UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended December 31, 2008
o
TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from ___________ to _____________
Commission
file number:
333-132127
PRO
TRAVEL NETWORK, INC.
(
Exact name of registrant as specified
in its charter
)
|
Nevada
|
68-0571584
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
|
|
516 W. Shaw Avenue #
103, Fresno, CA
|
93704
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number (559) 224-6000
Indicate
by check mark whether the registrant (1) has 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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Set the definitions of “large accelerated filer,” “accelerated filer,” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
o
Accelerated
filer
o
Non-accelerated filer
o
Smaller
reporting company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
As of,
February 13, 2009 there were 27,889,145 outstanding shares of the issuer’s
common stock, $.001 par value per share.
|
|
3
|
|
|
|
3
|
|
|
|
10
|
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
|
|
17
|
|
|
|
17
|
|
|
|
17
|
|
|
|
17
|
|
|
|
17
|
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PRO
TRAVEL NETWORK, INC.
BALANCE
SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
December
31,
|
|
|
June
30,
|
|
|
|
|
2008
|
|
|
2008
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
176,128
|
|
|
$
|
368,204
|
|
|
Accounts
receivable
|
|
|
3,861
|
|
|
|
861
|
|
|
Inventory
|
|
|
16,895
|
|
|
|
17,764
|
|
|
Investments
|
|
|
584,187
|
|
|
|
689,513
|
|
|
Prepaid
expenses
|
|
|
61,642
|
|
|
|
16,214
|
|
|
Total
current assets
|
|
|
842,713
|
|
|
|
1,092,556
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
and EQUIPMENT, net
|
|
|
112,563
|
|
|
|
106,362
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
|
Security
deposits, net of allowance of $35,353
|
|
|
122,360
|
|
|
|
122,360
|
|
|
Intangible
assets-goodwill
|
|
|
38,201
|
|
|
|
—
|
|
|
|
|
|
160,563
|
|
|
|
122,360
|
|
|
TOTAL
ASSETS
|
|
$
|
1,115,837
|
|
|
$
|
1,321,278
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
117,292
|
|
|
$
|
7,366
|
|
|
Accrued
expenses
|
|
|
331,550
|
|
|
|
269,789
|
|
|
Deferred
national event revenue
|
|
|
67,278
|
|
|
|
157,871
|
|
|
Total
current liabilities
|
|
|
516,120
|
|
|
|
435,026
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
Common
stock, $.001 par value; 50,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
|
27,889,145
and 25,885,340 shares issued and outstanding
|
|
|
27,889
|
|
|
|
25,885
|
|
|
Additional
paid-in-capital
|
|
|
3,589,333
|
|
|
|
3,005,775
|
|
|
Accumulated
deficit
|
|
|
(2,554,845
|
)
|
|
|
(2,047,825
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
(462,660
|
)
|
|
|
(97,583
|
)
|
|
Total
shareholders’ equity
|
|
|
599,717
|
|
|
|
886,252
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
1,115,837
|
|
|
$
|
1,321,278
|
|
The
accompanying notes are an integral part of the financial
statements.
PRO
TRAVEL NETWORK, INC.
STATEMENTS
OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel
agent products
|
|
$
|
866,229
|
|
|
$
|
1,466,100
|
|
|
$
|
2,027,100
|
|
|
$
|
2,978,271
|
|
|
National
events
|
|
|
207,250
|
|
|
|
166,861
|
|
|
|
207,250
|
|
|
|
166,861
|
|
|
Commissions
|
|
|
504,088
|
|
|
|
471,978
|
|
|
|
1,126,632
|
|
|
|
982,140
|
|
|
Total
revenues
|
|
|
1,577,567
|
|
|
|
2,104,939
|
|
|
|
3,360,982
|
|
|
|
4,127,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel
agent products
|
|
|
337,359
|
|
|
|
1,097,249
|
|
|
|
945,670
|
|
|
|
1,991,082
|
|
|
National
events
|
|
|
170,021
|
|
|
|
163,996
|
|
|
|
170,021
|
|
|
|
163,996
|
|
|
Commissions
|
|
|
318,135
|
|
|
|
284,176
|
|
|
|
765,156
|
|
|
|
673,035
|
|
|
Total
cost of revenues
|
|
|
825,515
|
|
|
|
1,545,421
|
|
|
|
1,880,847
|
|
|
|
2,828,113
|
|
|
Gross
profit
|
|
|
752,052
|
|
|
|
559,518
|
|
|
|
1,480,135
|
|
|
|
1,299,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense
|
|
|
476,035
|
|
|
|
455,455
|
|
|
|
1,363,877
|
|
|
|
793,110
|
|
|
Professional
and consulting fees
|
|
|
180,539
|
|
|
|
43,070
|
|
|
|
300,506
|
|
|
|
66,151
|
|
|
General
and administrative expenses
|
|
|
168,088
|
|
|
|
270,490
|
|
|
|
378,033
|
|
|
|
501,283
|
|
|
Depreciation
expense
|
|
|
5,842
|
|
|
|
3,787
|
|
|
|
11,488
|
|
|
|
7,270
|
|
|
Total
operating expenses
|
|
|
830,504
|
|
|
|
772,802
|
|
|
|
2,053,904
|
|
|
|
1,367,814
|
|
|
Income
(loss) from operations
|
|
|
(78,452
|
)
|
|
|
(213,284
|
)
|
|
|
(573,769
|
)
|
|
|
(68,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income, net
|
|
|
6,474
|
|
|
|
8,476
|
|
