Item
2
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
In
addition to historical information, this report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
and
Section 21E of the Securities Exchange Act of 1934. These statements include,
among other things, statements concerning our expectations regarding our future
financial performance, business strategy, milestones, projected plans and
objectives. Statements preceded by, followed by or that otherwise include the
words "believes", "expects", "anticipates", "intends", "projects", "estimates",
"plans", "may increase", "may fluctuate" and similar expressions or future
or
conditional verbs such as "should", "would", "may" and "could" are generally
forward-looking in nature and not historical facts. These forward-looking
statements were based on various factors and were derived utilizing numerous
important assumptions and other important factors that could cause actual
results to differ materially from those in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are
not
limited to, those discussed in this report, and in particular, the risks
discussed in this section under the heading "Risk Factors." Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements including milestones. Most of these factors are difficult to
predict accurately and are generally beyond our control. We undertake no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on such forward-looking
statements.
Overview
We
were
originally incorporated in Nevada as PTN Investment Group, Inc. on October 23,
2003. In May 2005, we amended our Articles of Incorporation to change our name
to Pro Travel Network, Inc. from PTN Investment Group, Inc. and reduce the
aggregate number of our authorized shares to 50,000,000 from 75,000,000. Prior
to the amendment, two non-employee shareholders returned an aggregate of
6,000,000 shares to us which we cancelled. Following this cancellation, we
had
69,000,000 shares issued and outstanding. We wanted to restructure our capital
structure in anticipation of going public. As our original employee stockholders
had spent substantial time and effort on the development of our business and
the
original non-employee stockholders were passive investors, the two passive
investors decided it would be more equitable for them to give up a portion
of
their share ownership to effect the proposed capital restructure.
Contemporaneous with the reduction of the number of authorized shares, we issued
new certificates for a total of 23,000,000 shares to replace the certificates
for the then outstanding 69,000,000 shares that were previously issued in the
name of PTN Investment Group, Inc.
Pro
Travel Network, Inc. is an Internet provider of online travel stores for travel
agencies and home-based representatives using our services and technology.
We
currently offer the following products:
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Independent
Travel Agent Program or ITAP
–
$399.99 initial fee; $99 annual fee after first year - sold by our
Independent Representatives.
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Marketing
Opportunity
–
$39.99 monthly license fee.
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We
currently support over 12,500 independent travel agents and over 4,000
Independent Representatives throughout North America.
Critical
Accounting Estimates
The
financial statements include estimates made by management that impact the
amounts reflected for property and equipment as well as security deposits,
as
detailed below:
PRO
TRAVEL NETWORK, INC.
NOTES
TO FINANCIAL STATEMENTS
Property
& Equipment
Management
has estimated the useful lives as the basis for depreciating its property and
equipment. Estimated useful lives utilized for depreciating property and
equipment are three years for all computer equipment and software and seven
years for furniture and fixtures. Management believes these estimates are very
conservative.
Security
Deposits
Security
deposits represent operating lease deposits and amounts on deposit with credit
card payment processing services that serve as collateral in case we were to
cease operations or experience significant chargebacks from customers.
Management has provided an allowance for unrecoverable deposits based on its
estimate of collectibility in the amount of $35,353 as of September 30, 2007
(See the section entitled “Legal Proceedings,” below)
Results
of Operations
Three
Months Ended September 30, 2007 Compared to the Three Months Ended September
30,
2006
For
the
three months ended September 30, 2007, total revenues broke down as follows:
Independent Travel Agent Program or ITAP sales – 75%, Travel Commissions –
25%. For the three months ended September 30, 2006, total revenues broke
down as follows: Independent Travel Agent Program or ITAP sales – 52%, National
Training Events – 21%, and Travel Commissions– 27%. We had total revenues
of $2,022,333 for the three months ended September 30, 2007, which is an
increase of $995,695, or 97%, over our total revenues for the three months
ended
September 30, 2006, which was $1,026,638. Total revenues increased due to an
increase in the number of Independent Representatives marketing our products,
with travel commission revenue showing an 83% increase. We
expect that as ITAP sales and the number of active agents increase, the
resulting travel commissions will continue to increase as a percentage of our
overall revenue.
