UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C., 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2006
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______ to _______
Commission File No. 333-132127
PRO TRAVEL NETWORK, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 68-0571584
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
516 W. Shaw Avenue # 103, Fresno, CA 93704
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(559) 224-6000
- --------------------------------------------------------------------------------
(Issuer's telephone number)
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 requirement for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
As of November 14, 2006 there were 23,900,340 outstanding shares of the
registrant's common stock $.001 par value per share.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements................................................1
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................6
Item 3. Controls and Procedures............................................16
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.................................................16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.......16
Item 3. Defaults Upon Senior Securities...................................16
Item 4. Submission of Matters to a Vote of Security Holders...............16
Item 5. Other Information.................................................16
Item 6. Exhibits..........................................................17
2
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
PRO TRAVEL NETWORK, INC.
BALANCE SHEET
(Unaudited)
September 30, June 30,
2006 2006
------------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 324,428 $ 366,881
Accounts receivable 16,751 56,175
Inventory 15,167 18,735
Investments 147,549 137,041
Prepaid expenses 5,467 19,922
--------- ---------
Total current assets 509,362 598,754
PROPERTY and EQUIPMENT, net 47,830 40,531
OTHER ASSETS
Security deposits, net of allowance of $35,353 115,286 115,286
--------- ---------
TOTAL ASSETS $ 672,478 $ 754,571
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 44,779 $ 45,355
Accrued expenses 189,889 206,770
Deferred national event revenue -- 180,556
--------- ---------
Total current liabilities 234,668 432,681
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; 50,000,000 shares authorized,
23,900,340 and 23,900,340 shares issued and outstanding 23,900 23,900
Additional paid-in-capital
654,775 654,775
Retained deficit (240,865) (356,785)
--------- ---------
Total shareholders' equity 437,810 321,890
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 672,478 $ 754,571
========= =========
The accompanying notes are an integral part of the financial statements.
1
PRO TRAVEL NETWORK, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
September 30,
2006 2005
------------ ------------
REVENUE
Travel agent products $ 529,885 $ 427,503
National events 217,532 174,394
Commissions 97,953 30,444
------------ ------------
Total revenues 845,370 632,341
Travel agent products 201,498 221,800
National events 195,096 145,682
------------ ------------
COST OF SALES 396,594 367,482
------------ ------------
Gross profit 448,776 264,859
OPERATING EXPENSES
Compensation expense 178,493 149,394
Professional and consulting fees 61,108 6,249
General and administrative expenses 106,272 76,803
Depreciation expense 4,682 3,926
------------ ------------
Total operating expenses 350,555 236,372
------------ ------------
Income from operations 98,221 28,487
OTHER INCOME (EXPENSE)
Interest income, net 4,496 40
Gain on sale of investments 3,722 776
Loss on foreign currency (802) --
------------ ------------
Net income applicable to common stock $ 105,637 $ 29,303
============ ============
OTHER COMPREHNSIVE INCOME
Unrealized gain on investments 10,283 --
Comprehensive income $ 115,920 $ 29,303
============ ============
Basic and Diluted Per Common Share Data
Basic and diluted net loss per share $ 0.00 $ 0.00
Weighted average shares outstanding 23,900,340 23,709,000
The accompanying notes are an integral part of the financial statements.
2
PRO TRAVEL NETWORK, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended September 30, 2006
(Unaudited)
Additional
Common Paid in Retained
Shares Common Stock Capital Earnings Total
---------- ------------ ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Balances, June 30, 2006 23,900,340 $ 23,900 $ 654,775 $ (356,785) $ 321,890
Unrealized gain on investments 10,283 10,283
Net income 105,637 105,637
---------- ----------- ----------- ----------- -----------
Balances, September 30, 2006 23,900,340 $ 23,900 $ 654,775 $ (240,865) $ 437,810
========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
3
PRO TRAVEL NETWORK, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
September 30,
2006 2005
--------- ---------
Cash flows from operating activities
Net income $ 105,637 $ 29,303
Adjustments to reconcile net income to net cash provided by operating
activities:
Share based compensation -- 10,000
Depreciation and amortization 4,682 3,926
Gain on sale of investments (3,722) (776)
Changes in assets and liabilities:
Accounts receivable 39,424 (489)
Inventory 3,568 (5,598)
Prepaid expenses and other 14,455 11,499
Accounts payable and accrued expenses (17,455) 18,891
Deferred revenue (180,556) (116,989)
--------- ---------
Net cash used in operating activities (33,967) (50,233)
--------- ---------
Cash flows from investing activities
Purchase of property and equipment (11,981) (2,417)
Purchase of investments (5,797) (10,000)
Sale of investments 9,292 --
--------- ---------
Net cash flows used in investing activities: (8,486) (12,417)
--------- ---------
Net decrease in cash and cash equivalents (42,453) (62,650)
Cash and cash equivalents
Beginning of year 366,881 84,338
--------- ---------
End of year $ 324,428 $ 21,688
========= =========
The accompanying notes are an integral part of the financial statements.
