutzman................... 54 Non-Executive Chairman of the board of directors
Derek R. Reisfield (1).............. 37 Vice Chairman of the board of
directors
Thomas G. Baxter (2)................ 53 Director
Ciara A. Burnham (2)................ 33 Director
Merlin E. Dewing (2)................ 65 Director
Varel D. Freeman (1)(2)............. 51 Director
Michael H. Jordan (1)............... 64 Director
Brent M. Longnecker (1)............. 44 Director
</TABLE>
------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Michael N. Hering is a founder of our company and has served as President,
Chief Executive Officer and director since February 1999. Mr. Hering served as
the Chairman of our board of directors from February 1999 until November 1999.
From March 1981 to March 2000, he was also Chairman, President and Chief
Executive Officer of Magical Holidays, Inc., a travel wholesaler.
Salvatore P. Esposito, Jr. is a founder of our company and has served as
our Executive Vice President, Chief Operating Officer and director since January
2000. From November 1993 to December 1999, Mr. Esposito served as Vice President
of Magical Holidays. From 1984 to 1993, he held various executive sales
positions with major international and domestic carriers, including Eastern
Airlines, British Airways, Pan American Airways and Sabena Airlines.
Mark Hirschhorn has served as our Vice President and Chief Financial
Officer since July 2000. From April 1999 through July 2000, Mr. Hirschhorn
served as the Vice President and Chief Financial Officer of deltathree.com, an
affiliate of RSL Communications, Ltd. From January 1996 to May 1999,
Mr. Hirschhorn served in various capacities at RSL Communications, Ltd.,
including Vice President-Finance from August 1997 to May 1999, Global Controller
from January 1996 to May 1999 and Assistant Secretary from September 1996 to May
1999. From October 1987 to December 1995, Mr. Hirschhorn was employed at
Deloitte & Touche LLP, where he held several positions, including Senior
Manager.
Don Freno is a founder of our company and has served as our Executive Vice
President, Operations since February 1999. From January 1991 to January 1999,
Mr. Freno was employed by Magical Holidays in various capacities, including
Operations Manager, where he developed and implemented systems that handle
high-volume air ticket sales. Mr. Freno is the nephew of Mr. Hering.
Gerald L. Rydberg has been our Chief Technology Officer since April 2000
and served as technology advisor to us since February 2000. From March 1999 to
February 2000, Mr. Rydberg was an independent consultant. From December 1966 to
March 1999, Mr. Rydberg was employed by Andersen Consulting, LLP,
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an international technology and management consulting firm, where he held
several positions, including Senior Partner, specializing in the firm's
worldwide utilities and telecommunications practices.
Leonard Schutzman has served as our Non-Executive Chairman since November
1999. From April 1999 to November 1999, Mr. Schutzman was a member of Venture
Marketing Group LLC, which has provided consulting services to us. From July
1976 to May 1993, he held several positions at Pepsi-Co., Inc., including Senior
Vice President and Treasurer, as well as Vice President of Finance of Frito Lay,
Inc., Taco Bell, Inc. and PepsiCo Bottling International. Mr. Schutzman served
on the board of directors of Cendant Corporation, a provider of travel-related
services and the parent of RCI, from August 1993 to June 2000 and serves on the
board of directors of BML Pharmaceutical, Inc. In addition, he is an Executive
Professor of Business Administration at the William E. Simon Graduate School of
Business Administration, University of Rochester, where he teaches
graduate-level courses in entrepreneurship and strategy. He is a member of the
board of advisors of Violy, Byorum and Partners, a financial advisory and
merchant banking firm specializing in Latin America, and of Evercore Capital
Partners LLP, a private equity investment firm.
Derek R. Reisfield has been our Vice Chairman and a director since March
2000. Mr. Reisfield is the co-founder and managing principal of i-hatch
Ventures, LLC, an Internet-focused venture capital firm he founded in August
1999. From April 1999 to September 1999, he was Vice Chairman and Executive Vice
President of Luminant Worldwide Corporation, an Internet professional services
firm. From May 1996 to January 1999, Mr. Reisfield held a variety of positions
with CBS Corporation, formerly Westinghouse Electric Corporation, including Vice
President, Business Development and President of the CBS New Media Group. From
October 1997 to December 1998, Mr. Reisfield was Chairman of the board of
Marketwatch.com, LLC, an Internet financial news service. From May 1995 to April
1996, he was a partner of Mitchell Madison Group, LLC, a management consulting
firm, where he was the co-founder of the firm's media and telecommunications
practice. From August 1987 to June 1995, Mr. Reisfield served in various
capacities, including Senior Manager, at McKinsey & Co., Inc., an international
management consulting firm. Mr. Reisfield is Chairman of the board of Yack.com,
Inc., an Internet program guide, and serves on the board of directors of the
Pictet & Cie Global Leisure Fund, S.A.
Thomas G. Baxter has been a director since March 2000. Since February 2000,
Mr. Baxter has served as Chairman, President and Chief Executive Officer of
Audible, Inc., an Internet digital audio company. Since June 1998, he has been a
consultant to Evercore Capital Partners. From July 1985 until February 1998,
Mr. Baxter has held several positions, including President, at Comcast Cable
Communications, Inc. Mr. Baxter is a director of C-SPAN, Inc., Worldgate
Communications, Inc. and Dycom Industries Inc.
Ciara A. Burnham has served as a director since March 2000. Since July
1997, she has been a managing director of Evercore Capital Partners LLP. From
March 1996 to July 1997, Ms. Burnham was an equity research analyst with Sanford
C. Bernstein & Co., an investment banking firm. From September 1993 to February
1996, she was employed by McKinsey & Co. in various capacities, including
engagement manager.
Merlin E. Dewing has been a director since March 2000 and is the chairman
of our Audit Committee. Mr. Dewing is the Chairman and founder of Dewing
Financial Services, Inc., which was established in January 1998. From January
1961 until his retirement in April 1995, Mr. Dewing held several positions,
including Managing Partner and Vice Chairman, Audit of KPMG LLP. He served as
Chairman of KPMG BayMark from April 1995 until December 1997. Mr. Dewing has
served as the President of the Minnesota Society of CPAs and as Chairman of the
Greater Minneapolis Chamber of Commerce. Mr. Dewing serves on the boards of Born
Information Services, Inc., LB Bank, Inc., Banner Health Systems and Bush
Foundation of St. Paul Minnesota.
Varel D. Freeman has been a director since April 2000. Since March 1999,
Mr. Freeman has served as senior partner at Baring Private Equity Partners LLC
and is responsible for Baring's private equity investments in Latin America.
From February 1995 to February 1999, he was a partner at Chase Capital Partners,
managing private equity investments in Latin America. From July 1982 to January
1995, he held several positions at International Finance Corporation, including
the director of the Asia Investment Department and manager of the Latin America
Capital Markets Division.
Michael H. Jordan has been a director since June 2000. Mr. Jordan is the
Chairman of Luminant Worldwide Corporation, a provider of Internet and
e-commerce services. He is also the Chairman of
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<PAGE>
eOriginal Inc., an e-commerce company. In December 1998, Mr. Jordan retired as
Chairman and Chief Executive Officer of CBS Corporation, formerly Westinghouse
Electric Corporation, a position he assumed in June 1993. From September 1992 to
June 1993, Mr. Jordan was a partner with Clayton, Dubilier and Rice, a private
investment firm based in New York City. From 1974 through 1992, he was employed
by PepsiCo, with his last position as Chief Executive Officer of PepsiCo
International and from 1964 through 1974, he worked at McKinsey & Company in
several positions, including partner. Mr. Jordan is a member of the President's
Export Council, a member and former chairman of the U.S.-Japan Business Council,
an organization for improved business and economic relations, Chairman of The
College Fund/UNCF, and Chairman of the Policy Board of the Americans for Arts.
Mr. Jordan also serves on the boards of Aetna Inc., Dell Computer Corporation,
MarketWatch.com, Young & Rubicam Inc. and is Co-Vice Chairman of the board of
directors of Clariti Telecommunications International, Ltd.
Brent M. Longnecker has served as a director since March 2000 and is the
Chairman of our Compensation Committee. Since June 1999, he has served as
Executive Vice President of Resources Connection, Inc., a professional services
firm. From 1985 to 1999, Mr. Longnecker held various positions, including
partner in charge of the performance management and compensation consulting
practices of Deloitte & Touche LLP and KPMG PeatMarwick, international
accounting firms. Mr. Longnecker also serves on the faculty of Certified
Professional Education, Inc. and on the board of directors of the Strategy
Factory, Inc.
BOARD COMMITTEES
Our board of directors has an Audit Committee and a Compensation Committee.
The Audit Committee of the board consists of Ms. Burnham and Messrs. Baxter,
Dewing and Freeman. The Audit Committee reviews our financial statements and
accounting practices, makes recommendations to the board regarding the selection
of independent auditors and reviews the results and scope of the audit and other
services provided by our independent auditors. Mr. Dewing is Chairman of the
Audit Committee.
The Compensation Committee of the board consists of Messrs. Freeman,
Jordan, Longnecker and Reisfield. The Compensation Committee makes
recommendations to the board concerning salaries and incentive compensation for
our officers and employees and administers our employee benefit plans.
Mr. Longnecker is Chairman of the Compensation Committee.
DIRECTOR COMPENSATION
Directors who are also our employees receive no compensation for serving on
the board of directors. We reimburse our non-employee directors for all travel
and other expenses incurred in connection with attending board of directors and
committee meetings. Non-employee directors are also eligible to receive stock
option grants under our 2000 Omnibus stock option plan. Pursuant to the plan,
Mr. Schutzman received options to purchase shares of common stock on
March 23, 2000, and Mr. Reisfield received options to purchase shares of common
stock on . All remaining directors received options to purchase
shares of our common stock. These options have a three-year vesting period,
commencing on the date of grant, and thereafter are exercisable at a price of
$ per share. As of the date of this prospectus, none of these options have
vested.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the board of directors
is an officer or employee of our company. No executive officer of our company
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving on our Compensation
Committee.
