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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 000-21657
SKYMALL, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 86-0651100
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1520 EAST PIMA STREET, PHOENIX, ARIZONA 85034
(Address of principal executive offices) (Zip Code)
(602) 254-9777
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 12, 2000, there were 13,334,420 shares of the Common Stock, $.001
par value, of the Company outstanding.
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SKYMALL, INC.
INDEX
PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999............................................. 3
Condensed Consolidated Statements of Operations - Three
months ended March 31, 2000 and 1999.......................... 4
Condensed Consolidated Statements of Cash Flows - Three
months ended March 31, 2000 and 1999.......................... 5
Notes to Condensed Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 26
PART II: OTHER INFORMATION
Item 1. Legal Proceedings................................................ 27
Item 2. Changes in Securities and Use of Proceeds........................ 27
Item 3. Defaults Upon Senior Securities.................................. 30
Item 4. Submission of Matters to a Vote of Security Holders.............. 31
Item 5. Other Information................................................ 31
Item 6. Exhibits and Reports on Form 8-K................................. 31
Signatures................................................................ 33
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SKYMALL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
March 31, December 31,
2000 1999
----------- ------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 6,501 $ 16,060
Accounts receivable, net 8,402 11,994
Inventory 1,359 1,300
Income tax receivable 972 968
Prepaid catalog costs and other 1,709 2,914
-------- --------
Total current assets 18,943 33,236
Property and equipment, net 12,561 12,869
Goodwill, net 2,766 2,817
Other assets, net 1,263 1,327
-------- --------
Total assets $ 35,533 $ 50,249
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,280 $ 24,136
Accrued liabilities 3,808 3,979
Unearned revenue 554 1,298
Current portion of notes payable
and capital leases 1,085 28
-------- --------
Total current liabilities 18,727 29,441
Notes payable and capital leases, net
of current portion 8,526 5,190
-------- --------
Total liabilities 27,253 34,631
-------- --------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock 13 13
Additional paid-in capital 34,003 33,884
Accumulated deficit (25,736) (18,279)
-------- --------
Total shareholders' equity 8,280 15,618
-------- --------
Total liabilities and
shareholders' equity $ 35,533 $ 50,249
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
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SKYMALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except shares and per share data)
(Unaudited)
Three months ended
March 31,
----------------------------
2000 1999
------------ ------------
Revenues:
Merchandise sales, net $ 15,645 $ 9,818
Placement fees and other 4,362 4,361
------------ ------------
Total revenues 20,007 14,179
Cost of goods sold 12,761 7,511
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Gross margin 7,246 6,668
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Operating expenses:
Media expenses 3,026 2,602
Selling expenses 1,086 834
Customer service and fulfillment expenses 1,837 1,798
General and administrative expenses 8,544 5,033
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Total operating expenses 14,493 10,267
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Loss from operations (7,247) (3,599)
Interest expense (150) (11)
Interest and other income (expense) (61) 77
------------ ------------
Loss before income taxes (7,458) (3,533)
Income tax benefit -- (1,318)
------------ ------------
Net loss $ (7,458) $ (2,215)
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Basic net loss per common share $ (0.57) $ (0.24)
============ ============
Basic weighted average shares outstanding 12,983,824 9,118,906
============ ============
Diluted net loss per common share $ (0.57) (0.24)
============ ============
Diluted weighted average shares outstanding 12,983,824 9,118,906
============ ============
See accompanying Notes to Condensed Consolidated Financial Statements.
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SKYMALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three months ended
March 31,
-------------------------
2000 1999
--------- ---------
Cash flows from operating activities:
Net loss $ (7,458) $ (2,215)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 944 401
Changes in operating assets and liabilities (6,955) (2,880)
-------- --------
Net cash used in operating activities (13,469) (4,694)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (603) (686)
-------- --------
Net cash used in investing activities (603) (686)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 119 1,047
Proceeds from long-term debt 4,400 --
Payments on notes payable and capital leases, net (6) (20)
-------- --------
Net cash provided by financing activities 4,513 1,027
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Decrease in cash and cash equivalents (9,559) (4,353)
Cash and cash equivalents,
beginning of period 16,060 7,951
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Cash and cash equivalents,
end of period $ 6,501 $ 3,598
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See accompanying Notes to Condensed Consolidated Financial Statements.
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SKYMALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(In thousands, except shares and per share data)
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
SkyMall, Inc. (the Company) was incorporated in 1989 as an Arizona
corporation (and reincorporated in Nevada in October 1996). The Company is an
integrated specialty retailer that markets high quality products and services
via various media, including the SkyMall in-flight print catalogs, workplace
catalogs, multi-media CD-ROM, DVD and on the Internet at WWW.SKYMALL.COM,
WWW.SKYMALLTRAVEL.COM, WWW.DURHAM.SKYMALL.COM and WWW.SKYDISC.COM. The Company
maintains minimum levels of inventory related to products sold through the
Company's channels. Substantially all products displayed in the Company's
in-flight print catalogs and the Company's Web site are acquired from
participating merchants when a customer places an order with the Company.
CONSOLIDATION
The condensed consolidated financial statements include the accounts of
SkyMall, Inc. and its wholly-owned subsidiaries, skymall.com, inc., Durham &
Company, Disc Publishing, Inc. and SkyMall Ventures, Inc., and include all
adjustments and reclassifications necessary to eliminate the effect of
significant inter-company accounts and transactions.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Certain information and footnote disclosures normally included in consolidated
financial statements have been condensed or omitted pursuant to such rules and
regulations. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999. The condensed consolidated results of operations for the three-month
period ended March 31, 2000, are not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - NET LOSS PER COMMON SHARE
Basic net loss per common share is based upon the weighted average
shares outstanding. Outstanding stock options and warrants are treated as common
stock equivalents for the purposes of computing diluted net loss per common
share and represent the difference between basic and diluted weighted average
shares outstanding. The following is a summary of the computation of basic and
diluted net loss per common share (amounts in thousands except shares and per
share amounts):
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Three months ended
March 31,
-------------------------
2000 1999
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Basic net loss per common share:
Net loss $ (7,458) $ (2,215)
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Weighted average common shares 12,983,824 9,118,906
========== ==========
Basic per share amount $ (0.57) $ (0.24)
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Three months ended
March 31,
-------------------------
2000 1999
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Diluted net loss per common share:
Net loss $ (7,458) $ (2,215)
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Weighted average common shares 12,983,824 9,118,906
Options and warrants assumed exercised -- --
---------- ----------
Total common shares plus assumed exercises 12,983,824 9,118,906
========== ==========
Diluted per share amount $ (0.57) $ (0.24)
========== ==========
As a result of anti-dilutive effects, approximately 266,520 and 490,640 employee
options and other common stock equivalents were not included in the computation
of diluted earnings per share for 2000 and 1999, respectively.
NOTE 3 - SEGMENT AND RELATED INFORMATION
The Company is an integrated e-commerce specialty retailer that
provides a vast selection of premium-quality products and services to consumers
from a wide variety of merchants and partners. The Company's operations are
classified into two reportable business segments: business-to-consumer and
business-to-business. Business initiatives for the Company's two reportable
business segments are managed separately while support functions are combined.
The business-to-consumer segment provides retail merchandise service
through the Company's in-flight catalogs placed in domestic and international
airlines and through the Company's Web site. The business-to-business segment
provides retail merchandise services, employee logo and corporate recognition
merchandise and advertising media to other businesses through loyalty catalogs,
workplace catalogs, CD-ROM and the Company's Web site. Previously, the Company
defined its reportable business segments by in-flight catalog, workplace catalog
and Web site. All periods presented have been adjusted to reflect the new
reportable business segments.
The Company evaluates the performance of its segments based on revenues and
gross margins. Operating expenses are included with corporate expense and are
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not allocated to the business segments. The accounting policies of the
reportable segments are the same as those used in the consolidated financial
statements and described in Note 1 of these condensed consolidated financial
statements. Inter-segment transactions are not significant.
Revenues and gross margin for the business segments are as follows
(amounts in thousands):
Business-to- Business-to-
March 31, Consumer Business Corporate Total
- --------------------------------------------------------------------------------
2000
Revenues $ 16,949 $ 3,058 $ -- $ 20,007
Gross margin 6,357 889 -- 7,246
Operating expenses -- -- 14,493 14,493
Loss from operations (7,247)
- --------------------------------------------------------------------------------
1999
Revenues $ 13,206 $ 973 $ -- $ 14,179
Gross margin 6,288 380 -- 6,668
Operating expenses -- -- 10,267 10,267
Loss from operations (3,599)
- --------------------------------------------------------------------------------
Identifiable assets available to support the Company's
business-to-business segment approximate $4,876,000 and $4,301,000 at March 31,
2000 and 1999, respectively. The remaining assets which are combined to support
the Company's two reportable business segments, approximate $30,657,000 and
$20,888,000 at March 31, 2000 and 1999, respectively.