|
|
11,542
|
|
|
|
8,916
|
|
|
Gain
on sale of investments
|
|
|
7,553
|
|
|
|
—
|
|
|
|
39,820
|
|
|
|
—
|
|
|
Gain
(loss) on foreign currency
|
|
|
19,910
|
|
|
|
(968
|
)
|
|
|
15,387
|
|
|
|
(143
|
)
|
|
Net
income (loss) applicable to common stock
|
|
|
(44,515
|
)
|
|
|
(205,776
|
)
|
|
|
(507,020
|
)
|
|
|
(59,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on investments
|
|
|
(280,569
|
)
|
|
|
3,111
|
|
|
|
(365,077
|
)
|
|
|
4,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(325,084
|
)
|
|
$
|
(202,665
|
)
|
|
$
|
(872,097
|
)
|
|
$
|
(55,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Per
Common Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net income (loss) per share
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
(
0.02
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic
|
|
|
27,494,249
|
|
|
|
25,680,340
|
|
|
|
26,733,075
|
|
|
|
25,680,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
|
PRO
TRAVEL NETWORK, INC.
|
|
|
STATEMENTS
OF CHANGES IN SHAREHOLDERS’ EQUITY
|
|
|
For
the Six Months Ended December 31, 2008
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid in Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Comprehensive Loss
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
June 30, 2008
|
|
|
25,885,340
|
|
|
$
|
25,885
|
|
|
$
|
3,005,775
|
|
|
$
|
(2,047,825
|
)
|
|
$
|
(97,583
|
)
|
|
$
|
886,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
2,003,805
|
|
|
|
2,004
|
|
|
|
518,850
|
|
|
|
—
|
|
|
|
|
|
|
|
520,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant/Option
expense
|
|
|
|
|
|
|
|
|
|
|
64,708
|
|
|
|
|
|
|
|
|
|
|
|
64,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(365,077
|
)
|
|
|
(365,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(507,020
|
)
|
|
|
—
|
|
|
|
(507,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2008
|
|
|
27,889,145
|
|
|
$
|
27,889
|
|
|
$
|
3,589,333
|
|
|
$
|
(2,554,845
|
)
|
|
$
|
(462,660
|
)
|
|
$
|
599,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
PRO
TRAVEL NETWORK, INC.
STATEMENTS
OF CASH FLOWS
(Unaudited)
|
|
|
For
the Six Months Ended
|
|
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(507,020
|
)
|
|
$
|
(59,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net
|
|
|
|
|
|
|
|
|
|
cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
585,562
|
|
|
|
—
|
|
|
Gain
on sale of investments
|
|
|
(39,820
|
)
|
|
|
—
|
|
|
Depreciation
and amortization
|
|
|
11,488
|
|
|
|
7,270
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(3,000
|
)
|
|
|
(1,465
|
)
|
|
Inventory
|
|
|
869
|
|
|
|
(2,957
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
(45,428
|
)
|
|
|
(195,809
|
)
|
|
Accounts
payable and accrued expenses
|
|
|
171,687
|
|
|
|
170,052
|
|
|
Deferred
revenue
|
|
|
(90,593
|
)
|
|
|
150,008
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
83,745
|
|
|
|
67,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(17,689
|
)
|
|
|
(19,662
|
)
|
|
Purchase
of investments
|
|
|
(532,904
|
)
|
|
|
(128,358
|
)
|
|
Sale
of investments
|
|
|
312,973
|
|
|
|
—
|
|
|
Intangible
assets-goodwill
|
|
|
(38,201
|
)
|
|
|
—
|
|
|
Net
cash flows used in investing activities:
|
|
|
(275,821
|
)
|
|
|
(148,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(192,076
|
)
|
|
|
(80,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
368,204
|
|
|
|
366,837
|
|
|
End
of year
|
|
$
|
176,128
|
|
|
$
|
286,034
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures
|
|
|
|
|
|
|
|
Cash
Paid During the Year for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Income
taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Investing Activities:
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on investment
|
|
$
|
(365,077
|
)
|
|
$
|
4,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial statement
PRO
TRAVEL NETWORK, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
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-K. 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 2008 as reported
elsewhere in this Form 10-Q have been omitted.
NOTE
B – NEW ACCOUNTING PRONOUNCEMENTS
In
September 2006, the FASB issued SFAS 157, Fair Value Measurements, as amended in
February 2008 by FASB Staff Position (“FSP”) FAS 157-2, Effective Date of FASB
Statement No. 157. SFAS 157 defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value measurements.
SFAS 157 also established a fair value hierarchy that prioritizes
the use of inputs used in valuation techniques into the following three
levels:
Level
1—quoted prices in active markets for identical assets and
liabilities.