SUMMARY OF COMPENSATION
The following table sets forth information concerning compensation earned
in the fiscal period ended December 31, 1999, by our President and Chief
Executive Officer. No other executive officer was paid an annual salary and
bonus exceeding $100,000 during that period.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS(#) COMPENSATION ($)
---------------------------------------------------- ---- ---------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Michael N. Hering,.................................. 1999 $189,000 0 0 0
President and Chief Executive Officer
</TABLE>
Please see the disclosure below for our compensation commitments for our
executive officers in 2000.
STOCK OPTIONS
No options were granted during the fiscal period ended December 31, 1999.
EXERCISE OF OPTIONS AND YEAR-END VALUES
No stock options have been exercised since our inception.
STOCK OPTION PLAN
Our 2000 Omnibus stock option plan provides that we can grant either
incentive stock options or non-qualified stock options to purchase shares of our
common stock in order to provide incentives to our employees, officers,
consultants and directors. Under the plan, the maximum number of shares of
common stock reserved for the grant of options at any time shall be a number
representing 11% of the total number of our fully diluted shares at that time.
The plan allows participants to purchase our common stock at prices set by the
board of directors or by a committee established to administer the plan,
currently the Compensation Committee, but in the case of incentive stock
options, the price may not be less than the fair market value at the date the
option is granted or, if the incentive stock option is granted to an eligible
key employee who is a 10% stockholder, not less than 110% of the fair market
value at the date the option is granted. Outstanding options typically vest
one-third each year commencing one year from the date of grant. Unexercised
options typically expire 10 years after the date of grant. As of June 30, 2000
there were outstanding options to purchase shares of common stock
pursuant to this plan.
EMPLOYMENT ARRANGEMENTS
Messrs. Hering and Esposito
As of January 1, 2000, we entered into employment agreements with Messrs.
Hering, our President and Chief Executive Officer, and Esposito, our Executive
Vice President and Chief Operating Officer. Each agreement has an initial term
ending December 31, 2002, but is automatically extended for successive one-year
terms unless either party to the agreement gives no more than six months' and no
less than three months' prior written notice of their intention to terminate the
agreement. Under Mr. Hering's agreement, he is entitled to an annual base salary
of $300,000, which will increase to $450,000 upon the completion of this
offering. Mr. Hering is also entitled to an annual bonus, as approved by the
Compensation Committee, targeted at 50% of his base salary. Under
Mr. Esposito's agreement, he is entitled to an annual base salary of $180,000,
which will increase to $250,000 upon the completion of this offering.
Mr. Esposito is also entitled to an annual bonus, as approved by the
Compensation Committee, targeted at 40% of his base salary. The agreements are
terminable by us for cause or by Messrs. Hering or Esposito, respectively, if
there is a change in opportunity, including a material change in the
individual's position or duties. The agreements contain non-competition and
non-solicitation provisions which expire 24 months from the date of termination
if such termination occurs in calendar year 2000, for 18 months if termination
occurs in 2001, or for 12 months if termination occurs in 2002. If either
Mr. Hering or Mr. Esposito is terminated early by us without cause or by the
individual for a change in opportunity, he will be entitled to severance in the
amount of the base salary then in effect, continued payment of an annual bonus
of 50% of his base salary then in effect and retention of all benefits, all
through the expiration of the term of the agreement.
In addition, each is entitled to retain all stock options from us, which
vest upon termination. If employment is terminated early by Mr. Hering or
Mr. Esposito for any reason other than a material change in their position or
duties, each is entitled to receive base salary and benefits granted by us and
all of their options until the date of termination, and we are also entitled to
repurchase from either of them 75% of the
39
<PAGE>
issued and outstanding shares of capital stock of our company held by each of
them at the date of termination.
Mark Hirschhorn
As of June 16, 2000, we entered into an employment agreement with Mr. Mark
Hirschhorn, our Chief Financial Officer. The agreement has an initial term
ending June 25, 2003 but is automatically extended for three successive one-year
terms unless either party to the agreement gives at least six months' prior
written notice of their intention to terminate the agreement. Under this
agreement, Mr. Hirschhorn is entitled to a signing bonus of $100,000 and an
annual base salary of $250,000. Mr. Hirschhorn is also entitled to an annual
bonus as determined by our Compensation Committee, which cannot be less than 35%
of his annual base salary. The agreement is terminable by us for cause or
without cause or by Mr. Hirschhorn without cause or for good reason. The
agreement contains non-competition and non-solicitation provisions which expire
24 months from the date of termination. If the agreement is terminated early
either by us without cause or within two years of a change in control or by
Mr. Hirschhorn for good reason, he will be entitled to continued payment of the
base salary and annual bonus through the expiration of the scheduled term,
retention of benefits through the expiration of the scheduled term, and
immediate vesting of all options, which may be exercised at any time within
18 months after termination.
If the agreement is terminated by us for cause or by Mr. Hirschhorn without
good reason, he will be entitled to his base salary, annual bonus and benefits
through the date of termination. All options not then vested will be immediately
terminated. If employment is terminated early by Mr. Hirschhorn for any reason
other than after the occurrence of a change in opportunity, he will be entitled
to his base salary and benefits through the date of termination. He will have
18 months to exercise his then vested options. All options not vested at
termination and all vested options not exercised during the subsequent 18 month
period will be immediately terminated.
Don Freno
As of July 1, 2000, we entered into an employment agreement with Mr. Don
Freno, our Executive Vice President, Operations. The agreement has an initial
term ending June 30, 2003, but is automatically extended for successive one-year
terms unless either party to the agreement gives no more than six months' and no
less than three months' prior written notice of termination of the agreement.
Under this agreement, Mr. Freno is entitled to an annual base salary of
$150,000, subject to annual merit increases. Mr. Freno is also entitled to an
annual bonus, as determined by the Compensation Committee, targeted at 50% of
his base salary. In addition, on June 16, 2000, Mr. Freno was issued options to
acquire shares of common stock. The agreement is terminable by us for
cause or without cause or by Mr. Freno without cause or after a change in
opportunity, including a material change in his position or duties. The
agreement contains non-competition and non-solicitation provisions which expire
24 months from the date of termination, unless his employment is terminated by
us without cause or by him after a change in control or a change in opportunity.
If the agreement is terminated early either by us without cause or by Mr. Freno
after a change in opportunity, he will be entitled to the continued payment of
the base salary and annual bonus through the expiration of the scheduled term,
retention of benefits through the expiration of the scheduled term and the
option to exercise all vested stock options which he holds at termination for a
period up to 90 days after termination.
If employment is terminated early by us with cause, he will be entitled to
his base salary, annual bonus and benefits through the date of termination. If
employment is terminated early by Mr. Freno for any reason other than after the
occurrence of a change in opportunity, he will be entitled to his base salary
and benefits through the date of termination.
Gerald L. Rydberg
As of April 1, 2000, we entered into an employment agreement with
Mr. Gerald L. Rydberg, our Chief Technology Officer. The agreement has an
initial term ending March 31, 2003, but is automatically extended for successive
one-year terms unless either party to the agreement gives no more than six
months' and no less than three months' prior written notice of its intention to
terminate the agreement. Under this agreement, Mr. Rydberg is entitled to
options to acquire shares of our common stock. The agreement is
terminable by us for cause or without cause or by Mr. Rydberg without cause or
after a change in
40
<PAGE>
opportunity. The agreement contains non-competition and non-solicitation
provisions which expire 24 months from the date of termination, unless his
employment is terminated by us without cause or by him after a change in control
or a change in opportunity, including a material change in his position or
duties, in which case the non-competition and non-solicitation provisions will
expire after 12 months. If the agreement is terminated early either by us
without cause or by Mr. Rydberg after a change in opportunity, he will be
entitled to retention of benefits through the expiration of the scheduled term
and retention of all stock options from us.
If employment is terminated early by us with cause or by Mr. Rydberg for
any reason other than after the occurrence of a change in opportunity, he will
be entitled to his benefits through the date of termination.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware 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 any of the following acts:
o any breach of their duty of loyalty to the corporation or its
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
o any transaction from which the director derived an improper personal
benefit.
This 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 amended and restated certificate of incorporation and bylaws provide
that we will indemnify our directors and executive officers and other corporate
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 this capacity, regardless of whether the bylaws would
permit indemnification.
We have obtained directors' and officers' insurance for our directors and
officers for specified liabilities.
41
<PAGE>
RELATED PARTY TRANSACTIONS
SALES AND ISSUANCES OF SHARES AND OPTIONS
Series A Convertible Preferred Stock
In April 2000, we completed a private placement in which we issued
shares of our Series A convertible preferred stock at $ per share to several
accredited and institutional investors for aggregate net proceeds of
approximately $19.2 million. Each share of our Series A convertible preferred
stock will be converted into one share of our common stock immediately prior to
the completion of this offering. The following table summarizes the shares of
Series A convertible preferred stock purchased by affiliates or family members
of our executive officers, directors and 5% stockholders.
<TABLE>
<CAPTION>
NUMBER OF SHARES
PURCHASER RELATIONSHIP PURCHASED
----------------------------------------------- ----------------------------------------------- ----------------
<S> <C> <C>
Baring Latin America Private .................. Varel Freeman, one of our directors, is a
Equity Fund L.P. managing member of Baring Latin America
Private Equity Fund
Baring Asia Private Equity .................... Varel Freeman, one of our directors, is the
Investments XIX Limited general partner of Baring Asia Private Equity
Investments
i-Hatch Ventures, L.P. ........................ Derek Reisfield, Vice Chairman of our board of
directors, is a director of i-Hatch Ventures
LLC, the general partner of i-Hatch Ventures,
L.P.
i-Hatch Advisors Fund, L.P. ................... Derek Reisfield, Vice Chairman of our board of
directors, is a director of i-Hatch Ventures
LLC, the general partner of i-Hatch Advisors
Fund, L.P.
Craig Reisfield ............................... Brother of Derek Reisfield, Vice Chairman of
our board of directors
Gray Horan .................................... Sister of Derek Reisfield, Vice Chairman of our
board of directors
Gray Reisfield ................................ Mother of Derek Reisfield, Vice Chairman of our
board of directors
Donald Reisfield .............................. Father of Derek Reisfield, Vice Chairman of our
board of directors
June Smerling ................................. Sister-in-law of Michael Hering, our President
and Chief Executive Officer
Helen and John Freno .......................... Sister and brother-in-law of Michael Hering,
our President and Chief Executive Officer and
parents of Don Freno, our Vice President,
Operations
Lynn Schwarzenbek Rayfiel and ................. Sister-in-law and brother-in-law of Michael
David Rayfiel Hering, our President and Chief Executive
Officer
</TABLE>
Investors' Rights Agreement
As part of our Series A convertible preferred stock private placement, we
entered into an agreement with our stockholders, including our founders, Messrs.