NOTE 4 - BUSINESS ACQUISITION
In September 1999, the Company completed a merger with Disc Publishing,
Inc. SkyMall issued 280,555 shares of its common stock in exchange for all of
the outstanding common stock of Disc Publishing based on a merger exchange ratio
of 2.8 shares of the Company's common stock for each share of Disc Publishing
common stock. The merger qualified as a tax-free exchange and was accounted for
as a pooling of interests. Accordingly, the Company's 1999 condensed
consolidated financial statements have been restated to include the combined
financial results of SkyMall and Disc Publishing, Inc. The following table
presents a reconciliation of revenues and net loss previously reported by the
individual companies to those presented in the accompanying condensed
consolidated financial statements (amounts in thousands).
Three months ended
March 31, 1999
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REVENUES:
SkyMall $ 14,178
Disc Publishing 1
--------
Total Revenues $ 14,179
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Three months ended
March 31, 1999
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NET LOSS:
SkyMall $ (2,087)
Disc Publishing (128)
--------
Net loss $ (2,215)
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NOTE 5 - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133 - Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
The statement, which was to be applied prospectively, is effective for the
Company's quarter ended March 31, 2000. In June 1999, the FASB issued SFAS 137 -
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133. This statement deferred the effective
date of SFAS 133 to the Company's quarter ending March 31, 2001. The Company is
currently evaluating the impact of SFAS 133 on its future results of operations
and financial position.
In January 1999, the Company adopted Statement of Position 98-1,
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE." This Statement of Position ("SOP") provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. The statement identifies the characteristics of internal-use software, the
capitalization criteria and the amortization method. SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. Under SOP 98-1, the Company
capitalized costs of $507,000 and $190,000 during the three months ended March
31, 2000 and 1999, respectively.
The Company follows the guidance of Accounting Principles Board ("APB")
Opinion No. 29, "ACCOUNTING FOR NON-MONETARY TRANSACTIONS." This APB opinion
provides guidance on accounting for transactions that involve primarily an
exchange of non-monetary assets, liabilities or services ("barter
transactions"). Placement fees and other revenues include barter revenues, which
represent an exchange by SkyMall of advertising space in its print and
e-commerce media for reciprocal services, including print and e-commerce
advertising. Revenues and expenses from barter transactions are recorded at the
lower of estimated fair value of the services received or delivered. Revenue and
expenses recognized from barter transactions were approximately $250,000 for the
three months ended March 31, 2000. Barter transactions were not significant
during the three months ended March 31, 1999.
On December 3, 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS, which provides additional guidance in applying generally accepted
accounting principles for revenue recognition in consolidated financial
statements. The issuance of SAB No. 101 did not have a material impact on the
revenue recognition method of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition and should be read in conjunction with the
attached Condensed Consolidated Financial Statements and Notes thereto and with
the Company's audited Consolidated Financial Statements, the Notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations relating thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.
Unless the context indicates otherwise, the terms "SkyMall," the "Company,"
"we," "us" or "ours" refer to SkyMall, Inc. and its subsidiaries, skymall.com,
inc., Durham & Company, Disc Publishing, Inc. and SkyMall Ventures, Inc.
FORWARD-LOOKING STATEMENTS
Certain statements made herein, in future filings by the Company with the
Securities and Exchange Commission and in the Company's written and oral
statements made by or with the approval of an authorized executive officer, may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. These statements
discuss, among other items, the Company's growth strategy and anticipated trends
in its business. Words and phrases such as "should be," "will be," "believes,"
"expects," "anticipates," "plans," "intends," "may" and similar expressions
identify forward-looking statements. Forward-looking statements are made based
upon our belief as of the date that such statements are made. These
forward-looking statements are based largely on our current expectations and are
subject to a number of risks and uncertainties, many of which are beyond our
control. Actual results could differ materially from these forward-looking
statements as a result of the factors described herein, including, among others,
regulatory or economic influences. Examples of uncertainties which could cause
such differences include, but are not limited to, the Company's dependence on
its relationships with its airline, merchant and other partners, the ability of
the Company to attract and retain key personnel, especially highly skilled
technology personnel, the ability of the Company to secure additional capital to
finance its business strategy, fluctuations in paper prices and airline fuel
costs, customer credit risks, competition from other catalog companies,
retailers and e-commerce companies, and the Company's reliance on technology and
information and telecommunications systems, all of which are discussed more
fully below and in the Company's other filings with the Securities and Exchange
Commission. The Company undertakes no obligation to publicly update or revise
any forward-looking statements whether as a result of new information, future
events, or otherwise. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- ADDITIONAL FACTORS THAT MAY AFFECT FUTURE
RESULTS."
GENERAL
Founded in 1989, SkyMall, Inc., a Nevada corporation, is an integrated
specialty retailer that markets high-quality products and services through a
number of unique channels and partnerships. The Company offers its products and
services via various media, including the SkyMall in-flight print catalogs,
workplace catalogs, multi-media CD-ROM, DVD and on the Internet at
WWW.SKYMALL.COM, WWW.SKYMALLTRAVEL.COM, WWW.DURHAM.SKYMALL.COM and
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WWW.SKYDISC.COM SkyMall is best known for its in-flight catalog, which is
available on more than 70% of all domestic airlines, reaching approximately 500
million domestic airline passengers annually. Through its skymall.com, inc.
subsidiary, which operates the SKYMALL.COM(TM) anD SKYMALLTRAVEL.Com(TM) Web
sites, SkyMall offers an expanded selection of products and services to online
shoppers and enables other companies to conduct electronic commerce using
skymall.com's merchant solution. Through another subsidiary, Durham & Company,
SkyMall offers high-quality logo merchandise via its catalogs, workplace
initiatives and the DURHAM.SKYMALL.COM Web site. SkyMall's subsidiary, Disc
Publishing, Inc., produces the CD-ROM, SkyDisc(TM), which provides advertising,
entertainment and e-commerce shopping links to travelers through airline seat
pocket distribution and the SKYDISC.COM Web site. SkyMall's new subsidiary,
SkyMall Ventures, Inc., is responsible for the Company's broadband, DVD, new
media and business-to-business custom loyalty initiatives.
SkyMall operates two distinct segments, which include its
business-to-consumer and business-to-business initiatives. The
business-to-consumer segment provides retail merchandise service through the
Company's in-flight catalogs placed in domestic and international airlines and
through the Company's Web site. The business-to-business segment provides retail
merchandise services, employee logo and corporate recognition merchandise and
advertising media to other businesses through loyalty programs and catalogs,
workplace catalogs, CD-ROM, and the Company's Web site.
BUSINESS-TO-CONSUMER SEGMENT
OVERVIEW
SkyMall is a "one-stop" shopping source for customers who may purchase a
variety of merchandise from many different well-known merchants in a single
transaction. Although most of the merchandise offered by SkyMall, both in its
print catalogs and on its SKYMALL.COM Web site, is available from other catalog
and retail companies, each of these companies typically has its own policies for
shipping and handling charges, merchandise returns, sales taxes and price
guarantees, as well as its own Web site. In addition, each company typically has
different customer service hours and credit and payment policies.
By aggregating the merchandise of our various participating merchants into
a single location in our print catalog and on our Web site, we offer our
customers a diverse variety of products from numerous retailers and product
categories, including clothing, fashion accessories, health and beauty aids,
children's toys, executive gifts, educational products, gourmet cooking aids,
exercise equipment, jewelry, luggage, travel aids, and home accessories. Some of
the retailers who offer their products and/or services through our print
catalogs or on our Web site are: American Historic Society, Australian Outback
Collection, Balducci's, Canadian Geographic, Frontgate(R), FTD.com,
garden.com(TM), Hammacher Schlemmer(R), Improvements(R), Lillian Vernon(R), L.L.
Bean(R), Magellan's(R), Orvis(R), Plow & Hearth(R), Reliable Home Office, Seiko
Instruments, Successories(R), The Sharper Image(R), T. Shipley(R), and The Wine
Enthusiast(TM).
PRINT MEDIA
GENERAL. We market our merchandise through a number of print media,
including our in-flight catalogs and international catalogs. The merchandise of
each participating merchant in our catalogs is presented in a separate section
of each catalog to allow browsing from "store-to-store," providing the
convenience and variety of an upscale shopping mall environment.
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Our print media provides consumers with a selection of only the
best-selling products from our most well-known merchant partners. This ensures
that consumers quickly see the most popular items, without having to review
hundreds of items that may be of little interest. Through our SKYMALL.COM Web
site, we offer online consumers a larger product selection.
