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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _____ from ________ to
Commission file number: 0-32137
ONLINE VACATION CENTER HOLDINGS CORP.
(Name of Small business Issuer in Its Charter)
Florida 65-0701352
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1801 N.W. 66TH Avenue, Suite 102 33313
Plantation, FL (Zip Code)
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code:
(954) 377-6400
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
|_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
Indicate by check mark whether the registrant is a shell company (as
defined in rule 12b-2 of the Exchange Act). Yes |_| No |X|
Issuer's revenues for the most recent fiscal year ended December 31 2006
were $7,785,361
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $10,626,981 as of March 1, 2007 based on the
closing price of the issuer's common stock on the Over-the-Counter Bulletin
Board on said date ($2.92 per share). For purposes of the foregoing computation,
all executive officers, directors and 10% beneficial owners of the registrant
are deemed to be affiliates.
The number of shares outstanding of the registrant's common stock as of
December 31, 2006: 18,256,777
Documents Incorporated By Reference
None.
Transitional Small Business Disclosure Format: Yes |_| No |X|
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TABLE OF CONTENTS
Page No.
PART I
ITEM 1. DESCRIPTION OF BUSINESS................................................................... 4
ITEM 2. DESCRIPTION OF PROPERTY................................................................... 10
ITEM 3. LEGAL PROCEEDINGS......................................................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................... 10
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES................................................................... 11
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION................................. 12
ITEM 7. FINANCIAL STATEMENTS...................................................................... 17
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..... 17
ITEM 8A. CONTROLS AND PROCEDURES.................................................................. 17
ITEM 8B. OTHER INFORMATION....................................................................... 17
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT........................................................................ 18
ITEM 10. EXECUTIVE COMPENSATION................................................................... 21
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.......................................................................................... 25
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................... 27
ITEM 13. EXHIBITS................................................................................. 27
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES................................................... 28
SIGNATURES............................................................................................. 30
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information in this Annual Report on Form 10-KSB contains 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.
Such statements are based upon current expectations, assumptions, estimates and
projections about Online Vacation Center Holdings Corp. (the "Company") and our
industry. These forward-looking statements are subject to the many risks and
uncertainties that exist in our operations and business environment that may
cause actual results, performance or achievements of the Company to be different
from those expected or anticipated in the forward-looking statements. Any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. For example, words such as "may",
"will", "should", "estimates", "predicts", "potential", "continue", "strategy",
"believes", "anticipates", "plans", "expects", "intends", and similar
expressions are intended to identify forward-looking statements. The Company's
actual results and the timing of certain events could differ significantly from
those anticipated in such forward-looking statements. Factors that might cause
or contribute to such a discrepancy include, but are not limited to, those
discussed in this Report in Part I Item 1 and the risks discussed in our other
Securities and Exchange Commission filings. The forward-looking statements
included in this report reflect the beliefs of our management on the date of
this report. We undertake no obligation to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events or circumstances occur.
3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
Online Vacation Center Holdings Corp., a Florida holding company ("we," "us," or
the "Company"), provides vacation travel services through our four wholly-owned
subsidiaries which are listed below:
- Online Vacation Center, Inc. is an internet-based vacation seller
focused on serving the affluent retiree market;
-Phoenix International Publishing, LLC is the United Kingdom's leading
publisher of consumer magazines and guides about travel to the U.S. and
Canada;
-Thoroughbred Travel, LLC, is an upscale travel agency operating as
Journeys Unlimited in Houston, Texas; and
-La Fern, Inc. is a Florida travel agency that sells land-based vacations
operating as eLeisureLink.com.
We are focused on building a network of diversified vacation sellers with a
range of products that can be cross-marketed to our extensive customer base.
Target businesses will be financially and technologically sound and provide a
high degree of personalized service to help customers research, plan and
purchase a vacation.
We were originally incorporated in the State of Florida under the name of Online
Vacation Center Holdings, Inc. in October 2000 by Edward B. Rudner. On March 16,
2006, we acquired control of Alec Bradley Cigar Corp, a publicly traded company
and the predecessor to our Company in a reverse merger transaction. Under a
share exchange agreement ("Share Exchange Agreement") dated August 25, 2005,
effective as of March 15, 2006, Alec Bradley Cigar Corp issued to Online
Vacation Center Holdings, Inc. interest holders an aggregate of 15,000,000
shares of its common stock in exchange for a 100% interest in Online Vacation
Center Holdings, Inc and sold all of its assets (and transferred all of its
liabilities) to Alan Rubin, its sole executive officer, director and principal
shareholder. For accounting purposes the consummation of these actions resulted
in a reverse merger and Online Vacation Center Holdings, Inc. is the accounting
survivor and surviving business entity; however, Alec Bradley Cigars Corp. is
the surviving legal entity. As part of the Share Exchange Agreement, Alec
Bradley Cigar Corp changed its name to Online Vacation Center Holdings Corp.
Since completing the reverse merger transaction on March 15, 2006, we have
acquired three companies, which are listed above as our subsidiary companies:
Phoenix International Publishing, LLC, Thoroughbred Travel, LLC and La Fern,
Inc. We intend on pursuing an active acquisition strategy to further expand our
business during the upcoming fiscal year. We believe that the leisure travel
services industry is highly fragmented and that the combining of complimentary
businesses should produce positive results. In addition, our management believes
significant internal growth opportunities are available to a well capitalized
company providing a broad range of personalized vacation experiences.
As reported by Travel Industry Association, the total domestic US travel and
tourism market was estimated at $646 billion dollars in 2005. Our core target
market is the tour and cruise portion of that market, estimated at approximately
$17 billion dollars in 2005. Additionally, increased usage and familiarity with
the internet have driven rapid growth in online penetration of travel
expenditures. According to PhoCusWright, an independent travel, tourism and
hospitality research firm, 29% of U.S. leisure and unmanaged travel expenditures
occurred online in 2005, more than double the 14% rate in 2002.
All references in this Annual Report to the "Company", "we" or "our" refer to
Online Vacation Center Holdings Corp. and our subsidiaries unless otherwise
noted. Our main telephone number is 954-377-6400 and our web site is located at
www.onlinevacationcenter.com. The content on our web site is not incorporated by
reference into this filing.
4
Operations
We provide vacation travel services from our call center located in Plantation,
Florida, our retail location in Houston, Texas, and our offices in Dallas, Texas
and London and Horsham, England. Sales are completed via the Internet, by
telephone, or in person.
Marketing
Marketing of vacation travel services utilizes publications, direct mail,
outbound telemarketing and email blasts. We are able to stay in touch with
consumers by utilizing these methods.
Principal Suppliers
We have historically been dependent on our relationships with three major cruise
lines: Celebrity Cruises, Norwegian Cruise Line and Princess Cruises.
Additionally, we depend on third party service providers for processing certain
fulfillment services.
Intellectual Property
We have registered three service marks: two for "Online Vacation Center" and one
for "Your Personal Vacation Managers."
Employees
At December 31, 2006, we had 50 full-time employees; 31 are sales and marketing
personnel and 19 hold administrative and executive positions. No personnel are
covered by a collective bargaining agreement. We believe our relationships with
our employees are good.
Competition
The travel service industry is extremely competitive and has low barriers to
entry. We compete with other distributors of travel services, travel providers,
travel agents, tour operators, central reservation service providers and with
conventional and electronic publishers of travel media. Companies including, but
not limited to, Travelocity, Expedia and Orbitz, have greater experience, brand
name recognition and financial resources than us.
Regulation
We believe that we are in compliance with all federal regulatory requirements,
including the CAN-SPAM Act of 2003 which regulates commercial electronic mail on
a nationwide basis. We adhere to the law by properly representing the nature of
our commercial email messages, not tampering with source and transmission
information and obtaining email addresses through lawful means.
Risk Factors
Our growth strategy is based on a merger and acquisition strategy and there can
be no assurance that we will be able to identify, acquire or profitably manage
additional businesses or successfully integrate acquired businesses into our
operations without substantial costs, delays or other operational or financial
problems.
We intend to increase our revenues, expand the markets we serve and increase our
services through the acquisition or merger of additional operating companies. In
fiscal 2006, we acquired three companies and intend on making additional
acquisitions in fiscal 2007. There can be no assurance that we will be able to
identify, acquire or profitably manage additional businesses or successfully
integrate acquired businesses into our operations without substantial costs,
delays or other operational or financial problems. Increased competition for
acquisition or merger candidates may develop, in which event there may be fewer
acquisition and merger opportunities available to us as well as higher
acquisition or merger prices. Further, acquisitions and mergers involve a number
of special risks, including possible adverse effects on our operating results,
diversion of management's attention, failure to retain key personnel, risks
5
associated with unanticipated events or liabilities and amortization of acquired
intangible assets, some or all of which could have a material adverse effect on
our business, financial condition and results of operations. Customer
dissatisfaction or performance problems at a single acquired company could also
have an adverse effect on our reputation. We may also seek international
acquisitions that may be subject to additional risks associated with doing
business in foreign countries. In addition, there can be no assurance that
businesses acquired will achieve anticipated revenues and earnings.
Since we may finance future acquisitions and mergers in part by using shares of
our common stock for the consideration to be paid, if in the event that our
common stock does not maintain a sufficient market value, or potential
acquisition and merger candidates are otherwise unwilling to accept our common
stock as the consideration for the sale of their businesses, we may be required
to issue additional shares of stock or utilize more of our cash resources, if
available, in order to maintain our acquisition program.
If we have insufficient cash resources, our growth could be limited unless we
are able to obtain additional capital through debt or equity financings. There
can be no assurance that other financing will be available to us on terms we
deem acceptable or if at all. If we are unable to obtain financing sufficient
for all of our desired acquisitions and mergers, we may be unable to fully carry
out our expansion strategy. If funding is insufficient, we may be required to
delay, reduce the scope of or eliminate some or all of our expansion programs.
We intend to use our common stock as an integral part of our expansion and
acquisition strategy If the acquisitions made are not accretive or not
commensurate with our current earnings per share, the common stock issued in
conjunction with acquisitions could be dilutive in terms of earnings per share
and could reduce the market value to our existing shareholders and reduce the
existing shareholders' percentage interest in the Company. As a result, we may
be unable to make future acquisitions or may be required to change our
acquisition strategy.
We are dependent upon travel providers for access to their inventory and the
loss of a contract, changes in our pricing agreements or commission schedules or
more restricted access to travel providers' capacity could materially decrease
our margins and have a negative effect on our business, financial condition and
results of operations.
We are dependent upon travel providers for access to their inventory. Other
distributors may have similar arrangements with travel providers, some of which
may provide better availability or more competitive pricing than that offered by
us. We anticipate that a significant portion of our revenues will continue to be
derived from the sale of inventory for relatively few travel providers. Our
agreements with our travel providers can generally be canceled or modified by
the travel provider upon relatively short notice. The loss of a contract,
changes in our pricing agreements or commission schedules or more restricted
access to travel providers' inventory could have a material adverse effect on
our business, financial condition and results of operations.
There can be no assurance that we will be able to successfully integrate the
operations of future acquisitions and mergers or institute the necessary
company-wide systems and procedures to successfully manage the combined
enterprise on a profitable basis.
We will rely on the existing reporting systems of future acquisitions and
mergers for financial reporting. There can be no assurance that our management
group will be able to continue to effectively manage the combined entity or
effectively implement and carry out our internal growth strategy and expansion
program. Our inability to successfully integrate future acquisitions and mergers
would have a material adverse effect on our business, financial condition and
results of operations, and would make it unlikely that our expansion program
will continue to be successful. Further, there can be no assurance that our
strategy to become the leading specialized distributor of leisure travel
services will be successful, or that the travelers or travel providers will
accept us as a distributor of a variety of specialized travel services.
Our business is currently dependent upon a number of different information and
telecommunication technologies and any failure of this technology would decrease
our revenues.
Our business is currently dependent upon a number of different information and
telecommunication technologies to facilitate our access to information and
manage a high volume of inbound and outbound calls. Any failure of this
6
technology would have a material adverse effect on our business, financial
condition and results of operations. In addition, we are dependent upon certain
third party vendors, for access to certain information. Any failure of these
systems or restricted access by us would have a material adverse effect on our
business, financial condition and results of operations.
There can be no assurance that our systems, procedures and controls will be
adequate to support our operations as it expands which could significantly
increase our expenses and delay or prevent growth.
We expect to continue to grow internally and through acquisitions and mergers.
We expect to spend significant time and effort expanding existing businesses and
identifying, completing and integrating acquisitions and mergers. There can be
no assurance that our systems, procedures and controls will be adequate to
support our operations as they expand. Any future growth also will impose
significant added responsibilities on members of senior management, including
the need to identify, recruit and integrate new senior level managers and
executives. There can be no assurance that such additional management will be
identified or retained by us. To the extent that we are unable to manage our
growth efficiently and effectively, or are unable to attract and retain
qualified management, our business, financial condition and results of
operations could be materially adversely affected.
Our revenues and earnings are especially sensitive to global events that are out
of our control.
Our results of operations are dependent upon factors generally affecting the
travel industry. Our revenues and earnings are especially sensitive to events
that affect domestic and international air travel and vacation. A number of
factors could result in an overall decline in demand for travel, including
political instability, armed hostilities, international terrorism, extreme
weather conditions, a rise in fuel prices, a decline in the value of the U.S.
dollar, labor disturbances, excessive inflation, a general weakening in economic
activity and reduced employment in the U.S. These types of events could have a
material adverse effect on our business, financial condition and results of
operations.
The domestic and international leisure travel industry is seasonal. Our results
have been subject to quarterly fluctuations caused by the seasonal variations in
the travel industry and other factors.
