UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________ to ____________
Commission file number: 0-32137
Online Vacation Center Holdings Corp.
-------------------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0701352
------- ----------
State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization
1801 N.W. 66th Avenue, Suite 102, Plantation, Florida 33313
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(954) 377-6400
--------------
Registrant's telephone number including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer", "accelerated filer", and smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [X]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). [ ] Yes [X] No
At May 2, 2008, the number of shares outstanding of the registrant's common
stock, $0.0001 par value was 17,252,777.
PAGE
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Part I. Financial Information
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Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operation 15
Item 4T. Controls and Procedures 20
Part II Other Information
------- -----------------
Item 1 Legal Proceedings 21
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3 Default upon Senior Notes 21
Item 4 Submission of Matters to a Vote of Securities Holders 21
Item 5 Other Information 21
Item 6 Exhibits 22
Exhibit 31.1 - Certification
Exhibit 31.2 - Certification
Exhibit 32.1 - Certification
Exhibit 32.2 - Certification
2
Part I. Financial Information
------- ---------------------
ONLINE VACATION CENTER HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2008 2007
-------------- -------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,090,148 $ 1,189,042
Accounts receivable, net 922,360 1,053,556
Deposits and prepaid items 859,363 738,958
Deferred tax asset, net 1,662 1,665
Current assets held for sale -- 504,088
----------- -----------
Total Current Assets 2,873,533 3,487,309
Restricted cash 351,135 351,243
Property and equipment, net 119,213 127,548
Deferred tax asset, net 545,533 431,317
Intangible assets, net 1,037,835 988,466
Goodwill 1,754,279 1,754,279
Other assets 77,441 --
Long lived assets held for sale -- 1,909,274
----------- -----------
Total Assets $ 6,758,969 $ 9,049,436
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 1,246,046 $ 980,078
Deferred revenue 2,403,874 2,384,720
Notes payable, current portion 423,127 427,686
Current liabilities held for sale -- 542,682
----------- -----------
Total Current Liabilities 4,073,047 4,335,166
Notes payable 89,625 182,074
Non current liabilities available for sale -- 302,176
----------- -----------
Total Liabilities 4,162,672 4,819,416
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized at
$.0001 par value; 0 shares issued and outstanding -- --
Common stock, 80,000,000 shares authorized at
$.0001 par value; 17,252,777 and 18,492,977 shares
issued and outstanding 1,725 1,849
Additional paid-in capital 4,291,400 5,628,318
Accumulated deficit (1,696,828) (1,400,147)
----------- -----------
Total Stockholders' Equity 2,596,297 4,230,020
----------- -----------
Total Liabilities and Stockholders' Equity $ 6,758,969 $ 9,049,436
=========== ===========
The accompanying Notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.
3
ONLINE VACATION CENTER HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended March 31,
2008 2007
--------------- ----------------
NET REVENUES $ 2,255,824 $ 2,260,568
OPERATING EXPENSES:
Selling and marketing 987,899 877,214
General and administrative 1,416,182 1,287,910
Depreciation and amortization 87,098 51,061
------------ ------------
OPERATING INCOME (LOSS) (235,355) 44,383
Interest income (expense), net (18,694) 4,778
------------ ------------
Income (loss) from continuing operations before provision
(benefit) for income taxes (254,049) 49,161
Provision (benefit) for income taxes (76,642) 29,750
------------ ------------
Income (loss) from continuing operations (177,407) 19,411
DISCONTINUED OPERATIONS:
Loss from discontinued operations of Phoenix
International Publishing, LLC, net of tax (119,274) (86,600)
------------ ------------
NET LOSS $ (296,681) $ (67,189)
============ ============
EARNINGS PER SHARE - Basic
(Loss) from continuing operations $ (0.01) $ 0.00
(Loss) from discontinued operations $ (0.01) $ (0.00)
------------ ------------
Net (Loss) $ (0.02) $ (0.00)
============ ============
Weighted average shares outstanding - Basic 18,496,845 18,456,366
============ ============
EARNINGS PER SHARE - Diluted
(Loss) from continuing operations $ (0.01) $ 0.00
(Loss) from discontinued operations $ (0.01) $ (0.00)
------------ ------------
Net (Loss) $ (0.02) $ (0.00)
============ ============
Weighted average shares outstanding - Diluted 18,496,845 19,272,670
============ ============
The accompanying Notes to the Condensed Consolidated Financial Statements
are an integral part of these statements.