4
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Pro Travel Network,
Inc., have been prepared in accordance with accounting principles generally
accepted in the United States of America and the rules of the Securities and
Exchange Commission ("SEC"), and should be read in conjunction with the audited
financial statements and notes thereto contained in Pro Travel's Annual Report
filed with the SEC on Form 10-KSB. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the interim
periods presented have been reflected herein. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the full year. Notes to the financial statements which would substantially
duplicate the disclosure contained in the audited financial statements for
fiscal 2005 as reported elsewhere in this Form 10-QSB have been omitted.
5
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
In addition to historical information, this report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements include,
among other things, statements concerning our expectations regarding our future
financial performance, business strategy, milestones, projected plans and
objectives. Statements preceded by, followed by or that otherwise include the
words "believes", "expects", "anticipates", "intends", "projects", "estimates",
"plans", "may increase", "may fluctuate" and similar expressions or future or
conditional verbs such as "should", "would", "may" and "could" are generally
forward-looking in nature and not historical facts. These forward-looking
statements were based on various factors and were derived utilizing numerous
important assumptions and other important factors that could cause actual
results to differ materially from those in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this report, and in particular, the risks
discussed in this section under the heading "Risk Factors." Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements including milestones. Most of these factors are difficult to
predict accurately and are generally beyond our control. We undertake no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements.
Overview
We were originally incorporated in Nevada as PTN Investment Group, Inc. on
October 23, 2003. In May 2005, we amended our Articles of Incorporation to
change our name to Pro Travel Network, Inc. from PTN Investment Group, Inc. and
reduce the aggregate number of our authorized shares to 50,000,000 from
75,000,000. Prior to the amendment, two non-employee shareholders returned an
aggregate of 6,000,000 shares to us which we cancelled. Following this
cancellation, we had 69,000,000 shares issued and outstanding. We wanted to
restructure our capital structure in anticipation of going public. As our
original employee stockholders had spent substantial time and effort on the
development of our business and the original non-employee stockholders were
passive investors, the two passive investors decided it would be more equitable
for them to give up a portion of their share ownership to effect the proposed
capital restructure. Contemporaneous with the reduction of the number of
authorized shares, we issued new certificates for a total of 23,000,000 shares
to replace the certificates for the then outstanding 69,000,000 shares that were
previously issued in the name of PTN Investment Group, Inc.
Pro Travel Network, Inc. is an Internet provider of online travel stores for
travel agencies and home-based representatives using our services and
technology.
We currently offer the following products:
o Independent Travel Agent Program or ITAP - $349.99 initial fee; $99
annual fee after first year - sold by our Independent
Representatives.
o Marketing Opportunity - $29.99 monthly license fee.
We currently support over 7,000 independent travel agents and over 3,000
Independent Representatives throughout North America.
Critical Accounting Estimates
The financial statements include estimates made by management that impact the
amounts reflected for property and equipment as well as security deposits, as
detailed below:
6
Property & Equipment
Management has estimated the useful lives as the basis for
depreciating its property and equipment. Estimated useful lives
utilized for depreciating property and equipment are three years for
all computer equipment and software and seven years for furniture
and fixtures. Management believes these estimates are very
conservative.
Security Deposits
Security deposits represent operating lease deposits and amounts on
deposit with credit card payment processing services that serve as
collateral in case we were to cease operations or experience
significant chargebacks from customers. Management has provided an
allowance for unrecoverable deposits based on its estimate of
collectibility in the amount of $35,353 as of September 30, 2006
(See the section entitled "Legal Proceedings," below)
Results of Operations
Three Months Ended September 30, 2006 Compared to the Three Months Ended
September 30, 2005
For the three months ended September 30, 2006, total revenues broke down as
follows: Independent Travel Agent Program or ITAP sales - 63%, National Training
Events - 26%, Travel Commissions - 12%. For the three months ended September 30,
2005, total revenues broke down as follows: Independent Travel Agent Program or
ITAP sales - 68%, National Training Events - 28%, and Travel Commissions- 5%. We
had total revenues of $845,370 for the three months ended September 30, 2006,
which is an increase of $213,029, or 34%, over our total revenues for the three
months ended September 30, 2005, which was $632,341. Total revenues increased as
a result of increased sales across the board, due to increased awareness in the
marketplace and the increase in the number of Independent Representatives
marketing our products, with travel commission revenue showing the largest
percentage increase. We expect that as ITAP sales and the number of active
agents increase, the resulting travel commissions will continue to increase as a
percentage of our overall revenue.