Hering, Esposito and Freno. This agreement provides that each of our
stockholders have unlimited piggyback registration rights for our securities
that they own, and beginning 180 days after the completion of this offering, up
to three demand registration rights and unlimited registrations on Form S-3, if
available, for their shares of common stock issued upon conversion of their
shares of Series A convertible preferred stock. We will not be required to
effect more than one demand registration or two registrations on Form S-3 in any
12-month period. The agreement also provides that we will bear all expenses
incurred for any registration of our securities, other than underwriters fees
and
42
<PAGE>
expenses, and that we will indemnify the selling stockholders for liabilities
arising from any registration, including liabilities under the Securities Act
and the Securities Exchange Act.
Venture Marketing Group
In April 1999, we entered into an agreement with Venture Marketing Group
LLC, pursuant to which we issued to Venture Marketing Group shares of our
common stock for business services which it provided to us during 1999. Venture
Marketing Group distributed these shares equally to its three members, Mr. Eric
S. Ritter, who owns shares of our outstanding common stock, Mr. Robert
Kaplan, who owns shares of our outstanding common stock and Mr. Leonard
Schutzman, the Non-Executive Chairman of our board of directors, who
owns shares of our outstanding common stock.
Certain Options
We have granted to our directors, officers and employees the following
options to purchase an aggregate of shares of our common stock at an
exercise price of per share. Forty percent of these options will vest upon
the earlier of the completion of this offering or the first anniversary of the
date of grant; and 30% of the options will vest on each of the first and second
anniversary of the vesting of the first 40% portion.
<TABLE>
<CAPTION>
NAME OF OPTION HOLDER NUMBER OF OPTIONS GRANTED DATE OF GRANT
--------------------------------------------------- ------------------------- -------------
<S> <C> <C>
Leonard Schutzman, ...............................
Non-Executive Chairman of our board of directors
March 2000
Derek Reisfield, .................................
Vice Chairman of our board of directors
March 2000
Mark Hirschhorn, .................................
Vice President and Chief Financial Officer
June 2000
Gerald L. Rydberg, ...............................
Chief Technology Officer
April 2000
</TABLE>
As of June 30, 2000, options to purchase a total of shares of
our common stock were granted to our employees and directors other than those
listed above, at an exercise price of $ per share.
TRANSACTIONS WITH MAGICAL HOLIDAYS
On July 26, 2000, we entered into a services agreement with Magical
Holidays which is owned by Mr. Michael Hering, our President and Chief Executive
Officer. Under this agreement, Magical Holidays will provide us with ticketing
fulfillment services for travel inventory sold by us, transaction review
services, administrative services, including office supplies and equipment,
secretarial and clerical services, and other services. We will pay Magical
Holidays $50,000 quarterly for the transaction review services. In addition, for
each ticket for which fulfillment services are provided by Magical Holidays, we
will pay to Magical Holidays a fulfillment fee of $20 until May 31, 2001 and $25
thereafter until May 31, 2002, and an administrative services fee of $5 for each
ticket issued during the term of the agreement. We will also pay Magical
Holidays its pro rata portion of any rent paid on our behalf for office space
that we use. This agreement will terminate on July 26, 2003, unless terminated
earlier by us upon written notice to Magical Holidays, or by Magical Holidays,
upon 180 days written notice to us. Magical Holidays has also agreed that they
will not compete with us in the business of marketing and selling excess travel
inventory using an auction format through the Internet during the term of this
agreement and for a two-year period thereafter.
TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
Derek R. Reisfield
In April 2000, we entered into an agreement with Mr. Derek Reisfield, the
Vice Chairman of our board of directors, pursuant to which Mr. Reisfield is
entitled to receive $10,000 per month beginning April 1, 2000 through the
completion of this offering or upon our sale. In addition, upon completion of
this offering, Mr. Reisfield will be entitled to a bonus of an additional
$20,000 per month commencing April 1, 2000 for each month preceding the
completion of this offering or upon our sale.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of June 1, 2000, assuming the
conversion of all of our Series A convertible preferred stock by:
o each person who beneficially owns more than five percent of our
common stock;
o our President and Chief Executive Officer;
o each of our directors; and
o all of our executive officers and directors as a group.
The percentages shown are based on shares of common stock
outstanding as of June 1, 2000 and shares of common stock
outstanding after this offering, including the shares that are
being offered for sale by us in this offering. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission, and includes voting and investment power with respect to shares. The
number of shares beneficially owned by a person includes shares of common stock
subject to options or warrants held by that person that are currently
exercisable or exercisable within 60 days of June 1, 2000. The shares issuable
under those options or warrants are treated as if they were outstanding for
computing the percentage ownership of the person holding those options or
warrants but are not treated as if they were outstanding for the purposes of
computing the percentage ownership of any other person. Unless otherwise
indicated, the address for each person or entity set forth in the table is c/o
SkyAuction.com, Inc., 501 Madison Avenue, New York, NY 10022.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF COMMON
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED STOCK BENEFICIALLY OWNED
--------------------------------------------------------------------- ------------------ ------------------------
<S> <C> <C>
Baring Latin America Private Equity Fund, L.P.
230 Park Avenue
New York, NY 10169.................................................
Baring Asia Private Equity Investments XIX Limited
P.O. Box 431
13-15 Victoria Road
St. Peter Port
Guernsey Channel Islands
GY1 32D, United Kingdom............................................
i-Hatch Ventures, L.P.
c/o i-Hatch Ventures, LLC
599 Broadway, 11th Floor
New York, NY 10012.................................................
i-Hatch Advisors Fund, L.P.
c/o i-Hatch Ventures, LLC
599 Broadway, 11th Floor
New York, NY 10012.................................................
Leonard Schutzman.................................................... (1)
Michael N. Hering.................................................... (2)
Salvatore P. Esposito, Jr............................................
Don Freno............................................................ *
Derek R. Reisfield................................................... (3)
Michael Hering Irrevocable Trust.....................................
Thomas G. Baxter..................................................... *
Ciara A. Burnham..................................................... *
Merlin E. Dewing..................................................... *
Varel D. Freeman..................................................... *
Michael H. Jordan.................................................... *
Brent M. Longnecker.................................................. *
All directors and executive officers as a group (13 persons)......... (1)(2)(3)
</TABLE>
------------------
* Represents beneficial ownership of less than one percent.
(1) Includes shares of common stock issuable upon the exercise of options by
Mr. Schutzman.
(2) This number does not reflect the exercise of call options for
shares each that were granted by Mr. Hering to Messrs. Heydt
and Hicks under call option agreements dated March 30, 2000.
(3) Includes shares of common stock issuable upon the exercise of options by
Mr. Reisfield.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of our company consists of
shares of common stock, par value $.01 per share, and shares of
preferred stock, par value $.01 per share. Upon completion of this offering,
there will be outstanding shares of common stock, outstanding
options to purchase shares of common stock and outstanding
warrants to purchase shares of common stock.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the board of directors may from time to time
determine. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. Cumulative voting
for the election of directors is not provided for in our amended and restated
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. Our
common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Upon the occurrence of a liquidation, dissolution or
winding-up, the holders of shares of common stock would be entitled to share
ratably in the distribution of all of our assets remaining available for
distribution after satisfaction of all its liabilities and the payment of the
liquidation preference of any outstanding preferred stock. Each outstanding
share of our common stock is, and all shares of common stock to be outstanding
upon completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, within the limitations and
restrictions stated in amended and restated certificate of incorporation, to
provide by resolution for the issuance of shares of preferred stock, in one or
more classes or series, and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series or the designation of such series. The issuance of
preferred stock could have the effect of decreasing the market price of the
common stock and could adversely affect the voting and other rights of the
holders of common stock.
OPTIONS
As of , options to purchase a total of shares of
common stock were outstanding, and up to additional shares of
common stock have been reserved for future grants of options under our 2000
Omnibus stock option plan at an exercise price of $ per share. All of the
options contain standard anti-dilution provisions.
WARRANTS
As of , we had outstanding warrants to purchase
shares of common stock at a price of $ per share.
REGISTRATION RIGHTS
We are a party to an agreement with our stockholders, including our
founders, Messrs. Hering, Esposito and Freno. This agreement provides that each
stockholder has unlimited piggyback registration rights for our securities owned
by him, and that upon the completion of this offering, holders of up to
shares of Series A convertible preferred stock have up to three demand
registration and unlimited registrations on Form S-3, if available. We will not
be required to effect more than one demand registration or two registrations on
Form S-3 in any 12-month period. The agreement provides that we will bear all
expenses incurred for any registration of our securities, other than
underwriters fees and expenses, and that we will indemnify the selling
stockholders for liabilities arising from any registration, including
liabilities under the Securities Act and the Securities Exchange Act. The
registration rights described in this agreement terminate with respect to each
of our stockholders upon the earlier of the fourth anniversary of the completion
of this offering or the date that all the securities held by that stockholder or
founder may immediately be sold under Rule 144 of the Securities Act during any
90-day period.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is
.
LISTING
We have applied to list our common stock on The Nasdaq National Market
under the symbol "AUXN."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of common stock, including shares
issued upon exercise of outstanding options and warrants, in the public market
after this offering could adversely affect market prices prevailing from time to
time and could impair our ability to raise capital through the sale of our
equity securities.
Upon completion of this offering, we will have outstanding
shares of common stock. Of these shares, the shares of common
stock sold in this offering, shares of common stock eligible to
be sold by employees upon exercise of stock options pursuant to the option
exercise program will be freely tradable without restriction under the
Securities Act unless purchased by "affiliates" of our company as defined in
Rule 144 under the Securities Act. The balance of our outstanding shares of
common stock and the shares of common stock issuable upon exercise of
outstanding warrants will be "restricted securities" under the Securities Act,
subject to restrictions on the timing, manner and volume of sales of such
shares. Substantially all shares of our capital stock outstanding prior to this
offering are subject to 180-day lock-up agreements and may not be sold in the
public market prior to the expiration of the lock-up agreements. Upon the
expiration of the lock-up agreements, approximately additional
shares will be available for sale in the public market, subject in some cases to
compliance with the volume and other limitations of Rule 144.