Level
2—observable inputs other than quoted prices in active markets for identical
assets and liabilities.
Level
3—unobservable inputs.
The
adoption of FAS 157 did not have an effect on the Company’s financial condition
or results of operations, but SFAS 157 introduced new disclosures about how we
value certain assets and liabilities. Much of the disclosure is focused on the
inputs used to measure fair value, particularly in instances where the
measurement uses significant unobservable (Level 3) inputs.
As
required by SFAS 157, financial assets and liabilities are classified based on
the lowest level of input that is significant to the fair value measurement. Our
assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect the valuation of the fair value of
assets and liabilities and their placement within the fair value hierarchy
levels. Following are the major categories of assets and liabilities measured at
fair value on a recurring basis as of June 30, 2008, using quoted prices in
active markets for identical assets (Level 1); significant other observable
inputs (Level 2); and significant unobservable inputs (Level 3):
|
|
|
Fair
Value Measurements at December 31, 2008 Using
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Assets
(Liabilities):
|
|
$
|
625,930
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Derivative
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Total
|
|
$
|
625,930
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FSP FAS
157-2 defers the effective date of SFAS 157 for all nonfinancial assets and
liabilities, except those items recognized or disclosed at fair value on an
annual or more frequently recurring basis, until January 1, 2009. As such, we
partially adopted the provisions of SFAS 157 effective January 1, 2008.
The partial adoption of this statement did not have a material impact on
our financial statements. We expect to adopt the remaining provisions of
SFAS 157 beginning in 2009. We do not expect this adoption to have a
material impact on our financial statements.
NOTE
C — COMMON STOCK
Issuances
for Services
During
the six months ended December 31, 2008, Pro Travel Network, Inc. issued 783,805
shares to third parties for services rendered valued at their fair market value
using quoted market prices on the date of grant, resulting in total share-based
compensation expense of $122,985, 1,105,000 shares to executive officers of Pro
Travel Network, for services rendered valued at their fair market value using
quoted market prices on the date of grant, resulting in total share-based
compensation expense of $331,500, and 115,000 shares of common stock to twelve
(12) employees valued at their fair market value using quoted market prices on
the date of grant, resulting in total share-based compensation expense of
$34,500.
NOTE
D — STOCK OPTIONS/WARRANTS
On June
04, 2008, we entered into a consulting agreement with AGORACOM. In accordance
with the terms and provisions of the consulting agreement: (i) we shall issue to
AGORACOM 250,000 warrants to purchase up to 250,000 of our restricted common
stock at $0.50 per share ; and (ii) AGORACOM shall perform such consulting
services involving general business matters and other business consulting as
mutually agreed upon. Compensation cost for the 250,000 warrants issued to
AGORACOM for consulting services amounted to $82,928, with $12,203 recognized in
the financial statements for the year ended June 30, 2008 and $56,211recognized
in the financial statements for the six months ended December 31, 2008. The
balance of $14,514 to be recognized over the remaining six months of the year
ended June 30, 2009.
On
September 25, 2008, we granted 800,000 options to Ray Lopez, CFO, under Pro
Travel Network, Inc. 2008 Stock Incentive Plan to purchase up to 800,000 of our
restricted common stock at $0.50 per share. The options will vest in equal
amounts of 160,000 and stage over the next 60 months. All options not exercised
by the expiration date are forfeited. Compensation cost for the 800,000 options
issued to Ray Lopez amounted to $117,750, with $8,497 recognized in the
financial statements for the six months ended December 31, 2008 with the balance
of $109,253 to be recognized over the period January 1, 2009 through December
24, 2014. The weighted average fair value of the options issued was $0.15.
Variables used in the Black Scholes option pricing model includes (i) 1.97%
risk-free interest rate (ii) expected life of sixty months (iii)
expected volatility of 162% and (iv) zero expected dividends.
