|
Delaware |
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1-8662 |
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23-2265039 |
|
(State
or other jurisdiction
of
incorporation) |
|
(Commission
File Number) |
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(IRS
Employer
Identification
No.) |
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6836
Morrison Blvd., Ste. 200,
Charlotte,
North Carolina |
|
28211 |
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(Address
of principal executive offices) |
|
(Zip
Code) |
| o |
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425) |
|
o |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12) |
|
o |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)) |
|
o |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c)) |
| 23.1 |
Consent of BDO Seidman,
LLP |
| 23.2 |
Consent of Deloitte & Touche
LLP |
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
--------------------------------------
Consolidated Financial Statements
Years Ended December 31, 2004 and 2003
[LOGO] BDO(R)
BDO Seidman, LLP
Accountants and Consultants
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Contents
================================================================================
Independent Auditors' Report 3
Consolidated financial statements
Balance sheets 4
Statements of operations 5
Statements of changes in stockholders' equity 6
Statements of cash flows 7-8
Notes to consolidated financial statements 9-24
2
[LOGO] BDO(R)
BDO Seidman, LLP 1700 Market Street, 29th Floor
Accountants and Consultants Philadelphia, Pennsylvania 19103-3962
Telephone:(215)636-5500
Fax:(215)636-5501
Independent Auditors' Report
OneTravel, Inc.
East Greenville, Pennsylvania
We have audited the accompanying consolidated balance sheet of OneTravel, Inc.
(formerly OneTravel.com, Inc.) and subsidiary (collectively, the "Company") as
of December 31, 2004, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OneTravel, Inc. (formerly
OneTravel.com, Inc.) and subsidiary as of December 31, 2004, and the results of
its operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ BDO Seidman, LLP
April 29, 2005
3
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of OneTravel.com, Inc.:
We have audited the accompanying consolidated balance sheet of OneTravel.com,
Inc. (a subsidiary of Terra Networks, S.A.) and subsidiaries (the "Company") as
of December 31, 2003, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
2003, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's recurring losses from
operations and negative cash flows from operations raise substantial doubt about
its ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
As discussed in Note 1, the accompanying consolidated financial statements have
been prepared from the separate records maintained by the Company and may not
necessarily be indicative of the conditions that would have existed or the
results of operations if the Company had been operated as an unaffiliated
company.
August 1, 2005
3(a)
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Consolidated Balance Sheets
================================================================================
December 31, 2004 2003
--------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 58,676 $ 54,887
Restricted cash 1,000,000 --
Accounts receivable, net of allowance for
uncollectible accounts of $268,393 and
$268,000, respectively 438,443 874,006
Accounts receivable, stockholder 389,873 271,530
Accounts receivable, affiliate -- 1,470
Prepaid expenses and other assets 69,793 64,441
--------------------------------------------------------------------------------
Total current assets 1,956,785 1,266,334
Restricted cash 203,256 872,985
Property and equipment, net 1,390,507 1,433,532
Deposits and other assets 78,448 38,798
Long-term accounts receivable 151,387 317,074
Intangible assets, net of accumulated amortization
of $4,074 in 2004 and $4,000 in 2003 718,925 718,999
Goodwill 1,147,878 1,147,878
--------------------------------------------------------------------------------
Total assets $ 5,647,186 $ 5,795,600
================================================================================
December 31, 2004 2003
--------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 1,331,2l9 $ 950,550
Accounts payable, affiliate -- 1,158
Accrued expenses 653,021 356,639
Accrued interest, stockholders 92,839 3,098
Current maturities, capital lease obligation 6,768 5,308
Notes payable, stockholders 3,864,970 --
--------------------------------------------------------------------------------
Total current liabilities 5,948,817 1,316,753
Capital lease obligation 5,080 11,848
Notes payable, stockholders -- 715,396
Note payable, affiliate -- 299,574
--------------------------------------------------------------------------------
Total liabilities 5,953,897 2,343,571
--------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.001 par value
Authorized, 40,000,000 shares
Issued and outstanding - none -- --
Common stock, $0.00005 par value
Authorized 200,000,000 shares
Issued and outstanding, 198,937,646 shares 9,947 9,947
Additional paid-in capital 58,353,934 58,353,934
(Accumulated deficit) (58,670,592) (54,911,852)
--------------------------------------------------------------------------------
Total stockholders' (deficiency) equity (306,711) 3,452,029
--------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 5,647,186 $ 5,795,600
================================================================================
See accompanying notes to consolidated financial statements.
4
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Consolidated Statements of Operations
================================================================================
Year ended December 31, 2004 2003
--------------------------------------------------------------------------------
Revenue
Commissions $ 2,679,940 $ 3,204,074
Nonpublished fares 5,165,693 4,877,507
--------------------------------------------------------------------------------
Total revenue 7,845,633 8,081,581
--------------------------------------------------------------------------------
Expenses
Selling, general and administrative expenses 10,735,944 9,313,156
Depreciation and amortization 798,006 5,447,920
--------------------------------------------------------------------------------
Total expenses 11,533,950 14,761,076
--------------------------------------------------------------------------------
(Loss) from operations (3,688,317) (6,679,495)
Interest income 22,959 22,071
Interest (expense) (93,382) (5,086)
--------------------------------------------------------------------------------
Net (loss) $ (3,758,740) $ (6,662,510)
================================================================================
See accompanying notes to consolidated financial statements.
5
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
================================================================================
Year ended December 31, 2004 and 2003
-------------------------------------------------------------------------------------------------------------------------
Common Stock Additional Total
------------------------------- Paid-In (Accumulated Stockholders'
Shares Amount Capital Deficit) Equity
-------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2003 198,937,646 $ 9,947 $ 58,353,934 $(48,249,342) $ 10,114,539
Net loss -- -- (6,662,510) (6,662,510)
-------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 198,937,646 $ 9,947 $ 58,353,934 (54,911,852) 3,452,029
Net loss -- -- (3,758,740) (3,758,740)
-------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 198,937,646 $ 9,947 $ 58,353,934 $(58,670,592) $ (306,711)
=========================================================================================================================
See accompanying notes to consolidated financial statements.