Net revenues and net income are generally lower in the third quarter. We expect
seasonality to continue in the future. Our quarterly results of operations may
also be subject to fluctuations as a result of the timing and cost of
acquisitions and mergers, changes in the mix of services offered by us as a
result of acquisitions and mergers, internal growth rates, fare wars by travel
providers, changes in relationships with certain travel providers, the timing of
the payment of overrides by travel providers, extreme weather conditions or
other factors affecting travel. Unexpected variations in quarterly results could
also adversely affect the price of our common stock, which in turn could limit
our ability to expand.
The travel service industry is extremely competitive and has low barriers to
entry.
We compete with other distributors of travel services, travel providers, travel
agents, tour operators and central reservation service providers, some of which
have greater experience, brand name recognition and/or financial resources than
us. Our travel providers may decide to compete more directly with us and
restrict the availability and/or preferential pricing of their capacity. In
addition, other distributors may have relationships with certain travel
providers providing better availability or more competitive pricing than that
offered by us. Furthermore, some travel agents have a strong presence in their
geographic area which may make it difficult for us to attract customers in those
areas.
Our operations are dependent on the efforts and relationships of Edward B.
Rudner.
7
Our operations and merger and acquisition strategy are dependent on the efforts
and relationships of Edward B. Rudner. Furthermore, we will likely be dependent
on the senior management of any businesses acquired in the future. If any of
these individuals become unable to continue in their role our business or
prospects could be adversely affected. Although we have entered into an
employment agreement with Mr. Rudner, there can be no assurance that he will
continue in his present capacity for any particular period of time.
Edward B. Rudner has the ability to control our business and corporate affairs.
Edward B. Rudner and his immediate family beneficially own shares of common
stock representing approximately 55.5% of the total voting power of our common
stock. Mr. Rudner will be able to exercise control over our affairs and be able
to elect the entire board of directors and to control the disposition of any
matter submitted to a vote of stockholders.
Our websites rely on intellectual property, and we cannot be sure that this
intellectual property is protected from copying or use by others, including
potential competitors.
We regard much of our content and technology as proprietary and try to protect
our proprietary technology by relying on trademarks, copyrights, trade secret
laws and confidentiality agreements. In connection with our license agreements
with third parties, we seek to control access to and distribution of our
technology, documentation and other proprietary information. Even with all of
these precautions, it is possible for someone else to copy or otherwise obtain
and use our proprietary technology without our authorization or to develop
similar technology independently. Effective trademark, copyright and trade
secret protection may not be available in every country in which our services
are made available through the internet, and policing unauthorized use of our
proprietary information is difficult and expensive. We cannot be sure that the
steps we have taken will prevent misappropriation of our proprietary
information. This misappropriation could have a material adverse effect on our
business. In the future, we may need to go to court to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. This litigation might result in
substantial costs and diversion of resources and management attention.
We currently license from third parties some of the technologies incorporated
into our websites. As we continue to introduce new services that incorporate new
technologies, we may be required to license additional technology. We cannot be
sure that such technology licenses will be available on commercially reasonable
terms, if at all.
Our processing, storage, use and disclosure of personal data could give rise to
liabilities as a result of governmental regulation, conflicting legal
requirements or differing views of personal privacy rights.
In the processing of our traveler transactions, we receive and store a large
volume of personally identifiable information. This information is increasingly
subject to legislation and regulations in numerous jurisdictions around the
world. This government action is typically intended to protect the privacy of
personal information that is collected, processed and transmitted in or from the
governing jurisdiction. We could be adversely affected if legislation or
regulations are expanded to require changes in our business practices or if
governing jurisdictions interpret or implement their legislation or regulations
in ways that negatively affect our business, financial condition and results of
operations. As privacy and data protection have become more sensitive issues, we
may also become exposed to potential liabilities as a result of differing views
on the privacy of travel data. These and other privacy developments that are
difficult to anticipate could adversely affect our business, financial condition
and results of operations.
We may be found to have infringed on intellectual property rights of others that
could expose us to substantial damages and restrict our operations.
We could face claims that we have infringed the patents, copyrights or other
intellectual property rights of others. In addition, we may be required to
indemnify travel suppliers for claims made against them. Any claims against us
could require us to spend significant time and money in litigation, delay the
release of new products or services, pay damages, develop new intellectual
property or acquire licenses to intellectual property that is the subject of the
infringement claims. These licenses, if required, may not be available on
acceptable terms or at all. As a result, intellectual property claims against
8
us could have a material adverse effect on our business, operating results and
financial condition.
Fluctuations in the British Pound exchange rate can affect our publishing costs,
as it is dependent on third party production facilities which invoice us in
British Pounds.
Phoenix International Publishing, LLC ("Phoenix") utilizes third party
publishing production facilities in the UK, therefore, a substantial number of
Phoenix's transactions are denominated in British Pounds. As Phoenix's
functional currency is the US Dollar, it could be negatively impacted by
fluctuations in the exchange rate.
Our stock is thinly traded.
While our stock trades on the NASDAQ Over-the-Counter Bulletin Board, our stock
is thinly traded and an investor may have difficulty in reselling his or her
shares quickly. The low trading volume of our common stock is outside of our
control, and we cannot guarantee that the trading volume will increase in the
near future or that, even if it does increase in the future, it will be
maintained. Without a large float, our common stock is less liquid than the
stock of companies with broader public ownership and, as a result, the trading
prices of our common stock may be more volatile. In addition, in the absence of
an active public trading market, an investor may be unable to liquidate his or
her investment in us. Trading of a relatively small volume of our common stock
may have a greater impact on the trading price for our stock than would be the
case if our public float were larger. We cannot predict the prices at which our
common stock will trade in the future.
9
ITEM 2. DESCRIPTION OF PROPERTY
We have entered into a lease for approximately 10,000 square feet of office
space at our principal location in Plantation, Florida where we have our
corporate offices and our call center. The current lease term is through June
30, 2008. We also have a month to month lease for our retail location for
Thoroughbred Travel, LLC in Houston, Texas.
ITEM 3. LEGAL PROCEEDINGS
We are involved from time to time in various legal claims and actions arising in
the ordinary course of business, While from time to time claims are asserted
that may make demands for sums of money, we do not believe that the resolution
of any of these matters, either individually or in the aggregate, will
materially affect our financial position, cash flows or the results of our
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the vote of security holders during the fourth
quarter of fiscal 2006.
10
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES
Our shares of common stock are traded over-the-counter and quoted on the OTC
Electronic Bulletin Board under the symbol "ONVC". Until March 16, 2006, our
shares of common stock traded under the symbol "ABDC". Historically the stock is
thinly traded and transactions in the stock are sporadic and infrequent. The
following table sets forth the high and low bid quotations for our common stock
for the periods indicated. The quotations reflect inter-dealer prices and do not
include retail mark-ups, mark-downs or commissions. The prices do not
necessarily reflect actual transactions.
High Low
------- ------
Year ended December 31, 2006
First quarter ......................................... $ 4.00 $ 1.05
Second quarter ........................................ 3.44 1.35
Third quarter ......................................... 2.15 1.25
Fourth quarter ........................................ 3.26 1.68
Year ended December 31, 2005
First quarter ......................................... $ 0.35 $ 0.06
Second quarter ........................................ .20 .15
Third quarter ......................................... .73 .13
Fourth quarter ........................................ 1.01 .45
On December 31, 2006, there were 366 shareholders of record of our common stock.
We have never paid cash dividends on our common stock. We presently intend to
retain future earnings, if any, to finance the expansion of our business and do
not anticipate that any cash dividends will be paid in the foreseeable future.
The future dividend policy will depend upon our earnings, capital requirements,
expansion plans, financial condition and other relevant factors.
Sales of Unregistered Securities
On March 16, 2006, we issued an aggregate of 1,300,000 options to our four
directors under our 2005 Management and Director Equity Compensation Plan. The
exercise price of the options is $1.27 per share and the options vest on March
16, 2008. The expiration date of the options is March 16, 2011. We issued these
options to our directors in reliance upon Section 4(2) of the Securities Act, as
a transaction that does not constitute a public offering. Each director is an
accredited investor, has access to comprehensive information about us and
represented his intention to acquire the options and underlying shares for
investment only and not with a view to distribute or sell the options or
underlying shares. We placed restrictive legends in the option agreements
stating that the options and the shares issuable upon exercise of the options
are not registered under the Securities Act and set forth restrictions on their
transferability and sale.
On March 16, 2006, we issued an aggregate of 60,000 options to four employees
under our 2005 Management and Director Equity Compensation Plan. The exercise
price of the options is $1.27 per share and the options vest on March 16, 2008.
The expiration date of the options is March 16, 2011. On March 16, 2006, we
granted an aggregate of 35,000 stock awards to thirty-five employees. The stock
awards vest at the rate of 20% per year with vesting dates of March 16, 2006,
March 16, 2007, March 16, 2008, March 16, 2009 and March 16, 2010. On October 3,
2006, we issued an aggregate of 10,000 options to one employee under our 2005
Management and Director Equity Compensation Plan. The exercise price of the
options is $1.95 per share and the options vest on October 3, 2008. The
expiration date of the options is October 3, 2011. We issued these stock options
and stock awards to our employees in reliance upon Section 4(2) of the
Securities Act, as a transaction that does not constitute a public offering. All
of our employees have access to comprehensive information about us and
represented his or her intention to acquire the options and underlying shares
for investment only and not with a view to distribute or sell the options or
underlying shares. We placed restrictive legends in the option agreements and on
the stock awards stating that these awards are not registered under the
Securities Act and set forth restrictions on their transferability and sale.
11
On August 31, 2006, we consummated the acquisition of Phoenix International
Publishing, LLC ("Phoenix"), a publisher of consumer magazines and guides about
travel to the U.S. and Canada, pursuant to the terms of an Acquisition
Agreement, dated August 31, 2006, by and among the Company, Phoenix, a Delaware
limited liability company, and Simon Todd, the sole member of Phoenix. Pursuant
to the Acquisition Agreement, we purchased and acquired all of the issued and
outstanding ownership interests of Phoenix for 1,450,000 restricted shares of
our common stock issued to Simon Todd, the sole member of Phoenix. The shares
were issued in a transaction that was exempt from registration under Section
4(2) of the Securities Act of 1933, as amended, as a transaction by an issuer
not involving a public offering. Mr. Todd is knowledgeable, sophisticated, has
access to comprehensive information about us and represented his intention to
acquire the shares for investment only and not with a view to distribute or sell
the shares. We placed legends on the certificates stating that the shares were
not registered under the Securities Act and set forth the restrictions on their
transferability and sale.
On September 26, 2006, we consummated the acquisition of Thoroughbred Travel,
LLC, a Houston, Texas travel agency, operating as Journeys Unlimited, pursuant
to the terms of an Acquisition Agreement, dated September 26, 2006, by and among
the Company, Thoroughbred Travel, LLC ("Thoroughbred"), an Alabama limited
liability company, and Thomas E. Lazenby, the sole Holder. Pursuant to the
Acquisition Agreement, we purchased and acquired all of the interests of
Thoroughbred for $125,000 cash and a $125,000 convertible note issued to Mr.
Lazenby. The note bears interest at 5% per annum, with principal and interest
payable at maturity of 1 year from closing, prepayable upon 30 days' written
notice, and convertible at the election of Mr. Lazenby prior to prepayment or
maturity into 62,500 shares of the Company's common stock at a conversion price
equal to $2.00 per share. The convertible note was issued to Mr. Lazenby in a
transaction that was exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended as a transaction by an issuer not involving a
public offering. Mr. Lazenby is an accredited investor, has access to
comprehensive information about us and represented his intention to acquire the
note and shares issuable upon conversion of the note for investment only and not
with a view to distribute or sell the note or underlying shares. We placed a
legend on the convertible note stating that the note and shares issuable upon
conversion of the note were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On October 3, 2006, we consummated the acquisition of La Fern, Inc., a Miami
Lakes, Florida travel agency, operating as eLeisureLink.com, pursuant to the
terms of an Acquisition Agreement, dated October 3, 2006, by and among the
Company, La Fern, Inc. d/b/a/ Leisure Link International, a Florida corporation
("La Fern"), and Lawrence Fishkin, the sole shareholder of La Fern. Pursuant to
the Acquisition Agreement, we purchased and acquired all of the issued and
outstanding ownership interests of La Fern, Inc. for $ 25,000 cash and a $
375,000 convertible note issued to Mr. Fishkin. The note bears interest at 6%
per annum, with principal payable at maturity of October 1, 2009 and interest
payable semi-annually on April 1, 2007 and on each April 1 and October 1
thereafter. The note may not be prepaid and shall be convertible at the election
of Mr. Fishkin prior to maturity into 187,500 shares of the Company's common
stock at a conversion price equal to $2.00 per share. The convertible note was
issued to Mr. Fishkin in a transaction that was exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended as a transaction by an
issuer not involving a public offering. Mr. Fishkin is an accredited investor,
has access to comprehensive information about us and represented his intention
to acquire the note and shares issuable upon conversion of the note for
investment only and not with a view to distribute or sell the note or underlying
shares. We placed a legend on the convertible note stating that the note and
shares issuable upon conversion of the note were not registered under the
Securities Act and set forth the restrictions on their transferability and sale.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
We provide vacation travel services through our wholly owned subsidiaries:
Online Vacation Center, Inc., an internet-based vacation seller focused on
serving the affluent retiree market, Phoenix International Publishing, LLC
("Phoenix"), the United Kingdom's leading publisher of consumer magazines and
guides about travel to the U.S. and Canada, Thoroughbred Travel, LLC, a Houston,
Texas based upscale travel agency, operating as Journeys Unlimited, and La Fern,
Inc., operating as eLeisureLink.com, a Florida travel agency that sells
land-based vacations.