Our cost of sales increased $29,112, or 8%, to $396,594 for the three months
ended September 30, 2006, as compared to cost of sales of $367,482 for the three
months ended September 30, 2005. Our cost of sales increased as a direct result
of greater sales of our products.
We had gross profit of $448,776 for the three months ended September 30, 2006,
which was an increase of $183,917, or 69%, when compared to our gross profit for
the three months ended September 30, 2005, which was $264,859. Our increase in
gross profit was primarily attributable to the increase in our sales which was
slightly offset by our increase in cost of sales.
Our total operating expenses increased $114,183, or 48%, to $350,555 for the
three months ended September 30, 2006, as compared to total operating expenses
of $236,372 for the three months ended September 30, 2005. The increase in total
operating expenses was mainly due to an increase in professional and consulting
fees, general and administrative expenses and compensation expense. Professional
and consulting fees increased $54,859 to $61,108 for the three months ended
September 30, 2006, as compared to professional and consulting fees of $6,249
for the three months ended September 30, 2005. The increase in professional and
consulting fees was primarily due to increased expenses related to being a fully
reporting company. General and administrative expenses increased $29,469 to
$106,272 for the three months ended September 30, 2006, as compared to general
and administrative expenses of $76,803 for the three months ended September 30,
2005. The increase in general and administrative expenses was primarily
attributable to the start-up of our Canadian office. Compensation expense
increased $29,099 to $178,493 for the three months ended September 30, 2006, as
compared to compensation expense of $149,394 for the three months ended
September 30, 2005. The increase in compensation expense was primarily due to
and increase in quarterly performance bonuses to Paul Henderson our President
and CEO. Mr. Henderson provides management and other services to us under an
employment agreement pursuant to which we pay him salary of $108,000 per year
and a commission of 12% of the net of all sales revenue, less all costs of sales
expense.
7
Other income and expenses included an increase in net interest income of $4,456,
to $4,496 for the three months ended September 30, 2006, as compared to net
interest income of $40 for the three months ended September 30, 2005, along with
a gain on sale of investments of $3,722 for the three months ended September 30,
2006, compared to gain on sale of investments of $776 for the three months ended
September 30, 2005, and a loss on foreign currency of $802, compared to a loss
on foreign currency of $0 for the three months ended September 30, 2005.
We had net income applicable to common stock of $105,637 for the three months
ended September 30, 2006, as compared to a net income applicable to common stock
of $29,303 for the three months ended September 30, 2005. The increase in net
income applicable to common stock was primarily attributable to the increase in
ITAP sales.
We had other comprehensive income for the three months ended September 30, 2006
consisting of unrealized gain on investments of $10,283. We did not have other
comprehensive income or expense for the three months ended September 30, 2005.
Our comprehensive income was $115,920 for the three months ended September 30,
2006, as compared to comprehensive income of $29,303 for the three months ended
September 30, 2005.
Commitments and Contingencies
Details regarding the lease for our principal place of business are as follows:
o Address: City/State/Zip 516 W. Shaw Avenue #103, Fresno, CA 93704
o Number of Square Feet: 3,397
o Name of Landlord: J&D Properties
o Term of Lease: 7 years, commencing March 2005
o Monthly Rental: Escalating from $4,397 at commencement to $5,374 in
the final year of the lease.
Our lease was amended in July, 2005, and monthly rent was reduced. The amount of
reduction was due to an agreement to allow in the future an adjacent tenant to
have access to 140 square feet of our current 3,397 square feet. All other terms
remain the same. The lease is non-cancelable. On June 27, 2006, we leased 1,000
square feet of office space in London, Ontario Canada under a one year
non-cancelable operating lease beginning in July 2006. Future minimum rental
payments for the fiscal year ending June 30, 2007 is $55,383 under these leases.
Milestones
We are in the process of launching full Canadian operations. We opened a
Canadian office in Ontario in July 2006. The most major goal towards achieving
our business objectives over the next year is our goal of having 100% of our
agents booking travel. Continuing operations will always focus on ways to
increase our marketing sales force. As described below in "Liquidity and Capital
Resources," we will need to obtain $250,000 in additional financing to expand
our operations as outlined in the Milestone table below.