|
Summary
information regarding options/warrants is as follows:
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
Options/Warrants
|
|
|
Share
Price
|
|
|
Outstanding
at June 30, 2008
|
|
|
1,250,000
|
|
|
$
|
0.46
|
|
|
Issued
|
|
|
800,000
|
|
|
|
0.50
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding
at December 31, 2008
|
|
|
2,050,000
|
|
|
$
|
0.48
|
|
|
Options/Warrants
outstanding and exercisable as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
|
|
|
|
|
Number
of
|
|
Remaining
|
|
Number
|
|
|
Exercise
Price
|
|
|
Options/Warrants
|
|
Life
|
|
of
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.30
|
|
|
|
500,000
|
|
1
year
|
|
|
500,000
|
|
|
$
|
0.40
|
|
|
|
200,000
|
|
1
year
|
|
|
200,000
|
|
|
$
|
0.50
|
|
|
|
610,000
|
|
1
year
|
|
|
610,000
|
|
|
$
|
0.50
|
|
|
|
160,000
|
|
2
year
|
|
|
160,000
|
|
|
$
|
0.50
|
|
|
|
160,000
|
|
3
year
|
|
|
160,000
|
|
|
$
|
0.50
|
|
|
|
160,000
|
|
4
year
|
|
|
160,000
|
|
|
$
|
0.50
|
|
|
|
160,000
|
|
5
year
|
|
|
160,000
|
|
|
$
|
1.00
|
|
|
|
50,000
|
|
1
year
|
|
|
50,000
|
|
|
$
|
1.50
|
|
|
|
50,000
|
|
1
year
|
|
|
50,000
|
|
|
|
|
|
|
|
2,050,000
|
|
|
|
|
2,050,000
|
|
NOTE
E – NET INCOME PER COMMON SHARE
Basic net
income per common share is calculated by dividing the net income applicable to
common shares by the weighted-average number of common shares outstanding during
the period. Fully diluted net income per common share is calculated by dividing
the net income applicable to common shares by the weighted-average number of
common and common equivalent shares outstanding during the period. The weighted
average common shares and common stock equivalents for both basic and fully
diluted earnings per share calculations are as follows:
|
|
|
For
the Six Months Ended
|
|
|
|
|
December
31,
|
|
|
Description
|
|
2008
|
|
|
2007
|
|
|
Weighted-average
shares used to compute basic net
|
|
|
|
|
|
|
|
income
per common share
|
|
|
26,733,075
|
|
|
|
25,680,340
|
|
|
Securities
convertible into shares of common stock used in calculation of common
stock equivalents for fully diluted EPS:
|
|
|
|
|
|
|
|
|
|
Stock
options/warrants
|
|
|
—
|
|
|
|
—
|
|
|
Weighted-average
shares used to compute diluted net income per common share
|
|
|
26,733,075
|
|
|
|
25,680,340
|
|
Common
stock equivalents for the six months ended December 31, 2008 and 2007 were not
used in calculating fully diluted earnings per share as the effect would be
anti-dilutive for the loss incurred.
NOTE
F – COMMITMENTS AND CONTINGENCIES
On
October 5th, 2008, a lawsuit was filed against Pro Travel Network by a
recently dismissed employee. The lawsuit alleges that she was fired due to
retaliation for filing a complaint of workplace sexual harassment. Pro
Travel Network vehemently denies any and all allegations as completely false and
without merit. It is remote that this lawsuit will settle in favor of
the employee and, therefore, no contingency is recorded.
NOTE
G – ACQUISITION OF COMPANY
On
December 19, 2008, Pro Travel Network, Inc. (the “Company”) completed its
acquisition of KG & S Pty, Ltd., an Australian company for a cash purchase
price of $41,743. We acquired 100% of the issued and outstanding shares of KG
& S Pty, Ltd. The acquisition was made because the business model of
the acquired entity was synergistic to that of Pro Travel and the intangible
asset that was acquired is associated with the acquired and ongoing revenue
stream. None of the acquired entity
’
s operations are
included in our statement of operations as they were not significant. The
acquisition cost was allocated to assets as follows:
|
|
|
|
|
|
Property
and equipment, net
|
|
$
|
3,542
|
|
|
Goodwill
|
|
|
38,201
|
|
|
|
|
$
|
41,743
|
|
|
|
|
|
|
|
Goodwill
is the excess of the fair values of tangible and identifiable intangible assets
acquired over liabilities assumed. The amount recognized as Goodwill
includes acquired intangible assets for which fair values could not be
determined. Goodwill is not amortized, but is tested for impairment
at least annually.
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
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:
|
·
|
Independent Travel Agent
Program or ITAP
– $439.99 initial fee; $99 annual fee after first
year - sold by our Independent
Representatives.
|
|
·
|
Marketing Opportunity
-
2 options,
|
CR
–
$19.99 one time license fee:
basic Direct Sales opportunity
or
RT –
$39.99 monthly
license/membership fee: The optional RT upgrade includes a membership that
provides an upgraded suite of marketing and support tools, enhanced income
opportunities, and includes a minimum of 4 heavily discounted member training
trips per year, called paycations
We
currently support approximately 8,300 independent travel agents and over 3,500
Independent Representatives throughout North America.
We are in
the final phase of completing the expansion of our operations in
Canada. We opened a Canadian office in Ontario in July 2006, Quebec
in July 2007 and currently are in the process of opening our final office in
British Columbia. 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.
We
launched an expansion into Australia on December 19, 2008 with our acquisition
of KG & S Pty. Ltd. KG & S Pty. Ltd. has operated its travel
business for nearly 20 years and is among the leading online travel agencies in
the Melbourne area. The Australian market is strategic in the Company’s long
term business plans and will allow the Company to expand services to customers
in the Australian market. This acquisition brings incremental value to the
Company and will immediately increase our customer base along with giving the
Company immediate access to already established relationships with all major
hotels, airlines and car rentals within the greater Australian
area.
The
Australian market is part of our strategic plans for the growth of the Company.
We have a successful track record in business and experience from our Canadian
expansion makes us confident in the international markets. Not only do we
believe Australia is an important part of our expansion, but it also serves as
the perfect launch pad to capture the lucrative Asia-Pacific travel market in
the future.