Our
cost
of sales increased $704,830, or 122%, to $1,282,692 for the three months ended
September 30, 2007, as compared to cost of sales of $577,862 for the three
months ended September 30, 2006. Our cost of sales increased as a direct
result of the increase in the number of Independent Representatives marketing
our products along with greater sales of our travel products.
We
had
gross profit of $739,641 for the three months ended September 30, 2007, which
was an increase of $290,865, or 65%, when compared to our gross profit for
the
three months ended September 30, 2006, which was $448,776. Our increase in
gross
profit was primarily attributable to the increase in our sales which was
slightly offset by our increase in cost of sales.
Our
total
operating expenses increased $244,457, or 70%, to $595,012 for the three months
ended September 30, 2007, as compared to total operating expenses of $350,555
for the three months ended September 30, 2006. The increase in total operating
expenses was mainly due to an increase in general and administrative expenses
and compensation expense. General and administrative expenses increased $124,521
to $230,793 for the three months ended September 30, 2007, as compared to
general and administrative expenses of $106,272 for the three months ended
September 30, 2006. The increase in general and administrative expenses was
primarily attributable to the start-up of our Canadian office along with an
increase in merchant fees as associated with the increase in sales. Compensation
expense increased $159,162 to $337,655 for the three months ended September
30,
2007, as compared to compensation expense of $178,493 for the three months
ended
September 30, 2006. The increase in compensation expense was primarily due
to
the increase in staff at the corporate and Canadian offices along with an
increase in quarterly performance bonus to Paul Henderson our President and
CEO
based on the increase in net sales. Mr. Henderson provides management and other
services to us under an employment agreement pursuant to which we pay Mr.
Henderson salary of $180,000 per year and a commission of 12% of the net of
all
sales revenue, less all costs of sales expenses.
PRO
TRAVEL NETWORK, INC.
NOTES
TO FINANCIAL STATEMENTS
Other
income and expenses included a decrease in net interest income of $4,056,
to
$440 for the three months ended September 30, 2007, as compared to net
interest
income of $4,496 for the three months ended September 30, 2006, along with
a
decrease in gain on sale of investments of $3,722 for the three months
ended
September 30, 2007, compared to a gain on sale of investments of $3,722
for the
three months ended September 30, 2006, and a gain on foreign currency of
$825,
compared to a loss on foreign currency of $802 for the three months ended
September 30, 2006.
We
had
net income applicable to common stock of $145,894 for the three months
ended
September 30, 2007, as compared to a net income applicable to common stock
of
$105,637 for the three months ended September 30, 2006. The increase in
net
income applicable to common stock was primarily attributable to the increase
in
ITAP sales and travel commissions.
We
had
other comprehensive income for the three months ended September 30, 2007
consisting of unrealized gain on investments of $1,100 compared to $10,283
other
comprehensive income or expense for the three months ended September 30,
2006.
Our
comprehensive income was $146,994 for the three months ended September
30, 2007,
as compared to comprehensive income of $115,920 for the three months ended
September 30, 2006.
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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Our
lease
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. The lease is non-cancelable. On June 27, 2006, we leased 1,000 square
feet
of office space in London, Ontario Canada under a one year non-cancelable
operating lease beginning in July 2006. 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. Future minimum rental payments, for the fiscal
year
ending June 30, 2008 is $118,903 under these leases.
Milestones
We
are in
the process of launching full Canadian operations. We opened a Canadian
office
in Ontario in July 2006 and Quebec in July 2007. The most major goal towards
achieving our business objectives over the next year is our goal of having
100%
of our agents booking travel. Continuing operations will always focus on
ways to
increase our marketing sales force. As described below in “Liquidity and Capital
Resources,” we will need to obtain $250,000 in additional financing to expand
our operations as outlined in the Milestone table below.
PRO
TRAVEL NETWORK, INC.