8
- ---------------------------------------------------------------------------------------------------------------------
Expected Manner of
Occurrence or Method of Date When Step Should be Estimated Cost of
Milestone or Step Achievement Accomplished Completion
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Develop Canadian Secure office space in 3 months $50,000
infrastructure Toronto, office equipment
and develop "specific"
marketing materials and
hiring additional employees
- ---------------------------------------------------------------------------------------------------------------------
Launch Canadian Marketing PTN Canadian marketing 4 - 12 months $50,000
Phase tour and seminars designed
to develop sales force
- ---------------------------------------------------------------------------------------------------------------------
Creation of Travel Marketing Marketing head and staff 2 - 4 months $50,000
staff to drive bookings up
- ---------------------------------------------------------------------------------------------------------------------
Achieve average ITAP sales of Aggressively Recruit top 3 - 12 months $100,000
1,000 per month leadership in the
multi-level marketing
Industry
- ---------------------------------------------------------------------------------------------------------------------
All steps will be undertaken contemporaneously.
Our marketing effort will be directed at expanding our representative network
through personal contact or seminars.
Liquidity and Capital Resources
As of September 30, 2006, we had total current assets of $509,362 consisting of
cash and cash equivalents of $324,428, accounts receivable of $16,751, inventory
of $15,167, investments of $147,549 and prepaid expenses of $5,467. Our cash
balances exceeded FDIC insurance protection levels by approximately $105,000 at
September 30, 2006 and at certain points throughout the year subjecting us to
risk related to the un-protected balance. We have determined that the risk of
loss associated with these un-protected balances is remote and therefore no
adjustment for the risk has been provided for the three months ended September
30, 2006.
We had total current liabilities of $234,668 consisting of accounts payable of
$44,779 and accrued expenses of $189,889. We have no long-term debt. Accrued
expenses consisted of accrued employees salaries and benefits of $60,122, lease
obligation of $3,162 and commissions and rewards owed our representatives in the
amount of $126,605, of which approximately $64,622 was the estimated full
potential value of PTN Reward Points owed Agents and Managers and the reminder
was primarily commissions held for payment at the end of every two weeks.
We had working capital of $274,694 as of September 30, 2006.
During the three months ended September 30, 2006, net cash decreased by $42,453
consisting of $33,967 used in operating activities and $8,486 used in investing
activities.
Net cash used in operating activities during the three months ended September
30, 2006, consisted of net income from operations of $105,637, adjustments for
depreciation and amortization of $4,682, a decrease in accounts receivable of
$39,424, a decrease in inventory of $3,568 and a decrease in prepaid expenses
and other of $14,455, which were offset by an adjustment for gain on sale of
investments of $3,722, a decrease in accounts payable and accrued expenses of
$17,455 and a decrease in deferred revenue of $180,556.
9
Net cash used in investing activities during the three months ended September
30, 2006, consisted of property and equipment purchases of $11,981 and
investments purchases of $5,797, which were offset by sale of investments of
$9,293.
We believe our cash resources of $324,428 as of September 30, 2006, are
sufficient to satisfy our current cash requirements over the next 12 months. In
addition, based upon our prior experience, we believe we will generate
sufficient cash flow from operations to also satisfy these requirements. We have
expanded our business operations in Canada as outlined in the Milestone table,
above. We estimate that we need an additional $250,000 of capital for the
expansion. We hope to be able to raise additional capital from an offering of
our stock in the future. However, this offering may not occur, or if it occurs,
we may not raise the required funding. At this time, we have not secured or
identified any additional financing. We do not have any firm commitments or
other identified sources of additional capital from third parties or from our
officers or directors or from shareholders. There can be no assurance that
additional capital will be available to us, or that, if available, it will be on
terms satisfactory to us. Any additional financing may involve dilution to our
shareholders. In the alternative, additional funds may be provided from cash
flow in excess of that needed to finance our day-to-day operations, although we
may never generate this excess cash flow. If we raise additional capital or
generate additional funds, we plan to use the funds to finance the minimum steps
in the Milestone table that we would like to take to implement our business plan
in the next 12 months; however, the amounts actually expended may vary
significantly. Accordingly, we will retain broad discretion in the allocation of
any additional capital that we may receive or funds that we may generate. If we
do not raise additional capital or generate additional funds, implementation of
our business plans as set forth in the Milestone table will be delayed.
Risk Factors
Risk Related To Our Business
Because our Internet-based hosted home base travel agent and travel services
company is a relatively new method to market travel services and to make travel
arrangements, we face significant barriers to acceptance of our services.