SKYMALL DOMESTIC IN-FLIGHT CATALOGS. Our in-flight catalogs, which are
placed in airline seat pockets, are our largest distribution channel. Over the
past ten years, we have experienced substantial growth in our domestic in-flight
catalog business. We have exclusive agreements to place our catalogs on 18
airlines, making our catalog available to approximately 500 million airline
passengers annually. These 18 airlines, which carried approximately 70% of all
domestic passengers in 1999, include America West Airlines, Continental
Airlines, Delta Air Lines, Northwest Airlines, Southwest Airlines, United
Airlines and US Airways. The Company's catalogs carry the SkyMall name on all
participating airlines, except US Airways, which offers the SkyMall catalog
under the name "Selections." In order to enhance the appeal of our product
offerings, we produce four new domestic in-flight catalogs per year. To gain
efficiency in production and printing, the catalog content is substantially the
same for all of our airline partners.
The SkyMall program offers airlines a low-risk means of incrementally
increasing their earnings. In exchange for placement of our catalogs in
seat-back pockets, we pay each airline partner a monthly commission based on net
merchandise revenues generated by the Company from sales to that airline's
passengers. Some agreements also require payment of a minimum monthly commission
or a boarding cost that reimburses the airline for the increased fuel costs
attributable to the weight of the catalogs. We believe our relations with each
of our airline partners are good.
SKYMALL INTERNATIONAL IN-FLIGHT CATALOGS. We believe that the demographic
and technological trends that are driving the domestic consumer to shift from
traditional retail shopping are also present in many international markets,
which we believe are substantially under-served. In early 1998, we launched an
international initiative under which we began making specialized catalogs
available to passengers on certain international flights traveling to Japan and
serving the Pacific Rim featuring merchandise tailored to this audience.
Although international sales have been immaterial to our total net
merchandise sales, we plan to continue exploring opportunities in these markets.
SkyMall continues to gain experience in international markets, including the
areas of merchandising, customer service and fulfillment. The Company believes
that its experience in the domestic in-flight business, as well as its Web-based
infrastructure, will enable it to maintain its presence in international
markets, particularly those with a strong interest in U.S. products or where
remote shopping already has some level of acceptance by consumers.
OTHER PRINT MEDIA PROGRAMS. We provide unique, upscale catalogs to the
membership-oriented airport lounges of one of our major airline partners. The
SkyMall catalogs are also available on certain Northeastern routes of Amtrak.
ELECTRONIC MEDIA
GENERAL. We launched our first Internet Web site in January of 1996 and
since then have continued to refine and develop our e-commerce strategies. In
1999, we devoted substantial financial, marketing, technical and personnel
resources to further develop our electronic commerce initiatives. Our strategies
in this area included, among other things, (i) significantly improving the look
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and feel, as well as the speed, performance and search functionality of our Web
sites, (ii) further development of our technology and other business
infrastructures used to convey orders and provide order status information to
our customers, (iii) conducting marketing and other promotional campaigns
through both online and off-line media designed to enhance brand awareness of
the SkyMall name and drive traffic to our Web site, (iv) significantly
increasing the selection and variety of products for our programs, and (v)
developing non-product travel-related content for our Web site that encourages
consumers to visit our site for information as well as shopping.
In February 2000, we re-launched our Web site, SKYMALL.COM, in the
culmination of our year-long technology development efforts. The new site
includes both improvements to the consumer shopping experience as well as
significant advances in the overall performance, speed and stability of the
site. Our new Web site is more consumer-friendly due to improved navigation
capabilities, new features and an enhanced search engine, which enables
customers to search and define their shopping needs. The most noticeable change
for consumers is the redesign of our home page, which is visually more appealing
with key consumer features prominently displayed. In addition, based on formal
user testing surveys, the flow of the user checkout process has been vastly
simplified.
Using data modeling, skymall.com created its newest feature, the Gift Shop,
with a search feature that enables the user to shop according to occasion, price
categories and gender. Data modeling also has been used more extensively on the
Web site to sort by category and sub-category, which enables customers to search
and define their shopping needs faster and easier. In addition, we have added
e-reminders, e-cards and wishlist functionality, together with a "specials"
area, which features new promotions on a regular basis to encourage consumers to
return to the site to take advantage of special offers. The "specials" area also
provides easy access to skymall.com's travel site, SKYMALLTRAVEL.COM, as well as
other rewards partners. For further discussion, see "BUSINESS-TO-BUSINESS
SEGMENT."
CONSUMER INCENTIVE AND LOYALTY PROGRAMS. The loyalty and award point
industry is anticipated to become a strong market for the Company, both for
print catalogs, CD-ROM and DVD. We are in the process of defining programs and
services that will be offered to customers of other companies' loyalty programs.
BUSINESS-TO-BUSINESS SEGMENT
OVERVIEW
SkyMall's business-to-business segment provides unique solutions for
corporate clients. In particular, this segment offers retail merchandise
services through loyalty programs, workplace catalogs, CD-ROM, DVD and the
Company's Web site. Through these initiatives, SkyMall offers custom solutions
to loyalty programs for redemption of program points for SkyMall merchandise.
The workplace catalog presents high-quality, customized logo merchandise. The
CD-ROM program and, upon distribution, the DVD program will provide customers
with an opportunity to experience a broadband experience from the comfort of
their home or on the road through a laptop. This channel provides businesses
with a new advertising medium combined with SkyMall's favorable demographics.
Additionally, the SKYMALL.COM Web site provides our affiliate partners a
mechanism to offer products to their customer bases.
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PRINT MEDIA
WORKPLACE MERCHANDISE CATALOGS. Through our subsidiary, Durham & Company, a
Utah corporation, acquired in October 1998, we offer logo merchandise and
recognition products to employees of a number of blue-chip organizations,
primarily through print catalogs and since September 1999, on the
durham.skymall.com Web site. Competing in the highly fragmented incentive
industry, Durham distinguishes itself by providing high-quality products and
excellent customer service and focuses its marketing efforts on large
organizations.
INCENTIVE AND LOYALTY PROGRAMS. The loyalty and award point industry is
anticipated to become a strong market segment for the Company, both for print
catalogs, CD-ROM and DVD. We are in the process of defining programs and
services that will be offered in the future to loyalty programs. In late 1999,
we entered into an agreement with Marriott to allow loyalty program participants
to redeem points for specially selected merchandise. This agreement expired in
April 2000. In March 2000, SkyMall entered into an agreement with The GM
Card(R), a division of General Motors Corporation(R), to provide a unique
selection of merchandise to customers who acquire The New GM CardSM allowing its
card members to redeem Earnings for non-vehicle offers including unique
merchandise from skymall.com. In April 2000, SkyMall entered into agreements
with employee savings.com to join its network of premium product and service
providers offering exclusive savings to more than 1.4 million FORTUNE 1000
employees and their families, and with ISP Channel, SoftNet Systems, Inc.'s
wholly-owned broadband Internet access-over-cable service provider, to provide
e-commerce opportunities for its customers by establishing a co-branded closed
e-commerce link from ISP Channel Neighborhood Web sites to SkyMall's skymall.com
Web site.
ELECTRONIC MEDIA
AFFILIATE PROGRAM. In addition to developing our own Web sites, we have an
affiliate program through which we provide a turn-key merchant solution to
businesses that are interested in providing SkyMall's merchandise to visitors to
their own Web sites. Our unique proprietary technology and other systems allow
us to quickly and cost-effectively implement affiliate site programs. Visitors
to SkyMall's affiliate sites go directly to a SkyMall site, which is typically
co-branded with the affiliate partner, for shopping services. After shopping,
the customers are directed back exclusively to the site from which they began so
that the affiliate partner does not lose the benefit of the traffic to its site.
Although an online store can be privately labeled for our affiliate partners,
most of our affiliate sites are co-branded to increase SkyMall's brand awareness
as well as generate affinity for our online partners. Participants in our
affiliate program include some of our airline partners and related entities,
such as Delta Air Lines, Delta Crown Room, Continental Airlines, Northwest
Airlines, America West Airlines and US Airways. Other participants include Visa
USA, Visa International, First USA, the largest Visa card issuer and a banking
leader in electronic commerce. The Company continues to evaluate the success of
its individual affiliates and, in some cases, has terminated relationships while
it continues to pursue new affiliations.
OTHER ELECTRONIC MEDIA. In July 1999, SkyMall launched its
SKYMALLTRAVEL.COM Web site targeted to frequent travelers, which provides
one-stop access for all their travel needs. SKYMALLTRAVEL.COM organizes many of
the best travel resources in one place, including linked directories for
airlines, hotels, rental car and online booking services, as well as content and
tools that assist business travelers before, during and after their trips.