<TABLE>
<CAPTION>
DAYS AFTER DATE OF THIS PROSPECTUS SHARES ELIGIBLE FOR SALE COMMENT
------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Upon effectiveness Freely tradable shares sold in this
offering
180 days after effectiveness Lock-up released; shares salable
under Rule 144, 144(k) or 701
Various dates thereafter Restricted securities held for one
year or less as of 180 days
following effectiveness
</TABLE>
Since many of these shares were purchased at prices substantially below
current market prices, we believe a significant number of these shares will be
sold when eligible for resale.
RULE 144
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for at
least one year, including the holding period of any prior owner except an
affiliate, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of (1) one percent of the number of
shares of common stock then outstanding, which will equal approximately
shares immediately after this offering, or (2) the average weekly
trading volume of the common stock during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 also are
subject to certain manner of sale provisions and notice requirements and to the
availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been an affiliate of
our company at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
RULE 701
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions of Rule 144, 90 days after an issuer is
required to meet the reporting requirements of section 13 or 15(d) of the
Exchange Act. Any of our employees, officers, directors, or consultants who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale
46
<PAGE>
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 further provides that non-affiliates may sell such shares in
reliance on Rule 144 without having to comply with the holding period public
information, volume limitation or notice provisions of Rule 144.
LOCK-UP AGREEMENTS
We, our executive officers, all of our stockholders and holders of options
and warrants to purchase our capital stock have agreed not to sell any shares of
our capital stock without the prior written consent of Bear, Stearns & Co. Inc.,
during the period ending 180 days after the date of this prospectus, provided
that we may grant options and issue shares pursuant to our 2000 Omnibus stock
option plan. Bear, Stearns & Co. Inc. may release the shares subject to lock-up
agreements in whole or in part at any time without prior public notice. Bear,
Stearns & Co. Inc. has no current plans to effect such a release.
STOCK OPTIONS
As of , 2000, approximately
shares of our common stock were issuable pursuant to vested options granted
under our 2000 Omnibus stock option plan. All of these shares issuable upon the
exercise of options that are exercisable within 180 days following this offering
are subject to lock-up agreements with Bear, Stearns & Co. Inc. In addition, we
have issued shares of our common stock for current and future
growth of options under our 2000 Omnibus stock option plan.
We intend to file, within 180 days after the date of this prospectus, a
registration statement on Form S-8 under the Securities Act of 1933 to register
shares up to shares of our common stock issuable pursuant to
options granted or reserved for issuance under our 2000 Omnibus stock option
plan. This registration statement on Form S-8 will permit the resale of shares
by nonaffiliates in the public market without restriction under the Securities
Act.
REGISTRATION RIGHTS
We are a party to an agreement with our stockholders including our
founders, Messrs. Hering, Esposito and Freno. This agreement provides that each
of our stockholders have unlimited piggyback registration rights for our
securities owned by them, and upon the completion of this offering, the holders
of at least shares of Series A convertible preferred stock have up to three
demand registration rights and unlimited registrations on Form S-3, if
available, for their shares of common stock. We are not required to effect more
than one demand registration or two registrations on Form S-3 in any 12-month
period. The agreement provides that we will bear all expenses incurred for any
registration of our securities, other than underwriters fees and expenses, and
that we will indemnify the selling stockholders for liabilities arising from any
registration, including liabilities under the Securities Act and the Securities
Exchange Act. The registration rights described in this agreement will terminate
with respect to each of our stockholders upon the earlier of the fourth
anniversary of the completion of this offering or the date that all the
securities held by that stockholder may be sold under Rule 144 of the Securities
Act during any 90-day period.
47
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
dated , 2000, each of the underwriters named below, through their
representatives Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and DLJdirect Inc., has severally agreed to purchase from
us the aggregate number of shares of common stock set forth opposite its name
below at the public offering price less the underwriting discount set forth on
the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------------------------------- ---------
<S> <C>
Bear, Stearns & Co. Inc....................................................................
Donaldson, Lufkin & Jenrette Securities Corporation........................................
DLJdirect Inc..............................................................................
---------
Total.................................................................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of certain legal matters by their counsel
and to various other conditions. Under the underwriting agreement, the
underwriters are obligated to purchase and pay for all of the above shares of
common stock, other than those covered by the over-allotment options described
below, if they purchase any of the shares.
The underwriters propose to initially offer some of the shares directly to
the public at the offering price set forth on the cover page of this prospectus
and some of the shares to dealers at this price less a concession not in excess
of $ per share. The underwriters may allow, and dealers may re-allow,
concessions not in excess of $ per share on sales to other dealers. After
the initial offering of the shares to the public, the underwriters may change
the offering price, concessions and other selling terms. The underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The following table shows the underwriting discount to be paid to the
underwriters in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares of common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share................................................................... $
Total....................................................................... $
</TABLE>
Other expenses of this offering, including the registration fees and the
fees of financial printers, counsel and accountants, payable by us are expected
to be approximately $ .
We have granted the underwriters an option exercisable for 30 days from the
date of the underwriting agreement to purchase up to additional shares,
at the offering price less the underwriting discount. The underwriters may
exercise this option solely to cover over-allotments, if any, made in connection
with this offering. To the extent underwriters exercise this option in whole or
in part, then each of the underwriters will become obligated, subject to
conditions, to purchase a number of additional shares approximately
proportionate to each underwriter's initial purchase commitment as indicated in
the preceding table.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
Our directors, executive officers and stockholders, who collectively hold a
total of shares of common stock, have agreed, subject to limited
exceptions, not to sell or offer to sell or otherwise dispose of any shares
common stock or securities convertible into or exercisable or exchangeable for
our common stock, for a period of 180 days after the date of this prospectus
without the prior written consent of Bear, Stearns & Co. Inc., on behalf of the
underwriters.
In addition, we have agreed that for a period of 180 days after the date of
this prospectus we will not offer, sell or otherwise dispose of any shares of
common stock except for the shares offered in this offering
48
<PAGE>
and any shares offered in connection with employee benefit plans, without the
consent of Bear, Stearns & Co. Inc., on behalf of the underwriters.
Prior to the offering, there has been no public market for our common
stock. Consequently, the initial offering price for our common stock will be
determined by negotiations between us and the representatives of the
underwriters. Among the factors considered in these negotiations will be:
o our result of operations in recent periods;
o estimates of our business potential;
o an assessment of our management;
o prevailing market conditions; and
o the prices of similar securities of generally comparable companies.
We have applied to list our common stock for quotation on The Nasdaq
National Market under the symbol "AUXN." We cannot assure you that an active or
orderly trading market will develop for the common stock, or that our common
stock will trade in the public markets subsequent to the offering at or above
the initial offering price.
In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock during and after the offering. Specifically, the underwriters may
over-allot or otherwise create a short position in the common stock for their
own account by selling more shares of common stock than we have actually sold to
them. The underwriters may elect to cover any short position by purchasing
shares of common stock in the open market or by exercising the over-allotment
option granted to the underwriters. In addition, the underwriters may stabilize
or maintain the price of the common stock by bidding for or purchasing shares of
common stock in the open market and may impose penalty bids under which selling
concessions allowed to syndicate members or other broker-dealers participating
in the offering are reclaimed if shares of common stock previously distributed
in the offering are repurchased in connection with stabilization transaction or
otherwise. The effect of these transactions may be to stabilize or maintain the
market price at a level above which might otherwise prevail in the open market,
and these transactions may be discontinued at any time. The imposition of a
penalty bid may also affect the price of the common stock to the extent that it
discourages resales. No representation is made as to the magnitude or effect of
these activities.
An electronic prospectus will be available on the Web site maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. Other than the prospectus in electronic format, the information
on the Web site relating to this offering is not part of this prospectus or
the registration statement of which this prospectus forms a part, has not been
approved or endorsed by us or the underwriters and should not be relied upon by
prospective investors.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock for employees, directors, and other
persons associated with us who express an interest in purchasing these shares of
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase reserved shares. Any reserved shares not purchased by these persons
will be offered by the underwriters to the general public on the same terms as
the other shares offered in this offering.
The underwriters may, from time to time, engage in transactions with and
perform services for, us in the ordinary course of their business.
49
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered will be
passed upon for SkyAuction.com by Proskauer Rose LLP. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Morrison & Foerster LLP.
EXPERTS
The financial statements of SkyAuction.com, Inc. as of December 31, 1999
and for the period of February 12, 1999 (inception) to December 31, 1999
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing in this prospectus and
are included in reliance upon the report of that firm given upon their authority
as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act for the shares of common stock we
propose to sell in this offering. This prospectus, which constitutes part of the
registration statement, does not contain all of the information set forth in the
registration statement. For further information concerning SkyAuction.com, Inc.
and the common stock we propose to sell in this offering, we refer you to the
registration statement and the exhibits and schedules filed as part of the
registration statement. Statements contained in this prospectus regarding the
contents of any contract or any other document are summaries of the material
provisions of the contract or document. If a contract or other document has been
filed as an exhibit to the registration statement, we refer you to the copy of
the contract or document that has been filed. You may read and copy all or any
portion of the registration statement and its exhibits and schedules at the
Public Reference Room of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from the Public Reference Section of the Commission
upon the payment of the fees prescribed by the Commission. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission also maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as SkyAuction.com, that file
electronically with the Commission.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, and in accordance
with these requirements, will file periodic reports, proxy statements and other
information with the Commission. Upon approval of the common stock for the
quotation on the Nasdaq National Market, these reports, proxy and information
statements and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
50
<PAGE>
SKYAUCTION.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
Independent Auditors' Report......................................................................... F-2
Financial Statements:
Balance Sheets at December 31, 1999 and March 31, 2000 (unaudited)................................... F-3
Statements of Operations for the period from February 12, 1999 (inception) through December 31, 1999,
for the period from February 12, 1999 (inception) through
March 31, 1999 (unaudited) and for the three months ended March 31, 2000 (unaudited)............... F-4
Statements of Stockholders' (Deficit) Equity for the period from February 12, 1999 (inception)
through December 31, 1999 and for the three months ended March 31, 2000 (unaudited)................ F-5
Statements of Cash Flows for the period from February 12, 1999 (inception) through December 31, 1999,
for the period from February 12, 1999 (inception) through
March 31, 1999 (unaudited) and for the three months ended March 31, 2000 (unaudited)............... F-6
Notes to Financial Statements........................................................................ F-7 - F-14
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of SkyAuction.com, Inc.