Our sales and revenues will not grow as we plan if people who want to become
independent travel agents do not purchase our Independent Travel Agent Program
product or become independent representatives selling this program, if consumers
and businesses do not purchase significantly more travel products online than
they currently do, or if the use of the Internet as a medium of commerce for
travel products does not continue to grow or grows more slowly than expected.
Consumers and businesses have traditionally relied on personal contact with
travel agents and travel suppliers and are accustomed to a high degree of human
interaction in purchasing travel products. The success of our business is
dependent on a significant increase in the number of people who want to become
independent travel agents who purchase our Independent Travel Agent Program
product or become independent representatives selling this program and consumers
and businesses who use the Internet to purchase travel products from our agents.
Adverse changes or interruptions in our relationships with travel suppliers
could affect our access to travel offerings and reduce our revenues.
We rely on various arrangements with our airline, hotel and auto suppliers, and
these arrangements contain terms that could affect our access to inventory and
reduce our revenues. All of the relationships we have are freely terminable by
the supplier upon notice. None of these arrangements are exclusive and any of
our suppliers could enter into, and in some cases may have entered into, similar
arrangements with our competitors.
We cannot assure you that our arrangements with travel suppliers will remain in
effect or that any of these suppliers will continue to supply us and our agents
with the same level of access to inventory of travel offerings in the future. If
access to inventory is affected, or our ability to obtain inventory on favorable
economic terms is diminished, it could reduce our revenues.
10
Our failure to establish and maintain representative relationships for any
reason could negatively impact sales of our products and reduce our revenues.
We distribute our products through independent representatives, and we depend
upon them for sales revenue. For the three months ended September 30, 2006, 12%
of our revenues were comprised of commissions. To increase our revenue, we must
increase the number of, or the productivity of, our representatives.
Accordingly, our success depends in significant part upon our ability to
attract, retain and motivate a large base of representatives. There may be a
high rate of turn-over among our representatives. Since our inception, we have
had approximately 1,900 independent travel agents that have become inactive for
non-payment of the annual fee after their first year as an agent. The loss of a
significant number of representatives without replacements being secured for any
reason could reduce sales of our products and could impair our ability to
attract new representatives.
If we fail to attract and retain representatives in a cost-effective manner, our
ability to grow and become profitable may be impaired.
Our business strategy depends on increasing our overall number of customer
transactions in a cost-effective manner. In order to increase our number of
transactions, we must attract new representatives. Although we have spent
significant financial resources on sales and marketing and plan to continue to
do so, these efforts may not be cost effective in attracting new representatives
or increasing transaction volume. If we do not achieve our marketing objectives,
our ability to grow and increase revenues may be impaired.
Our success depends on maintaining the integrity of our systems and
infrastructure, which if not maintained could reduce our revenues.
In order to be successful, we must provide reliable, real-time access to our
systems for our representatives, customers and suppliers. As our operations grow
in both size and scope, we will need to improve and upgrade our systems and
infrastructure to offer an increasing number of people and travel suppliers
enhanced products, services, features and functionality. The expansion of our
systems and infrastructure will require us to commit substantial financial,
operational and technical resources before the volume of business increases,
with no assurance that the volume of business will increase. Consumers and
suppliers will not tolerate a service hampered by slow delivery times,
unreliable service levels or insufficient capacity, any of which could reduce
our revenues.
Our computer systems may suffer failures, capacity constraints and business
interruptions that could increase our operating costs and cause us to lose
customers and reduce our revenues.
Our operations face the risk of systems failures. Our systems and operations are
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, computer hacking break-ins, earthquake, terrorism
and similar events. The occurrence of a natural disaster or unanticipated
problems at our facilities or locations of key vendors could cause interruptions
or delays in our business, loss of data or render us unable to process
reservations. In addition, the failure of our computer and communications
systems to provide the data communications capacity required by us, as a result
of human error, natural disaster or other occurrence of any or all of these
events could adversely affect our reputation, brand and business. In these
circumstances, our redundant systems or disaster recovery plans may not be
adequate. Similarly, although many of our contracts with our service providers
require them to have disaster recovery plans, we cannot be certain that these
will be adequate or implemented properly. In addition, our business interruption
insurance may not adequately compensate us for losses that may occur.
Rapid technological changes may render our technology obsolete or decrease the
attractiveness of our products to representatives and consumers.
To remain competitive in the online travel industry, we must continue to enhance
and improve the functionality and features of our website. The Internet and the
online commerce industry are rapidly changing. In particular, the online travel
industry is characterized by increasingly complex systems and infrastructures
and new business models. If competitors introduce new products embodying new
technologies, or if new industry standards and practices emerge, our existing
website, technology and systems may become obsolete.