We generate revenues from:
o commissions on cruises
o commissions on other travel related products
o commissions on travel insurance
o marketing performed for travel suppliers
We currently market our services by:
o producing travel-related publications for consumers
o telemarketing to our existing customer base
o direct mailing to our existing customer base as well as targeted
prospects
o email blasting to our opt in subscription base
12
Operating expenses include primarily those items necessary to advertise our
services, produce our marketing materials, maintain and staff our travel
reservation and fulfillment center including technological enhancements,
payroll, commissions and benefits, telephone, ticket delivery and general and
administrative expenses including rent and computer maintenance fees.
Results of Operations
Year Ended December 31, 2006 Compared To Year Ended December 31, 2005
Revenues decreased by 2.4%, $190,327, to $7,785,361 for the year ended December
31, 2006 ("fiscal 2006") from $7,975,688 for the year ended December 31, 2005
("fiscal 2005"). The decrease was primarily due to fewer customers traveling
during the second, third, and fourth quarters of 2006 as compared to the same
period in 2005, offset by an increase in advertising revenue of $897,506, a
result of the acquisition of Phoenix on August 31, 2006.
Sales and marketing expenses increased by 41.6% or $854,765 to $2,907,698 for
fiscal 2006 as compared to $2,052,933 for fiscal 2005. The increase is primarily
attributable to the selling and marketing cost of the companies acquired during
2006.
General and administrative expenses increased by 10.8% or $410,539 from
$3,802,978 for fiscal 2005 to $4,213,517 for fiscal 2006. The increase was
attributable to higher professional fees and insurance expenses in the amount of
$660,191 as a result of us becoming a reporting public company, $173,501 of
general and administrative costs associated with the operation of the
acquisitions, offset by a decrease in management compensation in the amount of
$456,933 as a result of our new employment agreement with our Chief Executive
Officer and President.
Depreciation and amortization expenses increased by 87.5% or $63,693 from
$72,803 for fiscal 2005 to $136,496 primarily as result of amortization in the
amount of $54,465 of intangible assets purchased in conjunction with the three
acquisitions completed during fiscal 2006.
Other Income/(Expense) increased from an expense of $238,607 for fiscal 2005 to
income of $16,924 for fiscal 2006. The fiscal 2005 expense was attributable to
accrued interest on subordinated debt which was exchanged for 1,500,310 shares
of our common stock in conjunction with the Share Exchange Agreement in March
2006. The 2006 income represents the excess of interest income earned on our
cash balances at the bank over the accrued interest expense on the convertible
notes issued by us in conjunction with our acquisition of Thoroughbred Travel,
LLC and La Fern, Inc. and the accrued interest expense related to the
subordinated debentures before the Share Exchange.
The provision for income taxes increased by $718,889 to $306,721 for fiscal 2006
as compared to a benefit of $412,168 for fiscal 2005. The increase in the
provision for income taxes resulted from the reversal of a valuation allowance,
relating to a deferred tax asset, in the amount of $1,164,968 in 2005 that was
no longer required in accordance with Statement of Financial Accounting
Standards Board No. 109- "Accounting for Income Taxes".
As a result of the foregoing, our net income was $237,853 for fiscal 2006
compared to $2,220,535 for fiscal 2005.
Liquidity and Capital Resources
Cash at December 31, 2006 and 2005 was $2,658,885 and $2,213,182 respectively.
The primary source of our liquidity and capital resources has come from our
operations.
Cash flows provided by operating activities for fiscal 2006 and 2005 were
$935,779 and $1,100,488, respectively. Although net income in fiscal 2006
declined to $237,853 from $2,220,535 in fiscal 2005, this decrease was offset by
improvements in non cash operating items. This was comprised of a decrease in
deferred tax assets of $353,671 and an increase in stock based compensation of
$153,380 as a result of the adoption of Statement of Financial Accounting
13
Standards Board No. 123R. Additionally, accounts payable and accrued expenses
increased by $445,387 and deferred revenue increased by $325,700 primarily from
our new acquisitions.
Cash flows used in investing activities for fiscal 2006 increased to $490,076
from $64,230 during fiscal 2005. The primary cash out flow related to the excess
of cash paid over cash received totaling $405,795 in conjunction with the three
acquisitions completed during fiscal 2006.
There were no cash flows from financing activities during fiscal 2006 and 2005;
however, in conjunction with the Share Exchange Agreement in March 2006,
$3,000,000 of 8% subordinated debentures due on January 1, 2008 were ultimately
exchanged for 1,500,310 shares of our common stock effective as of March 16,
2006.
At December 31, 2006, we had a working capital surplus of $581,481, an increase
of $279,970 from December 31, 2005 and an accumulated deficit of $1,357,527, a
reduction of $237,853.
Management believes that the existing cash and cash expected to be provided by
operating activities will be sufficient to fund the short term capital and
liquidity needs of our operations. We may need to seek to sell equity or debt
securities or obtain credit lines from financial institutions to meet our
longer-term liquidity and capital requirements, which includes strategic growth
through mergers and acquisitions. We can not provide any assurances that we will
be able to obtain additional capital or financing in amounts or on terms
acceptable to us, if at all or on a timely basis.
Seasonality and Inflation
The domestic and international leisure travel industry is seasonal. Our results
have been subject to quarterly fluctuations caused primarily by the seasonal
variations in the travel industry. Leisure travel net revenues and net income
are generally lower in the third quarter. We expect seasonality to continue in
the future but hope to mitigate the effects of seasonality by acquiring
companies in the travel industry that are not as sensitive to seasonality, such
as travel advertising. We do not expect inflation to materially affect our
revenues and net income.
Recent Accounting Pronouncements
Nonmonetary Exchange
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets--An Amendment of Accounting Principles Board (APB) Opinion No. 29,
Accounting for Nonmonetary Transactions" ("SFAS 153"). SFAS 153 eliminates the
exception from fair measurement for nonmonetary exchanges of similar productive
assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that do not have
commercial substance. SFAS 153 specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity expected to change
significantly as a result of the exchange. SFAS 153 is effective for fiscal
periods beginning after June 15, 2005. The adoption of SFAS 153 did not have a
material impact on our current financial condition or results of operations.
Conditional Asset Retirement
In March 2005, the FASB issued FASB Interpretation (FIN) No. 47 - "Accounting
for Conditional Asset Retirement Obligations - an Interpretation of SFAS 143
(FIN No. 47). FIN No. 47 clarifies the timing of liability recognition for legal
obligations associated with the retirement of a tangible long-lived asset when
the timing and/or method of settlement are conditional on a future event. FIN
No. 47 is effective no later than December 31, 2005. FIN No. 47 did not impact
us for the year ended December 31, 2006.
Accounting Changes and Error Corrections
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections, a Replacement of APB No. 20 and FASB 3 (SFAS No.154). SFAS No. 154
requires retrospective application to prior periods' financial statements of
14
a voluntary change in accounting principle unless it is impracticable. APB
Opinion No. 20 "Accounting Changes," previously required that most voluntary
changes in accounting principle be recognized by including in net income of the
period of the change the cumulative effect of changing to the new accounting
principle.
Accounting for Uncertainty in Income Taxes
In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes. This
Interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. This Interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The Interpretation is effective for fiscal
years beginning after December 15, 2006. While our analysis of the impact of
this Interpretation is not yet complete, we do not anticipate it will have a
material impact on our retained earnings at the time of adoption.
Fair Value Measurements
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements, ("FAS 157"). This Standard defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. FAS
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years. The
adoption of FAS 157 is not expected to have a material impact on our financial
position, results of operations or cash flows.
Accounting for Defined Benefit Pension and Other Postretirement Plans
The FASB also issued in September 2006 Statement of Financial Accounting
Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statement No. 87, 88, 106 and
132(R), ("FAS 158"). This Standard requires recognition of the funded status of
a benefit plan in the statement of financial position. The Standard also
requires recognition in other comprehensive income certain gains and losses that
arise during the period but are deferred under pension accounting rules, as well
as modifies the timing of reporting and adds certain disclosures. FAS 158
provides recognition and disclosure elements to be effective as of the end of
the fiscal year after December 15, 2006 and measurement elements to be effective
for fiscal years ending after December 15, 2008. We do not expect the remaining
elements of this Statement to have a material impact on our financial condition,
results of operations, cash flows when adopted
Critical Accounting Policies
We prepared our consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. As such,
management is required to make certain estimates, judgments and assumptions that
it believes are reasonable based on the information available. These estimates
and assumptions affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses for the periods presented. The significant accounting policies which
management believes are the most critical to aid in fully understanding and
evaluating our reported financial results include revenue recognition,
intangible asset testing and income taxes.
Revenue Recognition
We recognize revenue in accordance with Staff Accounting Bulletin (SAB) No. 104
"Revenue Recognition in Financial Statements", which states that revenue is
realized or realizable and earned when all of the following criteria are met:
persuasive evidence of an arrangement exists, services have been rendered, the
seller's price to the buyer is fixed or determinable, and collectibility is
reasonably assured. Vacation travel sales transactions are billed to customers
at the time of booking, however commission revenue is not recognized in the
accompanying consolidated financial statements until the customers' travel
occurs. Advertising revenue is recognized upon distribution of media.
15
Emerging Issues Task Force (EITF) Issue No. 99-19, "Reporting Revenue Gross as a
Principal versus Net as an Agent", discusses the weighing of the relevant
qualitative factors regarding our status as a primary obligor and the extent of
our pricing latitude. Based upon our evaluation of vacation travel sales
transactions and in accordance with the various indicators identified in EITF
Issue No. 99-19, our vacation travel suppliers assume the majority of the
business risks such as providing the service and the risk of unsold travel
packages. As such, all vacation travel sales transactions are recorded at the
net amount, which is the amount charged to the customer less the amount to be
paid to the supplier. The method of net revenue presentation does not impact
operating profit, net income, earnings per share or cash flows.
Intangible Asset Testing
Absent any circumstances that warrant testing at another time, we test for
goodwill and non-amortizing intangible asset impairment as part of our year-end
closing process. Our goodwill testing consists of comparing the estimated fair
values of each of our operating entities to their carrying amounts, including
recorded goodwill. We estimate the fair value of our reporting unit by
discounting its projected future cash flow. Developing future cash flow
projections requires us to make significant assumptions and estimates regarding
the sales, gross margin and operating expenses of our reporting unit, as well as
economic conditions and the impact of planned business or operational
strategies. Should future results or economic events cause a change in our
projected cash flows, or should our operating plans or business model change,
future determinations of fair value may not support the carrying amount of our
unit, and the related goodwill would need to be written down to an amount
considered recoverable. Any such write down would be included in the operating
expenses. While we make reasoned estimates of future performance, actual results
below these expectations, or changes in business direction can result in
additional impairment charges in future periods.
Income Taxes
We account for income taxes under the liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. We have
incurred cumulative net operating losses ("NOLs") for financial accounting and
tax purposes. The effects of the NOLs have given rise to a substantial deferred
tax asset that has been utilized to offset the provision for income taxes on
substantially all earnings generated to date. SFAS No. 109, "Accounting for
Income Taxes," required that we record a valuation allowance when it is "more
likely than not that some portion or all of the deferred tax assets will not be
realized."
At March 31, 2005, we achieved profitability and net income for the quarter,
booking activity, and advanced bookings increased as compared to the same three
month period ending March 31, 2004. The first three months of the year are known
as the "wave season" in the travel industry and many travel companies book a
large portion of their business at this time. As would be expected, advanced
bookings reached its highest historical level. Based on this information,
management concluded at that time that it was more likely than not that a lesser
portion of the deferred tax asset would not be realized and consequently, we
decreased the valuation allowance.
At June 30, 2005, we had our most profitable quarter since inception. Net income
before taxes and future revenues increased as compared to the same three month
period ending June 30, 2004. Historically, the second quarter of the year is the
time that most bookings travel, therefore it would be expected that advanced
bookings would significantly decrease. Instead, advanced bookings increased 40%
as compared to the same period in 2004. Based on this information, management
concluded at that time that it was no longer more likely than not that a portion
of the deferred tax asset would not be realized and consequently, we removed the
valuation allowance.
16
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplemental data required pursuant to this Item 7
are included in this Annual Report on Form 10-KSB, as a separate section
commencing on page F-1 and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
As of the end of the period covered by this Annual Report, we carried out an
evaluation, under the supervision and with the participation of management,
including Edward B. Rudner, our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934. In designing and evaluating the disclosure
controls and procedures, management recognizes that there are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their desired control objectives. Additionally, in evaluating and
implementing possible controls and procedures, management is required to apply
its reasonable judgment.
Based upon the required evaluation, our Chief Executive Officer and Chief
Financial Officer concluded as of December 31, 2006, that our disclosure
controls and procedures are effective in timely alerting him to material
information relating to the Company that is required to be disclosed by us in
the reports that we file or submit under the Exchange Act to be recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. There have been no significant changes in our internal
controls over financial reporting or in other factors that could significantly
affect internal controls over financial reporting subsequent to the date we
carried out our evaluation.
There have been no changes in our internal control over financial reporting
during the fiscal year ended December 31, 2006, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 8B. OTHER INFORMATION
None.
17
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information with respect to our
executive officers and directors as of December 31, 2006:
Name Age Position
------------------- --- ----------------------
Edward B. Rudner 56 Chief Executive Officer, President, Chief Financial Officer and
Director
Richard A. McKinnon 66 Chairman of the Board of Directors
Brian P. Froelich 60 Director
Frank Bracken 66 Director
Edward B. Rudner has served as our Chief Executive Officer, President, Chief
Financial Officer and as a director since March 15, 2006, the effective date of
the Share Exchange Agreement. Mr. Rudner has served as an executive officer and
director of Online Vacation Center Holdings, Inc. since its inception in October
2000. Prior to founding Online Vacation Center Holdings, Inc., Mr. Rudner served
as Chief Financial Officer and then Chief Operating Officer of Alamo Rent A Car.