6
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Consolidated Statements of Cash Flows
================================================================================
Year ended December 31, 2004 2003
-----------------------------------------------------------------------------------------------
Cash flows from operating activities
Net (loss) $(3,758,740) $(6,662,510)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities
Depreciation and amortization 798,006 676,211
Loss from sale of equipment 19,444 --
Impairment of prepaid media -- 4,771,709
Provision for uncollectible accounts receivable 393 467,262
Changes in operating assets and liabilities
Accounts receivable 600,857 (50,455)
Accounts receivable, stockholder (118,343) (271,530)
Accounts receivable, affiliate 1,470 (1,470)
Prepaid expenses and other assets (5,352) 13,183
Other assets (39,650) (289,093)
Accounts payable 380,669 440,874
Accrued interest, stockholders 89,741 3,098
Accounts payable, affiliate (1,158) 1,158
Accrued expenses 296,382 40,772
-----------------------------------------------------------------------------------------------
Net cash (used in) operating activities (1,736,281) (860,791)
-----------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures (777,851) (934,009)
Proceeds from sale of equipment 3,500 --
Restricted cash (330,271) 2,756
-----------------------------------------------------------------------------------------------
Net cash (used in) investing activities (1,104,622) (931,253)
-----------------------------------------------------------------------------------------------
7
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Consolidated Statements of Cash Flows
================================================================================
Year ended December 31, 2004 2003
------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from notes payable, stockholders $ 2,850,000 $ 715,396
Proceeds from notes payable, affiliate -- 299,574
Principal payments under capital lease obligations (5,308) (8,724)
------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,844,692 1,006,246
------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,789 (785,798)
Cash and cash equivalents at beginning of year 54,887 840,685
------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 58,676 $ 54,887
================================================================================================
Supplemental disclosure of cash flow information
Cash paid during the year for Interest $ 3,641 $ 1,988
================================================================================================
Supplemental schedule of noncash financing activities
Asset acquired under capital lease $ -- $ 18,868
Transfer of notes payable, affiliate to notes payable,
stockholders 299,574 --
================================================================================================
See accompanying notes to consolidated financial statements.
8
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
1. Organization OneTravel, Inc. (formerly OneTravel.com, Inc.) and
subsidiary (collectively, "OneTravel" or the
"Company") was incorporated on July 17, 1999 in
the state of Texas. The Company is a travel
company that offers its customers the ability to
make air, hotel, car, vacation and cruise bookings
over the internet or through a call center. The
Company manages its business as a single operating
segment, is domiciled entirely in the U.S. and
substantially all of the Company's revenue is
derived from the sale of airline tickets, the
booking of hotel rooms and car reservations and
air segment commissions.
Basis of Presentation
Terra Networks, S.A. (the "Parent") and Amadeus
NHC Holdings, Inc. ("Amadeus") (collectively, the
"Majority Stockholders") own 54.1% and 38.9%,
respectively, of the outstanding shares of the
Company as of December 31, 2004 and 2003.
The accompanying consolidated financial statements
have been prepared on a historical-cost basis and
exclude any adjustments required to push down the
purchase accounting applied by the Parent to the
Company in its consolidated financial statements.
The accompanying 2003 financial statements have
been prepared assuming the Company will continue
as a going concern. The Company incurred net
operating losses and negative cash flows from
operations of $6,662,510 and $860,791,
respectively, for the year ended December 31,
2003. As of December 31, 2003, the Company had an
accumulated deficit of $54.9 million. In addition,
the Company's current liabilities exceeds its
current assets at December 31, 2003. Such
conditions and financial measures raise
substantial doubt that the Company will be able to
continue as a going concern.
The Company's ability to continue as a going
concern is contingent upon its ability to obtain
additional debt or equity financing, and
ultimately to achieve positive cash flow from
operations. Majority Shareholders have funded
operations in the past, and the Company has
received additional funding of approximately
$1,000,000 in March and April 2004 (see Note 8).
Management believes that the Majority Shareholders
will continue to fund operations. The accompanying
consolidated financial statements have been
prepared on a going-concern basis, which
contemplates the realization of assets and the
satisfaction of liabilities in the normal course
of business. The consolidated financial statements
do not include any adjustments relating to the
recoverability and classification of recorded
assets amounts or the amounts and classifications
of liabilities that might be necessary should the
Company be unable to continue as a going concern.
While there can be no assurance, management
believes, based upon its 2004 plan, the Company
will have sufficient liquidity through December
31, 2004. Should the Company's 2004 performance be
less than planned, or if the Majority Shareholders
cease to support the Company, the Company will
have to consider additional actions, including,
among other things, reducing the level of
employment, spending and development activities
and the possible sale of all or portions of the
business.
2. Summary of Principles of Consolidation
Significant
Accounting The consolidated financial statements include the
Policies accounts of OneTravel, Inc. (formerly
OneTravel.com, Inc.) and its wholly owned
subsidiary, 11th Hour Vacations, Inc. All
intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of the Company's consolidated
financial statements in conformity with accounting
principles generally accepted in the United States
of America requires management to make estimates
and assumptions that affect the reported amounts
of certain assets and liabilities and disclosure
of certain contingent assets and liabilities at
the date of the financial
9
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
statements, and the reported amounts of revenue
and expenses recognized during the reporting
periods. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost,
which approximates fair value. The Company
considers all highly liquid debt securities with
original maturities of three months or less to be
cash equivalents.
Restricted Cash
Restricted cash represents cash whose use is
limited by vendor-imposed restrictions in order to
guarantee payment to vendors for the purchase of
published fares through the Airline Reporting
Corporation. (See Note 11 for additional
information.)
Accounts Receivable
Trade accounts current and long-term, and other
receivables primarily consist of commissions and
volume bonuses from travel service providers. The
Company values accounts receivable net of an
allowance for uncollectible accounts. The
allowance is calculated based upon the Company's
evaluation of specific customer accounts where the
Company has information that the customer may have
an inability to meet its financial obligations
(bankruptcy, etc.). In these cases, the Company
uses its judgment, based on the best available
facts and circumstances, and records a specific
reserve for that customer against amounts due to
reduce the receivable to the amount that is
expected to be collected. The long-term portion of
accounts receivable is comprised of commissions
from one travel service provider with payment
terms that are due beyond one year.