11
Our future success will depend on our ability to do the following:
o enhance our existing products;
o develop and license new products and technologies that address the
increasingly sophisticated and varied needs of our prospective
customers and suppliers; and
o respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
Developing our website and other technology entails significant technical and
business risks which could reduce our revenues.
We may use new technologies ineffectively or we may fail to adapt our website,
transaction processing systems and network infrastructure to consumer
requirements or emerging industry standards. For example, our website
functionality that allows searches and displays of ticket pricing and travel
itineraries is a critical part of our service, and it may become out-of-date or
insufficient from our customers' perspective and in relation to the search and
display functionality of our competitors' websites. If we face material delays
in introducing new services, products and enhancements, our representatives,
customers and suppliers may forego the use of our products and use those of our
competitors.
Declines or disruptions in the travel industry, such as those caused by general
economic downturns, terrorism, health concerns, strikes or bankruptcies within
the travel industry could reduce our revenues.
Our business is affected by the health of the travel industry. Travel
expenditures are sensitive to business and personal discretionary spending
levels and tend to decline during general economic downturns. Since 2001, the
travel industry has experienced a protracted downturn, and there is a risk that
a future downturn, or the continued weak demand for travel, could adversely
affect the growth of our business. Additionally, travel is sensitive to safety
concerns, and thus may decline after incidents of terrorism, during periods of
geopolitical conflict in which travelers become concerned about safety issues,
or when travel might involve health-related risks. For example, the terrorist
attacks of September 11, 2001, which included attacks on the World Trade Center
and the Pentagon using hijacked commercial aircraft, resulted in a decline in
travel bookings throughout the industry. The long-term effects of events such as
these could include, among other things, a protracted decrease in demand for air
travel due to fears regarding terrorism, war or disease. These effects,
depending on their scope and duration, which we cannot predict at this time,
could significantly reduce our revenues.
Other adverse trends or events that tend to reduce travel and may reduce our
revenues include:
o higher fares and rates in the airline industry or other
travel-related industries;
o labor actions involving airline or other travel suppliers;
o political instability and hostilities;
o fuel price escalation;
o travel-related accidents; and
o bankruptcies or consolidations of travel suppliers and vendors.
Evolving government regulations could impose taxes or other burdens which
increase the cost of travel or otherwise make travel less desirable, which could
decrease demand for travel and have the potential to materially reduce our
revenues.
We must comply with laws and regulations applicable to online commerce and the
sale of travel services. Increased regulation of the Internet or travel services
or different applications of existing laws might slow the growth in the use of
the Internet and commercial online services, or could increase the cost of
travel services, which could decrease travel and thus lead to reduced commission
revenues.
12
In addition to federal regulation, state and local governments could impose
additional taxes on Internet-based sales or on travel services such as air fares
and hotel room and car rental rates. We would not have to pay these taxes;
rather, they would be added to the room rates or other travel purchased and paid
directly by the traveler. However, these taxes would increase travel costs.
Increased travel costs could decrease the demand for travel and thus lead to
reduced commission revenues. Any state and local governments in any jurisdiction
in which we do business could, without us being aware, impose additional taxes
on Internet-based sales or on travel services such as air fares and hotel room
and car rental rates, including increased hotel occupancy taxes. If these types
of taxes were imposed and travel and related hotel bookings materially
decreased, the amount of commissions we receive and thus our revenues could be
materially reduced. The statutes and case law governing online commerce are
still evolving, and new laws, regulations or judicial decisions may impose on us
additional risks which may lead to reduced revenues. In addition, new
regulations, domestic or international, regarding the privacy of our users'
personally identifiable information may impose on us additional costs and
operational constraints.
Because our market is seasonal, our quarterly results could fluctuate.
Our market experiences seasonal fluctuations, reflecting seasonal trends for the
products offered by our representatives, as well as Internet services generally.
For example, traditional leisure travel bookings are higher in the first two
calendar quarters of the year in anticipation of spring and summer vacations and
holiday periods, but online travel reservations may decline with reduced
Internet usage during the summer months. In the last two quarters of the
calendar year, demand for travel products generally declines and the number of
bookings flattens or decreases. These factors could cause our revenues to
fluctuate from quarter to quarter. Our results may also be affected by seasonal
fluctuations in the inventory made available to us by travel suppliers.
Our business is exposed to risks associated with online commerce security and
credit card fraud which could reduce our revenues.