We have audited the accompanying balance sheet of SkyAuction.com, Inc. (the
"Company") as of December 31, 1999, and the related statements of operations,
stockholders' deficit and cash flows for the period from February 12, 1999
(inception) to December 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999, and the
results of its operations and its cash flows for the period from February 12,
1999 (inception) to December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
June 1, 2000
(July 26, 2000 as to Note 10)
F-2
<PAGE>
SKYAUCTION.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
MARCH 31,
DECEMBER 31, MARCH 31, 2000
1999 2000
------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $1,312,533 $ 10,840,765
Accounts receivable, net of allowance of approximately $16,694 and
$30,247, respectively............................................. 24,466 62,733
Inventory, net of reserve of approximately $7,681 and $58,192,
respectively...................................................... 131,407 672,050
Deposits on inventory............................................... 294,750 294,750
Promotional merchandise............................................. -- 815,400
Other current assets................................................ 94,560 443,986
---------- ------------
Total current assets.............................................. 1,857,716 13,129,684
Property and equipment--Net......................................... 198,595 391,168
Other assets........................................................ 13,212 56,212
---------- ------------
Total assets...................................................... $2,069,523 $ 13,577,064
========== ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable.................................................... $1,063,172 $ 2,061,617
Accrued expenses.................................................... 507,348 627,590
Accrued private placement expenses.................................. -- 638,994
Deferred revenue.................................................... 344,319 369,078
Due to related party................................................ 409,235 835,422
---------- ------------
Total current liabilities......................................... 2,324,074 4,532,701
---------- ------------
Commitments and contingencies
Stockholders' (deficit) equity:
Series A convertible preferred stock, par value $0.01 per share;
450,000 shares authorized; 0 and 188,851 shares issued and
outstanding at December 31, 1999 and March 31, 2000, respectively,
and 0 shares issued and outstanding, pro forma.................... -- 1,889 $ --
Common stock, par value $0.01 per share; 9,550,000 shares
authorized; 1,000,000 shares issued and outstanding at
December 31, 1999, and March 31, 2000 and 1,188,851 shares issued
and outstanding, pro forma........................................ 10,000 10,000 11,889
Additional paid-in capital.......................................... 2,102,346 13,427,870 13,427,870
Warrant............................................................. -- 90,558 90,558
Subscription receivable--preferred stock............................ -- (786,784) (786,784)
Accumulated deficit................................................. (2,366,897) (3,699,170) (3,699,170)
---------- ------------ -----------
Total stockholders' (deficit) equity.............................. (254,551) 9,044,363 $ 9,044,363
---------- ------------ ===========
Total liabilities and stockholders' equity...................... $2,069,523 $ 13,577,064
========== ============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
SKYAUCTION.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
FEBRUARY 12, FEBRUARY 12,
1999 1999 (INCEPTION)
(INCEPTION) TO MARCH 31, THREE MONTHS
TO DECEMBER 31, ENDED MARCH 31,
1999 1999 2000
--------------- ----------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues..................................................... $ 6,720,071 $ 185,831 $ 5,299,658
----------- --------- -----------
Operating expenses:
Cost of travel ........................................... 5,711,576 152,333 4,576,691
Credit card, fulfillment and shipping costs................ 515,014 19,193 361,190
Selling, general and administrative expenses (excluding
non-cash stock based compensation)...................... 2,113,866 195,932 1,577,418
Non-cash stock based compensation.......................... 712,046 153,011 --
Depreciation and amortization.............................. 39,719 1,800 113,548
----------- --------- -----------
Total operating expenses................................ 9,092,221 522,269 6,628,847
----------- --------- -----------
Loss from operations......................................... (2,372,150) (336,438) (1,329,189)
Interest income.............................................. 5,253 -- 11,261
----------- --------- -----------
Net loss................................................ $(2,366,897) $(336,438) $(1,317,928)
=========== ========= ===========
Preferred stock dividends.................................... -- -- 14,345
----------- --------- -----------
Net loss available to common stockholders.................... $(2,366,897) $(336,438) $(1,332,273)
=========== ========= ===========
Net loss per common share.................................... $ (2.42) $ (0.37) $ (1.33)
=========== ========= ===========
Weighted average number of shares of
common stock outstanding................................... 979,260 913,000 1,000,000
=========== ========= ===========
Pro forma basic net loss per share (unaudited)............... $ (1.30)
===========
Pro forma weighted average number of shares of common stock
outstanding (unaudited).................................... 1,010,006
===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
SKYAUCTION.COM, INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH
DECEMBER 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SERIES A SUBSCRIPTIONS
COMMON STOCK PREFERRED STOCK DEFERRED ADDITIONAL RECEIVABLE
------------------- ---------------- STOCK PAID-IN PREFERRED
SHARES AMOUNT SHARES AMOUNT COMPENSATION CAPITAL WARRANT STOCK
--------- ------- ------- ------ ------------ ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 12, 1999
(Inception)................. -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of founders
stock..................... 913,000 9,130 -- -- -- (8,830) -- --
Contributed capital......... -- -- -- -- -- 1,400,000 -- --
Stock based compensation.... 87,000 870 -- -- -- 99,130 -- --
Options granted to
nonemployees.............. -- -- -- -- (612,046) 612,046 -- --
Amortization of stock based
grants.................... -- -- -- -- 612,046 -- -- --
Net loss.................... -- -- -- -- -- -- -- --
--------- ------- ------- ------ ---------- ----------- ------- ---------
Balance, December 31, 1999.... 1,000,000 10,000 -- -- -- 2,102,346 -- --
--------- ------- ------- ------ ---------- ----------- ------- ---------
Net proceeds from issuance
of Series A Preferred
Stock..................... -- -- 169,363 1,694 -- 12,816,277 -- (786,784)
Conversion of contributed
capital for Series A
Preferred Stock........... -- -- 19,488 195 -- (1,400,195) -- --
Warrant..................... -- -- -- -- -- (90,558) 90,558 --
Accrued dividends........... -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
--------- ------- ------- ------ ---------- ----------- ------- ---------
Balance, March 31, 2000
(Unaudited)................. 1,000,000 $10,000 188,851 $1,889 $ -- $13,427,870 $90,558 $(786,784)
========= ======= ======= ====== ========== =========== ======= =========
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
----------- -----------
<S> <C> <C>
Balance, February 12, 1999
(Inception)................. $ -- $ --
Issuance of founders
stock..................... -- 300
Contributed capital......... -- 1,400,000
Stock based compensation.... -- 100,000
Options granted to
nonemployees.............. -- --
Amortization of stock based
grants.................... -- 612,046
Net loss.................... (2,366,897) (2,366,897)
----------- -----------
Balance, December 31, 1999.... (2,366,897) (254,551)
----------- -----------
Net proceeds from issuance
of Series A Preferred
Stock..................... -- 12,031,187
Conversion of contributed
capital for Series A
Preferred Stock........... -- (1,400,000)
Warrant..................... -- --
Accrued dividends........... (14,345) (14,345)
Net loss.................... (1,317,928) (1,317,928)
----------- -----------
Balance, March 31, 2000
(Unaudited)................. $(3,699,170) $ 9,044,363
=========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
SKYAUCTION.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12, PERIOD FROM
1999 FEBRUARY 12,
(INCEPTION) 1999 (INCEPTION) THREE MONTHS
TO DECEMBER 31, TO MARCH 31, ENDED MARCH 31,
1999 1999 2000
--------------- ----------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................... $(2,366,897) $(336,438) $ (1,317,928)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization......................... 39,719 1,800 113,548
Non-cash stock-based compensation..................... 712,046 153,011 --
Provision for bad debts............................... 16,694 -- 13,553
Provision for inventory reserve....................... 7,681 -- 50,511
Changes in assets and liabilities:
Increase in accounts receivable....................... (41,160) (395) (51,820)
Increase in inventory................................. (139,088) -- (591,154)
Increase in deposits on inventory..................... (294,750) -- --
Increase in promotional merchandise................... -- -- (815,400)
Increase in other current assets...................... (94,560) (2,500) (349,426)
Increase in other assets.............................. (13,212) -- (43,000)
Increase in accounts payable.......................... 1,063,172 41,484 998,445
Increase in accrued expenses.......................... 507,348 81,124 105,897
Increase in deferred revenue.......................... 344,319 47,681 24,759
Increase in due to related party...................... 409,235 43,727 426,187
----------- --------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.......... 150,547 29,494 (1,435,828)
----------- --------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment......................... (36,061) (18,000) (67,011)
Capitalized software development costs..................... (202,253) -- (239,110)
----------- --------- -------------
NET CASH USED IN INVESTING ACTIVITIES........................ (238,314) (18,000) (306,121)
----------- --------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution....................................... 1,400,000 -- --
Proceeds from issuance of common stock..................... 300 300 --
Proceeds from issuance of Series A Preferred Stock......... -- -- 11,380,288
Costs incurred for issuance of Series A Preferred Stock.... -- -- (110,107)
----------- --------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................... 1,400,300 300 11,270,181
----------- --------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................... 1,312,533 11,794 9,528,232
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............... -- -- 1,312,533
----------- --------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................... $ 1,312,533 $ 11,794 $ 10,840,765
=========== ========= =============
Supplemental disclosure of cash flow information:
Cash paid for income taxes................................. $ -- $ -- $ 680
=========== ========= =============
Supplemental disclosure of non-cash transactions:
Warrant granted to a broker................................ $ -- $ -- $ 90,558
=========== ========= =============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
SKYAUCTION.COM, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999,
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH MARCH 31, 1999 (UNAUDITED)
AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
1. BUSINESS DESCRIPTION
SkyAuction.com, Inc. (the "Company"), incorporated in Delaware on February
12, 1999 ("inception"), is a leading online marketer and distributor of travel
products and services using a no-reserve auction process. The Company offers
excess travel inventory from leading airlines, hotels, resorts and tour
operations. The Company allows its customers to bid on a wide variety of quality
products and services, such as airline tickets on scheduled flights, hotel and
resort accommodations, tour services and comprehensive travel packages.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE 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 the
reported amounts of revenues and expenses during the reporting period. The
preparation of financial statements in conformity with generally accepted
accounting principles also requires management to make estimates and assumptions
that affect the disclosures of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents.