4
ONLINE VACATION CENTER HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
---------------------------------
March 31, March 31,
2008 2007
-------------- -----------
Cash flows from continuing operating activities:
Net loss $ (296,681) $ (67,189)
Loss from discontinued operations, net of tax (119,274) (86,600)
----------- -----------
Income (loss) from continuing operations (177,407) 19,411
Adjustments to reconcile to net cash inflow from operating activities:
Depreciation and amortization 87,098 51,061
Stock based compensation expense 69,208 62,080
Imputed interest expense 16,490 4,464
Deferred income tax benefit (114,214) (11,933)
Decrease in accounts receivable 131,196 119,900
Increase in deposits and prepaid items (111,344) (152,232)
Increase in accounts payable and accrued liabilities 265,968 61,326
Increase in deferred revenue 19,154 51,302
----------- -----------
Net cash provided by operating activities 186,149 205,379
----------- -----------
Cash flows from continuing investing activites:
Capital expenditures (24,502) (27,377)
Increase in intangible assets (103,629) --
Decrease in restricted cash 108 --
Increase in receivable upon disposition of discontinued operation (100,000) --
Cash paid upon disposition of discontinued operation (4,932) --
Cash paid for acquisition in excess of cash received -- (858,133)
----------- -----------
Cash used in investing activities (232,955) (885,510)
----------- -----------
Cash flows from continuing financing activites:
Repayment of note payable (100,000) --
----------- -----------
Cash used in financing activities (100,000) --
----------- -----------
Discontinued Operations
Cash provided by operating activities 47,912 75,350
----------- -----------
Cash provided by discontinued operations 47,912 75,350
----------- -----------
Decrease in cash during the period (98,894) (604,781)
Cash at the beginning of the period 1,189,042 2,658,885
----------- -----------
Cash at the end of the period $ 1,090,148 $ 2,054,104
=========== ===========
Supplemental information:
Cash paid for interest $ -- $ 1,534
=========== ===========
Cash paid for taxes $ 1,136 $ --
=========== ===========
Common stock issued in conjunction with acquisitions $ -- $ 337,500
=========== ===========
Net debt issued in conjunction with acquisitions $ -- $ 210,946
=========== ===========
Common stock received in conjunction with disposition of
discontinued operation $ 1,406,250 $ --
=========== ===========
Reduction in fair value of conversion feature of debt $ -- $ 11,187
=========== ===========
The accompanying Notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.
5
ONLINE VACATION CENTER HOLDINGS CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements
of Online Vacation Center Holdings Corp., (the "Company"), and the notes thereto
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. These condensed
consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2007, and filed with the
Securities and Exchange Commission on March 28, 2008. The interim financial
information contained herein is not certified or audited; it reflects all
adjustments (consisting of only normal recurring accruals) which are, in the
opinion of management, necessary for a fair statement of the operating results
for the periods presented, stated on a basis consistent with that of the audited
financial statements.
The results of operations for the three months ended March 31, 2008 are not
necessarily indicative of annual results. The Company manages its business as
one reportable segment.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. For the Company, key estimates include allowance for
doubtful accounts, the fair value of goodwill and intangible assets, asset lives
used in computing depreciation and amortization, including amortization of
intangible assets, and accounting for income taxes, contingencies and
litigation. While the Company believes that such estimates are fair when
considered in conjunction with the condensed consolidated financial position and
results of operations taken as a whole, actual results could differ from those
estimates and such differences may be material to the financial statements.
2. DISPOSITION
In November 2007, the Company's Board of Directors granted the Company the
authority to sell Phoenix International Publishing LLC ("Phoenix"), a publisher
of consumer magazines and guides about travel to the U.S. and Canada. On March
31, 2008, the Company completed the sale of Phoenix to Simon Todd ("Mr. Todd"),
pursuant to the terms of an acquisition agreement ("Acquisition Agreement"),
dated March 31, 2008, by and among the Company, Phoenix, and Mr. Todd. Pursuant
to the Acquisition Agreement, the Company received 1,250,000 shares of the
Company's common stock from Mr. Todd at closing. The Acquisition Agreement
provides for, among other matters, contingent consideration from Mr. Todd in the
event that certain thresholds of profitability, as defined, are attained within
three years from the date of disposition or sale of Phoenix by Mr. Todd to a
third party for an amount in excess of a defined amount for a period of three
years from March 31, 2008. The amount of contingent consideration, if any, can
not be determined as the likelihood of such future events giving rise to such
contingent consideration can not be ascertained nor the effects estimated. Upon
execution of the Acquisition Agreement, Mr. Todd resigned as Vice President of
the Company. Prior to the acquisition of Phoenix by the Company, Mr. Todd was
6
ONLINE VACATION CENTER HOLDINGS CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
the owner, sole member, and President of Phoenix. The Company acquired Phoenix
from Mr. Todd on August 31, 2006 for 1,450,000 shares of the Company's common
stock.
The Company recorded the sale of Phoenix at its fair value, as defined by
Statement of Financial Accounting Standards No. 157, Fair Value Measurements,
("FAS 157") and Accounting Principles Board Opinion No. 29, Accounting for
Nonmonetary Transactions ("APB 29"). APB 29 states, "If neither the fair value
of a nonmonetary asset transferred nor the fair value of a nonmonetary asset
received in exchange is determined within reasonable limits, the recorded amount
of the nonmonetary asset transferred from the enterprise may be the only
available measure of the transaction". The Company could not determine fair
value of either the asset transferred (Phoenix) or the asset received (shares of
the Company's common stock), and therefore recorded cost was used to record the
sale and a loss of $58,382 was recognized.
In order to value the disposition, the Company reviewed the valuation techniques
listed in FAS 157, paragraph 18: market approach, income approach, and cost
approach. The Company also reviewed the different levels of inputs to valuation
techniques as defined in FAS 157, paragraphs 22 through 30. Level 1 inputs are
quoted prices (unadjusted) in active markets for identical assets. Level 2
inputs are quoted prices for identical or similar assets in markets that are not
active, that is, markets in which there are few transactions for the asset, the
prices are not current, or price quotations vary substantially either over time
or among market makers. Adjustments to Level 2 inputs will vary depending on
factors specific to the asset. Those factors include the volume and level of
activity in the markets within which the inputs are observed. An adjustment that
is significant to the fair value measurement in its entirety might render the
measurement a Level 3 measurement, depending on the level in the fair value
hierarchy within which the inputs used to determine the adjustment fall. Level 3
inputs are unobservable inputs for the asset. Unobservable inputs shall be used
to measure fair value to the extent that observable inputs are not available,
thereby allowing for situations in which there is little, if any, market
activity for the asset at the measurement date.