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Through our subsidiary, Disc Publishing, Inc., a Utah corporation acquired in
September 1999, we offer SkyDisc(TM), an interactive CD-ROM targeted to the
business traveler. SkyDisc integrates high-quality print, broadcast and online
media to provide an exciting mix of topics that entertain, inform and enhance
the business travelers' life. SkyDisc offers the consumer the option of using
the disk on their laptop computer whether onboard the aircraft, in a hotel, at
the office, or at home. While using the disk online, consumers can link to Web
sites promoted on SkyDisc to get more information and services. Every other
month a new "issue" of SkyDisc is available free in airline seatback pockets to
more than 400,000 SkyWest Airlines passengers per month.
RESULTS OF OPERATIONS
REVENUES
(In thousands)
--------------------------------------------------
2000 % Change 1999
---- -------- ----
Merchandise sales, net $15,645 59.3% $ 9,818
Placement fees and other $ 4,362 0.0% $ 4,361
Total revenues $20,007 41.1% $14,179
Net merchandise sales are composed of the selling price of merchandise and
services sold by the Company, net of returns. Growth in net merchandise sales
for the three months ended March 31, 2000, reflects an increase in
business-to-business sales of $2.0 million, and business-to-consumer sales of
$3.8 million. Placement fees and other are composed of fees paid by
participating merchants to include their products or advertisements in the
Company's print and electronic media, outbound shipping charges to customers and
other revenues. Placement fees and other, which remained level in absolute
dollars for the three months ended March 31, 2000, included an increase in
shipping revenue related to increased net merchandise sales offset by a decrease
in upsell programs.
GROSS MARGIN
(In thousands)
--------------------------------------------------
2000 % Change 1999
---- -------- ----
Gross margin $ 7,246 8.7% $6,668
Gross margin percentage 36.2% 47.0%
Gross margin consists of revenues less the cost of goods sold, which
consists of the cost of merchandise sold to customers as well as outbound and
inbound shipping costs and other revenue. Gross margin increased in absolute
dollars reflecting the Company's increased sales volume, while the gross margin
percentage declined in the first quarter of 2000 reflecting the effect of the
mix of merchant agreements between variable compensation agreements and fixed
placement fees, lower margin agreements to increase certain business-to-business
initiatives, free shipping promotions and a reduction in revenues from upsell
programs.
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OPERATING EXPENSES
(In thousands)
--------------------------------------------------
2000 % Change 1999
---- -------- ----
Media expenses $ 3,026 16.3% $2,602
Selling expenses $ 1,086 30.2% $ 834
Customer service and
fulfillment expenses $ 1,837 2.2% $1,798
General and administrative
expenses $ 8,544 69.8% $5,033
Media expenses consist of the cost to produce and distribute our in-flight
print catalogs and CD-ROM. The media expenses increase in 2000 primarily
reflects the increase in catalog circulation and catalog production costs.
Selling expenses consist primarily of commissions paid to marketing
partners and are variable in nature. The increase in selling expenses in 2000
reflects the increased sales volume and the addition of marketing partners.
Customer service and fulfillment expenses consist of costs to maintain a
full-service customer contact and order fulfillment center. Customer service and
fulfillment remained level in absolute dollars in 2000 while net merchandise
sales increased reflecting the increase in orders processed through the
Company's Web site.
General and administrative expenses consist primarily of department
expenses, except customer service and fulfillment expenses, including payroll
and related costs, professional fees, marketing, information technology and
general corporate expenses. The 2000 increase in general and administrative
expenses reflected increases in the following areas: $700,000 in marketing
efforts; $1.8 million in information technology development and support;
$200,000 in additional expenses associated with acquired entities; $500,000 in
depreciation primarily due to investments in information technology; and
$300,000 in other general and administrative expenses related to the Company's
business initiatives.
INTEREST EXPENSE
(In thousands)
--------------------------------------------------
2000 % Change 1999
---- -------- ----
Interest expense $150 126.4% $ 11
Interest expense consists of interest paid on the various debt obligations
of the Company. Interest expense increase in 2000 is a result of additional
borrowings, primarily from the Company's revolving line of credit.
INTEREST AND OTHER INCOME (EXPENSE)
(In thousands)
--------------------------------------------------
2000 % Change 1999
---- -------- ----
Interest and other income
(expense) $(61) (179.2)% $ 77
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Interest and other income (expense) consist primarily of interest income on
cash and marketable securities and bank fees. Interest and other income
(expense) decreased in 2000 due to lower investment balances resulting from
funding the Company's business initiatives and financing fees of $100,000
recognized in 2000.
INCOME TAXES
(In thousands)
--------------------------------------------------
2000 % Change 1999
---- -------- ----
Income tax benefit $ 0 100% $(1,318)
The Company has provided a valuation allowance on the deferred tax asset in
an amount necessary to reduce the net deferred tax asset to zero resulting in no
income tax benefit recorded in 2000. The income tax benefit for 1999 is due to
operating losses for income tax purposes which are available to carryback and
apply against prior years taxable income resulting in an income tax refund. The
Company has approximately $28 million of federal net operating loss
carryforwards which may be used to offset future taxable income. These loss
carryforwards begin to expire in 2019.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company's cash balance was $6.5 million compared to
$16.1 million at December 31, 1999.
Cash used in operating activities of $13.5 million and $4.7 million for the
three months ended March 31, 2000 and 1999, respectively, was primarily
attributable to the net loss and a decrease in accounts payable offset by a
decrease in accounts receivable.
Cash used in investing activities of $603,000 and $686,000 for the three
months ended March 31, 2000 and 1999, respectively, was due to the purchase of
computer equipment, software, and furniture and fixtures.
Cash provided by financing activities of $4.5 million for the three months
ended March 31, 2000, resulted primarily from long-term debt borrowings of $4.4
million and the issuance of $119,000 of common stock from the exercise of stock
options. Cash provided by financing activities of $1.0 million for the three
months ended March 31, 1999, resulted from the issuance of $1.0 million of
common stock from the exercise of stock options and warrants.
WORKING CAPITAL AND NEGATIVE PROFITABILITY TRENDS
At March 31, 2000, the Company had net working capital of $216,000 and cash
and cash equivalents of $6.5 million. On June 30, 1999, the Company secured a
$10 million revolving line of credit at a bank, under the terms of which $5
million was immediately available and the remaining $5 million was to become
available, subject to certain conditions, upon the Company raising a minimum of
$15 million in subordinated debt and/or equity. In the fourth quarter of 1999,
the Company raised approximately $25 million in a series of private equity
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transactions, resulting in the entire $10 million being available to the Company
under such credit line. As of May 12, 2000, a total of $9.4 million had been
drawn on the line of credit. As of May 12, 2000, certain provisions of the
credit line have limited the amount currently available under the credit line to
$8.3 million. Accordingly, at its option, the bank could request repayment of up
to approximately $1.1 million on the credit line.
During April and May 2000, the Company received a total of approximately
$2.7 million from the exercise of warrants that were issued in connection with
the Company's private placements in the fourth quarter of 1999. See Part II,
Item 2, "CHANGES IN SECURITIES AND USE OF PROCEEDS" for complete details
regarding the Private Offerings.
The Company plans to finance its working capital needs and capital
expenditures through a combination of funds from operations, its existing bank
line of credit and by securing additional financing resources through the
issuance of debt and/or equity securities. There can be no assurance that the
Company will be able to secure additional financing to meet its working capital
needs or to secure such financing on terms favorable to the Company. A failure
to secure such financing may be detrimental to the Company. See also,
"ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS."
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to other information in this Quarterly Report on Form 10-Q, the
following important factors should be carefully considered in evaluating the
Company and its business because such factors currently have a significant
impact or may have a significant impact on the Company's business, prospects,
financial condition and results of operations.
WE REPORTED LOSSES IN FISCAL 1999 AND MAY NOT BE PROFITABLE IN THE FUTURE.
While we have been profitable in the past, and are planning to be profitable by
the fourth quarter of 2000, we incurred a net loss of $24,140,000 for the fiscal
year ended December 31, 1999. We expect to experience fluctuations in our future
operating results due to a variety of factors, many of which are outside the
Company's control, including the following:
o the demand for our products and services,
o the level of competition in the merchants we serve,
o our success in maintaining and expanding our distribution channels,
o our success in attracting and retaining motivated and qualified
personnel,
o our ability to expand into existing and new domestic, as well as
international markets,
o our development and marketing of new products and services,
o our ability to control costs, and
o general economic conditions.
Our operating results will be materially and adversely affected if we do not
successfully address these and other risks.
WE MAY NOT BE ABLE TO RAISE SUFFICIENT CAPITAL. Our existing line of credit
and cash resources may not be sufficient to permit the Company to fully
implement its business plan. In order to fully implement our business plan, we
may need to raise additional capital from third parties or otherwise secure
additional financing for the Company. There can be no assurance that the Company
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will be able to successfully raise additional capital or secure other financing,
or that such funding will be available on terms that are favorable to the
Company. To the extent we are unable to raise sufficient additional capital or
secure other financing, this could have a material adverse effect on the
Company.