The Company maintains cash and cash equivalents with high credit quality
domestic financial institutions. The Company performs periodic evaluations of
the relative credit standing of these institutions. From time to time, the
Company's cash balances with any one financial institution may exceed Federal
Deposit Insurance Corporation insurance limits.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are stated net of allowance for doubtful accounts which
is based on specific identification of accounts considered to be potentially
doubtful of collection.
INVENTORY
Inventories are stated at the lower of cost or market, net of a reserve for
potentially unsaleable inventory. Cost is determined on a specific method.
Inventory primarily consists of hotel and resort rooms identified for future
sale.
F-7
<PAGE>
SKYAUCTION.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999,
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH MARCH 31, 1999 (UNAUDITED)
AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
DEPOSITS ON INVENTORY
Deposits on inventory consist of deposits made for resort units where the
Company has not specifically identified the particular unit that they intend to
purchase for an auction winner.
PROMOTIONAL MERCHANDISE
Promotional merchandise consists of promotional and give-away items that
have not been distributed to the general public.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the depreciable assets, which range from three to seven years.
Improvements are capitalized, while repair and maintenance costs are charged to
operations as incurred.
SOFTWARE DEVELOPMENT COSTS
Also included in property and equipment are website development costs
(costs of computer software developed or obtained for internal use). Software
development costs primarily consist of costs to develop software which enables
users to access information on the Company's website. Software development costs
are capitalized in accordance with American Institute of Certified Public
Accountants Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement
requires the Company to capitalize costs that are directly related to the
development of certain systems of the Company including both purchased software
costs and development costs related to internal software products. The Company
amortizes these costs beginning on the date placed in service on a straight-line
basis over periods of one to two years. Cost of computer software developed or
obtained for internal use are capitalized while in the application development
stage and are expensed while in the preliminary stage and post-implementation
stage.
IMPAIRMENT OF ASSETS
The Company's long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the net carrying amount may not be
recoverable. When such events occur, the Company measures impairment by
comparing the carrying value of the long-lived assets to the estimated
undiscounted future cash flows expected to result from use of the assets and
their eventual disposition. If the sum of the expected undiscounted future cash
flows is less than the carrying amount of the assets, the Company would
recognize an impairment loss. The impairment loss, if determined to be
necessary, would be measured as the amount by which the carrying amount of the
assets exceeds the fair values of the assets. The Company determined that, as of
December 31, 1999 and March 31, 2000, there had been no impairment in the
carrying value of its long-lived assets.
REVENUE RECOGNITION
Revenue is recognized after all of the following have occurred: a bidder
wins and confirms an auction, the orders are placed with ticket agents or third
party suppliers (e.g. airlines, hotels or both), the auction winner is notified
that the auction has been fulfilled and collection is reasonably assured.
Generally, a credit card is charged or a check is received before revenue is
recognized. Revenues include service, shipping and
F-8
<PAGE>
SKYAUCTION.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999,
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH MARCH 31, 1999 (UNAUDITED)
AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
handling charges and cancellation fees but exclude excise taxes. A reserve is
established for estimated cancellations at the time revenues are recorded.
DEFERRED REVENUE
Deferred revenue represents amounts received from customers before the
Company's criteria for revenue recognition is met.
COST OF TRAVEL
Cost of travel is comprised solely of the cost of airline tickets, hotel
rooms, tour packages and other tour components.
CREDIT CARD, FULFILLMENT AND SHIPPING COSTS
Credit card, fulfillment and shipping costs is comprised of ticketing
fulfillment fees, credit card proccessing charges and shipping costs related to
auctions fulfilled. Some of these costs were paid through Magical Holidays, a
related party.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
pursuant to which deferred assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates currently in effect.
NON-CASH STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25. Accordingly, the Company
records deferred compensation for the difference between the exercise price and
the fair value of stock options granted to employees at the date of grant.
Deferred compensation is amortized to compensation expense over the vesting
period of the underlying options. The Company accounts for non-cash stock-based
compensation paid to nonemployees using the fair value method prescribed in SFAS
No. 123, "Accounting for Stock-Based Compensation."
NET LOSS PER COMMON SHARE
Basic loss per common share was computed by dividing net loss by the
weighted average number of shares of common stock outstanding. Diluted loss per
common share has not been presented since the impact of options, the warrant and
convertible preferred stock would have been anti-dilutive.
UNAUDITED PRO FORMA BASIC NET LOSS PER SHARE AND UNAUDITED PRO FORMA
STOCKHOLDERS' EQUITY
Unaudited pro forma basic net loss per share has been computed in the same
manner as net loss per share as described above and also gives effect to the
conversion of all convertible preferred stock that will automatically occur upon
completion of the Company's initial public offering (using the if-converted
method) (see Note 10). If an offering which results in aggregate cash proceeds
to the Company of at least $50,000,000 is consummated, all of the convertible
preferred stock outstanding will automatically be converted into an aggregate of
188,851 shares of common stock, based on the shares of all convertible preferred
stock outstanding at March 31, 2000.
F-9
<PAGE>
SKYAUCTION.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999,
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH MARCH 31, 1999 (UNAUDITED)
AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Pro forma basic net loss per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 2000
--------------
<S> <C>
Net loss available to common stockholders giving effect to the conversion of
preferred stock.............................................................. $ (1,317,928)
============
Shares used in computing basic net loss per share.............................. 1,000,000
Adjusted to reflect the effect of the automatic conversion of all convertible
preferred stock from the date of issuance.................................... 10,006
------------
Weighted average shares used in computing pro forma basic net loss per share... 1,010,006
============
Pro forma basic net loss per share............................................. $ (1.30)
============
</TABLE>
Unaudited pro forma stockholders' equity at March 31, 2000 assumes that the
conversion of all convertible preferred stock had occurred as of March 31, 2000.
NEW ACCOUNTING PRONOUNCEMENT
Generally accepted accounting principles will require, for fiscal years
beginning after June 15, 2000, that an entity recognize all derivatives as
either an asset or a liability and measure those instruments at fair value, as
well as identify the conditions for which a derivative may be specifically
designed as a hedge. The Company has not participated in any derivative
instruments or hedging activities and therefore believes that there will be no
financial statement impact.
In December 1999, the Securities Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes certain areas of the Staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The Company believes that its current revenue recognition
policies comply with SAB No. 101.
UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited financial statements reflect all adjustments
(consisting only of normal recurring entries) which are, in management's
opinion, necessary for a fair presentation of the results for the interim
periods presented.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values are estimated for financial instruments included in current
assets and current liabilities at book value, due to the short maturity of such
instruments. The book value of the Company's long-term financial instruments
approximated their fair value at December 31, 1999.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 consists of the following:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE
---------------------
<S> <C> <C>
Computer software............................................. $ 202,253 1-2 years
Computer equipment............................................ 28,770 3 years
Office furniture and equipment................................ 7,291 7 years
---------
Total......................................................... 238,314
Less accumulated depreciation................................. 39,719
---------
Property and equipment--net................................... $ 198,595
=========
</TABLE>
F-10
<PAGE>
SKYAUCTION.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999,
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH MARCH 31, 1999 (UNAUDITED)
AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
4. PROPERTY AND EQUIPMENT--(CONTINUED)
Depreciation expense for the period February 12, 1999 (inception) through
December 31, 1999 amounted to $39,719.
5. ACCRUED EXPENSES
Accrued expenses at December 31, 1999 consist of the following:
<TABLE>
<S> <C>
Accrued salary and bonus.......................................................... $196,928
Other accrued expenses............................................................ 310,420
--------
Total............................................................................. $507,348
========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
In September 1999, the Company entered into a purchase agreement for resort
accommodations. The agreement provides for resort rooms at a minimum number of
weeks to be purchased. The entire commitment by the Company was for $795,000.
Included within Inventory in the December 31, 1999 balance sheet is $131,407 of
specifically identified resort rooms. Included within Deposits on inventory in
the December 31, 1999 balance sheet is $294,750 which represent resort units not
specifically selected by the Company where the Company has paid or is committed
to pay for the resort rooms. The remaining commitment for resort rooms at
December 31, 1999 is $264,627 which, per the agreement, are to be selected
during the year ending December 31, 2000.
From time to time, the Company becomes involved in various claims and
lawsuits that are incidental to its business. In the opinion of the Company,
there are no legal proceedings pending against the Company that are likely to
have a material adverse effect on the Company's financial condition or results
of operations.
7. STOCKHOLDERS' (DEFICIT) EQUITY
The Company is authorized to issue 9,550,000 shares of common stock and
450,000 shares of Series A Preferred Stock. Both common and preferred stock have
a par value of $.01 per share. The Company issued 913,000 shares of common stock
to its three founders at inception with one founder contributing $300.
As compensation for consulting services provided relating to advice and
generating leads in regard to obtaining investors in the Company during the
period ended December 31, 1999, the Company granted 87,000 shares of the
Company's common stock in April 1999. Based on an estimate of the fair value of
the services provided, the Company recorded $100,000 as a selling, general and
administrative expense during the period ended December 31, 1999.
In December 1999, the Company received $1,400,000 from an unrelated
third-party investor and recorded the amount within additional paid-in capital
in the December 31, 1999 balance sheet. In March 2000, the investor's
contribution was converted into 19,488 shares of Series A Preferred Stock at
$71.84 per share (see note 10).
8. RELATED PARTY BALANCES AND TRANSACTIONS
A wholesale travel agent that provides tickets and other administrative
services to the Company is owned by the president and majority shareholder of
the Company. The wholesale travel agent issued tickets and provided computer
connectivity, purchasing, and other services for the Company at a fulfillment
fee of $25 per ticket generated. Furthermore, the Company shared a phone system,
incurred credit card fees, used services of certain employees, including the
spouse of the major stockholder and occupied space that is
F-11
<PAGE>
SKYAUCTION.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999,
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH MARCH 31, 1999 (UNAUDITED)
AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
8. RELATED PARTY BALANCES AND TRANSACTIONS--(CONTINUED)
rented by the wholesale travel agent. The Company's rental arrangement with this
wholesale travel agent is on a month-to-month basis. The Company incurred
$1,210,552 of salaries and expenses for these services during the period ended
December 31, 1999 and had a liability of $409,235 to the wholesale travel agent
at December 31, 1999. In management's opinion, these services have been recorded
at fair value.