The Company had difficulty with the valuation of Phoenix as it is a unique
business: Phoenix has no employees, is operated as a sole proprietorship, and
has no tangible assets (the Company's investment in Phoenix was initially
allocated to intangible assets and goodwill). Its competitors are dissimilar and
would not be representative of Phoenix's value. The Company could not find a
Level 1 input as there were no quoted prices in active markets for an identical
asset. The Company then looked for Level 2 inputs, however, there were no quoted
prices for similar assets in active markets nor identical assets in inactive
markets. As stated previously, Phoenix is very different from its competitors
and valuing it based on comparable values of other similar businesses was not
representative of its value. This negated the market approach and the cost
approach as valuation techniques. The Company then attempted to use an income
approach by using present value techniques or an expected cash flow approach to
value Phoenix. The Company's brief ownership of Phoenix coupled with its poor
results during this time (as compared to its history of profitability before the
Company's ownership) made this valuation technique a poor measure of Phoenix.
Therefore, the Company could not determine within reasonable limits the value of
Phoenix.
Paragraph 18 of APB 29 states, "The Board concludes that in general accounting
for nonmonetary transactions should be based on the fair values of the assets
involved which is the same basis as that used in monetary transactions. Thus,
7
ONLINE VACATION CENTER HOLDINGS CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
the cost of a nonmonetary asset acquired in exchange for another nonmonetary
asset is the fair value of the asset surrendered to obtain it, and a gain or
loss should be recognized on the exchange. The fair value of the asset received
should be used to measure the cost if it is more clearly evident than the fair
value of the asset surrendered". The Company concluded that the value of the
Company's stock was "more clearly evident than the fair value of the asset
surrendered", in this case, Phoenix. The Company then tried to value the
Company's stock.
At the time of the disposition, the Company's stock rarely traded. It traded
eight days out of twenty in the month of March for a total of 9,300 shares. The
last trade before the transaction was on March 28th and the next trade was on
April 8th. On March 31st, the disposition date, the bid was $0.30 and the ask
was $1.05. The Company determined that the stock no longer had an active market
and therefore was not a Level 1 input. In reviewing the adjustments needed to
determine the stock's value, the Company concluded that the adjustments needed
to the price of the stock would be so significant given its lack of market
activity and pricing spread that it would render the measurement a Level 3
measurement.
Paragraph C21c of FAS 157 allows a practicability exception to the requirement
to measure fair value if fair value is not reasonably determinable. This is
further discussed in paragraph 26 of APB 29, "Fair value should be regarded as
not determinable within reasonable limits if major uncertainties exist about the
realizability of the value that would be assigned to an asset received in a
nonmonetary transaction account for at fair value. An exchange involving parties
with essentially opposing interests is not considered a prerequisite to
determining a fair value of a nonmonetary asset transferred; nor does an
exchange insure that a fair value for accounting purposes can be ascertained
within reasonable limits. If neither the fair value of a nonmonetary asset
transferred nor the fair value of a nonmonetary asset received in exchange is
determined within reasonable limits, the recorded amount of the nonmonetary
asset transferred from the enterprise may be the only available measure of the
transaction". As discussed previously, the Company concluded that the value of
its stock was a Level 3 measurement, an unobservable input. In determining
what value should be given to this input, the Company concluded that it could
not determine the value within reasonable limits. Accordingly, the Company
concluded that the sale of Phoenix would be recorded using the asset's recorded
value.
For tax purposes, the transaction was treated as split-off with no resulting tax
consequences. The Company retired the 1,250,000 shares of its common stock
received as of March 31, 2008.
The results of operations and cash flows of Phoenix has been removed from the
results of continuing operations and have been accounted for as discontinued
operations.
8
ONLINE VACATION CENTER HOLDINGS CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the three months ended March 31:
2008 2007
------------ -----------
Revenues $ 107,569 $ 417,185
Loss before income taxes $ 98,503 $ 140,997
Loss on sale of Phoenix 58,382 --
Income tax benefit 37,611 54,397
---------- ----------
Loss from discontinued operations $ 119,274 $ 86,600
========== ==========
The assets and liabilities of discontinued business have been reclassified
and are segregated in the consolidated balance sheet of December 31, 2007
as summarized as follows:
December 31, 2007
-----------------
Accounts receivable $ 501,992
Deposits and prepaid items 2,096
-----------
Total current assets held for sale $ 504,088
===========
Intangible assets, net $ 783,244
Goodwill 1,126,030
-----------
Total long lived assets held for sale $ 1,909,274
===========
Accounts payable and accrued liabilities $ 359,182
Deferred revenue 183,500
-----------
Total current liabilities available for sale $ 542,682
===========
Non current deferred income taxes payable $ 302,176
-----------
Non current liabilities available for sale $ 302,176
===========
In conjunction with the Acquisition Agreement, Phoenix is obligated to pay its
pre-disposition intercompany debt balance to the Company of $100,000 in forty
consecutive monthly payments of $2,500 commencing on October 1, 2008. The series
of forty monthly payments of $2,500 has been discounted, using the Company's
estimated incremental borrowing rate of 6.5% and the aggregate related
unamortized imputed interest of $13,498 as of March 31, 2008 has been offset
against the face value of the receivable and a corresponding interest expense
recorded. The current portion of this receivable from Phoenix, $9,061, has been
classified as deposits and prepaid items and the remaining balance of $77,441 as
other assets as of March 31, 2008.