10
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
Accounts Receivable/Accounts Payable -
Shareholders and Affiliates
Amounts owed by the Company to the Parent are for
various expenditures disbursed by the Parent on
behalf of the Company and certain expense
allocations from the Parent to the Company. Such
amounts owed to the Parent or its affiliates are
denominated in U.S. dollars, payable or callable
on demand and do bear interest. As a result of
these transactions and allocations, the separate
results reported by the Company may not
necessarily be indicative of the results that
would have existed had the Company been operated
as an unaffiliated company.
Property and Equipment
Properly and equipment are stated at cost.
Equipment held under capital leases is stated at
the lower of the present value of the minimum
lease payments or estimated fair value of the
equipment at the inception of the lease.
Depreciation of property and equipment is
calculated on the straight-line method over the
estimated useful lives of the related assets,
which is generally three years for computers,
computer-related equipment and purchased software,
and seven years for furniture and other equipment.
Leasehold improvements and equipment held under
capital leases are amortized on the straight-line
method over the estimated useful life of the asset
or the lease term, whichever is shorter.
Capitalized Software
Capitalized software is composed of both purchased
software and software development costs associated
with internal use software. The Company accounts
for the software development costs associated
with internal use software in accordance with
Statement of Position ("SOP") No. 98-1,
"Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which
provides guidance regarding when software
developed or obtained for internal use should be
capitalized,
11
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
while costs incurred during the preliminary
project stage and post-implementation operation
stage should be expensed as incurred. The Company
capitalizes and expenses costs associated with
developing and maintaining its proprietary web
site in accordance with Emerging Issues Task Force
("EITF") Issue No. 00-02, "Accounting for Web Site
Development Costs."
Capitalized software development costs are
amortized over the estimated life of the related
application, and which ranges from two to three
years. The Company capitalized $722,274 and
$326,316 in software costs for the years ended
December 3l, 2004 and 2003, respectively.
Amortization expense related to software costs
totaled $705,012 and $516,816 for the years ended
December 31, 2004 and 2003, respectively.
Impairment of Long-Lived Assets
The Company continually evaluates whether events
or circumstances have occurred that indicate that
the estimated remaining useful lives of long-lived
assets and certain identifiable intangibles may
warrant revision or that the carrying value of
these assets may be impaired. To compute whether
assets have been impaired, the estimated
undiscounted future cash flows for the estimated
remaining useful life of the respective asset is
compared to the carrying value. To the extent that
the undiscounted future cash flows are less than
the carrying value, a new fair value of the asset
is required to be determined. If such fair value
is less than the current carrying value, the asset
is written down to its estimated fair value. At
December 31, 2004, the Company determined that no
impairment existed. (See Note 11 for additional
information.)
Capital Lease Obligation
The Company had $18,868 of office equipment under
capital leases at December 31, 2004 and 2003.
Properly and equipment under capital leases and
the related obligation for future lease payments
are initially recorded at an amount equal to the
then-present value of those lease payments.
Amortization is computed on the straight-line
basis over the estimated useful life of the
12
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
asset. Accumulated amortization related to capital
leases totaled $7,020 and $1,712 for the years
ended December 31, 2004 and 2003, respectively.
Goodwill
Goodwill represents the excess of cost over the
fair value of assets acquired. The Company does
not amortize existing goodwill and is required to
review the carrying value of goodwill for
impairment on at least an annual basis. If
goodwill becomes impaired, some or all of the
goodwill could be written off as a charge to
operations. The Company has reviewed the carrying
values of its goodwill during 2004 and 2003 by
comparing the carrying values to the estimated
fair values. Management determined that the
carrying values of goodwill did not exceed the
fair value and, as a result, believes that no
impairment of goodwill existed at December 31,
2004. Goodwill is presented on an historical-cost
basis and excludes any adjustments required to
push down the purchase accounting applied by the
Parent to the Company in its consolidated
financial statements. (See Note 11 for additional
information.)
Intangible Assets
Intangible assets primarily consist of domain
names, franchise agreements, software tools and
trade names acquired through business
combinations. Amounts are recorded at fair value
as of the date of acquisition. The Company does
not amortize existing intangible assets. If such
assets become impaired, some or all of the
carrying value of these assets could be written
off as a charge to operations. This comparison
must be performed annually or more frequently if
circumstances indicate possible impairment. The
Company has reviewed the carrying values of its
intangible assets by comparing the carrying values
to the estimated fair values. Management
determined that the carrying values of its
intangible assets did not exceed the fair value
and, as a result, believes that no impairment of
intangible assets existed at December 31, 2004.
13
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
Revenue Recognition
Commission revenues are derived from travel
services sold at regular published fares and
commissions and/or transaction fees on such sales.
Based upon its evaluation of these transactions
and in accordance with the various indicators
identified in EITF Issue No. 99-19, "Reporting
Revenue Gross as a Principal Versus Net as an
Agent," The Company determined its suppliers of
travel services assume the majority of the
business risks, which include providing the
service. As such, all transactions are recorded at
the net amount, which is the amount charged to the
customer less the amount to be paid to the
supplier of the respective travel service.
Recognition of commissions occurs upon booking
when the travel service is noncancelable and
nonrefundable. When the travel service is
cancelable and refundable, the commission is
recognized upon collection from the travel service
supplier.
Nonpublished fares are transactions for which the
Company is the merchant of record and determines
the price to the customer. The Company has
agreements with suppliers for inventory (e.g., air
tickets or hotel rooms) that the Company sells.
The Company presents revenue arising from
nonpublished fares based on the net amount
retailed from such sales in accordance with EITF
Issue No. 99-19. Recognition of nonpublished
revenue occurs on the date of ticketing. Such
revenue is reported net of an allowance for
cancellations and refunds. Due to the restrictive
nature of the Company's sales, which are generally
noncancelable and nonrefundable, cancellations and
refunds are not significant.
Advertising Costs
Advertising costs, included in selling, general
and administrative expenses, are expensed as
incurred. Advertising expenses were $244,973 and
$332,065 for the years ended December 31, 2004 and
2003, respectively.
14
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
Income Taxes
The Company accounts for income taxes under SFAS
No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to
financial accounting and reporting for income
taxes. The difference between the financial
statement and tax bases of assets and liabilities
is determined annually using enacted tax rates
expected to be in effect for the year in which the
differences are expected to reverse. A valuation
allowance is provided, if necessary, to reduce the
deferred tax assets to the amount that is more
likely than not to be realized.