9. INCOME TAXES
The Company has incurred losses since inception which have generated net
operating loss carryforwards of approximately $2.4 million at December 31, 1999.
These carryforwards are available to offset future taxable income subject to
certain limitations and expire on December 31, 2019.
In accordance with SFAS No. 109, the net operating loss carryforwards and
temporary differences resulted in a noncurrent deferred tax benefit at
December 31, 1999 of approximately $1,090,000. In consideration of the Company's
accumulated losses and the uncertainty of its ability to utilize the deferred
tax benefit in the future, the Company has recorded a valuation allowance of an
equal amount on such date to fully offset the deferred tax benefit amount.
<TABLE>
<S> <C>
Deferred tax assets............................................................ $ 1,090,200
Less valuation allowance....................................................... (1,090,200)
-----------
Net deferred taxes............................................................. $ --
===========
</TABLE>
The Company's deferred tax assets primarily consist of the net operating
loss carryforwards generated in the current period. As of December 31, 1999, a
valuation allowance of $1,090,000 is provided because the realization of the
deferred tax benefits is not assured.
The reconciliation of the income tax rates to the effective income tax rate
is as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Federal income tax rate.................................................... 34.0%
State and local income tax rates........................................... 12.0
Net operating losses....................................................... (46.0)
-------
Effective rate............................................................. 0.0%
=======
</TABLE>
10. SUBSEQUENT EVENTS
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with an initial term of
three years with two executives of the Company as of January 1, 2000. Future
minimum payments under terms of these agreements as of January 1, 2000 are
$480,000 per year through December 31, 2002. The Company has entered into
employment agreements with three executives of the Company as of July 1, 2000.
Future minimum payments under terms of these three agreements are $338,000,
$150,000 and $150,000 per year through June 25, 2003, June 30, 2003 and
July 23, 2002, respectively.
F-12
<PAGE>
SKYAUCTION.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999,
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH MARCH 31, 1999 (UNAUDITED)
AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
10. SUBSEQUENT EVENTS--(CONTINUED)
RESORT COMMITMENT
In February 2000, the Company entered into a purchase agreement for resort
accommodations. The agreement provides for resort rooms at a minimum number of
weeks to be purchased. The entire commitment by the Company was for $1,050,000.
The resort rooms must be selected by the Company prior to December 31, 2000.
SERVICES AGREEMENT
The Company expects to continue its business relationship with a wholesale
travel agent in connection with a July 26, 2000 Services Agreement between the
Company and the wholesale travel agent (see note 8).
STOCK OPTION PLAN
In March 2000, the board of directors adopted the 2000 Omnibus Plan (the
"Omnibus Plan") providing for the issuance of incentive and nonqualified options
to directors, employees, and nonemployee consultants as well as the ability to
grant shares of restricted stock and other stock based awards at the discretion
of the board of directors. The Omnibus Plan is authorized to issue up to a
maximum of 11% of the total number of fully diluted common shares of the Company
provided that the maximum number of shares of incentive options can not exceed
80,000 options. Under the Omnibus Plan, all options granted expire ten years
from the date of grant.
On March 30, 2000, the Chief Executive Officer of the Company granted
20,000 options of his personal common stock to two nonemployees who provided
services to the Company during the period ended December 31, 1999. The options,
with an exercise price of $71.84 per share, vested immediately and have a
one-year expiration period. The Company recorded $373,329 of noncash consulting
expense related to this stock option grant with a corresponding credit to
additional paid in capital for the period ended December 31, 1999.
On May 24, 2000, the Company granted 10,000 options to employees of Magical
Holidays, a related party, for services provided to the Company during the
period ended December 31, 1999. The options, with an exercise price of $71.84
per share, vested immediately and have a one-year expiration period. The Company
recorded $238,717 of noncash consulting expense related to these stock options
granted with a corresponding credit to additional paid in capital for the period
ended December 31, 1999.
As described in Note 2, the Company applies the fair value method under
SFAS No. 123 for stock options granted to nonemployees. The fair value was
calculated for the options on the date of grant using the Black-Scholes
option-pricing model. The assumptions used in applying the option-pricing model
include a risk free interest rate of 6.26%, no dividend yield, expected life of
one year and expected volatility of between 60 and 80%.
Through June 30, 2000, in addition to the stock option grants detailed
above, the Company granted options to purchase 123,173 shares of the Company's
common stock at an exercise price of $71.84 per share to employees and directors
of the Company.
F-13
<PAGE>
SKYAUCTION.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999,
PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH MARCH 31, 1999 (UNAUDITED)
AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
10. SUBSEQUENT EVENTS--(CONTINUED)
LEASES
In March 2000, the Company entered into operating leases for office space.
The leases are noncancelable through December 2004. One of the leases will be
extended to April 2013 unless the Company notifies the landlord. If the Company
does notify the landlord to cancel the lease, the Company will be required to
provide six months notice. Future minimum lease payments on operating leases are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000.............................................................................. $131,667
2001.............................................................................. 176,458
2002.............................................................................. 192,500
2003.............................................................................. 192,500
2004.............................................................................. 200,000
Thereafter........................................................................ 61,250
--------
Total minimum lease payments...................................................... $954,375
========
</TABLE>
PREFERRED STOCK
In March and April 2000, as part of its financing, the Company issued
188,851 and 78,655 shares of Series A Convertible Preferred Stock (the "Series A
Preferred"), respectively, in consideration for $19.2 million in gross proceeds
($71.84 per share). At March 31, 2000, the Company had a receivable of $786,784
in relation to the Series A Preferred stock. The Company received the $786,784
in April 2000. The Series A Preferred is convertible into the Company's common
stock on a one-for-one basis at any time by the holders. Each share of Series A
Preferred will automatically convert into one share of the Company's common
stock upon the consummation of the Company's initial public offering which
results in aggregate cash proceeds to the Company of at least $50 million. Each
holder of Series A Preferred has the right to one vote for each share of common
stock that would be converted. The Series A Preferred ranks senior to the
Company's common stock as to dividends and has a liquidation preference of
$71.84 per share. The holders of the Series A Preferred are entitled to receive
cumulative annual dividends of $5.75 per share, which are payable annually out
of funds legally available, and therefore have preference to any other dividends
being paid by the Company. The Company recorded a dividend payable of $14,345 at
March 31, 2000. Additionally, the Company accrued $638,994 related to broker and
professional fees incurred in connection with the Series A Preferred issuance in
March 2000.
WARRANT
Effective March 2000, the Company issued a warrant to purchase 6,960 shares
of the Company's common stock to a broker, at an exercise price of $71.84 per
share, in connection with its role in a portion of the private placement of the
Company's Series A Preferred stock in March 2000. The warrant was valued at
$90,558, using the Black-Scholes option pricing model with the following
assumptions: no dividend yield, a volatility factor of 60%, risk free interest
rate of 6.29% and an expected life of six months. The warrant is fully vested
and may be exercised at any time prior to the earlier of March 30, 2002 or the
effective date of the Company's initial public offering.
F-14
<PAGE>
------------------------------------------------------
------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
NEITHER SKYAUCTION.COM, INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS.
THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THE
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF THESE SECURITIES.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF
THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE THE RESTRICTIONS OF THAT JURISDICTION
RELATED TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS.
--------------------------
TABLE OF CONTENTS
--------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 6
Use of Proceeds................................ 17
Dividend Policy................................ 17
Capitalization................................. 18
Dilution....................................... 19
Selected Financial Data........................ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21
Business....................................... 25
Management..................................... 36
Related Party Transactions..................... 42
Principal Stockholders......................... 44
Description of Capital Stock................... 45
Shares Eligible for Future Sale................ 46
Underwriting................................... 48
Legal Matters.................................. 50
Experts........................................ 50
Additional Information......................... 50
Index to Financial Statements.................. F-1
</TABLE>
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
SHARES
[SKYAUCTION.COM, INC. LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
DLJDIRECT INC.
, 2000
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by SkyAuction.com in connection
with the sale of the securities being registered. All amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee.................................................................... 18,480
NASD filing fee......................................................................... 7,500
Nasdaq National Market listing fee...................................................... 38,750
Printing and engraving expenses.........................................................
Legal fees and expenses.................................................................
Accounting fees and expenses............................................................
Blue sky fees and expenses.............................................................. 5,000
Transfer agent fees.....................................................................
Miscellaneous fees and expenses.........................................................
Total.................................................................................
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a
corporation's board of directors to grant indemnity to directors and officers in
terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities, including reimbursement for expenses incurred,
arising under the Securities Act of 1933.
As permitted by Delaware law, Article Seventh of our amended and restated
certificate of incorporation provides that (1) we are required to indemnify our
directors and officers to the fullest extent permitted by Delaware law, subject
to certain very limited exceptions; (2) we are permitted to indemnify our other
employees to the extent that we indemnify our officers and directors, unless
otherwise required by law, our amended and restated certificate of
incorporation, our by-laws or agreements; (3) we are required to advance
expenses, as incurred, to our directors and officers in connection with a legal
proceeding to the fullest extent permitted by Delaware law, subject to certain
very limited exceptions; and (4) the rights conferred in our amended and
restated certificate of incorporation are not exclusive. As permitted by
Delaware law, our amended and restated certificate of incorporation includes a
provision that eliminates the personal liability of its directors for monetary
damages for breach of fiduciary duty as a director, except for liability
(1) for any breach of the director's duty of loyalty to us or our stockholders;
(2) for acts of omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (3) under Section 174 of Delaware
General Corporation Law regarding payments of dividends, stock purchases or
redemptions which are unlawful; or (4) for any transaction from which the
director derived an improper personal benefit. This provision in our amended and
restated certificate of incorporation does not eliminate the directors'
fiduciary duty, and in appropriate circumstances equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to our company for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
As permitted by Delaware law, we have purchased insurance covering our
directors and officers against liability asserted against them in their capacity
as such. Reference is made to the Underwriting Agreement contained in
Exhibit 1.1 hereto, which contains provisions indemnifying our officers and
directors against certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since our inception on February 12, 1999, we have issued and sold the
following securities:
(A) Issuances of Capital Stock
In February 1999, we issued _________ shares of our common stock to Michael
N. Hering, our founder, President and Chief Executive Officer, in consideration
for his continued service with us.