9
ONLINE VACATION CENTER HOLDINGS CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Fair Value Measurements
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value
Measurements, ("FAS 157"). This Standard defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. FAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. The adoption of FAS 157 as of
January 1, 2008 did not have a material impact on the Company's financial
position, results of operations or cash flows except as discussed in Note 2.
Accounting for Defined Benefit Pension and Other Postretirement Plans
In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB
Statement No. 87, 88, 106 and 132(R), ("FAS 158"). This Standard requires
recognition of the funded status of a benefit plan in the statement of financial
position. The Standard also requires recognition in other comprehensive income
certain gains and losses that arise during the period but are deferred under
pension accounting rules, as well as modifies the timing of reporting and adds
certain disclosures. FAS 158 provides recognition and disclosure elements to be
effective as of the end of the fiscal year after December 15, 2006 and
measurement elements to be effective for fiscal years ending after December 15,
2008. The Company does not expect the remaining elements of this Statement to
have a material impact on the Company's financial condition, results of
operations, cash flows when adopted.
Fair Value Option of Financial Assets and Financial Liabilities
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, ("FAS 159"). This Standard provides
companies with an option to report selected financial assets and liabilities at
fair value in an attempt to reduce both complexity in accounting for financial
instruments and the volatility in earnings caused by measuring related assets
and liabilities differently. FAS 159 is effective as of the beginning of an
entity's first fiscal year beginning after November 15, 2007. Upon adoption of
this Statement, the Company did not elect the FAS 159 option for its existing
financial assets and liabilities and therefore adoption of SFAS 159 did not have
any impact on its consolidated financial statements.
Business Combinations
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, ( "FAS
141(R) "). This Standard establishes principles and requirements for how an
acquirer in a business combination:
o Recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling
interest in the acquiree
o Recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and
o Determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of
the business combination.
10
ONLINE VACATION CENTER HOLDINGS CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
FAS 141(R) is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. The Company has not yet assessed the impact of
adoption, if any, on its consolidated financial statements.
Noncontrolling Interest in Consolidated Financial Statements
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements--an amendment of ARB No. 51, ("FAS 160"). This
Standard amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also amends certain of ARB 51's consolidation procedures for
consistency with the requirements of FAS 141(R). FAS 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. The Company has not yet assessed the impact of adoption, if
any, on its consolidated financial statements.
Accounting for Collaborative Arrangements
In December 2007, the Emerging Issues Task Force ("EITF") met and ratified EITF
No.07-01, Accounting for Collaborative Arrangements, in order to define
collaborative arrangements and to establish reporting requirements for
transactions between participants in a collaborative arrangement and between
participants in the arrangement and third parties. This EITF is effective for
financial statements issued for fiscal years beginning after December15, 2008,
and interim periods within those fiscal years. This EITF is to be applied
retrospectively to all prior periods presented for all collaborative
arrangements existing as of the effective date. We are currently assessing the
impact of this EITF to our consolidated financial statements.
Determination of the Useful Life of Intangible Assets
In April 2008, the FASB issued FASB Staff Position ("FSP") FAS 142-3,
"Determination of the Useful Life of Intangible Assets,", which amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of intangible assets under FAS 142 "Goodwill
and Other Intangible Assets". The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset under FAS
142 and the period of the expected cash flows used to measure the fair value of
the asset under FAS 141 (revised 2007) "Business Combinations" and other U.S.
generally accepted accounting principles. The Company is currently evaluating
the potential impact of FSP FAS 142-3 upon its consolidated financial
statements.
Disclosure about Derivative Instruments and Hedging Activities
In March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133,
("FAS 161"). This Statement requires that objectives for using derivative
instruments be disclosed in terms of underlying risk and accounting designation.
The Company is required to adopt FAS 161 on January 1, 2009. The Company is
currently evaluating the potential impact of FAS No. 161 upon its consolidated
financial statements.
11
ONLINE VACATION CENTER HOLDINGS CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A variety of proposed or otherwise potential accounting standards are currently
under study by standard-setting organizations and various regulatory agencies.
Because of the tentative and preliminary nature of these proposed standards,
management has not determined whether implementation of such proposed standards
would be material to the Company's consolidated financial statements.
4. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the potential dilution that
could occur if stock options and other commitments to issue common stock were
exercised or equity awards vest resulting in the issuance of common stock or
conversion of notes into shares of common stock that could share in the earnings
of the Company. This calculation is not done for periods in a loss position as
this would be antidilutive. The information related to basic and diluted
earnings per share is as follows:
Quarter Ended March 31,
2008 2007
----------- -----------
Numerator:
Continuing operations:
Income (loss) from continuing operations $ (177,407) $ 19,411
Effect of dilutive convertible debt -- 3,823
----------- -----------
Total $ (177,407) $ 23,234
=========== ===========
Discontinued operations
Loss from discontinued operations $ (119,274) $ (86,600)
=========== ===========
Net income (loss) $ (296,681) $ (63,366)
=========== ===========
Denominator:
Weighted average number of shares outstanding - basic 18,496,845 18,456,366
Effect of dilutive stock options and convertible debt -- 816,304
----------- -----------
Diluted 18,496,845 19,272,670
=========== ===========
EPS:
Basic:
Continuing operations $ (0.01) $ 0.00
Discontinued operations (0.01) 0.00
------------ -----------
Net income (loss) $ (0.02) $ 0.00
============ ===========
Diluted
Continuing operations $ (0.01) $ 0.00
Discontinued operations (0.01) 0.00
------------ -----------
Net income (loss) $ (0.02) $ 0.00
============ ===========
12
ONLINE VACATION CENTER HOLDINGS CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. STOCK BASED COMPENSATION
In conjunction with the Share Exchange Agreement, the Company's Board of
Directors amended its 2005 Management and Director Equity Incentive and
Compensation Plan (the "Plan"). This Plan provides for the grants of stock
options, restricted stock, performance-based and other equity-based incentive
awards to directors, officers and key employees. Under this Plan, stock options
must be granted at an option price that is greater than or equal to the market
price of the stock on the date of the grant. If an employee owns 10% or more of
the Company's outstanding common stock, the option price must be at least 110%
of the market price on the date of the grant. Options granted under this Plan
become exercisable in accordance with the terms of the grant as determined by a
committee of the Company's Board of Directors. All options granted expire no
more than 10 years following the date of grant.
On March 26, 2008, 232,400 stock options were granted to seven employees under
the Plan. All options have a five-year life and an exercise price of $1.27. All
options granted during the quarter vest two years after date of grant.
A summary of the activity in our Plan for the quarter ended March 31, 2008 is
presented below:
Weighted Average
Shares Exercise Price
------ --------------
Options outstanding at December 31, 2007 2,215,000 $ 1.41
Granted 232,400 1.27
Canceled -- 0.00
Exercised -- 0.00
---------- ------
Options outstanding at March 31, 2007 2,447,400 $ 1.39
========== ======
The weighted fair value of options granted during the quarter ended March 31,
2008 was $0.04 with the following assumptions: average expected life of 3.5
years; 2.03% average interest rate; 42.1% volatility; 5% forfeiture rate.
Compensation cost recognized for the quarters ended March 31, 2008 and 2007 was
$52,958 and $43,560, respectively.
As of March 31, 2008, there was approximately $143,067 of total stock-based
compensation expense not yet recognized relating to non-vested awards granted
under our option plan as calculated under SFAS 123R. This expense is net of
estimated forfeitures and is expected to be recognized over a weighted-average
period of approximately 17 months. The number of non-exercisable shares was
587,400 shares of common stock at March 31, 2008. At March 31, 2008, 1,860,000
shares of common stock at $1.27 per share were exercisable.
For the quarter ended March 31, 2008, 9,800 restricted shares were granted to
employees and directors under the Plan. Compensation expense for the quarters
ended March 31, 2008 and 2007 related to the restricted share grants was $16,250
and $18,520, respectively.
13
ONLINE VACATION CENTER HOLDINGS CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES
On November 15, 2007, the Company was notified that it was being sued in a
putative class action lawsuit in the United States District Court for the
Southern District of Florida (Joseph Kay v Online Vacation Center Holdings
Corp., et al., Case No. 07-61619). The plaintiff claimed that the Company
violated the Fair and Accurate Credit Transactions Act. On March 20, 2008, the
United States District Court for the Southern District of Florida dismissed with
prejudice the lawsuit Joseph Kay v Online Vacation Center Holdings Corp., et
al., Case No. 07-61619.
The Company is involved from time to time in various legal claims and actions
arising in the ordinary course of business. While from time to time claims are
asserted that may make demands for sums of money, The Company does not believe
that the resolution of any of these matters, either individually or in the
aggregate, will materially affect its financial position, cash flows or the
results of its operations.
On January 1, 2008, the Company entered into employment contracts with six
employees. The contracts are each for a term of one year with an aggregate
compensation commitment of $665,000. One contract provides for incentives in the
event that certain annual targets are attained.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. All
statements other than statements of historical fact, including statements
regarding guidance, industry prospects or future results of operations or
financial position, made in this Quarterly Report on Form 10-Q are
forward-looking. We use words such as anticipates, believes, expects, future,
intends, and similar expressions to identify forward-looking statements.
Forward-looking statements reflect management's current expectations and are
inherently uncertain. Actual results could differ materially for a variety of
reasons, including, those risks described in our Annual Report on Form 10-KSB
for the year ended December 31, 2007 filed with the Securities and Exchange
Commission ("SEC") on March 28, 2008 and the risks discussed in other SEC
filings. These risks and uncertainties, as well as other risks and
uncertainties, could cause our actual results to differ significantly from
management's expectations. The forward-looking statements included in this
report reflect the beliefs of our management on the date of this report. We
undertake no obligation to update publicly any forward-looking statements for
any reason.
Overview
We are focused on internally growing and developing our group of diversified
vacation marketers with a range of products that can be cross-sold to an
extensive customer base and provide a high degree of personalized service to
help consumers research, plan and purchase a vacation.