As
described below in “Liquidity and Capital Resources,” we believe we will be able
to complete our expansion in Canada and launch our expansion in Australia
without any need to obtain additional financing.
The
economic downturn has had a significant effect on our operations over
the past six months and we expect that it will continue to be a significant
factor going forward. Most notably was the reduction in our
investments as unrealized losses due to the severe contraction in stock prices
across the board. Lower sales and the resulting reduction in revenues
was also a serious issue that we attribute to the recession gaining in
intensity.
Moving
forward, we have reduced expenses significantly through several strong
cost-cutting measures, including but not limited to layoffs, bonus and salary
reductions, With a now leaner company, we believe the negative
economy will still be a major factor working against profitability and revenue
growth in the coming year, but we are equally satisfied that we have cut
expenses and made significant marketing adjustments to carry us through
2009.
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:
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 is 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 March 31, 2007 (See
the section entitled “Legal Proceedings,” below)
Goodwill
Goodwill
is the excess of the fair values of tangible and identifiable intangible assets
acquired over liabilities assumed. The amount recognized as Goodwill
includes acquired intangible assets for which fair values could not be
determined. Goodwill is not amortized, but is tested for impairment
at least annually.
Results of
Operations
Six Months Ended December
31, 2008 Compared to the Six Months Ended December 31, 2007
For the
six months ended December 31, 2008, total revenues broke down as follows:
Independent Travel Agent Program or ITAP sales – 60%, Travel Commissions – 34%
and National Events – 6%. For the six months ended December 31, 2007,
total revenues broke down as follows: Independent Travel Agent Program or ITAP
sales – 72%, Travel Commissions – 24% and National Events – 4%. We had
total revenues of $3,360,982 for the six months ended December 31, 2008, which
is a decrease of $766,290, or 19%, below our total revenues for the six months
ended December 31, 2007, which was $4,127,272. The decrease in total sales was
due to a decrease of $951,171 in Independent Travel Agent Program or ITAP sales
which was offset by an increase of $144,492 in Travel Commissions revenue and an
increase of $40,389 in National Events revenue . The decrease in ITAP
sales was due to the decrease in signing up of new agents due to declining
economic conditions, whereas, the increase in travel commissions is based on
travel booked prior to economic downturn beginning in October.
Our cost
of sales decreased $947,266, or 33%, to $1,880,847 for the six months ended
December 31, 2008, as compared to cost of sales of $2,828,113 for the six months
ended December 31, 2007.
The decrease in total cost of sales was mainly due to a decrease of
$1,045,412 in Independent Travel Agent Program or ITAP sales offset by an
increase of $92,121 in Travel Commissions and an increase of $6,025 in National
Events cost. Our cost of sales decreased as a direct result of lower sales of
our products offset by reduction in sales bonuses during the six months ended
December 31, 2008.
We had
gross profit of $1,480,135 for the six months ended December 31, 2008, which was
an increase of $180,976, or 14%, when compared to our gross profit for the six
months ended December 31, 2007, which was $1,299,159. Our increase in gross
profit was primarily attributable to the decrease in our sales which was offset
by a reduction in sales bonuses due to non achievement of sales goals during the
six months ended December 31, 2008.
Operating
expenses increased $686,090, or 50%, to $2,053,904 for the six months ended
December 31, 2008, as compared to total operating expenses of $1,367,814 for the
six months ended December 31, 2007. The increase in total operating expenses was
mainly due to an increase in compensation expense and professional and
consulting fees offset by a decrease in general and administrative expenses.
Compensation expense increased $570,767 to $1,363,877 for the six months ended
December 31, 2008, as compared to compensation expense of $793,110 for the six
months ended December 31, 2007. The increase in compensation expense
was as follows:
|
·
|
$366,000
due to the issuance of 1,220,000 shares to employees and
officers.
|
|
·
|
$204,767
due to the increase of our corporate and Canadian staffs and the addition
of Ray Lopez, Vice President and
COO.
|
|
o
|
Mr.
Lopez provides management and other services to us under an employment
agreement which was amended July 1, 2008 to increase his annual salary
from $96,000 per year to $120,000 per year and change his commission of 2%
of the net Travel Agent Product revenue, less all costs of sales expenses
to .5% of actual gross revenue.
|
|
o
|
Mr.
Henderson provides management and other services to us under an employment
agreement which was amended July 1, 2008 to increase his annual salary
from $200,000 to $240,000 per year and commission of 1.75% of actual gross
revenue.
|
Professional
and consulting fees increased $234,355 to $300,506 for the six months ended
December 31, 2008, as compared to professional and consulting fees of $66,151
for the six months ended December 31, 2007. The increase in
professional and consulting fees was primarily due to the issuance of
options/warrants resulting in an expense to the company of $64,708 along with
783,805 shares of common stock issued for services resulting in an expense to
the company of $154,854. Depreciation expense increased $4,218 to $11,488 for
the six months ended December 31, 2008, as compared to depreciation expense of
$7,270 for the six months ended December 31, 2007. General and administrative
expenses decreased $123,250 to $378,033 for the six months ended December 31,
2008, as compared to general and administrative expenses of $501,283 for the six
months ended December 31, 2007. The decrease in general and
administrative expenses was primarily attributable to the decrease in office
expense and travel resulting from the expansion of our US and Canadian
operations in 2008 and merchant fees associated with the decrease in overall
sales.