During his tenure Alamo Rent A Car expanded from a Florida company with 400 cars
to a national car rental company with over 50,000 cars. In 1984, Mr. Rudner
became President and Chief Executive Officer of Certified Tours, which grew from
selling 10,000 vacation packages a year to over 250,000. In 1989, Mr. Rudner
became Chairman and Chief Executive Officer of Renaissance Cruises, which
expanded ship assets from $60 million to over $1 billion and increased revenues
from $20 million to over $300 million by 1999. Following his departure, on
September 25, 2001, Renaissance Cruises filed for bankruptcy under Chapter 11 in
the United States Bankruptcy Court, Southern District of Florida. Renaissance
Cruises ceased operations and its assets were placed in a liquidating trust. Mr.
Rudner holds a BA in history, cum laude from the University of Massachusetts.
Richard Anthony (Tony) McKinnon has served as the Chairman of the Board of
Directors of the Company since March 15, 2006, the effective date of the Share
Exchange Agreement. With a background at senior levels in marketing and
executive management, Mr. McKinnon has accumulated over thirty years of
experience in the travel industry. His experiences include executive
responsibilities at American Airlines, Pan American World Airways, Delta Air
Lines, Wyndham Resort Hotels, USAir, American Hawaii Cruises and The Delta Queen
Steamboat Company. Most recently, McKinnon successfully developed Vacation.com,
which is currently a network of approximately 6,000 travel agencies across North
America. With the sale of Vacation.com to Amadeus, a leading global distribution
system and technology provider serving the marketing, sales and distribution
needs of the world's travel and tourism industries, Mr. McKinnon served as CEO
of Amadeus' North American Operations from 2000 through 2003. In 2004, he served
as a senior adviser to the Seabury Group, a consulting firm. Mr. McKinnon
currently provides consulting services to travel industry companies. He also
currently serves as a director for the Baptist Foundation of Texas, Tauck, Inc.
and Passport Online, Inc. Mr. McKinnon holds a BS from the United States
Military Academy and a JD from Emory University School of Law.
Brian P. Froelich has served as a director since March 15, 2006, the effective
date of the Share Exchange Agreement. After four years in public accounting with
Arthur Anderson and Coopers and Lybrand and five years at US Life, he founded
BPF Travel in 1979. In 1984 he sold BPF Travel to American Express. With BPF
Travel's acquisition by American Express, he became part of the senior executive
team of American Express. During his tenure at American Express, he was general
manager of the domestic Travel Management Services business. As a result of his
performance he was named to the American Express Hall of Fame. From 1999 through
2001 he served as Senior Vice President, Consumer Travel, American Express. From
2001 through 2002 he served as president and CEO of Allied Tours, a subsidiary
of Global Vacation Group, Inc. (NYSE: GVG) where he affected the turnaround of
Allied Tours and sold it to a large European travel company. Since 2003 he has
served as president and CEO of Fenevations, LLC, a U.S.-based manufacturer of
custom windows and doors. Mr. Froelich holds a BS in Finance from Boston
College, an MBA from Rutgers University, and a JD from Seton Hall Law School.
18
Frank Bracken has served as a director since March 15, 2006, the effective date
of the Share Exchange Agreement. Mr. Bracken retired from Haggar Clothing Co. in
2005. He had served as President and Chief Operating Officer of Haggar Clothing
Co. since July 20, 1994, becoming the first non-Haggar family member in the
company's 75-year history to assume that responsibility. Mr. Bracken served his
entire 42-year professional career at Haggar, joining the company as a
management trainee in 1963. In 1971, he was named Regional Sales Manager, in
1976 he was named Vice President/National Sales Manager, and then earned the
title of Senior Vice President of Sales and Merchandising in 1984. In 1988, all
marketing functions were added to that responsibility and he was named Senior
Vice President of Marketing. In 1991, he added the responsibilities of Domestic
and International Manufacturing, Private Label Products and the Horizon Group,
Haggar's division for mass market retailers and was named Executive Vice
President. In 1994, he assumed the position of President and COO. Mr. Bracken
sits on the Chancellor's Advisory Committee at the University of North Texas
(UNT) and serves on the UNT Foundation Board, Athletic Board, and College of
Business Advisory Board. He was honored as Distinguished UNT Alumnus in 1995. He
is the Board Chair on the National Board for Big Brothers Big Sisters of America
and serves as Board Development Chair for Big Brothers Big Sisters of North
Texas. Mr. Bracken serves on numerous other industry and charitable boards.
Code of Ethics
We have adopted a Code of Ethical Conduct that includes provisions ranging from
conflicts of interest to compliance with all applicable laws and regulations.
All officers and directors are bound by this Code of Ethical Conduct, violations
of which may be reported to the Chairman of the Board of Directors.
Audit Committee
Our Company has an Audit Committee comprised of Messrs. Froelich, chairman of
the Committee and Bracken, both independent directors as determined by the rules
of the American Stock Exchange. The responsibilities and duties of the Audit
Committee consist of but are not limited to: (1) overseeing the financial
reporting process; (2) meeting with our external auditors regarding audit
results; (3) engaging and ensuring independence of our outside audit firm and
(4) reviewing the effectiveness of the Company's internal controls. The Audit
Committee met once during fiscal 2006.
Our Board has determined that Mr. Froelich qualifies as an "audit committee
financial expert" within the meaning of applicable regulations of the SEC,
promulgated pursuant to the Sarbanes-Oxley Act of 2002.
Compensation Committee
Our Company has a Compensation Committee comprised of Messrs. Froelich, chairman
of the Committee and Bracken, both independent directors as determined by the
rules of the American Stock Exchange. The responsibilities and duties of the
Compensation Committee consist of but are not limited to: (1) approving salaries
and incentive compensation of executive officers, as well as the compensation of
our Board members; (2) reviewing compensation of certain other executive
management employees and (3) administering the employee stock option and benefit
plans. The Compensation Committee met once during fiscal 2006.
Shareholder Nominations to the Board
We have not yet adopted a policy regarding the procedure which shareholders
should use when they wish to recommend nominees to our Board of Directors. We
intend on adopting a shareholder nomination policy in the near future.
Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who own more than ten percent of our outstanding
common stock to file with the SEC initial reports of ownership and reports of
changes in ownership of common stock. These persons are required by SEC
regulation to furnish the Company with copies of these reports they file.
19
To our knowledge, based on a review of the copies of reports furnished to us,
Section 16(a) filing requirements applicable to our officers, directors and
greater than ten percent beneficial owners were complied with on a timely basis
for the period which this report relates.
20
ITEM 10. EXECUTIVE COMPENSATION
The table below summarizes the total compensation paid or earned by each of our
named executive officers ("Named Executive Officers") for the fiscal year ended
December 31, 2006.
SUMMARY COMPENSATION TABLE
Change in
Pension Value
and
Nonqualified
Deferred Non-Equity
Name and Stock Option Compensation Incentive Plan All Other
Principal Awards Awards Earnings Compensation Compensation Total
Position Year Salary ($) Bonus ($) ($)(1) ($)(1) ($) ($) ($) ($)
------------------------------------------------------------------------------------------------------------------------------------
Edward B. Rudner 2006 $230,768(3) -- $ 170 $68,292 -- $43,846(4) $343,076
CEO, President
and CFO(2)
Simon Todd, 2006 $ 77,154 $ 110,000 -- -- -- $ 140 $187,294
Vice President(5)
Alan Rubin 2006 $ 20,000 -- -- -- -- $52,333(7) $ 72,333
Former CEO and
CFO(6)
-------------------
(1) Amounts shown do not reflect compensation actually received by the Named
Executive Officers. Instead, the amounts shown are the compensation costs
recognized by the Company in fiscal 2006 for option awards and stock
awards as determined pursuant to FAS 123R. The assumptions used to
calculate the value of option awards and stock awards are set forth under
Note 11 of the Notes to Consolidated Financial Statements included in this
Annual Report on Form 10-KSB.
(2) Mr. Rudner has served as our CEO, President and CFO since March 15, 2006.
(3) Excludes $154,410 which was paid to Mr. Rudner by Online Vacation Center
Holdings, Inc. pursuant to his prior employment agreement prior to March
15, 2006, the closing date of the Share Exchange Agreement.
(4) Represents a car allowance of $ 13,846 and a country club allowance of $
30,000. Excludes $23,830 in benefits which was paid to Mr. Rudner by
Online Vacation Center Holdings, Inc. prior to March 15, 2006.
(5) Mr. Todd became our Vice President on September 1, 2006 in conjunction
with our acquisition of Phoenix International Publishing, LLC.
(6) Mr. Rubin served as our CEO from October 16, 2000 until March 15, 2006, at
which time, he resigned both as director and CEO in conjunction with the
Share Exchange Agreement. Mr. Rubin's 2006 salary represents his salary
from January 1, 2006 until March 15, 2006.
(7) Mr. Rubin's other annual compensation during 2006 represents remuneration
in conjunction with a consulting agreement with us, which terminated in
September 2006.
21
Employment Agreements
Edward B. Rudner
Effective as of March 16, 2006, we entered into an employment agreement with
Edward B. Rudner to serve as our President and Chief Executive Officer which
replaced the employment agreement which Mr. Rudner had with Online Vacation
Center Holdings, Inc. The employment agreement has no stated termination date
and has a perpetual term of 3 years. We will pay Mr. Rudner an initial annual
base salary of $300,000, payable weekly for a term of 3 years. The base salary
is subject to annual automatic incremental increases of the greater of the
percentage increase in the consumer price index or 6% of the previous year's
base salary. Mr. Rudner is also entitled to a performance-based bonus and to
participate in all Company benefit programs. He is entitled to five weeks paid
vacation per year, reimbursement of all reasonable out-of-pocket business
expenses, a monthly automobile allowance of $1,500, automobile insurance
coverage and reimbursement for memberships in social, charitable or religious
organizations or clubs for up to $30,000 per year.
In addition, we issued Mr. Rudner incentive stock options to purchase 300,000
shares of common stock and nonqualified stock options to purchase 200,000 shares
of common stock, which are exercisable at $1.27 per share. All of the
nonqualified stock options and incentive stock options to purchase 100,000
shares vested immediately. Incentive stock options to purchase 100,000 shares of
common stock vest on March 15, 2007 and the remaining 100,000 incentive stock
options vest on March 15, 2008. All of the options were issued under the 2005
Management and Director Equity Incentive and Compensation Plan. Mr. Rudner also
received options in connection with his service as a director of the Company.
In the event of Mr. Rudner's death or disability during the term of the
agreement, Mr. Rudner or his beneficiaries are entitled to all compensation and
benefits under his employment agreement for a period of one year following the
date of his death or disability. In the event that Mr. Rudner is terminated "for
cause", he will be entitled to receive his salary and earned but unpaid bonuses
due up to the date of termination. "Cause" is defined as committing or
participating in an injurious act of fraud or embezzlement against the Company;
engaging in a criminal enterprise involving moral turpitude; conviction of an
act constituting a felony of a crime of violence, fraud or dishonesty; or any
attempt by Mr. Rudner to assign the employment agreement. In the event there is
a "Change in Control" or "Attempted Change in Control," as such terms are
defined in his employment agreement, Mr. Rudner shall have the right to
terminate his employment upon thirty (30) days written notice given at any time
within one year after the occurrence of such event. A Change in Control is
defined as any event set forth in Section 280G of the Internal Revenue Code or
any event that would be required to be reported as a change in control in
response to Item 1 of the SEC form for a current report on Form 8-K, in effect
as of March 16, 2006 and an "Attempted Change of Control" shall be deemed to
have occurred if any substantial attempt accompanied by significant work efforts
and expenditures of money is made to accomplish a Change of Control. In the
event that Mr. Rudner is terminated for any other reason other than for cause,
death or disability or if he terminates his employment because of a Change in
Control or Attempted Change of Control, he will receive all compensation and
benefits under his employment agreement for a period of three years following
the date of termination or if he elects, a lump sum or partial payment of these
amounts. He shall also be entitled to receive a bonus equal to the amount
received for the prior year or if no prior bonus was received, an amount equal
to $150,000, as well as all earned but unpaid bonuses from previous years. The
employment agreement also includes a one-year covenant not to compete and a
non-disclosure provision.
As of March 15, 2006, Online Vacation Center Holdings, Inc. had an obligation to
Mr. Rudner under the terms of his previous employment agreement for compensation
and benefits in the amount of $579,990. The obligation has been assumed by us.
In August 2006, we established the Online Vacation Center Holdings Corp.
Deferred Compensation Plan in order to provide for payments to be made to Mr.
Rudner for this obligation. We will make a series of twenty-six (26) cash
payments totaling $579,990 to Mr. Rudner, commencing on January 19, 2007.
Simon Todd
In connection with our acquisition of Phoenix International Publishing, LLC
("Phoenix"), we entered into an employment agreement with Simon Todd to serve as
Vice President of the Company and as the President of Phoenix effective as of
August 31, 2006. Mr. Todd is entitled to a base salary of $202,000 per annum
which increases by 4% per annum until August 31, 2009, the termination date of
the Agreement. In addition, Mr. Todd is entitled to a retention bonus in
conjunction with the closing of certain acquisition prospects and a bonus in
conjunction with Phoenix achieving certain profitability thresholds.