Concentration of Credit Risk
Financial instruments which potentially subject
the Company to a concentration of credit risk
principally consist of cash and cash equivalents.
The Company has its cash and cash equivalents
placed with high quality, creditworthy financial
institutions. The balances at such institutions
are periodically in excess of federally insured
limits. As part of its cash management process,
the Company performs periodic evaluation of the
relative credit standing of these institutions.
Concentration of Suppliers
The Company currently buys substantially all of
its nonpublished fares from two suppliers.
Although there are a limited number of companies
bringing these fares to market, management
believes that other suppliers could provide
similar fares on comparable terms. A change in
suppliers, however, could cause a temporary
shortage of nonpublished fares and a possible loss
of sales, which would adversely affect operating
results.
Stock-Based Compensation
Stock-based compensation for stock-based awards
issued to the Company's employees is recognized
using the intrinsic-value method prescribed in
Accounting Principles Board ("APB")
15
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations.
Accordingly, no compensation is recorded for
options issued to employees in fixed amounts and
with fixed exercise prices at least equal to the
fair market value of the Company's stock at the
date of grant.
The Company has adopted the provisions of
Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based
Compensation," through disclosure only for options
awarded to employees. SFAS No. 123 requires the
disclosure of pro-forma net loss as if the Company
adopted the fair-value method of valuing its
options. Under SFAS No. 123, the fair value of
stock-based awards to employees is calculated
through the use of option-pricing models. Had
employee compensation cost for the Company's stock
plans been determined consistent with SFAS No.
123, the Company's pro-forma net loss would have
been as follows:
Year ended December 31, 2004 2003
----------------------------------------------------------------------------------
Net income, as reported (including stock-
Based employee compensation costs $(3,758,740) $(6,662,510)
Deduct total stock-based compensation
expense under SFAS No. 123 (19,658) (371,365)
----------------------------------------------------------------------------------
Adjusted net (loss) $(3,778,398) $(7,033,875)
==================================================================================
The weighted-average fair value of stock options
granted was $0.09 per option in 2003. The fair
value of each option grant was estimated at the
date of grant using the Black-Scholes
option-pricing model. The following
weighted-average assumptions were used for grants
in 2003: risk-free interest rate of 1.63%;
dividend yield of 0% and volatility factor of 67%;
and expected life of 4 years. The effect of
applying SFAS No. 123 in this pro forma disclosure
is not necessarily indicative of the impact on
future years since the Company's options vest over
several years and additional grants may be made
each year.
16
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
All stock-based awards to nonemployees are
accounted for at their fair value in accordance
with SFAS No. 123 and EITF Issue No. 96-18,
"Accounting for Equity Instruments That are Issued
to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."
4. Property and A summary of property and equipment is as follows:
Equipment
December 31, 2004 2003
-------------------------------------------------------------
Computer equipment and
software $3,878,497 $3,120,815
Leasehold improvements 124,380 124,380
Furniture and fixtures 55,412 70,540
-------------------------------------------------------------
4,058,289 3,315,735
Less accumulated depreciation
and amortization 2,667,782 1,882,203
-------------------------------------------------------------
$1,390,507 $1,433,532
=============================================================
Depreciation and amortization expense was $798,006
and $676,211 for the years ended December 31, 2004
and 2003, respectively.
5. Accrued Expenses A summary of accrued expenses is as follows:
December 31, 2004 2003
--------------------------------------------------
Accrued compensation $ 66,764 $110,326
Other accrued expenses 546,153 159,782
Deferred revenue 40,104 86,531
--------------------------------------------------
$653,021 $356,639
==================================================
17
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
6. Stockholders' Stock Option Plan
Equity
In June 1999, the Company established the 1999
Stock Option Plan (the "Plan") that provides for
the grant of stock options and warrants to
officers, directors and other key employees of the
Company to purchase a maximum of 4,981,081 shares
of common stock. The Plan provides for granting of
both incentive stock options, as defined in
Section 422 of the Internal Revenue Code (the
"Code"), and options that do not qualify under
Section 422 of the Code ("nonqualified options").
Grants under the Plan expire 10 years from the
date of the grant and generally vest over a
three-year period. The exercise price of all
incentive options granted under the Plan must be
at least 100% of the fair value on the date of
grant and in the case of nonqualified stock
options, shall be no less than 85% of the fair
market value. The Plan, as amended, provides for
the issuance of 18,100,000 shares of common stock.
As of December 31, 2004 and 2003, the Company had
191,998 and 556,513 shares, respectively,
available for future grant value under the Plan.
In July 2000, the Company established the 2000
Independent Contractor Incentive Plan of
OneTravel, Inc. and Subsidiary (the "Incentive
Plan") that provides for the grant of stock
options to nonemployees of the Company to purchase
a maximum of 540,000 shares of common stock.
Grants under this plan expire 10 years from the
date of the grant and are vested immediately upon
the date of the grant. As of December 31, 2004 and
2003, the Company had 396,198 shares available for
future grant value under the Incentive Plan.
18
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
The following table summarizes stock option
activity under the plans in 2004 and 2003:
Exercise Weighted-
Number Price Average
of Range Exercise
Shares Per Share Price
---------------------------------------------------------------------------------
Outstanding, January 1, 2003 14,291,956 $0.17-$1.23 $ 0.52
Granted 3,655,000 0.17 0.17
Exercises
Canceled or forfeited (including
exchange program) (3,988,469) 0.17-1.23 1.19
---------------------------------------------------------------------------------
Outstanding, December 31, 2003 13,958,487 0.17-1.23 0.24
Granted in exchange program 1,704,515 0.25 0.25
Canceled or forfeited (1,340,000) 0.17 0.17
Outstanding, December 31, 2004 14,323,002 $0.17-$1.23 --
=================================================================================
The following table summarizes information about
stock options outstanding at December 31, 2004:
Weighted-
Number Average Weighted- Weighted-
of Remaining Average Average
Exercise Shares Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
----------------------------------------------------------------------------------------------------------
$ 0.17 11,670,000 7.63 years $ 0.17 11,670,000 $ 0.17
$ 1.23 948,489 4.98 years $ 1.23 948,489 $ 1.23
$ 0.25 1,704,513 9.03 years $ 0.25 1,704,513 $ 0.25
----------------------------------------------------------------------------------------------------------
14,323,002 7.62 years $ 0.25 14,323,002 $ 0.25
==========================================================================================================
19
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
Exchange Program
In June 2003, the Board of Directors approved an
Option Exchange Program (the "Program") to be
offered to certain employees. The Program allows
the employees to exchange current options for new
options to be issued at a later date. The new
options will be granted after a minimum period of
six months and one day has elapsed from June 11,
2003, and each option shall have an exercise price
equal to the fair market price of the common stock
at the date of grant of the new options. In
connection with the Program, 3,585,000 options
were canceled during the year ended December 31,
2003. In January 2004, 1,704,513 options were
reissued under the options exchange program.