OUR BUSINESS MAY NOT GROW IN THE FUTURE. Since our inception, we have
rapidly expanded our operations, growing from total revenues of $200,000 in 1990
to total revenues of $78.9 million in 1999. Our continued future growth will
depend to a significant degree on our ability to increase revenues from our
existing businesses, maintain existing channel partner relationships and develop
new channel partner relationships, expand our product and content offering to
consumers, while maintaining adequate gross margins, and implement other
programs that increase the circulation of the SkyMall print catalogs and
generate traffic for our e-commerce programs. Our ability to implement our
growth strategy will also depend on a number of other factors, many of which are
or may be beyond our control, including:
o our ability to select products that appeal to our customer base and
effectively market them to our target audience,
o sustained or increased levels of airline travel, particularly in
domestic airline markets,
o increasing adoption by consumers of the Internet for shopping,
o the continued perception by participating merchants that we offer an
effective marketing channel for their products and services, and
o our ability to attract, train and retain qualified employees and
management.
There can be no assurance that we will be able to successfully implement our
growth strategy.
OUR FUTURE GROWTH IS IN PART DEPENDENT UPON THE CONTINUED GROWTH OF THE
ELECTRONIC COMMERCE MARKET. The market for the sale of products and services
over the Internet is a new and rapidly evolving market. Our future growth
strategy is partially dependent upon the widespread acceptance and use of online
services as an avenue for retail purchases. There is no assurance that consumers
will continue to make purchases over the Internet in the future. In order for us
to grow our online customer base, we will need to attract purchasers who have
historically relied upon traditional venues for making their retail purchases.
If use of online services does not continue to grow as expected, or if the
technological infrastructure for the Internet is unable to effectively support
its growing use, our growth strategy, business and financial condition may be
materially adversely affected.
WE MAY BE UNABLE TO MANAGE THE POTENTIAL GROWTH OF OUR BUSINESS. Our
potential growth may place significant demands upon our personnel, management
and financial resources. There is no assurance that our current personnel,
systems, procedures and controls will be adequate to support our future
operations, that we will be able to train, retain, motivate and manage necessary
personnel, or that our management will be able to identify, manage and exploit
existing and potential strategic relationships and market opportunities. If we
are unable to effectively manage any potential growth, our business and
financial condition could be adversely affected.
OUR PLANS FOR INTERNATIONAL OPERATIONS POSE ADDITIONAL RISKS. We have
limited experience in selling our products and services internationally.
International operations place additional burdens upon our management, personnel
and financial resources and may cause the Company to incur losses. We also face
different and additional competition in these international markets. In
addition, international operations have certain unique risks, such as regulatory
requirements, legal uncertainty regarding liability, tariffs and other trade
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barriers, difficulties in staffing and managing foreign operations, longer
payment cycles, political instability and potentially adverse tax implications.
To the extent we operate or expand our business internationally, we also are
subject to risks associated with international monetary exchange fluctuations.
Any one of these risks could affect our international operations, as well as
have a material adverse impact upon our overall business operations, growth and
financial condition.
WE FACE INTENSE COMPETITION. The distribution channels for our products are
highly competitive. From time to time in our airline catalog business,
competitors, typically other catalog retailers, have attempted to secure
contracts with various airlines to offer merchandise to their customers.
American Airlines and TWA currently offer merchandise catalogs to their
customers through a competitor. We also face competition for customers from
airport-based retailers, duty-free retailers, specialty stores, department
stores and specialty and general merchandise catalogs, many of which have
greater financial and marketing resources than we have. In addition, we compete
for customers with other in-flight marketing media, such as airline-sponsored
in-flight magazines and airline video programming. In our electronic commerce
sales, we face intense competition from other content providers and retailers
who seek to offer their products and/or services at their own Web sites or those
of other third parties. The success of online marketing cannot be currently
determined, and further penetration in this market will require substantial
additional financial resources, acquisition of technology, investments in
marketing and contractual relationships with third parties. Results will also be
affected by existing competition, which the Company anticipates will intensify,
and by additional entrants to the market who may already have the necessary
technology and expertise, many of whom may have substantially greater resources
than the Company.
DEPENDENCE ON CHANNEL RELATIONSHIPS. Our business depends significantly on
our relationships with the airlines, affiliate Web sites, hotels and other
channel partners. Some of our agreements with our channel partners are
short-term allowing the partner to terminate the relationship on 60-to-180 days'
advance notice. There is no assurance that our channel partners will continue
their relationships with us, and the loss of one or more of our significant
channel partners could have a material adverse effect on our business,
prospects, financial condition and results of operations.
WE MAY BE UNABLE TO MAINTAIN HISTORICAL MARGIN LEVELS. We may be unable to
increase or maintain our gross margins at historical levels, particularly for
our electronic commerce initiatives. As competition in online shopping
intensifies, our merchant participants may be unable or unwilling to participate
in our programs when more favorable economic arrangements may be available from
other third parties. Although many of our merchants have participated with us
for several years, most of our relationships are short-term and may be
re-negotiated by the merchant every 90 days. To the extent our gross margins
decline from historical levels, our business, financial condition and results of
operations may be adversely affected.
WE FACE CREDIT RISKS. Some participating merchants agree to pay a placement
fee to us for including their merchandise in our programs. We record an account
receivable from the merchant for the placement fee. In some cases, we collect
the placement fee either from the merchant or by withholding it from amounts due
to the merchant for merchandise sold. To the extent that the placement fee
receivable exceeds the sales of the merchant's products and the merchant is
unable or unwilling to pay the difference to us, we may experience credit
losses, which could have a material adverse effect on our business, financial
condition and results of operations.
WE ARE VULNERABLE TO INCREASES IN PAPER COSTS AND AIRLINE FUEL PRICES. The
cost of paper used to print our catalogs and the fees paid to airlines to
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reimburse them for the increased fuel costs associated with carrying our
catalogs are significant expenses of our operations. Historically, paper and
airline fuel prices have fluctuated significantly from time to time. Prices in
the paper market can and often do change dramatically over a short period of
time. Any significant increases in paper or airline fuel costs that we must pay
could have a material adverse effect on our business, financial condition and
results of operations.
OUR INFORMATION AND TELECOMMUNICATIONS SYSTEMS MAY FAIL OR BE INADEQUATE.
We process a large volume of relatively small orders. Consequently, our success
depends to a significant degree on the effective operation of our information
and telecommunications systems. These systems could fail for unanticipated
reasons or they may be inadequate to process any increase in our sales volume
that may occur. Any extended failure of our information and telecommunications
systems could have a material adverse effect on our business, financial
condition and results of operations.
WE FACE RISKS ASSOCIATED WITH ONLINE SECURITY BREACHES OR FAILURES. In
order to successfully make sales over the Internet, it is necessary that we can
ensure the secure transmission of confidential customer information over public
telecommunications networks. We employ certain technology in order to protect
such information, including customer credit card information. However, there is
no assurance that such information will not be intercepted illegally. Advances
in cryptography or other developments that could compromise the security of
confidential customer information could have a direct negative impact upon our
electronic commerce business. In addition, the perception by consumers that
making purchases over the Internet is not secure, even if unfounded, may mean
that fewer consumers are likely to make purchases through that medium. Finally,
any breach in security, whether or not a result of our acts or omissions, may
cause us to be the subject of litigation, which could be very time-consuming and
expensive to defend.
WE MAY NOT BE ABLE TO ADAPT TO RAPIDLY CHANGING TECHNOLOGIES OR WE MAY
INCUR SIGNIFICANT COSTS IN DOING SO. The Internet is characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, and changing customer demands. As a result of the rapidly
changing nature of the Internet business, we may be subject to risks, now and in
the future, of which we are not currently aware. To be successful, we must adapt
to our rapidly evolving market by continually enhancing our products and
services and introducing new products and services to address our customers'
changing and increasingly sophisticated requirements. We may use new
technologies ineffectively or we may fail to adapt our e-commerce
transaction-processing systems and infrastructure to meet customer requirements,
competitive pressures, or emerging industry standards. We could incur
substantial costs if we need to modify our services or infrastructure. Our
business could be materially and adversely affected if we incur significant
costs to adapt, or cannot adapt, to these changes.
BECAUSE WE DEPEND ON COMPUTER SYSTEMS, A SYSTEMS FAILURE WOULD CAUSE A
SIGNIFICANT DISRUPTION TO OUR BUSINESS. Our business, financial condition and
results of operations could be materially and adversely affected by any event
that interrupts or delays our operations. Our business depends on the efficient
and uninterrupted operation of our servers and communications hardware systems
and infrastructure. Any sustained or repeated systems interruptions that cause
our Web sites to become unavailable for use would result in our inability to
service our customers. While we have taken precautions against systems failure,
interruptions could result from our failure to maintain our computer systems and
equipment in effective working order, as well as natural disasters, power loss,
telecommunications failure, and similar events. We currently maintain our
computer systems at offices located in Arizona, Utah and New York.