22
2005 Management and Director Equity Compensation Plan
Effective as of March 15, 2006, our Board of Directors and shareholders approved
our 2005 Management and Director Equity Compensation Plan (the "Plan" or "2005
Plan"). We have reserved an aggregate of 2,500,000 shares of common stock for
issuance under the this Plan which provides for the grants of stock options,
restricted stock, performance-based and other equity-based incentive awards to
directors, officers and key employees. Our Board of Directors (or at their
discretion a committee of our board members) administers the Plan including,
without limitation, the selection of recipients of awards under the Plan, the
granting of stock options, restricted share or performance shares, the
determination of the terms and conditions of any such awards, the interpretation
of the Plan and any other action they deem appropriate in connection with the
administration of the Plan. As of December 31, 2006, we had granted 1,870,000
options and 35,000 stock awards under the Plan.
23
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table provides information concerning unexercised options and
stock that has not vested for each of our Named Executive Officers for the
fiscal year ended December 31, 2006. All options and stock were granted under
our 2005 Plan.
Option Awards Stock Awards
Equity
Incentive
Plan
Equity Awards:
Incentive Market or
Equity Awards: Payout
Incentive Number of Value of
Plan Awards: Market Unearned Unearned
Number of Number of Number of Number of Value of Shares, Shares,
Securities Securities Securities Shares or Shares or Units or Units or
underlying Underlying Underlying Units of Units of Other Other
Unexercised Unexercised Unexercised Option Option Stock That Stock That Rights Rights
Options Options Unearned Exercise Expiration Have Not Have Not That Have That Have
(#) (#) Options Price Date Vested Vested Note Vested Not Vested
------------------------------
------------------------------
Name Exercisable Unexercisable (#) ($) ($) (#) ($)(1) (#) ($)
-----------------------------------------------------------------------------------------------------------------------------------
Edward B.
Rudner 300,000(2) 200,000(2) -- $ 1.27 3-16-2011 800(3) $2,160 -- --
-- 200,000(4) -- $ 1.27 3-16-2011 -- -- -- --
Simon Todd -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- --
Alan Rubin -- -- -- -- -- -- -- -- --
----------------------
(1) Value is based on the closing price of our common stock on December 29,
2006, which was $2.70 per share.
(2) These options were granted to Mr. Rudner in connection with his execution
of an employment agreement with us on March 16, 2006.
(3) Mr. Rudner received a grant of 1,000 stock awards on March 16, 2006, which
vest at the rate of 20% per year with vesting dates of 3/16/2006,
3/16/2007, 3/16/2008, 3/16/2009 and 3/16/2010. As of December 31, 2006,
800 stock awards granted to Mr. Rudner had not vested.
(4) These options were granted to Mr. Rudner in his capacity as a director of
the Company. These options vest on March 16, 2008.
24
Compensation of Directors
We use a combination of cash and equity based compensation to attract and retain
qualified candidates to serve on the Board. In setting director compensation, we
consider the significant amount of time that directors expend in fulfilling
their duties, as well as the skill-level required by members of the Board.
We pay each director an annual retainer of $25,000. We pay the Chairman of the
Board of Directors an additional annual fee of $50,000 for his additional duties
as the Chairman. To ensure that directors have an ownership interest aligned
with the Company's other shareholders, we may also grant options or stock awards
to purchase shares of the Company's common stock to our directors from time to
time. In connection with the closing of the Share Exchange Agreement, we awarded
an aggregate of 1,300,000 options to our directors.
The table below summarizes the total compensation paid by us to our directors
for the fiscal year ended December 31, 2006. All directors began serving as
directors, effective as of March 15, 2006 after the closing of the Share
Exchange Agreement. Alan Rubin, who served as a director of the Company from
October 2000 through March 15, 2006, is not listed in this table because the
compensation that he received as a director of the Company during the first
quarter of 2006 is listed in the Summary Compensation table on page 21.
----------------------------------------------------------------------------------------------------------------------------------
Change in Pension
Value and
Nonqualified
Non-Equity Deferred
Fees Earned or Paid Incentive Plan Compensation All Other
Name in Cash Option Awards(1) Compensation Earnings Compensation Total
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Richard McKinnon $56,250 $42,645 -- -- $120,000(2) $218,895
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Edward B. Rudner $18,750 $14,215 -- -- -- $32,965
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Brian P. Froelich $18,750 $21,323 -- -- -- $40,073
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Frank Bracken $18,750 $14,215 -- -- -- $32,965
----------------------------------------------------------------------------------------------------------------------------------
(1) Amounts shown do not reflect compensation actually received by the
directors. Instead, the amounts shown are the compensation costs
recognized by us in fiscal 2006 for option awards as determined pursuant
to FAS 123R. The assumptions used to calculate the value of option awards
are set forth under Note 11 of the Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-KSB. On March 15,
2006, we granted 600,000 options to Mr. McKinnon, 200,000 options to Mr.
Rudner, 300,000 options to Mr. Froelich and 200,000 options to Mr.
Bracken. All options have a five year term and an exercise price of $1.27
per share. The options vest on March 15, 2008.
(2) Fees earned pursuant to a consulting agreement between Mr. McKinnon and
the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table set forth certain information regarding the beneficial
ownership of our common stock as of March 1, 2007 by (i) each of our directors,
(ii) each Named Executive Officer, (iii) all our current directors and executive
officers as a group, and (iv) each person known by us to be the beneficial owner
of more than five percent (5%) of the shares outstanding of our common stock.
Unless otherwise indicated, each shareholder has sole voting and investment
power with respect to the indicated shares. Unless otherwise noted, the address
of the owner is 1801 NW 66th Avenue, Plantation, FL 33313.
25
Beneficial Ownership
Name and Address Shares % of Shares
--------------------------- ---------- ------------
Simon Todd (1) 1,463,150 7.9%
Edward B. Rudner (2) 10,495,400 55.5%
Richard A. McKinnon 150,000 *
Brian P. Froelich 35,000 *
Reginald Flosse (3) 3,060,050 16.5%
William A. Cataldo (4) 1,195,310 6.5%
Frank Bracken 50,000 *
All directors and executive
officers as a group (5)
(5 persons) 12,193,550 64.5%
* Less than 1%
(1) Mr. Todd's address is 217 Ridge View Lane, Trophy Club, Texas 76262.
(2) Includes an aggregate of 1,680,000 shares held in trust for the benefit of
Mr. Rudner's children and 1,680,000 shares held by Mr. Rudner's wife. Also
includes 300,000 shares of common stock underlying options which are
exercisable and 100,000 shares of common stock underlying options which
are exercisable within 60 days of March 1, 2007.
(3) The mailing address for Mr. Flosse is B.P. 21426, Papeete, Tahiti.
Information was obtained from a Schedule 13d filed by Mr. Flosse with the
SEC on March 28, 2006.
(4) Includes 125,000 shares held by Cataldo Family Partners, Ltd., an entity
in which Cataldo serves as general partner and 1,070,310 shares held by
Pacific Tour Services, Inc., a company beneficially controlled by Mr.
Cataldo. Cataldo's ownership interest excludes 589,980 shares held by the
Cataldo Family Trust, a trust in which Cataldo is a beneficiary, but does
not hold voting control.
(5) Includes 400,000 shares of common stock underlying options exercisable
within 60 days of March 1, 2007.
Equity Compensation Plan Information
(a) (b) (c)
Number of securities remaining
Weighted-average available for future issuance
Number of securities to be issued exercise price of under equity compensation plans
upon exercise of outstanding outstanding options, (excluding securities reflected
Plan Category options, warrants and rights warrants and rights in column (a))
-----------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 1,870,000 $1.28 623,000
Equity compensation plans not
approved by security holders -- -- --
Total 1,870,000 $1.28 623,000
26
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Following the closing of the Share Exchange Agreement, we engaged Alan Rubin,
the former principal shareholder and sole executive officer and director of the
Company to perform certain consulting services for us for a six month period
beginning on April 15, 2006 and ending on September 15, 2006. Under this
agreement, Mr. Rubin's consulting fee was equal to $52,333. Mr. Rubin assisted
us with transition issues relating to our new ownership of the Company,
including but not limited to preparing the Company's financial statements and
tax returns for the fiscal years ended December 31, 2005 and 2006.
Effective as of October 2005, we engaged Mr. McKinnon to provide consulting
services to us. In consideration for such services, Mr. McKinnon receives a
monthly fee of $10,000. The term of the arrangement is on a month-to-month
basis. During 2006 and 2005 Mr. McKinnon received $120,000 and $30,000,
respectively in consulting fees. Mr. McKinnon became a director of our company
on March 15, 2006.
ITEM 13. EXHIBITS
Exhibit No. Exhibit Description
------------ ----------------------------------------------------------------
2.1 Share Exchange Agreement dated as of August 25, 2005, by and
among Alec Bradley Cigar Corporation, Online Vacation Center
Holdings, Inc. and its shareholders identified on Schedule 1.1
(incorporated by reference to Exhibit 2.2 in the Company's
Current Report on Form 8-K/A filed with the SEC on March 21,
2006).
2.2 Asset Purchase Agreement dated as of August 25, 2006 by and
between Alec Bradley Cigar Corporation and Alan Rubin or his
assigns (incorporated by reference to Exhibit 2.1 in the
Company's Current Report on Form 8-K/A filed with the SEC on
March 21, 2006).
2.3 Acquisition Agreement, dated August 31, 2006, by and among
Online Vacation Center Holdings Corp., Phoenix International
Publishing, LLC, and Simon Todd (incorporated by reference to
Exhibit 2.1 in the Company's Current Report on Form 8-K filed
with the SEC on September 5, 2006).
2.4 Acquisition Agreement, dated October 3, 2006, by and among
Online Vacation Center Holdings Corp., La Fern, Inc., and
Lawrence Fishkin (incorporated by reference to Exhibit 2.1 in
the Company's Current Report on Form 8-K filed with the SEC on
October 3, 2006).
3.1 Articles of Incorporation (incorporated by reference to Exhibit
3.0 in the Company's Form 10-SB Registration Statement filed
with the SEC on December 19, 2000).
3.2 Amendment to the Company's Articles of Incorporation
(incorporated by reference to Exhibit 3.1 in the Company's Form
10-SB Registration Statement filed with the SEC on December 19,
2000).
3.3 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Appendix C in the Company's
Definitive Information Statement filed with the SEC on January
30, 2006).
3.4 Bylaws (incorporated by reference to Exhibit 3.2 in the
Company's Form 10-SB filed with the SEC on December 19, 2000).
10.1 Employment Agreement dated March 16, 2006 between the Company
and Edward B. Rudner (incorporated by reference to Exhibit 10.1
in the Company's Current Report on Form 8-K/A filed with the SEC
on March 21, 2006).
10.2 2005 Management and Director Equity Incentive and Compensation
Plan (incorporated by reference to Exhibit 4.1 in the Company's
Current Report on Form 8-K/A filed with the SEC on March 21,
2006). *
10.3 Form of Restricted Share Agreement for the Plan (incorporated by
reference to Exhibit 4.2 in the Company's Current Report on Form
8-K/A filed with the SEC on March 21, 2006). *
27
Exhibit No. Exhibit Description
------------ ----------------------------------------------------------------
10.4 Form of Non-Qualified Stock Option Agreement for the Plan
(incorporated by reference to Exhibit 4.3 in the Company's
Current Report on Form 8-K/A filed with the SEC on March 21,
2006). *
10.5 Employment Agreement dated September 1, 2006 between the Company
and Simon Todd. +
10.6 Online Vacation Center Holdings Corp. Deferred Compensation Plan
(incorporated by reference) to Exhibit 10.2 in the Company's
Quarterly on Form 10-QSB for the quarter ended June 30, 2006.) *
10.7 Consulting Agreement dated April 2006 between the Company and
Alan Rubin +
10.8 Consulting Agreement effective as of October 2005 between the
Company and Richard McKinnon. +
14.1 Code of Ethics (incorporated by reference to Exhibit 14 in the
Company's Annual Report on Form 10-KSB for fiscal 2004 filed
with the SEC on March 12, 2004)
21.1 Subsidiaries +
31.1 Certification by Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. +
31.2 Certification by Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. +
32.1 Certification by Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. +
32.2 Certification by Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. +
___________
* Management Compensatory Plan
+ Filed herewith
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Year ended December 31, 2006
Audit Fees: The aggregate fees, including expenses, billed by our principal
accountant in connection with the audit of our consolidated financial statements
for the most recent fiscal year and for the review of our financial information
included in our Annual Report on Form 10-KSB; and our quarterly reports on Form
10-QSB during the fiscal year ending December 31, 2006 were $59,800.
Audit Related Fees: The aggregate fees, including expenses, billed by our
principal accountant for services related to 2006 acquisitions, exclusive of the
year end audit but reasonably related to the audit for the year ended December
31, 2006 were $75,000.
Tax Fees: The aggregate fees, including expenses, billed by our principal
accountant for tax services for the year ended December 31, 2006 were $-0-.
All Other Fees: The aggregate fees, including expenses, billed for all other
services rendered to us by our principal accountant during year ended December
31, 2006 were $-0-.
Year ended December 31, 2005
Audit Fees: The aggregate fees, including expenses, billed by our principal
accountant in connection with the audit of our consolidated financial statements
for the most recent fiscal year and for the review of our
28
financial information included in our Annual Report on Form 10-KSB; and our
quarterly reports on Form 10-QSB during the fiscal year ending December 31, 2005
were $51,360.
Audit Related Fees: The aggregate fees, including expenses, billed by our
principal accountant for services reasonably related to the audit for the year
ended December 31, 2005 were $-0-.
Tax Fees: The aggregate fees, including expenses, billed by our principal
accountant for tax services for the year ended December 31, 2005 were $-0-.
All Other Fees: The aggregate fees, including expenses, billed for all other
services rendered to us by our principal accountant during year ended December
31, 2005 were $-0-.
The Company had no formal Audit Committee until March 16, 2006. For the year
ended December 31, 2005, the board of directors considered and determined that
the provisions of the services covered above are compatible with maintaining the
auditor's independence.