We provide vacation marketing services through nine wholly owned subsidiaries.
Our portfolio of travel companies include:
o Online Vacation Center, Inc. ("Online Vacation Center"), a full service
vacation seller focused on serving the affluent retiree market.
Historically, this subsidiary has been the core business, accounting
for the majority of revenue and net income through the sale of high
margin cruise packages,
o Dunhill Vacations, Inc. ("Dunhill"), a travel newsletter and media
provider, and
o Curves Travel, the licensed travel management company of Curves
International, Inc.
In the last sixteen months, we have completed seven acquisitions. We acquired
Phoenix International Publishing, LLC ("Phoenix"), Thoroughbred Travel, LLC, and
La Fern, Inc. in the latter half of 2006, La Tours and Cruises, Inc., Dunhill
Vacations, Inc. and certain assets of SmartTraveler.com, Inc. in the first
quarter of 2007 and Curves Travel in May 2007 (collectively the "Acquisition
Companies", excluding Phoenix).
We generate revenues from:
o commissions on cruises
o commissions on other travel related products
o commissions on travel insurance
o marketing performed for travel suppliers
15
We currently market our services by:
o producing travel-related publications for consumers
o telemarketing to our existing customer base
o direct mailing to our existing customer base as well as targeted
prospects
o email blasting to our opt in subscription base
Operating expenses include those items necessary to advertise our services,
produce our marketing materials, maintain and staff our travel reservation and
fulfillment center including technological enhancements, payroll, commissions
and benefits, telephone, ticket delivery and general and administrative expenses
including rent and computer maintenance fees.
In November 2007, our Board of Directors granted us the authority to sell
Phoenix, a publisher of consumer magazines and guides about travel to the U.S.
and Canada. On March 31, 2008, we completed the sale of Phoenix to Simon Todd
("Mr. Todd"), pursuant to the terms of an acquisition agreement ("Acquisition
Agreement"), dated March 31, 2008, by and among the Company, Phoenix, and Mr.
Todd. Pursuant to the Acquisition Agreement, we received 1,250,000 shares of our
common stock from Mr. Todd at closing. Upon execution of the Acquisition
Agreement, Mr. Todd resigned as Vice President of the Company. Prior to our
acquisition of Phoenix, Mr. Todd was the owner, sole member, and President of
Phoenix. We acquired Phoenix from Mr. Todd on August 31, 2006 for 1,450,000
shares of our common stock.
Results of Operations
Quarter Ended March 31, 2008 Compared to Quarter Ended March 31, 2007
Continuing operations:
Revenues decreased by $4,744, 0.2%, to $2,255,824 for the quarter ended March
31, 2008 ("the first quarter of 2008") as compared to $2,260,568 for the quarter
ended March 31, 2007 ("the first quarter of 2007"). The decrease is attributable
to a decrease in commission revenue offset by an increase in marketing revenue.
Selling and marketing expenses increased by $110,685, 12.6% to $987,899 for the
first quarter of 2008 as compared to $877,214 for the first quarter of 2007. The
increase is primarily attributable to marketing costs associated with the first
themed cruise offered by Cruising to Music, a division of Online Vacation
Center. Selling and marketing expenses primarily consist of sales staff
compensation and costs to produce marketing materials.
General and administrative expenses increased by $128,272 or 10% to $1,416,182
for the first quarter of 2008 as compared to $1,287,910 for the first quarter of
2007. The increase is primarily attributable to the general and administrative
expenses of Curves Travel which was acquired in May 2007. General and
administrative expenses primarily include management and non sales staff
compensation, professional services, and occupancy costs.
Depreciation and amortization expense for the first quarter of 2008 was $87,098
as compared to $51,061 for the first quarter of 2007. Amortization expense
increased by $25,453 during the first quarter of 2008 as a result of
amortization of intangible assets acquired in conjunction with the Curves Travel
acquisition in May 2007 and an increase in the amortization expense of the
16
Dunhill subscriber list. The remaining increase of $10,584 is attributable to an
increase in depreciation expense.
Interest Income/ (Expense) increased from income of $4,778 for the first quarter
of 2007 to expense of $19,694 for the first quarter of 2008. The first quarter
of 2008 expense was primarily attributable to the imputed interest associated
with the receivable from Phoenix payable over 40 months and less interest income
earned on lower cash balances at the bank coupled with declining interest rates.
The income in the first quarter of 2007 represents the excess of interest income
earned on our cash balances at the bank over the accrued interest expense on the
debt issued by us in conjunction with our acquisition of Thoroughbred Travel,
LLC, La Fern, Inc., and La Tours and Cruises, Inc ("La Tours").
Our loss before benefit for income taxes was $254,049 in the first quarter of
2008 compared to income before provision for income taxes of $49,161 in the
first quarter of 2007. These results are primarily attributable to the decrease
in revenues and increase in selling and marketing expenses at Online Vacation
Center, an increase in general and administrative expenses and amortization
expenses associated with Curves Travel acquired in May 2007 and an increase in
imputed interest expense associated with the receivable from Phoenix.
The provision for income taxes decreased from an expense of $29,750 for the
first quarter of 2007 compared to a tax benefit of $76,641 for the first quarter
of 2008. The decrease is directly related to a decrease in results from
operations whereby income before income taxes for the first quarter of 2007 was
$49,161 whereas the loss before income taxes for the first quarter of 2008 was
$254,049. The benefit rate in the first quarter of 2008, 30.2%, and the tax rate
in the first quarter of 2007, 60.5%, due to the tax effect of non-deductible
items.