7. Income Taxes The Company has no provision for income taxes in
2004 and 2003.
The deferred tax asset as of December 31, 2004 and
2003 is $17.6 million and $16.3 million for
federal income tax purposes. This amount is
composed of the tax benefit of a net operating
loss carryforward of approximately $48.3 million
and $44.6 million at December 31, 2004 and 2003.
There were no other temporary differences. The
federal net operating loss carryforwards expire
between 2008 and 2020 if not utilized.
The Company has provided a full valuation
allowance against its deferred tax asset. The
Company believes it is more likely than not that
some portion or all of the deferred tax asset will
not be realized.
20
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
8. Related Party During the normal course of business, the Company
Transactions does business with Amadeus (the "Shareholder").
The Company owed $92,504 and $-0- as of
December 31, 2004 and 2003, respectively.
Media Credit
In February 2000, the Company entered into a
three-year agreement with IGT Services, Inc.
("IGT") to purchase media time and advertising
(the "Media Agreement"). Under the terms of the
Media Agreement, IGT agreed to make available to
the Company not less than $15 million worth of
media from IGT's current and future inventory. The
purchase price for the media was to be paid 33.3%
in cash and 66.7% in shares of the Company's
common stock.
During 2003, management evaluated the
realizability of the prepaid advertising and
concluded that an impairment existed as management
did not expect to utilize the full amount of the
media credit. The impairment of approximately $4.8
million has been classified as a component of
amortization expense in the accompanying
consolidated statement of operations.
Affiliate Agreements
During 2003, the Company entered into an Operating
Agreement with Terra Lycos, Inc. (the "Affiliate")
to provide travel products to the customers of the
Affiliate's Web sites. The Company shares the
revenue derived from those transactions with the
Affiliate. The amount earned by the Affiliate in
2003 was $2,951, of which $1,158 was payable as of
December 31, 2003.
In addition, the Affiliate and the Company entered
into a Revenue Share Agreement (the "Revenue
Share") whereby the Affiliate provides advertising
marketing services to the Company. The Affiliate
shares the revenue derived from the provision of
those services with the Company and in 2003, the
Company earned $10,181 as a result of the Revenue
Share, of which $1,470 is recorded as accounts
receivable as of December 31, 2003.
21
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
During 2004, Terra Lycos was sold by its parent.
As a result, as of December 31, 2004, Terra Lycos,
Inc. is no longer an affiliate.
Segment Fees
In 2000, the Company entered into an agreement
with Amadeus (the "Shareholder") whereby the
Company receives segment fees for each segment
booked in the Amadeus GDS system. A booked segment
is a take-off and landing for an air transaction
without a change in flight number, a hotel booking
or a car booking. The fees range from $1.25 to
$2.00 per segment depending upon productivity
requirements associates with booked transactions.
Fees for these segments were $1,114,851 and
$791,227 for the years ended December 31, 2004 and
2003, respectively. The Company has accounts
receivable from the Shareholder of $389,873 and
$141,864 relating to these transactions as of
December 31, 2004 and 2003, respectively.
Notes Payable
During 2004 and 2003, the Company borrowed
approximately $2,850,000 and $1,015,000,
respectively, from the Majority Stockholders and
the Affiliate bearing interest at a rate of the
12-month London InterBank Offered Rate ("LIBOR")
rate plus 200 basis points and secured by the
assets of the Company. Notes payable of $3,565,396
and $299,574 were borrowed from the Majority
Stockholders and the Affiliate, respectively,
during 2004 and 2003.
During 2004, note payable due to the Affiliate in
the amount of $299,574 was transferred to the
common parent of the Affiliate and the Company.
Therefore, all notes payable as of December 31,
2004 are classified as notes payable,
stockholders.
As part of the sale and merger agreement effective
April 15, 2005, all outstanding debt was repaid.
Accordingly, notes payable as of December 31, 2004
are classified as current.
22
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
9. Commitments Leases
and
Contingencies At December 31, 2004, the Company's minimum rental
commitments under noncancelable capital and
operating leases for each fiscal year ended
December 31, are as follows:
Capital Operating
Fiscal Year Leases Leases
------------------------------------------------------------------------
2005 $ 8,948 $ 181,160
2006 5,523 10,900
2007 -- 514
------------------------------------------------------------------------
Total minimum lease payments 14,471 $ 192,574
==========
Less amount representing interest 2,623
--------
Present value of net minimum lease
payments 11,848
Less current maturities 6,768
--------
Long-term maturities $ 5,080
========
Total rent expense for all operating leases for
the years ended December 31, 2004 and 2003
amounted to $191,342 and $166,712, respectively.
Legal Proceedings
The Company is subject to legal proceedings and
claims that arise in the ordinary course of
business. As of December 31, 2004 and 2003,
management is not aware of any asserted or pending
litigation or claims against the Company that
would have a material adverse effect on the
Company's financial condition, results of
operations or liquidity.
23
OneTravel, Inc. (formerly
OneTravel.com, Inc.) and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
10. Employee The Company maintains a qualified 401(k)
Benefit Plan Retirement Plan (the "401(k) Plan") that allows
eligible employees to contribute a portion of
their salary on a pre-tax basis. All full-time
employees are eligible to participate in the
401(k) Plan after six months of service. The
Company does not make any matching contributions
to the 401(k) Plan.