Audit Committee Pre-Approval Policies and Procedures
The Securities and Exchange Commission has adopted rules that require that
before Jewett, Schwartz, Wolfe & Associates ("JSWA") is engaged by us or our
subsidiaries to render any auditing or permitted non-audit related service, the
engagement be:
o approved by our Audit Committee; or
o entered into pursuant to pre-approval policies and procedures
established by the Audit Committee, provided the policies and
procedures are detailed as to the particular service, the Audit
Committee is informed of each service, and such policies and
procedures do not include delegation of the Audit Committee's
responsibilities to management.
Our Audit Committee approved all services provided by JSWA in fiscal 2006 in
accordance with its pre-approved policies and procedures.
The Audit Committee has considered the nature and amount of the fees billed by
JSWA, and believes that the provision of the services for activities unrelated
to the audit is compatible with maintaining JSWA independence.
29
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONLINE VACATION CENTER HOLDINGS CORP.
By: /s/ Edward B. Rudner
-------------------------------------------
Edward B. Rudner
Chief Executive Officer, President, Chief Financial
Officer and Director
Date: March 19, 2007
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
------------------------- ---------------------------------------------- --------------
/s/ Edward B. Rudner Chief Executive Officer, President, Chief March 19, 2007
-------------------- Financial Officer and Director (principal
Edward B. Rudner executive officer and principal financial and
accounting officer)
/s/ Richard A. McKinnon Director March 19, 2007
-----------------------
Richard A. McKinnon
/s/ Brian P. Froelich Director March 19, 2007
---------------------
Brian P. Froelich
/s/ Frank Bracken Director March 19, 2007
-----------------
Frank Bracken
30
ONLINE VACATION CENTER HOLDINGS CORP
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 and 2005
ONLINE VACATION CENTER HOLDINGS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 and 2005
TABLE OF CONTENTS
Page
Report of Independent Registered Public Accounting Firm F - 2
Consolidated Balance Sheets F - 3
Consolidated Statements of Operations F - 4
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) F - 5
Consolidated Statements of Cash Flows F - 6
Notes to Consolidated Financial Statements F - 7 - 21
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the board of directors and shareholders of
Online Vacation Center Holdings Corp.
We have audited the accompanying consolidated balance sheet of Online Vacation
Center Holdings Corp and Subsidiaries as of December 31, 2006 and 2005 and the
related consolidated statements of operations, changes in stockholders' equity
(deficiency) and cash flows for the years 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 audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Online Vacation
Center Holdings Corp and Subsidiaries as of December 31, 2006 and 2005 and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Jewett, Schwartz & Associates
Hollywood, Florida
February 28, 2007
F-2
ONLINE VACATION CENTER HOLDINGS CORP.
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------------
2006 2005
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,658,885 $ 2,213,182
Accounts receivable, net 1,043,955 581,896
Prepaid expenses and other current assets 370,072 220,720
Deferred tax asset, net 248,455 234,809
----------- -----------
Total Current Assets 4,321,367 3,250,607
Restricted cash 336,135 315,000
Property and equipment, net 92,215 111,100
Deferred tax asset, net 98,183 881,339
Intangible assets, net 1,067,849 44,314
Goodwill 1,942,495 --
----------- -----------
Total Assets $ 7,858,244 $ 4,602,360
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 1,339,574 $ 894,187
Deferred revenue, net 805,134 479,434
Customer deposits 1,470,178 1,575,475
Convertible note, current 125,000 --
----------- -----------
Total Current Liabilities 3,739,886 2,949,096
Convertible note, long-term 375,000 --
Subordinated debentures -- 3,000,000
----------- -----------
Total Liabilities 4,114,886 5,949,096
----------- -----------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, 1,000,000 shares authorized at
$.0001 par value; 0 shares issued and outstanding -- --
Common stock, 80,000,000 shares authorized at
$.0001 par value; 18,256,777 and 15,299,467 shares
issued and outstanding 1,826 1,530
Additional paid-in capital 5,099,059 247,114
Accumulated deficit (1,357,527) (1,595,380)
----------- -----------
Total Shareholders' Equity (Deficiency) 3,743,358 (1,346,736)
----------- -----------
Total Liabilities & Shareholders' Equity (Deficiency) $ 7,858,244 $ 4,602,360
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-3
ONLINE VACATION CENTER HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
2006 2005
----------- ------------
NET REVENUES $ 7,785,361 $ 7,975,688
OPERATING EXPENSES:
Selling and marketing 2,907,698 2,052,933
General and administrative 4,213,517 3,802,978
Depreciation and amortization 136,496 72,803
----------- ------------
INCOME FROM OPERATIONS 527,650 2,046,974
Interest income (expense), net 16,924 (238,607)
----------- ------------
Income before provision (benefit) for income taxes 544,574 1,808,367
Provision (benefit) for income taxes 306,721 (412,168)
----------- ------------
NET INCOME $ 237,853 $ 2,220,535
=========== ============
Weighted average shares outstanding - Basic 17,289,996 15,299,467
=========== ============
EARNINGS PER SHARE - Basic $ 0.01 $ 0.15
=========== ============
Weighted average shares outstanding - Diluted 17,746,920 15,299,467
=========== ============
EARNINGS PER SHARE - Diluted $ 0.01 $ 0.15
=========== ============
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-4
ONLINE VACATION CENTER HOLDINGS CORP.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
Common Stock
---------------------------
Additional
paid-in Accumulated
Shares Amount capital Deficit Total
----------- ----------- ----------- ----------- -----------
Balance at January 1, 2005 15,299,467 $ 1,530 $ 247,114 $(3,815,915) $(3,567,271)
Net income for the year ended
December 31, 2005 2,220,535 2,220,535
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2005 15,299,467 $ 1,530 $ 247,114 $(1,595,380) $(1,346,736)
Issuance of common stock in
exchange for subordinated debt 1,500,310 150 2,999,850 -- 3,000,000
Issuance of restricted shares
under compensation plan 7,000 1 5,949 -- 5,950
Stock based compensation expense -- -- 147,430 -- 147,430
Issuance of common stock in
conjunction with acquisitions 1,450,000 145 1,631,105 -- 1,631,250
Issuance of convertible notes in
conjunction with acquisitions -- -- 67,611 -- 67,611
Net income for the year ended
December 31, 2006 -- -- -- 237,853 237,853
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2006 18,256,777 $ 1,826 $ 5,099,059 $(1,357,527) $ 3,743,358
=========== =========== =========== =========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-5
ONLINE VACATION CENTER HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
For the Year Ended
December 31, December 31,
2006 2005
------------- -------------
Cash flows from operating activities:
Net income $ 237,853 $ 2,220,535
Adjustments to reconcile to net cash inflow from operating activities:
Provision for bad debts -- 8,428
Depreciation and amortization 136,496 72,803
Stock based compensation expense 153,380 --
Deferred income tax provision 353,671 705,365
Reversal of deferred tax valuation allowance -- (1,164,968)
Settlement gain -- (4,250)
Increase in accounts receivable (462,059) (266,418)
(Increase)/Decrease in prepaid and other
current assets (149,352) 107,730
Increase in accounts payable and
accrued expenses 445,387 86,327
Increase in deferred revenue 325,700 70,850
Decrease in customer deposits (105,297) (573,914)
Cash payments for settlement obligation (162,000)
------------- -------------
Net cash provided from operating activities 935,779 1,100,488
------------- -------------
Cash flows from investing activites:
Decrease/(Increase) in investment in restricted cash (21,135) 176
Capital expenditures (63,146) (64,406)
Cash paid for acqusitions in excess of cash received (405,795) --
------------- -------------
Cash used in investing activities (490,076) (64,230)
------------- -------------
Increase in cash during the period 445,703 1,036,258
Cash at the beginning of the period 2,213,182 1,176,924
------------- -------------
Cash at the end of the period $ 2,658,885 $ 2,213,182
============= =============
Supplemental information:
Cash paid for interest $ 48,658 $ 365,585
============= =============
Cash paid/(Refunds received) for taxes $ (8,491) $ 70,771
============= =============
Common stock issued in conjunction with acquisitions $ 1,631,250 $ --
============= =============
Convertible debt issued in conjunction with acquisitions $ 500,000 $ --
============= =============
Fair value of conversion feature of convertible note $ 67,611
============= =============
Conversion of subordinated debt into common stock $ 3,000,000 $ --
============= =============
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-6
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND
Overview
Online Vacation Center Holdings Corp. (the "Company") is a Florida holding
company, focused on building a network of diversified vacation marketers with a
range of products that can be cross-sold to an extensive customer base. Target
businesses will be financially and technologically sound and provide a high
degree of personalized service to help consumers research, plan and purchase a
vacation.
The Company provides vacation travel services through its wholly owned
subsidiaries Online Vacation Center, Inc., an internet-based vacation seller
focused on serving the affluent retiree market, Phoenix International
Publishing, LLC, the U.K.'s leading publisher of consumer magazines and guides
about travel to the U.S. and Canada, Thoroughbred Travel, LLC, a Houston, Texas
based upscale travel agency, operating as Journeys Unlimited, and La Fern, Inc.,
operating as eLeisureLink.com, a Florida travel agency that sells land-based
vacations.
History
Under a share exchange agreement dated August 25, 2005, effective March 15,
2006, the Company issued to the Online Vacation Center Holdings, Inc. interest
holders an aggregate of 15,000,000 shares of the Company's common stock in
exchange for a 100% interest in Online Vacation Center Holdings, Inc. In
connection with the share exchange, pursuant to an asset purchase agreement, the
Company sold all of its assets (and transferred all of its liabilities) to a
former director and majority shareholder for a total purchase price of 2,700,000
shares of the Company's common stock. The 2,700,000 shares were returned to the
Company and have been cancelled. For accounting purposes the consummation of
these actions resulted in a reverse merger and Online Vacation Center Holdings,
Inc. is the accounting survivor and surviving business entity; however, the
Company is the surviving legal entity.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Online Vacation Center Holdings Corp. and its wholly owned subsidiaries. All
significant intercompany transactions and balances have been eliminated. The
Company makes operating decisions, assesses performance and manages the business
as one reportable segment.
Use of Estimates
The preparation of 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 assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements. These
estimates and assumptions also affect the reported amounts of revenues, costs
and expenses during the reporting period. Management evaluates these estimates
and assumptions on a regular basis. Actual results could differ from those
estimates.
F-7
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
The Company recognizes revenue in accordance with Staff Accounting Bulletin
(SAB) No. 104 "Revenue Recognition in Financial Statements", which states that
revenue is realized or realizable and earned when all of the following criteria
are met: persuasive evidence of an arrangement exists, services have been
rendered, the seller's price to the buyer is fixed or determinable, and
collectibility is reasonably assured. Vacation travel sales transactions are
billed to customers at the time of booking, however commission revenue is not
recognized in the accompanying consolidated financial statements until the
customers' travel occurs. Advertising revenue is recognized upon distribution of
the magazine or travel guide.
Emerging Issues Task Force (EITF) Issue No. 99-19, "Reporting Revenue Gross as a
Principal versus Net as an Agent", discusses the weighing of the relevant
qualitative factors regarding the Company's status as a primary obligor and the
extent of their pricing latitude. Based upon the Company's evaluation of
vacation travel sales transactions and in accordance with the various indicators
identified in EITF Issue No. 99-19, the Company's vacation travel suppliers
assume the majority of the business risks such as providing the service and the
risk of unsold travel packages. As such, all vacation travel sales transactions
are to be recorded at the net amount, which is the amount charged to the
customer less the amount to be paid to the supplier. The method of net revenue
presentation does not impact operating profit, net income, earnings per share or
cash flows.
Concentration of Credit Risk
The Company's business is subject to certain risks and concentrations including
dependence on relationships with travel suppliers (primarily cruise lines), and
to a lesser extent, exposure to risks associated with online commerce security
and credit card fraud. The Company is highly dependent on its relationships with
three major cruise lines: Celebrity Cruises, Norwegian Cruise Line, and Princess
Cruises. The Company also depends on third party service providers for
processing certain fulfillment services.
Concentrations of credit risk with respect to client accounts receivable are
limited because of the Company's policy to require deposits from customers, the
number of customers comprising the client base and their dispersion across
geographical locations.
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist primarily of cash and bank certificates of deposit. These
accounts are maintained with financial institutions insured by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000. At December 31, 2006 and
December 31, 2005, the balances at various financial institutions over the FDIC
insured limit relating to cash and cash equivalents and restricted cash were
approximately $2.4 million and $2.0 million, respectively. The Company believes
these balances are not at risk as they are held by sound financial institutions.
Marketing Costs
Substantially all marketing costs are charged to expense as incurred and
principally represent production, printing, direct mail costs, and online
advertising. Marketing expense for the years ended December 31, 2006 and 2005
approximated $1,529,168 and $1,083,011 respectively.
F-8
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. At December 31, 2006 and 2005,
respectively, cash and cash equivalents included cash in the bank and cash on
hand.
Accounts Receivable
Travel suppliers generally pay commissions between 60 days before to 90 days
after travel has commenced, overrides in the first quarter following the period
earned, and marketing and advertising invoices between 30 days to 90 days after
invoice date. The Company determines its allowance by considering a number of
factors, including the length of time trade accounts receivable are past due,
the Company's previous loss history, the specific supplier's current ability to
pay its obligation to the Company and the condition of the general economy and
the industry as a whole. The Company writes off accounts receivable when they
become uncollectible, and payments subsequently received on such receivables are
recognized as revenue in the period received. At December 31, 2006 and 2005, the
allowance for doubtful accounts was $4,317, respectively.