As a result of the foregoing, our net loss from continuing operations was
$177,407 for the first quarter of 2008 compared to net income from continuing
operations of $19,411 for the first quarter of 2007.
Discontinued Operations
We acquired Phoenix, a United Kingdom publisher of consumer magazines and guides
about travel to the U.S. and Canada, on August 31, 2006 for 1,450,000 shares of
our common stock. In November 2007, the Company's Board of Directors granted the
Company the authority to sell Phoenix. On March 31, 2008, we sold Phoenix to Mr.
Todd, the former owner of Phoenix, in exchange for 1,250,000 shares of our
common stock which were owned by Mr. Todd. We recorded the sale of Phoenix at
its fair value, as defined by Statement of Financial Accounting Standards No.
157, Fair Value Measurements, resulting in a loss of $58,382. For tax purposes,
the transaction was treated as split-off with no resulting tax consequences. We
retired the 1,250,000 shares of our common stock received from Mr. Todd in the
sale transaction as of March 31, 2008.
The results of operations and cash flows of Phoenix has been removed from the
results of continuing operations and the assets and liabilities of Phoenix have
been classified as available for sale, as of December 31, 2007. The comparison
of the results of operations of Phoenix between the first quarters of 2008 and
2007, respectively, is as follows:
17
For the Quarter Ended March 31:
Increase/
2008 2007 (Decrease)
---------- ------------ ----------
Revenues $ 107,569 $ 417,185 $ (309,616)
Operating (loss) $ (98,805) $ (141,699) $ (42,894)
(Loss) on sale of Phoenix $ (58,382) -- $ 58,382
Net (loss) from discontinued operations $ (119,274) $ (86,600) $ 32,674
As a result of the foregoing, our net loss was $296,681 for the first quarter of
2008 compared to a net loss of $67,189 for the first quarter of 2007.
Liquidity and Capital Resources
Cash at March 31, 2008 was $1,090,148 as compared to $1,189,042 at December 31,
2007. The primary source of our liquidity and capital resources has come from
our operations.
Cash flows provided by operating activities for first quarter of 2008 and 2007
were $186,149 and $205,379, respectively. The decrease of $19,230 was primarily
attributable to a decline of income from continuing operations of $196,818 in
2008; from income of $19,411 in the first quarter of 2007 to a loss of $177,407
in the first quarter of 2008, and a decrease in non-cash operating items of
$47,090 in 2008 offset by an increase in cash provided by working capital items
of $224,678 in 2008.
Cash flows used in investing activities for the first quarter of 2008 decreased
to $232,955 from $885,510 during the first quarter of 2007. The primary decrease
in cash out flows related to an increase in the excess of cash paid over cash
received totaling $858,133 in conjunction with the three acquisitions completed
during the first quarter of 2007 and an increase in intangible assets and the
pre-disposition intercompany balance receivable from Phoenix totaling $203,629
during the first quarter of 2008.
Cash flows used in financing activities for the first quarter of 2008 totaled
$100,000 as result of payment of a note issued in conjunction with the La Tours
acquisition. There were no cash flows from financing activities for the first
quarter of 2007.
Cash flows provided by discontinued operations decreased by $27,438, solely from
operating activities; from $75,350 in the first quarter of 2007 to $47,912 in
the first quarter of 2008.
At March 31, 2008, we had a working capital deficit of $1,199,514, as compared
to a working capital deficit of $847,857 at December 31, 2007, a decrease of
$351,657. We had an accumulated deficit of $1,696,828 at March 31, 2008, a
decrease of $296,681.
Management believes that the existing cash and cash expected to be provided by
operating activities will be sufficient to fund the short term capital and
liquidity needs of our operations. We may need to seek to sell equity or debt
securities or obtain credit lines from financial institutions to meet our
longer-term liquidity and capital requirements. We can not provide any
assurances that we will be able to obtain additional capital or financing in
amounts or on terms acceptable to us, if at all or on a timely basis.
18
We have historically been dependent on our relationships with four major cruise
lines: Celebrity Cruises, Princess Cruises, Norwegian Cruise Line and Royal
Caribbean Cruise Line. We also depend on third party service providers for
processing certain fulfillment services.
Seasonality and Inflation
The domestic and international leisure travel industry is seasonal. Our results
have been subject to quarterly fluctuations caused primarily by the seasonal
variations in the travel industry. Leisure travel net revenues and net income
are generally lower in the third quarter. We expect seasonality to continue in
the future. We do not expect inflation to materially affect our revenues and net
income.
Critical Accounting Policies
We prepared our consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. As such,
management is required to make certain estimates, judgments and assumptions that
it believes are reasonable based on the information available. These estimates
and assumptions affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses for the periods presented. A more extensive list of significant
accounting policies and a description of accounting policies that are considered
critical may be found in our Annual Report on Form 10-KSB for the year ended
December 31, 2007 filed with the SEC on March 28, 2008, in the Notes to the
Consolidated Financial Statements, Note 2, and the Critical Accounting Policies
section. The significant accounting policies which management believes are the
most critical to aid in fully understanding and evaluating our reported
financial results include revenue recognition, intangible asset testing and
income taxes.