Consumer concerns over the security of transactions conducted on the Internet or
the privacy of users may inhibit the growth of the Internet and online commerce.
To transmit confidential information such as customer credit card numbers
securely, we rely on encryption and authentication technology. Unanticipated
events or developments could result in a compromise or breach of the systems we
use to protect customer transaction data. Our servers and those of our service
providers may be vulnerable to viruses or other harmful code or activity
transmitted over the Internet. A virus or other harmful activity could cause a
service disruption.
In addition, we bear financial risk from products or services purchased with
fraudulent credit card data. Although we have implemented anti-fraud measures, a
failure to adequately control fraudulent credit card transactions could
adversely affect our business. Because of our limited operating history, we
cannot assure you that our anti-fraud measures are sufficient to prevent
material financial loss. Since we cannot exert the same level of influence or
control over our representatives as we could were they our own employees, our
representatives could fail to comply with our policies and procedures, which
could result in claims against us that could harm our financial condition and
operating results. We are not in a position to directly provide the same
direction, motivation and oversight for our representatives as we would if such
representatives were our own employees. As a result, there can be no assurance
that our representatives will participate in our marketing strategies or plans,
accept our introduction of new products and services, or comply with our
policies and procedures.
Because it can be difficult to enforce policies and procedures designed to
govern the conduct of our representatives and to protect the goodwill associated
with our business because of the number of representatives and their independent
status, our revenues could be reduced if we fail to enforce these policies and
procedures.
Violations by our representatives of applicable laws or our policies and
procedures in dealing with customers could reflect negatively on our products
and operations and harm our business reputation. In addition, it is possible
that a court could hold us civilly or criminally accountable based on vicarious
liability because of the actions of our representatives.
13
Adverse publicity concerning any actual or purported failure of us or our
representatives to comply with applicable laws and regulations, whether or not
resulting in enforcement actions or the imposition of penalties, could harm the
goodwill of our company and could reduce our ability to attract, motivate and
retain representatives, which would reduce our revenues. We cannot ensure that
all representatives will comply with applicable legal requirements.
Our marketing program could be found not to be in compliance with current or
newly adopted laws or regulations in one or more markets, which could prevent us
from conducting our business in these markets and reduce our revenues.
Our network marketing program is subject to a number of federal and state
regulations administered by the Federal Trade Commission and various state
agencies in the United States. We are subject to the risk that, in one or more
markets, our network marketing program could be found not to be in compliance
with applicable laws or regulations. Regulations applicable to network marketing
organizations generally are directed at preventing fraudulent or deceptive
schemes, often referred to as "pyramid" or "chain sales" schemes, by ensuring
that product sales ultimately are made to consumers and that advancement within
an organization is based on sales of the organization's products rather than
investments in the organization or other non-retail sales-related criteria. The
regulatory requirements concerning network marketing programs do not include
"bright line" rules and are inherently fact-based and thus, even in
jurisdictions where we believe that our network marketing program is in full
compliance with applicable laws or regulations governing network marketing
systems, we are subject to the risk that these laws or regulations or the
enforcement or interpretation of these laws and regulations by governmental
agencies or courts can change. The failure of our network marketing program to
comply with current or newly adopted regulations could reduce our revenues.
We are also subject to the risk of private party challenges to the legality of
our network marketing program. The multi-level marketing programs of other
companies have been successfully challenged in the past. An adverse judicial
determination with respect to our network marketing program, or in proceedings
not involving us directly but which challenge the legality of multi-level
marketing systems, in any market in which we operate, could reduce our revenues.
Because insiders control our activities, they may block or deter actions that
you might otherwise desire that we take and may cause us to act in a manner that
is most beneficial to such insiders and not to outside shareholders.
Our CEO, President and sole director, Mr. Paul Henderson, controls approximately
52.3% of our common stock, and we do not have any non-employee directors. As a
result, he effectively controls all matters requiring director and stockholder
approval, including the election of directors, the approval of significant
corporate transactions, such as mergers and related party transaction. He also
has the ability to block, by his ownership of our stock, an unsolicited tender
offer. This concentration of ownership could have the effect of delaying,
deterring or preventing a change in control of our company that you might view
favorably.
Our management decisions are made by Paul Henderson, CEO and President; if we
lose his services, our revenues may be reduced.
The success of our business is dependent upon the expertise of Paul Henderson,
CEO and President. Because Paul Henderson is essential to our operations, you
must rely on his management decisions. Paul Henderson, CEO and President will
continue to control our business affairs after the filing. We have not obtained
any key man life insurance relating to Paul Henderson. Paul is currently subject
to an IRS lien. If we lose his services, we may not be able to hire and retain
another CEO or President with comparable experience. As a result, the loss of
the services of Paul Henderson could reduce our revenues.