Other
income and expenses included an increase in net interest income of $2,626, to
$11,542 for the six months ended December 31, 2008, as compared to net interest
income of $8,916 for the six months ended December 31, 2007, along with a gain
on sale of investments of $39,820 for the six months ended December 31, 2008,
compared to gain on sale of investments of $0 for the six months ended December
31, 2007, and a gain on foreign currency of $15,387 for the six months ended
December 31, 2008, compared to a loss on foreign currency of $143 for the six
months ended December 31, 2007.
We had a
net loss applicable to common stock of $507,020 for the six months ended
December 31, 2008, as compared to net loss applicable to common stock of $59,882
for the six months ended December 31, 2007. The increase in net loss applicable
to common stock was primarily attributable to the issuance of 1,220,000 shares
of common stock to various employees and 783,805 shares of common stock issued
to consultants for services resulting in a non-cash expense to the company of
$585,562 along with the increase in our corporate and Canadian staffs offset by
increase in gross profit resulting primarily from reduction in sales bonuses due
to non achievement of sales goals.
We had
other comprehensive loss for the six months ended December 31, 2008, consisting
of unrealized loss on investments of $365,077 resulting from market to market
adjustment of stock owned by the Company at December 31, 2008 compared to an
unrealized gain on investment of $4,211 for the six months ended December 31,
2007.
Our
comprehensive loss was $872,097 for the six months ended December 31, 2008, as
compared to comprehensive loss of $55,671 for the six months ended December 31,
2007. The increase in comprehensive loss of $816,426 for the six months ended
December 31, 2008 was primarily attributable to the increase in unrealized loss
on investments and issuance of 2,003,805 shares of common stock for services
along with the issuance of options/warrants resulting in a non-cash expense to
the company of $585,562 offset by an increase in gross profit resulting
primarily from reduction in sales bonuses due to non achievement of sales goals
and decrease in general and administrative expenses.
Three Months Ended December
31, 2008 Compared to the Three Months Ended December 31,
2007
For the
three months ended December 31, 2008, total revenues broke down as follows:
Independent Travel Agent Program or ITAP sales – 55%, Travel Commissions – 32%
and National Events – 13%. For the three months ended December 31, 2007,
total revenues broke down as follows: Independent Travel Agent Program or ITAP
sales – 70%, Travel Commissions – 22% and National Events – 8%. We had
total revenues of $1,577,567 for the three months ended December 31, 2008, which
is a decrease of $527,372, or 25%, below our total revenues for the three months
ended December 31, 2007, which was $2,104,939. The decrease in total sales was
due to a decrease of $599,871 in Independent Travel Agent Program or ITAP sales
which was offset by an increase of $32,110 in Travel Commissions revenue and an
increase of $40,389 in National Events revenue . The decrease in ITAP
sales was due to the decrease in signing up of new agents due to declining
economic conditions, whereas, the increase in travel commissions is based on
travel booked prior to economic downturn beginning in October.
Our cost
of sales decreased $719,906, or 47%, to $825,515 for the three months ended
December 31, 2008, as compared to cost of sales of $1,545,421 for the three
months ended December 31, 2007.
The decrease in total cost of sales was mainly due to a decrease of
$759,890 in Independent Travel Agent Program or ITAP sales offset by an increase
of $33,959 in Travel Commissions and an increase of $6,025 in National Events
cost. Our cost of sales decreased as a direct result of lower sales of our
products offset by reduction in sales bonuses during the six months ended
December 31, 2008.
We had
gross profit of $752,052 for the three months ended December 31, 2008, which was
an increase of $192,534, or 34%, when compared to our gross profit for the three
months ended December 31, 2007, which was $559,518. Our increase in gross profit
was primarily attributable to the decrease in our sales which was offset by a
reduction in sales bonuses due to non achievement of sales goals during the
three months ended December 31, 2008.
Operating
expenses increased $57,702, or 7%, to $830,504 for the three months ended
December 31, 2008, as compared to total operating expenses of $772,802 for the
three months ended December 31, 2007. The increase in total operating expenses
was mainly due to an increase in compensation expense and professional and
consulting fees offset by a decrease in general and administrative expenses.
Compensation expense increased $20,580 to $476,035 for the three months ended
December 31, 2008, as compared to compensation expense of $455,455 for the three
months ended December 31, 2007. The increase in compensation expense
was primarily due to the increase of our corporate and Canadian
staffs.