11. Subsequent On February 10, 2005, TERRA NETWORKS ASOCIADAS,
Event S.L., AMADEUS AMERICAS, INC. and AVANTI
MANAGEMENT, INC. ("Shareholders") entered into an
agreement with RCG COMPANIES INCORPORATED ("RCG")
to sell one hundred percent of the outstanding
shares of the Company to RCG. The terms of the
acquisition provide for a total purchase price of
$25,600,000, with $2,500,000 paid as a deposit at
signing, $100,000 after 30 days to extend the
closing by one month, $10,500,000 paid in cash at
closing and $12,500,000 paid in the form of a
six-month convertible non-interest bearing
promissory notes ("Notes"). RCG may delay the
maturity of the Notes up to five times by paying
to the holders of such Notes an aggregate amount
of $125,000 for each delay. The Notes may be
convertible into common stock of RCG, subject to
shareholder approval. The conversion price will be
determined on the closing of the transaction, but
will be no greater than, $2.25 per share. RCG has
the right to extend the maturity of the
convertible rate by up to six months upon payment
of an extension fee to the note holders. The
transaction closed on April 15, 2005.
The Company had restricted cash on deposit with
First Data Inc., the provider of the Company's
merchant processing services totaling $1,000,000.
In January of 2005, TERRA NETWORKS ASOCIADAS,
S.L., AMADEUS AMERICAS, INC. posted a letter of
Credit drawn on Citibank for $1,500,000 and First
Data released $1,000,000 of restricted cash back
to the Company. The Company utilized the funds for
general working capital purposes.
24
|
ASSETS |
||||
|
Cash
and cash equivalents |
$ |
334 |
||
|
Restricted
cash |
2,835 |
|||
|
Accounts
receivable, net |
2,032 |
|||
|
Prepaid
expenses and other current assets |
216 |
|||
|
Total
current assets |
5,417 |
|||
|
Property
and equipment, net |
1,404 |
|||
|
Other
assets |
75 |
|||
|
Other
intangible assets |
725 |
|||
|
Goodwill |
1,148 |
|||
|
Total
assets |
$ |
8,769 |
||
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT |
||||
|
Accounts
payable, accrued expenses and other liabilities |
$ |
4,972 |
||
|
Notes
payable, stockholders |
3,937 |
|||
|
Total
current liabilities |
8,909 |
|||
|
Capital
lease obligation |
10 |
|||
|
Total
liabilities |
8,919 |
|||
|
Commitments
and Contingencies |
||||
|
Stockholders’
equity: |
||||
|
Common
stock |
10 |
|||
|
Additional
paid-in capital |
58,354 |
|||
|
Accumulated
deficit |
(58,514 |
) | ||
|
Total
stockholders’ deficit |
(150 |
) | ||
|
Total
liabilities and stockholders’ deficit |
$ |
8,769 |
||
Three
Months Ended
March
31, |
|||||||
|
2005 |
2004 |
||||||
|
Revenue |
$ |
2,564 |
$ |
2,356 |
|||
|
Selling,
general and administrative expenses |
2,243 |
2,858 |
|||||
|
Depreciation
and amortization |
222 |
235 |
|||||
|
Operating
costs and expenses |
2,465 |
3,093 |
|||||
|
Operating
income (loss) |
99 |
(737 |
) | ||||
|
Interest
income, net |
57 |
16 |
|||||
|
Net
income (loss) |
$ |
156 |
$ |
(721 |
) | ||
Three
months ended March 31, |
|||||||
|
2005 |
2004 |
||||||
|
Cash
flows from operating activities: |
|||||||
|
Net
income (loss) |
$ |
156 |
$ |
(721 |
) | ||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities: |
|||||||
|
Depreciation
and amortization |
222 |
235 |
|||||
|
Loss
on sale of equipment |
- |
19 |
|||||
|
Changes
in operating assets and liabilities: |
|||||||
|
Accounts
receivable |
(1,053 |
) |
(152 |
) | |||
|
Prepaid
expenses and other assets |
(148 |
) |
(159 |
) | |||
|
Accounts
payable and accrued expenses |
2,889 |
557 |
|||||
|
Net
cash provided by (used in) operating activities |
2,066 |
(221 |
) | ||||
|
Cash
flows from investing activities: |
|||||||
|
Purchase
of property and equipment |
(236 |
) |
(225 |
) | |||
|
Sale
of property and equipment |
- |
4 |
|||||
|
Restricted
cash |
(1,632 |
) |
(212 |
) | |||
|
Net
cash used in investing activities |
(1,868 |
) |
(433 |
) | |||
|
Cash
flows from financing activities: |
|||||||
|
Notes
payable proceeds |
79 |
600 |
|||||
|
Principal
payments under capital lease obligations |
(2 |
) |
(1 |
) | |||
|
Net
cash provided by financing activities |
77 |
599 |
|||||
|
Net
change in cash and cash equivalents |
275 |
(55 |
) | ||||
|
Cash
and cash equivalents at beginning of period |
59 |
55 |
|||||
|
Cash
and cash equivalents at end of period |
$ |
334 |
$ |
- |
|||
Three
months ended March 31, |
|||||||
|
2005 |
2004 |
||||||
|
Supplemental
disclosure of cash flow information |
|||||||
|
Cash
paid during the period for: |
|||||||
|
Interest |
$ |
1 |
$ |
1 |
|||
|
Non-cash
financing activities: |
|||||||
|
Transfer
of notes payable, affiliate to notes payable, stockholders |
300 |
- |
|||||
|
Period ended
Three
months ended March 31, |
|||||||
|
2005 |
2004 |
||||||
|
Net
income (loss) as reported (including stock based employee compensation
costs) |
$ |
156 |
$ |
(721 |
) | ||
|
Deduct
total stock-based compensation expense under SFAS No. 123 |
(5 |
) |
(4 |
) | |||
|
Adjusted
net income (loss) |
$ |
151 |
$ |
(725 |
) | ||
|
Historical |
||||||||||||||||
Parent
|
OneTravel |
Preferred
C Subscription |
Adjustments |
Pro
Forma
Combined Amounts |
||||||||||||
|
ASSETS |
||||||||||||||||
|
Cash
and cash equivalents |
$ |
212 |
$ |
146 |
$ |
27,129
(a |
) |
$ |
(13,544 |
)(b) |
$ |
13,943 |
| |||
|
Restricted