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Risk Related To Our Common Stock
Because our common stock will be considered a penny stock, any investment in our
common stock is considered a high-risk investment and is subject to restrictions
on marketability; you may be unable to sell your shares.
If our common stock trades in the secondary market, we will be subject to the
penny stock rules adopted by the SEC that require brokers to provide extensive
disclosure to their customers prior to executing trades in penny stocks. These
disclosure requirements may cause a reduction in the trading activity of our
common stock, which in all likelihood would make it difficult for our
shareholders to sell their securities.
Because there is not now and may never be a public market for our common stock,
investors may have difficulty in reselling their shares.
Our common stock is currently not quoted on any market. No market may ever
develop for our common stock, or if developed, may not be sustained in the
future. Accordingly, our shares should be considered totally illiquid, which
inhibits investors' ability to resell their shares.
Because the offering price of our most recent sales of common stock of $1.25 per
share was arbitrarily set by our Board of Directors and accordingly does not
indicate the actual value of our business, investors may not be able to sell
their stock for a price in excess of $1.25 per share and thus could suffer an
investment loss.
The offering price of our most recent sales of common stock of $1.25 per share
was not based upon earnings or operating history, does not reflect our actual
value, and bears no relation to our earnings, assets, book value, net worth or
any other recognized criteria of value. No independent investment banking firm
was retained to assist in determining the offering price for the shares.
Accordingly, the offering price should not be regarded as an indication of any
future price of our stock. Any investors in our common stock, including those
who invest in our common stock at a price less than $1.25 per share, could
suffer an investment loss.
Because sales of our common stock under Rule 144 could reduce the price of our
stock investors may not be able to sell their stock for a price in excess of the
price they paid to acquire our stock and thus could suffer an investment loss.
As of November 13, 2006, there are 900,340 shares of our common stock held by
non-affiliates and 23,000,000 shares of our common stock held by officers,
directors and stockholders that currently own more than 5% of our securities
that Rule 144 of the Securities Act of 1933 defines as restricted securities. We
registered 400,340 of these shares with the SEC on a registration statement on
Form SB-2, as amended, File No. 333-132127, which was declared effective on July
19, 2006. No Shares have been sold pursuant to Rule 144 of the Securities Act of
1933.
In addition to the registered shares that are available for resale, as a result
of the provisions of Rule 144, restricted securities could be available for sale
in a public market, if developed, generally beginning 90 days after the
effective date of the registration statement, assuming the holding period,
volume and method of sale limitations in Rule 144 can be satisfied to the extent
required. The availability for sale of substantial amounts of common stock under
Rule 144 could reduce prevailing market prices for our securities.
Because we do not have an audit or compensation committee, shareholders will
have to rely on the entire Board of Directors, all of which are not independent,
to perform these functions.
We do not have an audit or compensation committee comprised of independent
directors. Indeed, we do not have any audit or compensation committee. These
functions are performed by the Board of Directors as a whole. All members of the
Board of Directors are not independent directors. Thus, there is a potential
conflict in that board members who are management will participate in
discussions concerning management compensation and audit issues that may affect
management decisions.
15
Item 3. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Principal Financial Officer, after evaluating
the effectiveness of our "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of
the period covered by this report (the "Evaluation Date"), has concluded that as
of the Evaluation Date, our disclosure controls and procedures are effective to
provide reasonable assurance that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act (i) is accumulated and
communicated to our management, including our Chief Executive Officer and
Principal Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure, and (ii) is recorded, processed, summarized and reported
within the time periods specified in the Commission's rules and forms.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
There are no pending or threatened lawsuits against us.
We are currently pursuing an operating credit card processing service that
failed to return our deposit of approximately $35,000. The credit card
processing service is currently pursing action against its bank to recover this
sum and has orally agreed to pay us this amount if recovered. However, as the
processor is not located in the U.S., if they do not pay us as orally agreed, we
do not intend to institute litigation due to the cost of litigation and
uncertainty of collection. Although as the company is still in business and we
may be able to collect, recovery is uncertain, so we have provided an allowance
on our financial statements for the entire balance in case it is not collected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
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Item 6. Exhibits.
Exhibit No. Description of Exhibit
- ----------- ----------------------
31* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32* Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
PRO TRAVEL NETWORK, INC.
By: /s/ Paul Henderson
----------------------
Name: Paul Henderson
Title: Chief Executive Officer and President
Date: November 15, 2006
17