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In addition, our users depend on telecommunications providers, Internet
service providers, and network administration for access to our products and
services. Our systems and equipment could experience outages, delays, and other
difficulties as a result of system failures unrelated to our systems.
OUR EQUIPMENT MAY BE UNABLE TO SUPPORT INCREASED VOLUME. Growth in the
number of users accessing our Web site may strain or exceed the capacity of our
computer and networking systems or the systems of our third party service
providers, which could result in impaired performance or systems failure. If
this occurs, customer service and satisfaction may suffer, which could lead to
dissatisfied users, reduced traffic, and an adverse impact on our business. Our
current systems may be inadequate to accommodate rapid traffic growth on our
servers.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION. Due to the
increasing popularity and use of the Internet, governmental or other regulatory
bodies in the United States and abroad may adopt additional laws and regulations
with respect to the Internet that cover issues such as content, privacy,
pricing, encryption standards, consumer protection, cross-border commerce,
electronic commerce, taxation, copyright infringement, and other intellectual
property issues. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, content, taxation, defamation, and
personal privacy is uncertain. Any new legislation or regulation or governmental
enforcement of existing regulations may limit the growth of the Internet,
increase our cost of doing business or increase our legal exposure. We currently
are not subject to direct regulation by any governmental agency other than laws
and regulations generally applicable to businesses and specifically, mail order
businesses. We cannot predict the impact, if any, that any future regulatory
changes or development may have on our business, financial condition, and
results of operations. Changes in the regulatory environment relating to the
Internet could have a material adverse effect on our business, financial
condition, and results of operations.
SECURITY PROTECTION FOR OUR NETWORK MAY BE INSUFFICIENT. We believe that
concern regarding the security of confidential information, such as credit card
numbers, prevents many people from engaging in online commercial transactions.
We face potential security breaches from within our organization and from the
public at large. If we do not maintain sufficient security, we may be subject to
additional legal exposure. We have taken measures to protect the integrity of
our infrastructure and the privacy of confidential information contained within
our infrastructure. Nonetheless, our infrastructure is potentially vulnerable to
physical or electronic break-ins, viruses or similar problems. If a person
circumvents our security measures, he or she could jeopardize the security of
confidential information stored on our systems, misappropriate proprietary
information or cause interruptions in our operations. Although we intend to
continue to implement security measures, such measures have been circumvented in
the past and we cannot provide assurance that measures we implemented will not
be circumvented in the future. Although we do have "firewalls" protecting our
systems from outside circumvention, such "firewalls" do not completely protect
our systems from our own employees, should one or more of them become inclined
to inflict damage upon our systems. We may be required to make significant
additional investments and efforts to protect against or remedy security
breaches. Security breaches that result in access to confidential information
could damage our reputation and expose us to a risk of loss or liability.
Alleviating problems caused by computer viruses or other inappropriate uses or
security breaches may require interruptions, delays, or cessation in service to
our customers. In addition, since we expect that our users will increasingly use
the Internet for commercial transactions in the future, any malfunction or
security breach could cause these transactions to be delayed, not completed at
all, or completed with compromised security.
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OUR BUSINESS IS SEASONAL. Our business is seasonal in nature, with the
greatest volume of sales typically occurring during the holiday selling season
of the fourth calendar quarter. During 1999, approximately 42% of our net
merchandise sales were generated in the fourth quarter. Any substantial decrease
in sales for the fourth quarter could have a material adverse effect on our
results of operations.
WE FACE A RISK OF PRODUCT LIABILITY CLAIMS. Our catalogs and our electronic
commerce sites feature products and services from numerous participating
merchants. Generally, our agreements with these participating merchants require
the merchants to indemnify us and thereby be solely responsible for any losses
arising from product liability claims made by customers, including the costs of
defending any such claims, and to carry product liability insurance that names
SkyMall as an additional insured. In addition, we maintain product liability
insurance in the aggregate amount of $2.0 million and $1.0 million per
occurrence. If a merchant was unable or unwilling to indemnify us as required,
and any such losses exceeded our insurance coverage or were not covered by our
insurer, our financial condition and results of operations could be materially
adversely affected.
WE RELY UPON OUR PRESIDENT AND OTHER KEY PERSONNEL. We depend on the
continued services of Robert M. Worsley, our chairman, president and chief
executive officer, and on the services of certain other executive officers. The
loss of Mr. Worsley's services or of the services of certain other executive
officers could have a material adverse effect on our business.
THE WORSLEYS AND WAND PARTNERS INC. CAN CONTROL MANY IMPORTANT COMPANY
DECISIONS. As of May 12, 2000, Mr. Worsley and his wife (the "Worsleys")
beneficially owned 4,798,530 shares, or approximately 35.9% of our outstanding
common stock, and Wand Partners Inc. beneficially owned 1,964,286, or
approximately 14.7% of our outstanding common stock. As a result, the Worsleys
and Wand Partners have the ability to significantly influence the affairs of the
Company and matters requiring a shareholder vote, including the election of the
Company's directors, the amendment of the Company's charter documents, the
merger or dissolution of the Company, and the sale of all or substantially all
of the Company's assets. The voting power of the Worsleys and Wand Partners may
also discourage or prevent any proposed takeover of the Company pursuant to a
tender offer.
THE PRICE OF OUR COMMON STOCK IS EXTREMELY VOLATILE. The market price of
our common stock has been highly volatile. Occurrences that could cause the
trading price of our common stock to fluctuate dramatically in the future
include:
o new merchant agreements
o the acquisition or loss of one or more airline, electronic commerce or
other channel partners
o fluctuations in our operating results
o analyst reports, media stories, Internet chat room discussions, news
broadcasts and interviews
o market conditions for retailers and electronic commerce companies in
general
o changes in airline fuel, paper or our other significant expenses
o changes in the commissions we are able to negotiate with our merchants
The stock market has from time to time experienced extreme price and volume
fluctuations that have particularly affected the market price for companies that
do some or all of their business on the Internet. Accordingly, the price of our
common stock may be impacted by these or other trends.
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OUR OUTSTANDING SHARES MAY BE DILUTED. The market price of our common stock
may decrease as more shares of common stock become available for trading.
Certain events over which you have no control result in the issuance of
additional shares of our common stock, which would dilute your ownership
percentage in SkyMall. We may issue additional shares of common stock or
preferred stock:
o to raise additional capital or finance acquisitions; or
o upon the exercise or conversion of outstanding options and warrants
As of May 12, 2000, there were outstanding warrants and options to acquire
up to 3,173,476 shares of common stock at exercise prices ranging from $2.13 to
$24.50 per share. If exercised, these securities will dilute the percentage
ownership of holders of outstanding common stock of the Company. These
securities, unlike the common stock, provide for anti-dilution protection upon
the occurrence of stock splits, redemptions, mergers, reclassifications,
reorganizations and other similar corporate transactions, and, in some cases,
major corporate announcements. If one or more of these events occurs, the number
of shares of common stock that may be acquired upon conversion or exercise would
increase.
RISK THAT FORWARD-LOOKING STATEMENTS MAY NOT COME TRUE. This prospectus and
the documents incorporated herein by reference, contain forward-looking
statements that involve risks and uncertainties. We use words such as "believe,"
"expect," "anticipate," "plan" or similar words to identify forward-looking
statements. Forward-looking statements are made based upon our belief as of the
date that such statements are made. These forward-looking statements are based
largely on our current expectations and are subject to a number of risks and
uncertainties, many of which are beyond our control. You should not place undue
reliance on these forward-looking statements, which apply only as of the date of
such documents. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks faced by us described above and elsewhere in this prospectus.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133 - Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
The statement, which was to be applied prospectively, is effective for the
Company's quarter ended March 31, 2000. In June 1999, the FASB issued SFAS 137 -
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133. This statement deferred the effective
date of SFAS 133 to the Company's quarter ending March 31, 2001. The Company is
currently evaluating the impact of SFAS 133 on its future results of operations
and financial position.
In January 1999, the Company adopted Statement of Position 98-1,
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE." This Statement of Position ("SOP") provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. The statement identifies the characteristics of internal-use software, the
capitalization criteria and the amortization method. SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. The Company capitalized costs of
$507,000 and $ $190,000 during the three months ended March 31, 2000 and 1999,
respectively.