cash |
13,780 |
- |
13,780 |
|||||||||||||
|
Accounts
receivable, net |
1,078 |
2,105 |
3,183 |
|||||||||||||
|
Prepaid
expenses and other current assets |
2,917 |
206 |
3,123 |
|||||||||||||
|
Total
current assets |
17,987 |
2,457 |
27,129 |
(13,544 |
) |
34,029 |
||||||||||
|
Property
and equipment, net |
1,430 |
1,429 |
2,859 |
|||||||||||||
|
Deferred
costs and other assets |
2,700 |
75 |
2,775 |
|||||||||||||
|
Net
non-current assets of discontinued operations |
2,739 |
- |
2,739 |
|||||||||||||
|
Other
intangible assets |
- |
14,489
|
(b) |
16,906 |
||||||||||||
|
|
2,417 | (d) | ||||||||||||||
|
Goodwill |
42,878 |
1,873 |
16,137 |
(b) |
57,498 |
|||||||||||
|
(1,873 |
)(c) | |||||||||||||||
| 900 | (d) | |||||||||||||||
|
|
(2,417 | )(d) | ||||||||||||||
|
Total
assets |
$ |
67,734 |
$ |
5,834 |
$ |
27,129 |
$ |
16,109 |
$ |
116,806 |
||||||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY |
||||||||||||||||
|
Notes
payable and other obligations-current portion |
$ |
9,931 |
$ |
- |
$ |
12,900
|
(b) |
$ |
22,831 |
|||||||
|
Accounts
payable and accrued expenses |
14,405 |
2,032 |
600 |
(b) |
17,037 |
|||||||||||
|
Net
non-current liabilities of discontinued operations |
4,757 |
- |
4,757 |
|||||||||||||
|
Unearned
income |
13,496 |
- |
13,496 |
|||||||||||||
|
Total
current liabilities |
42,589 |
2,032 |
13,500 |
58,121 |
||||||||||||
|
Warrant
obligations |
1,593 |
- |
|
|
1,593 |
|||||||||||
|
Deferred
income taxes |
5,500 |
(b) |
6,400 |
|||||||||||||
| 900 |
(d) |
|||||||||||||||
|
Notes
payable and other obligations |
5,644 |
11 |
5,655 |
|||||||||||||
|
Total
liabilities |
49,826 |
2,043 |
19,900 |
71,769 |
||||||||||||
|
Temporary
equity - Convertible Series C Preferred
stock |
27,129 |
(a) |
27,129 | |||||||||||||
|
Shareholders’
equity: |
||||||||||||||||
|
Convertible
Series B Preferred stock |
15 |
- |
15 |
|||||||||||||
|
Common
stock |
1,172 |
10 |
(10 |
)(c) |
1,172 |
|||||||||||
|
Additional
paid-in capital |
157,630 |
62,219 |
|
(62,219 |
)(c) |
157,630 |
||||||||||
|
Accumulated
deficit |
(140,277 |
) |
(58,438 |
) |
58,438 |
(c) |
(140,277 |
) | ||||||||
|
Treasury
stock at cost |
(632 |
) |
- |
(632 |
) | |||||||||||
|
Total
shareholders’ equity |
17,908 |
3,791 |
|
(3,791 |
) |
17,908 |
||||||||||
|
Total
liabilities and shareholders’ equity |
$ |
67,734 |
$ |
5,834 |
$ |
27,129 |
$ |
16,109 |
$ |
116,806 |
||||||
Parent |
OneTravel |
Farequest
Holdings, Inc. |
Adjustments |
Pro
Forma
Combined Amounts |
||||||||||||
|
Revenue |
$ |
57,677 |
$ |
4,378 |
$ |
2,693 |
$ |
64,748 |
||||||||
|
Cost
of revenue |
57,983 |
196 |
58,179 |
|||||||||||||
|
Gross
(loss) profit |
(306 |
) |
4,378 |
2,497 |
6,569 |
|||||||||||
|
Selling,
general and administrative expenses |
9,992 |
5,855 |
5,205 |
21,052 |
||||||||||||
|
Depreciation
and amortization |
495 |
536 |
332 |
3,436
|
(e) |
4,849 |
||||||||||
|
Operating
costs and expenses |
10,487 |
6,441 |
5,537 |
3,436 |
25,901 |
|||||||||||
|
Operating
loss |
(10,793 |
) |
(2,063 |
) |
(3,040 |
) |
(3,436 |
) |
(19,332 |
) | ||||||
|
Interest
expense, net |
993 |
24 |
121 |
801 |
(f) |
1,939 |
||||||||||
|
Other
expense |
592 |
- |
- |
- |
592 |
|||||||||||
|
Loss
from continuing operations before extraordinary items |
(12,378 |
) |
(2,087 |
) |
(3,161 |
) |
(4,237 |
) |
(21,863 |
) | ||||||
|
Gain
on debt restructuring |
2,257 |
- |
- |
- |
2,257 |
|||||||||||
|
Loss
from continuing operations |
(10,121 |
) |
(2,087 |
) |
(3,161 |
) |
(4,237 |
) |
(19,606 |
) | ||||||
|
Preferred
stock dividends |
(1,229 |
) |
(13,145 |
) |
(1,509 |
)(g) |
(15,883 |
) | ||||||||
|
Loss
from continuing operations attributable to common stock
shareholders |
$ |
(11,350 |
) |
$ |
(15,232 |
) |
$ |
(3,161 |
) |
$ |
(5,746 |
) |
$ |
(35,489 |
) | |
|
Basic
and diluted loss per share: |
||||||||||||||||
|
Loss
from continuing operations |
$ |
(0.43 |
) |
- |
- |
$ |
(0.84 |
) | ||||||||
|
Loss
from continuing operations attributable to common stock
shareholders |
$ |
(0.49 |
) |
- |
- |
$ |
(1.52 |
) | ||||||||
|
Weighted
average shares outstanding |
23,325,513 |
- |
- |
23,325,513 |
||||||||||||
*Parent |
OneTravel |
Farequest
Holdings, Inc. |
Adjustments |
Pro
Forma
Combined Amounts |
||||||||||||
|
Revenue |
$ |
66,197 |
$ |
8,193 |
$ |
2,934 |
$ |
77,324 |
||||||||
|
Cost
of revenue |
57,786 |
- |
544 |
58,330 |
||||||||||||
|
Gross
profit |
8,411 |
8,193 |
2,390 |
18,994 |
||||||||||||
|
Selling,
general and administrative expenses |
8,818 |
10,413 |
4,667 |
|
23,898 |
|||||||||||
|
Depreciation
and amortization |
253 |
790 |
152 |
4,716
|
(e) |
5,911 |
||||||||||
|
Goodwill
impairment |
1,000 |
- |
- |
1,000 |
||||||||||||
|
Operating
costs and expenses |
10,071 |
11,203 |
4,819 |
4,716 |
|
30,809 |
||||||||||
|
Operating
loss |
(1,660 |
) |
(3,010 |
) |
(2,429 |
) |
(4,716 |
) |
(11,815 |
) | ||||||
|
Interest
expense, net |
387 |
(23 |
) |
33 |
1,068
|
(f) |
1,465 |
|||||||||
|
Gain
on investments, net |
(120 |
) |
- |
- |
(120 |
) | ||||||||||
|
Other
loss (income) |
13 |
- |
- |
13 |
||||||||||||
|
Loss
from continuing operations |
(1,940 |
) |
(2,987 |
) |
(2,462 |
) |
(5,784 |
) |
(13,173 |
) | ||||||
|
Preferred
stock dividends |
- |
(13,145 |
) |
- |
(2,011 |
)(g) |
(15,156 |
) | ||||||||
|
Loss
from continuing operations attributable to common stock