Restricted Cash
In accordance with Accounting Review Board (ARB) No. 43, Chapter 3A, "Current
Assets and Current Liabilities", cash which is restricted as to withdrawal is
considered a noncurrent asset. Restricted cash consists of collateral for three
letters of credit and a reserve for credit card processing. The Company's credit
card processor, Global Payments, holds a $280,000 reserve for credit cards
processed. Global Payments will hold this reserve for as long as the Company
uses them as its credit card processor and will release all funds no later than
six months after the final transaction deposit. Certificates of deposit of
$56,135 are collateral for three outstanding letters of credit due to expire in
2007. The letters of credit are required by industry and state regulations and
will be renewed.
Property and Equipment
Property and equipment, including significant improvements, are recorded at
cost. Repairs and maintenance and any gains or losses on dispositions are
recognized as incurred. Depreciation and amortization are provided for on a
straight-line basis to allocate the cost of depreciable assets to operations
over their estimated service lives.
Depreciation/
Amortization
Asset Category Period
----------------------------------------------------- ------------------
Office equipment 2 to 3 Years
Furniture & fixtures 5 to 7 Years
Leasehold improvements 6.5 Years
Goodwill and Indefinite-Lived Intangible Assets
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets,"
goodwill, represents the excess of the purchase price and related costs over the
value assigned to net tangible and identifiable intangible assets of businesses
acquired and accounted for under the purchase method, acquired in business
combinations is assigned to reporting units that are expected to benefit from
the synergies of the combination as of the acquisition date. Under this
standard, goodwill and intangibles with indefinite useful lives are no longer
amortized. The Company assesses goodwill and indefinite-lived intangible assets
F-9
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for impairment annually at the beginning of the fourth quarter, or more
frequently if events and circumstances indicate impairment may have occurred in
accordance with SFAS No. 142. If the carrying value of a reporting unit's
goodwill exceeds its implied fair value, the Company records an impairment loss
equal to the difference. SFAS No. 142 also requires that the fair value of
indefinite-lived purchased intangible assets be estimated and compared to the
carrying value. The Company recognizes an impairment loss when the estimated
fair value of the indefinite-lived purchased intangible assets is less than the
carrying value. As a result of the acquisitions which occurred in 2006, goodwill
at December 31, 2006 in the accompanying consolidated balance sheets was
$1,942,495. At December 31, 2005, goodwill in the accompanying consolidated
balance sheet was $0.
Long-Lived Assets
The Company's accounting policy regarding the assessment of the recoverability
of the carrying value of long-lived assets, including property and equipment and
purchased intangible assets with finite lives, is to review the carrying value
of the assets, annually or whenever events or changes in circumstances indicate
that they may be impaired. If this review indicates that the carrying value will
not be recoverable, as determined based on the projected undiscounted future
cash flows, the carrying value is reduced to its estimated fair value.
Foreign Currency Translation
The Company conducts publishing operations in both the United States and the
United Kingdom, and its functional currency is the US dollar. At the balance
sheet date, assets, liabilities, revenues and expenses denominated in British
pounds are recorded in US dollars by the use of the exchange rate in effect at
that date. At the period end, monetary assets and liabilities denominated in
British pounds are translated into US dollars by using the exchange rate in
effect at that date. The resulting foreign currency transaction gains and losses
are included in operating revenues and expenses for the year. These gains or
losses were not material for the year ended December 31, 2006 and did not exist
for the year ended December 31, 2005.
Income Taxes
The Company accounts for income taxes under the liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled.
Comprehensive Income
Comprehensive income is comprised of net income and other comprehensive income.
Other comprehensive income includes certain changes in equity that are excluded
from net income. At December 31, 2006 and December 31, 2005, respectively, there
were no material items to be included in accumulated other comprehensive income.
Earnings Per Share
Basic earnings per share is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the potential dilution that
F-10
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
could occur if stock options and other commitments to issue common stock were
exercised or equity awards vest resulting in the issuance of common stock or
conversion of notes into shares of common stock that could share in the earnings
of the Company.
Stock-Based Compensation
In December 2004, the FASB issued a revision of SFAS 123 ("SFAS 123(R)") that
requires compensation costs related to share-based payment transactions to be
recognized in the statement of operations. With limited exceptions, the amount
of compensation cost will be measured based on the grant-date fair value of the
equity or liability instruments issued. In addition, liability awards will be
remeasured each reporting period. Compensation cost will be recognized over the
period that an employee provides service in exchange for the award. SFAS 123(R)
replaces SFAS 123 and is effective as of January 1, 2006. There was no stock
based compensation granted during the year ended December 31, 2005. For the year
ended December 31, 2006, 1,870,000 stock options and 7,000 restricted shares
were granted to employees and directors under the 2005 Management and Director
Equity Incentive and Compensation Plan. Compensation cost recognized in the year
ended December 31, 2006 was $147,430 for the stock options and $5,950 for the
restricted shares.
In March 2005, the U.S. Securities and Exchange Commission, or SEC, released
Staff Accounting Bulletin 107, "Share-Based Payments," ("SAB 107"). The
interpretations in SAB 107 express views of the SEC staff, or staff, regarding
the interaction between SFAS 123R and certain SEC rules and regulations, and
provide the staff's views regarding the valuation of share-based payment
arrangements for public companies. In particular, SAB 107 provides guidance
related to share-based payment transactions with non-employees, the transition
from nonpublic to public entity status, valuation methods (including assumptions
such as expected volatility and expected term), the accounting for certain
redeemable financial instruments issued under share-based payment arrangements,
the classification of compensation expense, non-GAAP financial measures,
first-time adoption of SFAS 123R in an interim period, capitalization of
compensation cost related to share-based payment arrangements, the accounting
for income tax effects of share-based payment arrangements upon adoption of SFAS
123R, the modification of employee share options prior to adoption of SFAS 123R
and disclosures in Management's Discussion and Analysis subsequent to adoption
of SFAS 123R. SAB 107 requires stock-based compensation be classified in the
same expense lines as cash compensation is reported for the same employees.
Off-Balance Sheet Arrangements
The Company has not entered into any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources and
would be considered material to shareholders. An officer of the Company has
provided personal guarantees to various lenders as required for the extension of
credit to the Company.
Recent Accounting Pronouncements
Nonmonetary Exchange
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets--An Amendment of Accounting Principles Board (APB) Opinion No. 29,
Accounting for Nonmonetary Transactions" ("SFAS 153"). SFAS 153 eliminates the
exception from fair measurement for nonmonetary exchanges of similar productive
assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that do not have
F-11
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
commercial substance. SFAS 153 specifies that a
nonmonetary exchange has commercial substance if the future cash flows of the
entity expected to change significantly as a result of the exchange. SFAS 153 is
effective for fiscal periods beginning after June 15, 2005. The adoption of SFAS
153 did not have a material impact on the Company's current financial condition
or results of operations.
Conditional Asset Retirement
In March 2005, the FASB issued FASB Interpretation (FIN) No. 47 - "Accounting
for Conditional Asset Retirement Obligations - an Interpretation of SFAS 143
(FIN No. 47). FIN No. 47 clarifies the timing of liability recognition for legal
obligations associated with the retirement of a tangible long-lived asset when
the timing and/or method of settlement are conditional on a future event. FIN
No. 47 is effective no later than December 31, 2005. FIN No. 47 did not impact
the Company for the year ended December 31, 2006.
Accounting Changes and Error Corrections
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections, a Replacement of APB No. 20 and FASB 3 (SFAS No.154). SFAS No. 154
requires retrospective application to prior periods' financial statements of a
voluntary change in accounting principle unless it is impracticable. APB Opinion
No. 20 "Accounting Changes," previously required that most voluntary changes in
accounting principle be recognized by including in net income of the period of
the change the cumulative effect of changing to the new accounting principle.
Accounting for Uncertainty in Income Taxes
In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes. This
Interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. This Interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The Interpretation is effective for fiscal
years beginning after December 15, 2006. While the Company's analysis of the
impact this Interpretation is not yet complete, it is not anticipated that it
will have a material impact on the Company's retained earnings at the time of
adoption.
Fair Value Measurements
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements, ("FAS 157"). This Standard defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. FAS
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years. The
adoption of FAS 157 is not expected to have a material impact on the Company's
financial position, results of operations or cash flows.
Accounting for Defined Benefit Pension and Other Postretirement Plans
In September 2006 Statement of Financial Accounting Standards No. 158,
Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans
- an amendment of FASB Statement No. 87, 88, 106 and 132(R), ("FAS 158").
F-12
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This Standard requires recognition of the funded status of a benefit plan in the
statement of financial position. The Standard also requires recognition in other
comprehensive income certain gains and losses that arise during the period but
are deferred under pension accounting rules, as well as modifies the timing of
reporting and adds certain disclosures. FAS 158 provides recognition and
disclosure elements to be effective as of the end of the fiscal year after
December 15, 2006 and measurement elements to be effective for fiscal years
ending after December 15, 2008. The Company does not expect the remaining
elements of this Statement to have a material impact on the Company's financial
condition, results of operations, cash flows when adopted.
NOTE 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
December 31, December 31,
------------- -------------
2006 2005
------------- -------------
Prepaid expenses $ 282,805 $ 140,176
Refundable deposits with suppliers 87,267 80,544
------------- -------------
Prepaid expenses and other current assets $ 370,072 $ 220,720
============= =============
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
December 31, December 31,
------------- -------------
2006 2005
------------- -------------
Office equipment $ 407,712 $ 332,663
Furniture & fixtures 61,863 54,326
Leasehold improvements 67,368 67,368
------------- -------------
536,943 454,357
Less: Accumulated depreciation (444,728) (343,257)
------------- -------------
Property and equipment, net $ 92,215 $ 111,100
============= =============
Depreciation expense for the years ended December 31, 2006 and 2005 was $82,031
and $69,027, respectively.
NOTE 5 - INTANGIBLE ASSETS, NET
During 2002, Online Vacation Center, Inc. purchased the rights to the
Renaissance Cruises name and customer database. Online Vacation Center, Inc.
also registered two trade names and marks for Online Vacation Center, Inc. These
costs were capitalized and are being amortized over the expected 15-year useful
lives of the trademarks.
F-13
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2006, Online Vacation Center Holdings Corp. acquired Phoenix
International Publishing, LLC, La Fern, Inc. and Thoroughbred Travel, LLC. A
third-party company was hired to prepare a valuation to assist management of the
Company in its allocation of the purchase price, primarily through the
determination of the fair value and remaining useful lives of Phoenix's, La
Fern's and Thoroughbred's intangible assets. The costs related to these
intangible assets have been capitalized and are being amortized over their
expected useful life, ranging from 1 to 15 years.
Intangible assets consist of the following:
December 31, December 31,
2006 2005
------------- -------------
Trade names $ 125,642 $ 6,642
Non compete agreement 290,000 --
Customer contracts and backlog 109,000 --
Customer lists and relationships 610,000 50,000
------------- -------------
1,134,642 56,642
Less: Accumulated amortization (66,793) (12,328)
------------- -------------
Intangible assets, net $ 1,067,849 $ 44,314
============= =============
Amortization expense for the years ended December 31, 2006 and 2005 was $54,465
and $3,776, respectively. The estimated aggregate amortization expense for the
next five years and thereafter is as follows
Estimated Annual
Year Amortization Expense
-------- ---------------------
2007 $ 160,343
2008 153,593
2009 153,593
2010 129,426
2011 and thereafter 470,894
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
December 31, December 31,
2006 2005
------------- -------------
Accounts payable $ 330,591 $ 10,637
Accrued compensation 878,870 759,420
Accrued professional fees 110,922 113,757
Other accrued expenses 19,191 10,373
------------- -------------
Total $ 1,339,574 $ 894,187
============= =============
F-14
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of the effective date of the share exchange, Online Vacation Center Holdings,
Inc. had an obligation under the terms of its employment agreement with its
President for compensation and benefits in the amount of $579,990. The
obligation has been assumed by the Company and is included in accrued
compensation at December 31, 2006 and 2005, respectively. In August 2006, the
Company's board of directors voted to establish the Online Vacation Center
Holdings Corp. Deferred Compensation Plan in order to provide for payments to be
made to the Company's President and Chief Executive Officer for this obligation.
The Company will make a series of twenty-six (26) bi-weekly cash payments
totaling $579,990 to him, commencing on January 19, 2007.
NOTE 7 - DEFERRED REVENUES
Deferred revenue consists of sales commission received from vacation travel
suppliers in advance of passenger cruise travel dates, net of cancellations and
amounts received on publishing advertising to be produced in the future. The
advance sales commission and publishing advertising revenue is considered
unearned revenue and recorded as deferred revenue in the accompanying
consolidated balance sheets. Deferred revenue is recognized on the accompanying
consolidated financial statements when the customers' travel occurs or the
publication is distributed. At December 31, 2006 and December 31, 2005, deferred
revenues were $805,134 and $479,434, respectively.
NOTE 8 - CUSTOMER DEPOSITS
Deposits received from customers in advance of passenger cruise travel dates are
considered unearned revenues and recorded as customer deposit liabilities in the
accompanying consolidated balance sheets. Customer deposits are subsequently
recognized as revenues upon completion of passenger travel. At December 31, 2006
and December 31, 2005, customer deposits were $1,470,178 and $1,575,475,
respectively.
NOTE 9 - DEBT
The debt components consist of the following:
December 31, December 31,
2006 2005
------------- -------------
Convertible Note - Thoroughbred Travel, LLC $ 125,000 $ --
Convertible Note - La Fern, Inc. 375,000 --
Subordinated Debenture - Pacific Tour Services, Inc. -- 3,000,000
------------- -------------
500,000 3,000,000
Less: Current portion 125,000 --
------------- -------------
$ 375,000 $ 3,000,000
============= =============
As discussed in Note 14, in conjunction with its acquisition of Thoroughbred
Travel, LLC ("Thoroughbred") the Company issued a Convertible Note to the former
owner of Thoroughbred in the amount of $125,000 bearing interest at 5% per annum
with accrued interest and principal payable on September 25, 2007; the Note may
be paid in advance by the Company upon 30 days notice. The Note is convertible,
at the election of Thoroughbred prior to the earlier of prepayment or maturity,
into 62,500 shares of the Company's common stock at a conversion price equal to
$2.00 per share. Thoroughbred had not converted the Note as of December 31,
2006.