Professional
and consulting fees increased $137,469 to $180,539 for the three months ended
December 31, 2008, as compared to professional and consulting fees of $43,070
for the three months ended December 31, 2007. The increase in
professional and consulting fees was primarily due to the issuance of
options/warrants resulting in an expense to the company of $27,700 along with
637,376 shares of common stock issued for services resulting in an expense to
the company of $108,354. Depreciation expense increased $2,055 to $5,872 for the
three months ended December 31, 2008, as compared to depreciation expense of
$3,787 for the three months ended December 31, 2007. General and administrative
expenses decreased $102,402 to $168,088 for the three months ended December 31,
2008, as compared to general and administrative expenses of $270,490 for the
three months ended December 31, 2007. The decrease in general and
administrative expenses was primarily attributable to the decrease in office
expense and travel resulting from the expansion of our US and Canadian
operations in 2008 and merchant fees associated with the decrease in overall
sales.
Other
income and expenses included an decrease in net interest income of $2,002, to
$6,474 for the three months ended December 31, 2008, as compared to net interest
income of $8,476 for the three months ended December 31, 2007, along with a gain
on foreign currency of $20,878 for the three months ended December 31, 2008,
compared to a loss on foreign currency of $968 for the three months ended
December 31, 2007.
We had a
net loss applicable to common stock of $52,068 for the three months ended
December 31, 2008, as compared to net loss applicable to common stock of
$205,776 for the three months ended December 31, 2007. The decrease in net loss
applicable to common stock was primarily attributable to an increase in gross
profit resulting primarily from reduction in sales bonuses due to non
achievement of sales goals, decrease in general and administrative expenses
offset by the issuance of 637,376 shares of common stock issued to consultants
for services.
We had
other comprehensive loss for the three months ended December 31, 2008,
consisting of unrealized loss on investments of $280,569 resulting from market
to market adjustment of stock owned by the Company at December 31, 2008 compared
to an unrealized gain on investment of $3,111 for the three months ended
December 31, 2007.
Our
comprehensive loss was $332,637 for the three months ended December 31, 2008, as
compared to comprehensive loss of $202,665 for the three months ended December
31, 2007. The increase in comprehensive loss of $192,972 for the three months
ended December 31, 2008 was primarily attributable to the increase in unrealized
loss on investments and issuance of 637,376 shares of common stock for services
along with the issuance of options/warrants resulting in a non-cash expense to
the company of $136,054 offset by an increase in gross profit
resulting primarily from reduction in sales bonuses due to non achievement of
sales goals and decrease in general and administrative expenses.
Commitments and
Contingencies
Details
regarding the lease for our principal place of business are as
follows:
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Address:
City/State/Zip 516 W. Shaw Avenue #103, Fresno,
CA 93704
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Number
of Square Feet: 6,059
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Name
of Landlord: J&D
Properties
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Term
of Lease: 7 years, commencing March
2005
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Monthly
Rental: Escalating from $4,397 at commencement to $9,997 in the
final year of the lease.
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The lease
on our primary operating facility was amended in April, 2007, and monthly rent
was increased, effective July, 2007. The amount of the increase was
due to an additional 2,802 square feet bring our total office space to 6,059
square feet. All other terms remain the same. 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. On March 1, 2007, we moved our offices from London, Ontario
Canada to Mississauga, Ontario Canada and leased 1,000 square feet of office
space under a one year non-cancelable operating lease beginning in March 2007.
On February 20, 2008, we renewed our lease for two years beginning March 2008
with all terms remaining the same.
On July
01, 2007, we leased 1,170 square feet of office space in St Jerome, Quebec
Canada under a two year non-cancelable operating lease beginning in July
2007. On April 28, 2008, we leased 911 square feet of office space in
Surrey, British Columbia Canada under a three year non-cancelable operating
lease beginning in July 2008.
Liquidity and Capital
Resources
As of
December 31, 2008, we had total current assets of $842,713 consisting of cash
and cash equivalents of $176,128, accounts receivable of $3,861, inventory of
$16,895, investments of $584,187 and prepaid expenses of $61,642. Our
cash balances exceeded FDIC insurance protection levels by approximately $14,415
at December 31, 2008 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 six months ended December 31,
2008.
We had
total current liabilities of $516,120 consisting of accounts payable of
$117,292, accrued expenses of $331,550 and deferred revenue of $67,278. We have
no long-term debt. Accrued expenses consisted of accrued employees
salaries and benefits of $92,854, other expenses of $88,824 and commissions and
rewards owed our representatives in the amount of $149,872, of which
approximately $36,397 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 $326,593 as of December 31, 2008.
During
the six months ended December 31, 2008, net cash decreased by $192,076
consisting of $83,745 provided by operating activities and $275,821 used in
investing activities.
Net cash
provided by operating activities during the six months ended December 31, 2008,
consisted of a net loss from operations of $507,020, adjustments for
depreciation and amortization of $11,488 along with share-based compensation of
$585,562, and an increase in accounts payable and accrued expenses of $171,687
and a decrease in inventory of $869 which were offset a decrease in
deferred revenue of $90,593, by a an increase in accounts receivable of $3,000,
an increase in prepaid expenses and other current assets of $45,428
and an adjustment for gain on sale of investments of
$39,820.
Net cash
used in investing activities during the six months ended December 31, 2008,
consisted of property and equipment purchases of $17,689, investments purchases
of $532,904 and intangible assets-goodwill from acquisition of $38,201 which
were offset by sale of investments of $312,973.