shareholders |
$ |
(1,940 |
) |
$ |
(16,132 |
) |
$ |
(2,462 |
) |
$ |
(7,795 |
) |
$ |
(28,329 |
) | |
|
Basic
and diluted loss per share: |
||||||||||||||||
|
Loss
from continuing operations |
$ |
(0.12 |
) |
$ |
(0.78 |
) | ||||||||||
|
Loss
from continuing operations attributable to common stock
shareholders |
$ |
(0.12 |
) |
$ |
(1.69 |
) | ||||||||||
|
Weighted
average shares outstanding |
16,799,540 |
16,799,540 |
||||||||||||||
| a) |
Reflects
the net cash received by the Company for the Preferred C stock
subscription. $13 million of the proceeds were used to pay the sellers of
OneTravel.
The
convertible preferred stock does not bear a stated annual dividend,
subject to
approval by the Registrant's stockholders and The American Stock Exchange
(see item g below), is convertible
into shares of the Registrant's common stock at $0.55 per share, and if
not converted will be mandatorily redeemable one year from issuance. Investors
will also receive warrants to purchase an aggregate of 26,019,401 shares
of the Registrant's common stock, at an initial exercise price of $0.55
per
share, exercisable until the date that is 5 years after the issuance
date.
Effective
June 24, 2005, upon approval of the stockholders, the preferred shares
were transferred to equity from temporary equity. The preferred shares
shall automatically be converted into common shares within 25 days. As the
warrants become exercisable as of the shareholder vote, OTV recognized a
dividend and a corresponding increase to additional paid in capital at the
fair value of the warrant, or approximately $10,783,000.
Effective
with the shareholder approval, the Series A Preferred Stock and the
warrants to acquire 2,390,625 shares, currently classified as a liability,
and certain additional warrants to acquire an aggregate 14,761,608 of
common stock, all of which have anti-dilutive features, have been reset to
a new exercise price of $0.55 or $1.00, as defined in their
agreements. As a result of the change in the price, OTV recorded a
dividend of approximately $1.3 million and additional interest of
$280,000. |
| b) |
Reflects
the adjustment to record the purchase price. These estimates and
assumptions are preliminary, are subject to change upon completion of the
valuation of the intangibles and have been made solely for the
purposes of developing these pro forma combined financial
statements. All assets and liabilities approximated their fair
values, except for the adjustments required as set forth
below: |
Useful |
||||||||||
|
Life
(Yrs) |
(in thousands) |
|||||||||
|
Current
assets |
$ |
2,457 |
||||||||
|
Other
assets |
1,504
|
|||||||||
|
Goodwill |
16,137
|
|||||||||
|
Other
intangible assets: |
||||||||||
|
Airline
contracts/relationships |
4 |
5,375
|
||||||||
|
Customer
base |
5 |
2,026
|
||||||||
|
Developed
proprietary technology |
3 |
7,088
|
14,489 |
|||||||
|
Total
assets |
$ |
34,587 |
||||||||
|
Deferred
taxes |
|
(5,500 |
) | |||||||
|
Accounts
payable and accrued expenses |
(2,032
|
) | ||||||||
|
Other
liabilities |
(11
|
) | ||||||||
|
Net
assets acquired |
$ |
27,044 |
||||||||
|
Cash
payments |
$ |
13,100 |
||||||||
|
$12.5
million Promissory Note payable, convertible into common stock with a
value of $12.9 million |
12,900 |
|||||||||
| Additional costs |
600 |
|||||||||
|
Working
capital adjustment |
444 | |||||||||
|
Total
consideration |
$ |
27,044 |
||||||||
| c) |
Elimination
of the carrying amounts of Goodwill and Equity accounts from the
predecessor owner. |
| d) |
Reflects
the reclassification of Farequest’s intangible assets from goodwill, and
recognition of deferred tax liability upon the finalization of the
allocation of the purchase price. |
| e) |
Reflects
the amortization of identifiable intangible assets based on management’s
estimated useful life for the period presented.
|
| f) |
Reflects
additional interest for $12.5 million, non-interest bearing six-month
OneTravel note. The note provides for five one-month extension periods at
$125,000 per month. Interest expense assumes that the note will be
refinanced at 9%, which is the expected incremental borrowing rate,
considering various risk factors. If the interest rate increases by 1%,
interest expense would increase by $125,000 per year. Also reflects
interest on Farequest note. |
| g) |
Effective
June 24, 2005, upon approval of the stockholders, the preferred shares and
the related warrants were transferred to equity from temporary equity and
liabilities, respectively. The preferred shares shall automatically be
converted into common shares within 25 days. The warrants transferred to
equity at their fair value, as determined using the Black-Scholes pricing
method as of the date of transfer, resulting in a gain of approximately $3
million. In addition, the Company recognized a dividend of approximately
$21.3 million, representing value of the conversion of the preferred into
56,563,936 shares of common stock at the closing price of $0.61, less its
original carrying value of $13.1 million. Reflects
the $3,981,000 of issuance costs for the sale of the series C preferred
shares, which should be amortized as a preferred stock dividend over 12
& 9 months divided by 23.75 months (from July 1, 2003 through the
period of the shareholder
vote). |