In February 1999, we issued _______ shares of our common stock to Salvatore
Esposito Jr., our founder, Executive Vice President and Chief Operational
Officer and a member of the board of directors, in consideration for his
continued service with us.
In February 1999, we issued ______ shares of common stock to Don Freno, our
founder and Executive Vice President, Operation, in consideration for his
continued service with us.
In 1999, we issued an aggregate of ______ shares of our common stock to
Venture Marketing Group LLC in consideration for services rendered to the
company during 1999.
In March 2000 and April 2000, we issued an aggregate of _______ shares of
our Series A convertible preferred stock to several accredited and institutional
investors for an aggregate offering price of approximately $19.2 million.
No underwriters were used in the foregoing transactions. All sales of
securities described above were made in reliance upon the exemption from
registration provided by Section 4(2) and/or 4(6) of the Securities Act and/or
Regulation D promulgated thereunder for transaction by an issuer not involving a
public offering.
(B) Issuance of Warrants
In 2000, we issued a warrant to purchase _____ shares of our common
stock to a broker, at an exercise price of ______ per share, in connection with
its role in a private placement.
The issuance of the warrant described above was made in reliance upon the
exemption from registration provided by Section 4(2) and/or 4(6) of the
Securities Act and/or Regulation D promulgated thereunder for transaction by an
issuer not involving a public offering.
(C) Issuance of Options
As of June 30, 2000, options to purchase a total of ______ shares of our
common stock were granted to our employees and directors other than those listed
below at an exercise price of ______ per share.
In March 2000, we granted options to purchase an aggregate of ______ shares
of our common stock to certain employees of Magical Holidays, Inc., at an
exercise price of ______ per share, for their services rendered to us during
1999.
Each of the following options have an exercise price of ______ per share.
In March 2000, we granted Mr. Leonard Schutzman, the Non-Executive Chairman
of our board of directors, options to purchase ______ shares of our common
stock.
In March 2000, we granted Mr. Derek Reisfield, the Vice Chairman of our
board of directors, options to purchase _________ shares of our common stock.
In April 2000, we granted Mr. Gerald L. Rydberg, our Chief Technology
Officer, options to purchase ______ shares of our common stock.
In June 2000, we granted Mr. Mark Hirschhorn, our Vice President, Finance
and Chief Financial Officer, options to purchase ______ shares of our common
stock.
In June 2000, we granted Mr. Don Freno, our Executive Vice President and
Chief Accounting Officer, options to purchase ___ shares of our common stock.
II-2
<PAGE>
The issuance of the options described above was made in reliance upon the
exemption from registration provided by section 4(2) and/or 4(6) and/or
section 3(b) of the Securities Act and/or Rule 701 promulgated thereunder
relating to transactions pursuant to compensatory benefits plans and contracts.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBIT
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the Registrant
3.2* By-Laws of the Registrant
4.1 Reference is hereby made to Exhibits 3.1 and 3.2
4.2 Specimen Certificate for Registrant's Common Stock
5.1* Opinion of Proskauer Rose LLP
10.1 2000 Omnibus Plan
10.2 Employment Agreement between SkyAuction.com, Inc. and Michael N. Hering, dated as of January 1, 2000
10.3 Employment Agreement between SkyAuction.com, Inc. and Salvatore Esposito, Jr., dated as of January 1,
2000
10.4 Employment Agreement between SkyAuction.com, Inc. and Mark Hirschhorn, dated June 16, 2000
10.5 Employment Agreement between SkyAuction.com, Inc. and Don Freno, dated as of July 1, 2000
10.6 Employment Agreement between SkyAuction.com, Inc. and Gerald L. Rydberg, dated as of April 1, 2000
10.7 Agreement between SkyAuction.com, Inc. and Derek Reisfield, dated April 1, 2000
10.8 Stock Purchase Agreement among SkyAuction.com, Inc., Baring Latin America Private Equity Fund, L.P.,
Baring Asia Private Equity Fund, L.P. and other investors listed therein, dated as of March 17, 2000
10.9 Investors' Rights Agreement among SkyAuction.com, Inc., Baring Latin America Private Equity Fund,
L.P., Baring Asia Private Equity Fund, L.P. and other investors listed therein, dated as of
March, 2000
10.10 Stockholders' Agreement among SkyAuction.com, Inc. stockholders, dated as of March 30, 2000
10.11 Lease between SkyAuction.com, Inc. and Silk & Halpern Realty Associates, Inc., dated as of March 2000
10.12 Lease between SkyAuction.com, Inc. and Silk & Halpern Realty Associates, Inc., dated as of March 2000
10.13 Management Rights Agreement between SkyAuction.com, Inc. and Baring Asia Private Equity Fund, L.P.
10.14 Form of Joinder Agreement
10.15 Services Agreement between SkyAuction.com, Inc. and Magical Holidays, Inc. dated July 26, 2000
23.1* Consent of Proskauer Rose LLP (included in Exhibit 5.1)
23.3 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
------------------
* To be filed by amendment
II-3
<PAGE>
(B) Financial Statement Schedules:
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the combined financial statements
or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or 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 Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) of
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON JULY 27, 2000.
SKYAUCTION.COM, INC.
By: /s/ MARK HIRSCHHORN
---------------------------------
Mark Hirschhorn
Vice President, Finance
and Chief Financial Officer
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each director and officer whose
signature appears below hereby constitutes and appoints Mark Hirschhorn, Michael
N. Hering, or any of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution, to sign on his behalf individually and in any
and all capacities any and all amendments, including post-effective amendments
to a Registration Statement of Form S-1 and to file the same with all exhibits
thereto and all other documents in connection therewith with the Securities and
Exchange Commission, granting to such attorneys-in-fact and agents, and each of
them, full power and authority to do all such other acts and things requisite or
necessary to be done, and to execute all such other documents as they, or any of
them may deem necessary or desirable in connection with the foregoing, as fully
as the undersigned might or could do in person, hereby ratifying and confirming
all that such attorneys-in-fact and agents, or any of them, may lawfully do or
cause be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------------------------------------- ------------------------------------------------ ---------------------
<S> <C> <C>
/s/ MICHAEL N. HERING President, Chief Executive Officer and Director July 27, 2000
---------------------------------------- (Principal Executive Officer)
Michael N. Hering
/s/ SALVATORE P. ESPOSITO, JR. Executive Vice President, Chief Operating July 27, 2000
---------------------------------------- Officer and Director
Salvatore P. Esposito, Jr.
/s/ MARK HIRSCHHORN Vice President, Chief Financial Officer July 27, 2000
---------------------------------------- (Principal Financial Officer and Principal
Mark Hirschhorn Accounting Officer)
/s/ LEONARD SCHUTZMAN Non-Executive Chairman July 27, 2000
----------------------------------------
Leonard Schutzman
/s/ DEREK R. REISFIELD Vice Chairman, Director July 27, 2000
----------------------------------------
Derek R. Reisfield
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------------------------------------- ------------------------------------------------ ---------------------
<S> <C> <C>
/s/ THOMAS G. BAXTER Director July 27, 2000
----------------------------------------
Thomas G. Baxter
/s/ CIARA A. BURNHAM Director July 27, 2000
----------------------------------------
Ciara A. Burnham
/s/ MERLIN E. DEWING Director July 27, 2000
----------------------------------------
Merlin E. Dewing
/s/ VAREL D. FREEMAN Director July 27, 2000
----------------------------------------
Varel D. Freeman
/s/ MICHAEL H. JORDAN Director July 27, 2000
----------------------------------------
Michael H. Jordan
/s/ BRENT M. LONGNECKER Director July 27, 2000
----------------------------------------
Brent M. Longnecker
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the Registrant
3.2* By-Laws of the Registrant
4.1 Reference is hereby made to Exhibits 3.1 and 3.2
4.2 Specimen Certificate for Registrant's Common Stock
5.1* Opinion of Proskauer Rose LLP
10.1 2000 Omnibus Plan
10.2 Employment Agreement between SkyAuction.com, Inc. and Michael N. Hering, dated as of January 1, 2000
10.3 Employment Agreement between SkyAuction.com, Inc. and Salvatore Esposito, Jr., dated as of January 1,
2000
10.4 Employment Agreement between SkyAuction.com, Inc. and Mark Hirschhorn, dated June 16, 2000
10.5 Employment Agreement between SkyAuction.com, Inc. and Don Freno, dated as of July 1, 2000
10.6 Employment Agreement between SkyAuction.com, Inc. and Gerald L. Rydberg, dated as of April 1, 2000
10.7 Agreement between SkyAuction.com, Inc. and Derek Reisfield, dated April 1, 2000
10.8 Stock Purchase Agreement among SkyAuction.com, Inc., Baring Latin America Private Equity Fund, L.P.,
Baring Asia Private Equity Fund, L.P. and other investors listed therein, dated as of March 17, 2000
10.9 Investors' Rights Agreement among SkyAuction.com, Inc., Baring Latin America Private Equity Fund,
L.P., Baring Asia Private Equity Fund, L.P. and other investors listed therein, dated as of
March, 2000
10.10 Stockholders' Agreement among SkyAuction.com, Inc. stockholders, dated as of March 30, 2000
10.11 Lease between SkyAuction.com, Inc. and Silk & Halpern Realty Associates, Inc., dated as of March 2000
10.12 Lease between SkyAuction.com, Inc. and Silk & Halpern Realty Associates, Inc., dated as of March 2000
10.13 Management Rights Agreement between SkyAuction.com, Inc. and Baring Asia Private Equity Fund, L.P.
10.14 Form of Joinder Agreement
10.15 Services Agreement between SkyAuction.com, Inc. and Magical Holidays, Inc. dated July 26, 2000
23.1* Consent of Proskauer Rose LLP (included in Exhibit 5.1)
23.3 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
------------------
* To be filed by amendment