Revenue Recognition
We recognize revenue in accordance with Staff Accounting Bulletin (SAB) No. 104
"Revenue Recognition in Financial Statements", which states that revenue is
realized or realizable and earned when all of the following criteria are met:
persuasive evidence of an arrangement exists, services have been rendered, the
seller's price to the buyer is fixed or determinable, and collectibility is
reasonably assured. Vacation travel sales transactions are billed to customers
at the time of booking, however, commission revenue is not recognized in the
accompanying consolidated financial statements until the customers' travel
occurs. Advertising revenue is recognized upon distribution of the marketing
publication.
Emerging Issues Task Force (EITF) Issue No. 99-19, "Reporting Revenue Gross as a
Principal versus Net as an Agent", discusses the weighing of the relevant
qualitative factors regarding our status as a primary obligor and the extent of
our pricing latitude. Based upon our evaluation of vacation travel sales
transactions and in accordance with the various indicators identified in EITF
Issue No. 99-19, our vacation travel suppliers assume the majority of the
business risks such as providing the service and the risk of unsold travel
packages. As such, all vacation travel sales transactions are recorded at the
net amount, which is the amount charged to the customer less the amount to be
paid to the supplier. The method of net revenue presentation does not impact
operating profit, net income, earnings per share or cash flows.
19
Intangible Asset Testing
Absent any circumstances that warrant testing at another time, we test for
goodwill and non-amortizing intangible asset impairment as part of our year-end
closing process. Our goodwill testing consists of comparing the estimated fair
values of each of our operating entities to their carrying amounts, including
recorded goodwill. We estimate the fair value of our reporting unit by
discounting its projected future cash flow. Developing future cash flow
projections requires us to make significant assumptions and estimates regarding
the sales, gross margin and operating expenses of our reporting unit, as well as
economic conditions and the impact of planned business or operational
strategies. Should future results or economic events cause a change in our
projected cash flows, or should our operating plans or business model change,
future determinations of fair value may not support the carrying amount of our
unit, and the related goodwill would need to be written down to an amount
considered recoverable. Any such write down would be included in the operating
expenses. While we make reasoned estimates of future performance, actual results
below these expectations, or changes in business direction can result in
additional impairment charges in future periods.
ITEM 4(T). - CONTROLS AND PROCEDURES
As of March 31, 2008 under the supervision of and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end
of the period covered by this report (the "Evaluation Date"). Based upon the
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective as of the
Evaluation Date. Disclosure controls are controls and procedures designed to
reasonably ensure that information required to be disclosed in our reports filed
under the Exchange Act, such as this report, is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms.
Disclosure controls include controls and procedures designed to reasonably
ensure that such information is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosure.
In connection with this evaluation, our management identified no changes in our
internal control over financial reporting that occurred during the most recent
fiscal quarter that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
20
PART II. OTHER INFORMATION
-------- -----------------
ITEM 1. LEGAL PROCEEDINGS
On November 15, 2007, we were notified that the Company was being sued in a
putative class action lawsuit in the United States District Court for the
Southern District of Florida (Joseph Kay v Online Vacation Center Holdings
Corp., et al., Case No. 07-61619) alleging that the Company violated the Fair
and Accurate Credit Transactions Act and sought class action status to represent
all consumers of the Company since December 4, 2006. On March 20, 2008, the
United States District Court for the Southern District of Florida dismissed the
lawsuit with prejudice.
Additionally, the Company is involved from time to time in various legal claims
and actions We are involved from time to time in various legal claims and
actions arising in the ordinary course of business. While from time to time
claims are asserted that may make demands for sums of money, we do not believe
that the resolution of any of these matters, either individually or in the
aggregate, will materially affect our financial position, cash flows or the
results of our operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 26, 2008, we issued an aggregate of 232,400 options to seven employees
under our 2005 Management and Director Equity Incentive and Compensation Plan.
The exercise price of the options is $1.27 per share and the options vest on
March 26, 2010. The expiration date of the options is March 26, 2013. We issued
these stock options to our employees in reliance upon Section 4(2) of the
Securities Act, as a transaction that does not constitute a public offering. All
of our employees have access to comprehensive information about us and
represented his or her intention to acquire the options and underlying shares
for investment only and not with a view to distribute or sell the options or
underlying shares. We placed restrictive legends in the option agreements
stating that these awards are not registered under the Securities Act and set
forth restrictions on their transferability and sale
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the vote of security holders during the first
quarter of fiscal 2008.
ITEM 5. OTHER INFORMATION
None.
21
ITEM 6. EXHIBITS
Exhibit No. Exhibit Description
----------- -------------------
2.1 Acquisition Agreement, dated March 31, 2008, by and among
Online Vacation Center Holdings Corp., Phoenix
International Publishing LLC., and Simon Todd
(incorporated by reference to Exhibit 2.1 in the Company's
Current Report on Form 8-K filed with the SEC on April 2,
2008).
31.1 Certification by Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. +
31.2 Certification by Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. +
32.1 Certification by Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. +
32.2 Certification by Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. +
-----------
+ Filed herewith
22
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONLINE VACATION CENTER HOLDINGS CORP.
/S/ Edward B. Rudner
-------------------------------------
Chief Executive Officer, President,
Chief Financial Officer and Director
Date: May 13, 2008
23