24
<PAGE>
The Company follows the guidance of Accounting Principles Board ("APB")
Opinion No. 29, "ACCOUNTING FOR NON-MONETARY TRANSACTIONS." This APB opinion
provides guidance on accounting for transactions that involve primarily an
exchange of non-monetary assets, liabilities or services ("barter
transactions"). Placement fees and other revenues include barter revenues, which
represent an exchange by SkyMall of advertising space in its print and
e-commerce media for reciprocal services, including print and e-commerce
advertising. Revenues and expenses from barter transactions are recorded at the
lower of estimated fair value of the services received or delivered. Revenue and
expenses recognized from barter transactions were approximately $250,000 for the
three months ended March 31, 2000. Barter transactions were not significant
during the three months ended March 31, 1999.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS,
which provides additional guidance in applying generally accepted accounting
principles for revenue recognition in consolidated financial statements. The
issuance of SAB No. 101 did not have a material impact on the revenue
recognition method of the Company.
SEGMENT DISCLOSURE
The Company is an integrated e-commerce specialty retailer that provides a
vast selection of premium-quality products and services to consumers from a wide
variety of merchants and partners. The Company's operations are classified into
two reportable business segments: business-to-consumer and business-to-business.
Business initiatives for the Company's two reportable segments are managed
separately while support functions are combined.
The business-to-consumer segment provides retail merchandise service
through its in-flight catalogs placed in the domestic and international airlines
and through the Company's Web site. The business-to-business segment provides
retail merchandise services, employee logo and corporate recognition merchandise
and advertising media to other businesses through loyalty catalogs, workplace
catalogs, CD-ROM, DVD and the Company's Web sites. Previously, the Company
defined its reportable business segments by in-flight catalog, workplace catalog
and Web sites. All periods presented have been adjusted to reflect the new
reportable business segments.
The Company evaluates the performance of its segments based on revenues and
gross margins. Operating expenses are included with corporate expenses and are
not allocated to the business segments. The accounting policies of the
reportable segments are the same as those used in the consolidated financial
statements and described in the notes to the condensed consolidated financial
statements. Inter-segment transactions are not significant.
Revenues and gross margins for the business segments are provided in the
notes to the condensed consolidated financial statements filed herewith.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our market risk exposure is limited to the interest rate risk associated
with out credit instruments. We incur interest on loans made under a revolving
line of credit at a variable interest rate. We had outstanding borrowings on the
line of credit of approximately $9.4 million at March 31, 2000.
The Company does not have any financial derivative instruments.
26
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in legal actions in the ordinary course of its
business. Although the outcomes of any such legal actions cannot be predicted,
in the opinion of management, there is no legal proceeding pending or asserted
against or involving the Company the outcome of which is likely to have a
material adverse effect upon the consolidated financial position or results of
operations of the Company.
On January 29, 1999, a securities class action complaint was filed against
SkyMall and Robert Worsley, the Company's Chief Executive Officer, Chairman and
principal shareholder, in connection with certain disclosures made by the
Company in December 1998 relating to its Internet sales. The complaint was filed
in the United States District Court, District of Arizona, Case No.
CIV-99-0166-PHX-ROS. The complaint alleges unlawful manipulation of the price of
the Company's stock and insider selling during the period from December 28, 1998
through December 30, 1998. The complaint seeks unspecified damages for alleged
violations of federal securities laws. SkyMall and Mr. Worsley have filed a
motion to dismiss the complaint on the basis that the complaint fails to state a
claim upon which relief can be granted. SkyMall believes that the allegations
against it and Mr. Worsley are substantially without merit and intends to
vigorously defend the lawsuit.
On November 22, 1999, RGC International Investors, LDC, the parent company
of Rose Glen Capital Management, filed a complaint in the Court of Chancery New
Castle County Delaware, Cause Number 17600 NC, RGC International Investors, LDC
v. SkyMall, Inc. RGC alleges that the Company was required to close on a
transaction for an equity investment in SkyMall. The Company has filed a
Petition for Removal to move the case to Delaware Federal Court, and has filed a
motion for dismiss on the basis that the complaint fails to state a claim upon
which relief can be granted. SkyMall believes that the allegations against it
are substantially without merit and intends to vigorously defend this lawsuit.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
1996 PRIVATE PLACEMENT. In October 1996, the Company issued 180,000
warrants to purchase common stock of the Company to preferred shareholders in a
private placement, at an exercise price of $8.00 per share (the "Pre-IPO
Warrants"). During fiscal 1998, 20,400 of the Pre-IPO Warrants had been
exercised, resulting in net proceeds to the Company for fiscal 1998 of $163,200.
In 1999, 145,800 of the Pre-IPO Warrants were exercised, resulting in net
proceeds to the Company of $1,166,400. In December 1999, the remaining 13,800
warrants, which were unexercised expired and all of such unexercised warrants
were cancelled. All of such proceeds received upon exercise of the Pre-IPO
Warrants were designated for general corporate purposes. The shares issued upon
exercise of the Pre-IPO Warrants were issued in reliance upon the exemption
provided under Section 4(2) of the Securities Act of 1933, as amended, and
Regulation D thereunder.
SHAREHOLDER RIGHTS PLAN. In September 1999, the Board of Directors of the
Company adopted a Shareholder Rights Plan (the "Plan") designed to deter
coercive or unfair takeover tactics and to prevent a person or group from
gaining control of the Company without offering a fair price to all
27
<PAGE>
stockholders. Under the terms of the Plan, a dividend distribution of one
Preferred Stock Purchase Right ("Right") for each outstanding share of the
Company's common stock outstanding was made to holders of record on October 15,
1999. These Rights entitle the holder to purchase one one-hundredth of a share
of the Company's Series R Preferred Stock ("Preferred Stock") at an exercise
price of $65 per one one-hundredth of a share. The Rights become exercisable (a)
10 days after a public announcement that a person or group has acquired shares
representing 15% or more of the outstanding shares of common stock, or (b) 10
business days following commencement of a tender or exchange offer for 15% or
more of such outstanding shares of common stock. The Company can redeem the
Rights for $0.001 per Right at any time prior to their becoming exercisable. The
Rights will expire on October 15, 2009, unless redeemed earlier by the Company
or exchanged for common stock. Under certain circumstances, if a person or group
acquires 15% or more of the Company's common stock, the Rights permit
stockholders other than the acquiror to purchase common stock having a market
value of twice the exercise price of the Rights, in lieu of the Preferred Stock.
In addition, in the event of certain business combinations, the Rights permit
stockholders to purchase the common stock of an acquiror at a 50% discount.
Rights held by the acquiror will become null and void in both cases.
DISC PUBLISHING, INC. ACQUISITION. In September 1999, the Company completed
a merger with Disc Publishing, Inc. SkyMall issued 280,555 shares of its common
stock in exchange for all of the outstanding common stock of Disc Publishing
based on a merger exchange ratio of 2.8 shares of the Company's common stock for
each share of Disc Publishing common stock. The issuance of shares of the
Company's common stock in exchange for Disc Publishing common stock was
completed in reliance on the exemption provided under Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D thereunder.
NOVEMBER 1999 PRIVATE PLACEMENT. In November 1999, the Company completed a
private placement of approximately $8 million in shares of the Company's common
stock and warrants to purchase additional shares of common stock pursuant to a
Stock and Warrant Purchase Agreement dated as of November 2, 1999 (the "November
1999 Private Offering"). A total of 1,142,885 shares of common stock were issued
at a purchase price of $7.00 per share, together with warrants to purchase an
additional 571,444 shares of common stock. The warrants have an exercise price
of $8.00 per share and, subject to certain conditions, are redeemable by the
Company at a nominal price if the Company's common stock trades over $12 per
share for twenty consecutive trading days. In addition, an aggregate of
approximately 129,136 warrants to purchase shares of the Company's common stock
were issued to the placement agents in the Private Offering, with exercise
prices ranging from $8.10 to $9.12 per share. The funds received from the
November 1999 Private Offering will be used primarily to fund SkyMall's on-going
e-commerce initiatives and working capital requirements. The common stock and
warrants issued in the November 1999 Private Offering were issued in reliance on
the exemption provided under Section 4(2) of the Securities Act of 1933, as
amended, and Regulation D thereunder.
DECEMBER 1999 PRIVATE PLACEMENT OF SERIES A JUNIOR CONVERTIBLE PREFERRED
STOCK AND WARRANTS. In December 1999, the Company completed a private placement
of approximately $9 million in shares of the Company's Series A Junior
Convertible Preferred Stock (the "Series A Preferred") and warrants to purchase
additional shares of common stock (the "Series A Private Offering") pursuant to
a Stock and Warrant Purchase Agreement dated as of December 20, 1999 (the
"December 20, 1999 Agreement"). A total of 91,320 shares of Series A Preferred
were issued to investors, together with warrants to purchase an additional
652,289 shares of common stock. The warrants have an exercise price of $8.00 per
share and, subject to certain conditions, are redeemable by the Company at a
28
<PAGE>
nominal price if the Company's stock trades over $12 per share for twenty
consecutive trading days. In addition, an aggregate of 200,742 warrants to
purchase shares of the Company's common stock were issued to the placement
agents in the Series A Private Offering, with exercise prices ranging from $7.00
to $9.12 per share. The funds received from the Series A Private Offering will
be used primarily to fund SkyMall's on-going e-commerce initiatives and working
capital requirements. The Series A Preferred and warrants issued in the Series A
Private Offering were issued in reliance on the exemption provided under Section
4(2) of the Securities Act of 1933, as amended, and Regulation D thereunder.