We
believe our cash resources of $176,128 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 Overview, above. We estimate
that we need $125,000 of capital to complete the expansion of our operations in
Australia. To date, we have generated sufficient cash flow from operations to
satisfy expansion and believe this trend will continue. Should we need
additional capital over the amount generated from cash flow, 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 Overview section will be delayed.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Pursuant
to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to
provide the information required by this Item as it is a “smaller reporting
company,” as defined by Rule 229.10(f)(1).
ITEM 4T. Controls and Procedures
Evaluation of Disclosure
Controls and Procedures
As of
December 31, 2008, under the direction of our Chief Executive Officer and Chief
Financial Officer, we evaluated our disclosure controls and procedures as of
December 31, 2008 and concluded that our disclosure controls and procedures were
ineffective as of December 31, 2008 due to the following:
We have previously had a
material weakness that relates to the lack of segregation of duties in that our
CEO and CFO were the same person. In the preparation of
audited financial statements, footnotes and financial data all of our
financial reporting is carried out by our Chief Financial Officer. The lack of
segregation of duties results from lack of a separate Chief Financial
Officer with accounting technical expertise necessary for an effective system of
internal control. We are, in fact, a small, relatively simple operation
from a financial point of view. Following the end of fiscal year
2008, we hired a full time Chief Financial Officer and will continue our program
to fully-implement internal controls procedures. Further, our CFO
monitors the controls on an ongoing basis. All unexpected results are
investigated. At any time, if it appears that any control can be implemented to
continue to mitigate such weaknesses, it is immediately
implemented.
There
were no changes in our internal control over financial reporting during the
fiscal quarter ended December 31, 2008, 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, except as follows:
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 pursuing 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.
On
October 5th, 2008, a lawsuit was filed against Pro Travel Network by a
recently dismissed employee. The lawsuit alleges that she was fired due to
retaliation for filing a complaint of workplace sexual harassment. Pro
Travel Network vehemently denies any and all allegations as completely false and
without merit. Pro Travel Network has cut salaries of several employees
and laid off several more over the last quarter in an attempt to properly cope
with the current and continuing economic downturn.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
During
the six months ended December 31, 2008, Pro Travel Network, Inc. issued 783,805
shares to thirty third parties for services rendered valued at their fair market
value using quoted market prices on the date of grant, resulting in total
share-based compensation expense of $122,985, 1,105,000 shares to executive
officers of Pro Travel Network, for services rendered valued at their fair
market value using quoted market prices on the date of grant, resulting in total
share-based compensation expense of $331,500, and 115,000 shares of common stock
to twelve (12) employees based on a two year plus vesting with the company
valued at their fair market value using quoted market prices on the date of
grant, resulting in total share-based compensation expense of
$34,500.
We relied
upon Section 4(2) of the Securities Act of 1933, as amended for the above
issuances.
We
believed that Section 4(2) of the Securities Act of 1933 was available
because:
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None
of these issuances involved underwriters, underwriting discounts or
commissions.
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Restrictive
legends were and will be placed on all certificates issued as described
above.
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The
distribution did not involve general solicitation or
advertising.
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The
distributions were made only to investors who were sophisticated enough to
evaluate the risks of the
investment.
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In
connection with the above transactions, although some of the investors may have
also been accredited, we provided the following to all investors:
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Access
to all our books and records.
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Access
to all material contracts and documents relating to our
operations.
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The
opportunity to obtain any additional information, to the extent we
possessed such information, necessary to verify the accuracy of the
information to which the investors were given
access.
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Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security
Holders.
None
Item 5. Other Information.
Certain
Options
On
September 25, 2008, we granted 800,000 options to Ray Lopez, CFO, under Pro
Travel Network, Inc. 2008 Stock Incentive Plan to purchase up to 800,000 of our
restricted common stock at $0.50 per share. The options will vest in equal
amounts of 160,000 and stage over the next 60 months. All options not exercised
by the expiration date are forfeited. Compensation cost for the 800,000 options
issued to Ray Lopez amounted to $117,750, with $8,497 recognized in the
financial statements for the three months ended September 30, 2008 with the
balance of $109,253 to be recognized over the period January 1, 2009 through
December 24, 2014. The weighted average fair value of the options issued was
$0.15. Variables used in the Black Scholes option pricing model includes (i)
1.97% risk-free interest rate (ii) expected life of sixty
months (iii) expected volatility of 162% and (iv) zero expected
dividends.
Item 6. Exhibits.
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Exhibit
No.
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Description of
Exhibit
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5.1
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Option
Granted Under Pro Travel Network, Inc. 2008 Stock Incentive
Plan
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10.1
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Purchase
and Sale Agreement between KG &S Pty. Ltd. and Pro Travel Network,
Inc.
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31.1
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Certification
of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
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31.2
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Certification
of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
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32.1
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Certification
of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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32.2
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Certification
of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
PRO
TRAVEL NETWORK, INC.
Name:
Paul Henderson
Title:
Chief Executive Officer and President
Date:
February 13, 2009
MVP (CE) (USOTC:MVPT)
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