F-15
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As discussed in Note 14, in conjunction with its acquisition of La Fern, Inc.
("La Fern"), the Company issued a Convertible Note to the former owner of La
Fern, in the amount of $375,000, due October 1, 2009 bearing interest at 6% per
annum with interest payable semi-annually commencing on April 1, 2007 and may
not be prepaid by the Company. The Note is convertible, at the election of La
Fern prior to maturity, into 187,500 shares of the Company's common stock at a
conversion price equal to $2.00 per share. La Fern had not converted the Note as
of December 31, 2006.
SUBORDINATE DEBENTURES
On November 16, 2000 Online Vacation Center Holdings, Inc. issued an 8%
Subordinate Debenture (the "first Debenture") in the amount of $2,000,000 to
Pacific Tour Services, Inc. that was due on January 1, 2008. The first Debenture
accrued interest on the unpaid principal balance at a rate of 8% per annum. On
June 27, 2001 Online Vacation Center Holdings, Inc. issued an 8% Subordinate
Debenture (the "second Debenture") in the amount of $1,000,000 to Pacific Tour
Services, Inc. that was due on January 1, 2008. The second Debenture accrued
interest on the unpaid principal balance at a rate of 8% per annum. Immediately
prior to the share exchange agreement the debentures were exchanged into shares
of common stock of Online Vacation Center Holdings, Inc. and then Pacific Tour
Services, Inc. subsequently exchanged the shares for 1,500,310 shares of common
stock of Online Vacation Center Holdings Corp., in accordance with the share
exchange agreement.
Interest expense for the years ended December 31, 2006 and 2005 respectively was
$55,734 and $244,636 respectively.
NOTE 10 - INCOME TAXES
The provision (benefit) for income taxes from continued operations for the years
ended December 31, 2006 and 2005 consist of the following:
December 31,
---------------------------
2006 2005
--------- -----------
Current:
Federal $ (46,950) $ 47,435
State -- --
--------- -----------
(46,950) 47,435
--------- -----------
Deferred:
Federal $ 303,245 $ 604,794
State 50,426 100,571
--------- -----------
353,671 705,365
--------- -----------
Tax (benefit) from the
decrease in valuation allowance -- (1,164,968)
--------- -----------
Provision (benefit) for income taxes, net $ 306,721 $ (412,168)
========= ===========
The difference between income tax expense computed by applying the federal
statutory corporate tax rate and actual income tax expense is as follows:
F-16
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
-------------------
2006 2005
------ ------
Statutory federal income tax rate 35.0% 35.0%
Decrease in valuation allowance 0.0 (64.4)
State income taxes 6.0 3.6
Gain on sale of cigar assets 4.5 0.0
Tax effect of non-deductible items 3.4 0.5
Other 7.4 2.5
------ ------
Effective tax rate 56.3% (22.8)%
====== ======
Other includes tax rate differentials and the true-up of permanent tax
differences from prior periods. The gain on sale of cigar assets is the result
of the transaction wherein the Company distributed the assets relating to the
cigar business to a former director and majority shareholder in exchange for 2.7
million shares of stock. The Company recognized a gain on each asset distributed
based upon the difference between the fair market value and the Company's
adjusted basis in each asset at the time of closing.
Deferred income taxes result from temporary differences in the recognition of
income and expenses for the financial reporting purposes and for tax purposes.
The tax effect of these temporary differences representing deferred tax asset
and liabilities result principally from the following:
December 31, December 31,
2006 2005
------------- -------------
Net operating loss carry-
forwards and AMT tax credit $ 467,969 $ 832,088
Depreciation and amortization (377,526) 85,568
Accruals and other 256,195 198,492
------------- -------------
Deferred income tax asset $ 346,638 $ 1,116,148
============= =============
The net deferred tax assets are comprised of the following:
December 31, December 31,
2006 2005
------------- -------------
Current $ 248,455 $ 234,809
Non-current 98,183 881,339
------------- -------------
Net deferred income tax asset $ 346,638 $ 1,116,148
============= =============
The Company has federal net operating loss carry forwards totaling $1,193,000
which will expire in 2017.
F-17
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCK BASED COMPENSATION
In conjunction with the Share Exchange Agreement, the Company's Board of
Directors amended its 2005 Management and Director Equity Incentive and
Compensation Plan (the "Plan"). This Plan provides for the grants of stock
options, restricted stock, performance-based and other equity-based incentive
awards to directors, officers and key employees. Under this Plan, stock options
must be granted at an option price that is greater than or equal to the market
price of the stock on the date of the grant. If an employee owns 10% or more of
the Company's outstanding common stock, the option price must be at least 110%
of the market price on the date of the grant. Options granted under this Plan
become exercisable in accordance with the terms of the grant as determined by a
committee of the Company's Board of Directors. All options granted expire no
more than 10 years following the date of grant.
On March 16, 2006, 1,860,000 stock options were granted to management and
directors under the Plan. All options have a five-year life and an exercise
price of $1.27. On October 3, 2006, in conjunction with acquisition of La Fern,
Inc. 10,000 stock options were granted to a principal of La Fern as part of his
employment agreement with the Company under the Plan. The options have a five
year life and an exercise price of $1.95.
A summary of the activity in our Plan for the year ended December 31, 2006 is
presented below; no options were granted under the Plan prior to March 16, 2006:
Weighted Average
Shares Exercise Price
------ ----------------
Options outstanding at the beginning of the year -- $0.00
Granted 1,870,000 1.28
Canceled -- 0.00
Exercised -- 0.00
--------- -----
Options outstanding at the end of the year 1,870,000 $1.28
========= =====
The weighted fair value of options granted during 2006 was $0.17 with the
following assumptions: average expected life between 2.5 and 3.5 years,
depending on the option vesting; 4.44% interest rate; 40% volatility; 5%
forfeiture rate. Compensation cost recognized for the year ended December 31,
2006 was $147,430.
As of December 31, 2006, there was approximately $157,318 of total stock-based
compensation expense not yet recognized relating to non-vested awards granted
under our option plans as calculated under SFAS 123R. This expense is net of
estimated forfeitures and is expected to be recognized over a weighted-average
period of approximately 1.75 years. The number of non-exercisable shares was
1,570,000 shares of common stock at December 31, 2006. At December 31, 2006,
300,000 shares of common stock at $1.27 per share, which vested immediately upon
grant, were exercisable.
For the year ended December 31, 2006, 7,000 restricted shares were granted to
employees and directors under the Plan. Compensation expense for the year ended
December 31, 2006 related to the grant of 7,000 restricted shares was $5,950.
F-18
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - RELATED PARTY TRANSACTIONS
Effective October 2005, Online Vacation Center Holdings, Inc. engaged a
consultant who now serves as the Company's Chairman. In consideration for such
services, the consultant received a monthly fee of $10,000. The consultant
continues to serve the Company at the same fee rate on a month to month basis.
During 2006 and 2005, this consultant received $120,000 and $30,000,
respectively, in consulting fees.
NOTE 13 - COMMITMENTS AND CONTIGENCIES
Lease Commitments
Online Vacation Center Holdings Corp. has entered into a lease for approximately
10,000 square feet of corporate office space in Plantation, Florida. Total
monthly lease payments, which include a proportionate share of building
operating expenses, are $16,182 through June 2007 and increase approximately
three percent each year thereafter. The current lease term is through June 30,
2008. Rent expense for the years ended December 31, 2006 and 2005 was $197,322
and $180,710, respectively.
Executive Employment Agreements
On March 16, 2006, the Company entered into an executive employment agreement
with its President and Chief Executive Officer. The Company will pay an initial
annual base salary of $300,000, payable bi-weekly. The base salary is subject to
annual automatic incremental increases of the greater of the percentage increase
in the consumer price index or 6% of the previous year's base salary. In
addition, the Company issued incentive stock options to purchase 300,000 shares
of common stock and nonqualified stock options to purchase 200,000 shares of
common stock which are exercisable at 150% of the fair market value of the
Company's common stock as of the effective date of the share exchange ($1.27).
All of the nonqualified stock options and incentive stock options to purchase
100,000 shares vested immediately. Incentive stock options to purchase 100,000
shares of common stock vest on March 15, 2007 and the remaining 100,000
incentive stock options vest on March 15, 2008. All of the options were issued
under the 2005 Management and Director Equity Incentive and Compensation Plan.
On August 31, 2006, in conjunction with the acquisition of Phoenix International
Publishing, LLC, ("Phoenix") the Company entered into an employment agreement
with the president of Phoenix to continue serving in such capacity. The Company
will pay a base salary of $202,000 per annum commencing on September 1, 2006 and
increasing by 4% per annum until August 31, 2009, the termination date of the
Agreement. In addition, the president may also be entitled to a retention bonus,
as defined, a bonus in conjunction with the closing of certain acquisition
prospects, as defined, and a bonus in conjunction with Phoenix achieving certain
profitability thresholds as defined.
Other Contract Obligations
During the course of business, the Company has entered into contracts for
internet, telephone and other related expenses.
F-19
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2006, the Company had the following future minimum obligations
for rental lease commitments, employment agreements and other contract
obligations as follows:
Year Amount
------------------------------ ----------------
2007 $ 1,110,917
2007 786,023
2008 483,477
2009 and thereafter --
-----------
$ 2,380,417
===========
Benefit Plan
The Company participates in a multi-employer 401 (k) Plan managed by a
professional employer organization the Company retains for administering payroll
and employee benefits programs. Contributions to the Plan are at the discretion
of the Company's board of directors. No contributions were approved as of
December 31, 2006.
Settlement Obligation
The Company is involved from time to time in various legal claims and actions
arising in the ordinary course of business. While from time to time claims are
asserted that may make demands for sums of money, the Company does not believe
that the resolution of any of these matters, either individually or in the
aggregate, will materially affect its financial position, cash flows or the
results of its operations. In November 2004, the Company reached a settlement
agreement with a travel company whereby the Company paid $200,000 and agreed to
pay $175,000 over twenty months commencing January 2005 with interest on the
outstanding balance at 8% per annum. The obligation was paid in full in 2005.
Regulatory Matters
The Company believes it is in compliance with all federal regulatory
requirements, including the CAN-SPAM Act of 2003 which regulates commercial
electronic mail on a nationwide basis. The Company adheres to the law by
properly representing the nature of its commercial email messages, not tampering
with source and transmission information and obtaining email addresses through
lawful means.
NOTE 14 - ACQUISITIONS
During 2006, the Company acquired the entire ownership position in three
companies: Phoenix International Publishing, LLC, Thoroughbred Travel, LLC and
La Fern, Inc. The transactions have been included in our consolidated results
since the dates of acquisition. The cash paid in 2006 for these acquisitions,
net of cash acquired, was $405,795. Additionally the Company issued 1,450,000
shares of its common stock and issued convertible notes, at the election of the
holders, aggregating $500,000. The consideration has been allocated to assets
and liabilities, including separate identifiable intangible assets based on
independent third party valuations and internal assessments with approximately
$1,942,495 allocated to goodwill.
F-20
ONLINE VACATION CENTER HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
For the year ended December 31, 2006:
Net revenues $ 2,022,901 $ 1,805,377 $ 1,255,075 $ 2,702,008
Operating profit 438,370 306,703 (351,775) 134,352
Net earnings/(loss) 220,408 143,162 (168,800) 43,083
Net earnings/(loss) per share:
Basis $ 0.01 $ 0.01 $ (0.01) $ 0.00
Diluted $ 0.01 $ 0.01 $ (0.01) $ 0.00
For the year ended December 31, 2005:
Net revenues $ 2,116,715 $ 2,271,493 $ 1,612,856 $ 1,974,624
Gross profit 376,026 784,865 156,688 729,395
Net earnings/(loss) 346,097 1,366,420 57,894 450,124
Net earnings/(loss) per share:
Basis $ 0.02 $ 0.08 $ 0.00 $ 0.05
Diluted $ 0.02 $ 0.08 $ 0.00 $ 0.05
NOTE 16 - SUBSEQUENT EVENTS
On January 3, 2007, pursuant to the terms of an Acquisition Agreement, Online
Vacation Center Holdings Corp. purchased and acquired all of the issued and
outstanding ownership interests of La Tours and Cruises, Inc., a Houston, Texas
travel agency, operating as West University Travel, for $550,000, subject to
adjustment as defined by the Acquisition Agreement, $250,000 in cash payable
upon closing and $300,000, payable in $100,000 annual installments, subject to
adjustment as defined by the Acquisition Agreement, commencing on January 2,
2008. Additionally, the owners of La Tours and Cruises, Inc. received 50,000
restricted shares of the Company's common stock which are subject to a lock-up
agreement.
On January 5, 2007, pursuant to the terms of an Acquisition Agreement, Online
Vacation Center Holdings Corp. purchased and acquired all of the issued and
outstanding ownership interests of Dunhill Vacations, Inc., a Fort Lauderdale,
Florida, publisher of a leading vacation values newsletter, Dunhill Vacation
News, for $250,000, in cash payable upon closing and 50,000 restricted shares of
the Company's common stock.
On January 19, 2007, pursuant to the terms of an Acquisition Agreement, Online
Vacation Center Holdings Corp. purchased certain assets of SmartTraveler.com,
Inc., a Royal Palm Beach, Florida, home-based travel seller, for $125,000, in
cash payable upon closing and 125,000 restricted shares of the Company's common
stock which are subject to a lock-up agreement.
F-21