Pursuant to the terms of the December 20, 1999 Agreement, at the close of
business on March 10, 2000, all shares of Series A Preferred were automatically
converted into 1,304,571 shares of common stock of the Company upon receipt of
shareholder approval of such conversion at a Special Meeting of Shareholders
held on March 10, 2000. The resale of the shares of common stock issued upon
conversion of the Series A Preferred and the shares of common stock issuable
upon exercise of the warrants have been registered under the Securities Act of
1933, as amended. The condensed consolidated financial statements have been
adjusted to reflect the conversion of the Series A Preferred into common stock
as of December 31, 1999.
DECEMBER 1999 PRIVATE PLACEMENT OF SERIES B JUNIOR CONVERTIBLE PREFERRED
STOCK AND WARRANTS. In December 1999, the Company completed a private placement
of approximately $8 million in shares of the Company's Series B Junior
Convertible Preferred Stock (the "Series B Preferred") and warrants to purchase
additional shares of common stock (the "Series B Private Offering") pursuant to
a Stock and Warrant Purchase Agreement dated as of December 30, 1999 (the
"December 30, 1999 Agreement"). A total of 80,000 shares of Series B Preferred
were issued to investors, together with warrants to purchase an additional
571,429 shares of common stock. The warrants have an exercise price of $8.00 per
share and, subject to certain conditions, are redeemable by the Company at a
nominal price if the Company's stock trades over $12 per share for twenty
consecutive trading days. In addition, an aggregate of 34,286 warrants to
purchase shares of the Company's common stock were issued to the placement agent
in the Series B Private Offering, with an exercise price of $7.00 per share. The
funds received from the Series B Private Offering will be used primarily to fund
SkyMall's on-going e-commerce initiatives and working capital requirements. The
Series B Preferred and warrants issued in the Series B Private Offering were
issued in reliance on the exemption provided under Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D thereunder.
Pursuant to the terms of the December 30, 1999 Agreement, at the close of
business on March 10, 2000, all shares of Series B Preferred were automatically
converted into 1,142,857 shares of common stock of the Company upon receipt of
shareholder approval of such conversion at a Special Meeting of Shareholders
held on March 10, 2000. The resale of the shares of common stock issued upon
conversion of the Series B Preferred and the shares of common stock issuable
upon exercise of the warrants issued to investors and the placement agents in
the December 30, 1999 private placement have been registered under the
Securities Act of 1933, as amended. The condensed consolidated financial
statements have been adjusted to reflect the conversion of the Series B
Preferred into common stock as of December 31, 1999.
ADDITIONAL WARRANT ISSUANCES
RYAN, BECK & CO., INC. In June 1999, the Company entered into an agreement
with Ryan, Beck & Co., Inc. for financial advisory services. Pursuant to such
agreement, the Company issued warrants (the "Ryan Beck Advisor Warrants") to
acquire up to 25,000 shares of common stock of the Company. The Ryan Beck
Advisor Warrants are exercisable for three years at an exercise price of $9.31
29
<PAGE>
per share. The funds received, if any, upon exercise of the Ryan Beck Advisor
Warrants will be used primarily to fund SkyMall's on-going e-commerce
initiatives and working capital requirements. The issuance of the Ryan Beck
Advisor Warrants was exempt under Section 4(2) of the Securities Act of 1933, as
amended. The resale of the shares of common stock issuable upon exercise of the
Ryan Beck Advisor Warrants has been registered under the Securities Act of 1933,
as amended.
DURHAM NOTE CONVERSION. In connection with the 1998 acquisition of Durham &
Company, the Company issued a note in the amount of $200,000 to Mr. and Mrs.
Durham (the "Durham Note"). In November 1999, the parties converted the Durham
Note into common stock and warrants of the Company. Pursuant to such conversion,
a total of 28,838 shares of common stock were issued upon conversion of the
Durham Note, together with warrants to purchase an additional 14,420 shares of
common stock. The warrants have an exercise price of $8.00 per share and,
subject to certain conditions, are redeemable by the Company at a nominal price
if the Company's common stock trades over $12 per share for twenty consecutive
trading days. The funds received, if any, upon exercise of the warrants will be
used primarily to fund SkyMall's on-going e-commerce initiatives and working
capital requirements. The common stock and warrants issued upon conversion of
the Durham Note were issued in reliance on the exemption provided under Section
4(2) of the Securities Act of 1933, as amended. The resale of the shares of
common stock issued upon conversion of the Durham Note and the shares of common
stock issuable upon exercise of the warrants have been registered under the
Securities Act of 1933, as amended.
GENESIS SELECT. In December 1999, the Company entered into an agreement
with Genesis Select for investor relations advisory services. Pursuant to such
agreement, the Company issued warrants (the "Genesis Warrants") to acquire up to
50,000 shares of common stock of the Company. The Genesis Warrants are
exercisable for three years at an exercise prices ranging from $8.19 to $14.40
per share. The funds received, if any, upon exercise of the Genesis Warrants
will be used primarily to fund SkyMall's on-going e-commerce initiatives and
working capital requirements. The issuance of the Genesis Warrants was exempt
under Section 4(2) of the Securities Act of 1933, as amended. The resale of the
shares of common stock issuable upon exercise of the Genesis Warrants has been
registered under the Securities Act of 1933, as amended.
WAND PARTNERS INC. Pursuant to the December 30, 1999 Agreement and in
connection with the December 30, 1999 private placement, Wand Partners Inc.
rendered advisory services in connection with the transactions contemplated by
the December 30, 1999 Agreement. Pursuant to such agreement, the Company issued
warrants to Wand Partners Inc. to acquire up to 250,000 shares of common stock
of the Company (the "Wand Partners Warrants"). The Wand Partners Warrants are
exercisable for three years at an exercise price of $8.00 per share. The funds
received, if any, upon exercise of the Wand Partners Warrants will be used
primarily to fund SkyMall's on-going e-commerce initiatives and working capital
requirements. The issuance of the Wand Partners Warrants was exempt under
Section 4(2) of the Securities Act of 1933, as amended. The resale of the shares
of common stock issuable upon exercise of the Wand Partners Warrants has been
registered under the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
30
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 10, 2000, the Company held a Special Meeting of Shareholders (the
"Special Meeting"). Shareholders representing 6,814,096 shares or 64.7% of the
shares entitled to vote at the Special Meeting were present in person or by
proxy. The proposal presented at the Special Meeting was passed. The following
sets forth the voting results on the proposal submitted to shareholders at the
Special Meeting:
Approval of the issuance of shares of the Company's Common Stock (i) to the
Company's Chairman and Chief Executive Officer in connection with the Company's
November 1999 private placement of Common Stock (including shares of Common
Stock issuable upon exercise of related warrants) and (ii) upon conversion of
the Company's Series A Junior Convertible Preferred Stock, par value $.001 per
share, and Series B Junior Convertible Preferred Stock, par value $.001 per
share, and exercise of related warrants to acquire shares of Common Stock, all
on the terms and conditions set forth in those certain Stock and Warrant
Purchase Agreements, dated as of December 20, 1999 and December 30, 1999,
between the Company and the undersigned investors thereto:
VOTES FOR VOTES AGAINST ABSTENTIONS
6,461,511 325,446 27,139
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
The following exhibits are included herein:
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
31
<PAGE>
(B) REPORTS ON FORM 8-K.
During the quarter ended March 31, 2000, the Company filed the
following reports on Form 8-K:
1. Form 8-K filed January 3, 2000, relating to the private
placement of securities on December 20, 1999.
2. Form 8-K filed January 4, 2000, relating to the private
placement of securities on December 30, 2000.
3. Form 8-K filed March 3, 2000 relating to the release of
financial information for the year ended December 31, 1999.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SkyMall, Inc.
Date: May 15, 2000 By: /S/ ROBERT M. WORSLEY
---------------------------------
Robert M. Worsley
Chairman of the Board, President
(Chief Executive Officer)
Date: May 15, 2000 By: /S/ MARK E. TRUXAL
---------------------------------
Mark E. Truxal
(Principal Accounting Officer)
33
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 2000 AND THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS INCLUDED IN THIS FORM 10-Q.
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