NOTES
TO FINANCIAL STATEMENTS
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Milestone or Step
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Expected Manner of
Occurrence or Method
of Achievement
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Date When Step Should be
Accomplished
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Estimated Cost
of Completion
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Develop
Canadian infrastructure
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Secure
office space in Toronto, office equipment and develop “specific” marketing
materials and hiring additional employees
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3
months
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$
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50,000
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Launch
Canadian Marketing Phase
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PTN
Canadian marketing tour and seminars designed to develop sales
force
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4
– 12 months
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$
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50,000
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Creation
of Travel Marketing staff
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Marketing
head and staff to drive bookings up
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2
– 4 months
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$
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50,000
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Achieve
average ITAP sales of 1,000 per month
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Aggressively
Recruit top leadership in the multi-level marketing
Industry
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3
– 12 months
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$
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100,000
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All
steps
will be undertaken contemporaneously.
Our
marketing effort will be directed at expanding our representative network
through personal contact or seminars.
Liquidity
and Capital Resources
As
of
September 30, 2007, we had total current assets of $997,065 consisting of cash
and cash equivalents of $324,018, accounts receivable of $17,238, inventory
of
$18,071, investments of $441,873 and prepaid expenses of $195,865. Our cash
balances exceeded FDIC insurance protection levels by approximately $9,584
at
September 30, 2007 and at certain points throughout the year subjecting us
to
risk related to the un-protected balance. We have determined that the risk
of
loss associated with these un-protected balances is remote and therefore no
adjustment for the risk has been provided for the three months ended September
30, 2007.
We
had
total current liabilities of $440,812 consisting of accounts payable of $11,193,
accrued expenses of $357,644 and deferred revenue of $71,975. We have no
long-term debt. Accrued expenses consisted of accrued employees salaries and
benefits of $99,727, other expenses of $11,834 and commissions and rewards
owed
our representatives in the amount of $246,083, of which approximately $102,638
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 $556,253 as of September 30, 2007.
During
the three months ended September 30, 2007, net cash decreased by $42,819
consisting of $67,857 provided by operating activities and $110,676 used in
investing activities.
Net
cash
provided by operating activities during the three months ended September 30,
2007, consisted of net income from operations of $145,894, adjustments for
depreciation and amortization of $3,483, an increase in deferred revenue of
$66,734, an increase in accounts payable and accrued expenses of $35,961 and
a
decrease in inventory of $25, which were offset by an increase in accounts
receivable of $14,433, and an increase in prepaid expenses and other of
$169,807.
PRO
TRAVEL NETWORK, INC.
NOTES
TO FINANCIAL STATEMENTS
Net
cash
used in investing activities during the three months ended September 30, 2007,
consisted of property and equipment purchases of $11,766 and investments
purchases of $98,910.
We
believe our cash resources of $324,018 along with the $235,401 in certificate
of
deposits as of September 30, 2007, are sufficient to satisfy our current cash
requirements over the next 12 months. In addition, based upon our prior
experience, we believe we will generate sufficient cash flow from operations
to
also satisfy these requirements. We have expanded our business operations in
Canada as outlined in the Milestone table, above. We estimate that we need
$250,000 of capital to expand our operations in Canada.. Currently, we have
generated sufficient cash flow from operations to satisfy the initial expansion.
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 Milestone table will be
delayed.
Risk
Factors
Risk
Related To Our Business
Because
our Internet-based hosted home base travel agent and travel services company
is
a relatively new method to market travel services and to make travel
arrangements, we face significant barriers to acceptance of our services.
Our
sales
and revenues will not grow as we plan if people who want to become independent
travel agents do not purchase our Independent Travel Agent Program product
or
become independent representatives selling this program, if consumers and
businesses do not purchase significantly more travel products online than they
currently do, or if the use of the Internet as a medium of commerce for travel
products does not continue to grow or grows more slowly than expected. Consumers
and businesses have traditionally relied on personal contact with travel agents
and travel suppliers and are accustomed to a high degree of human interaction
in
purchasing travel products. The success of our business is dependent on a
significant increase in the number of people who want to become independent
travel agents who purchase our Independent Travel Agent Program product or
become independent representatives selling this program and consumers and
businesses who use the Internet to purchase travel products from our
agents.
Adverse
changes or interruptions in our relationships with travel suppliers could affect
our access to travel offerings and reduce our revenues.
We
rely
on various arrangements with our airline, hotel and auto suppliers, and these
arrangements contain terms that could affect our access to inventory and reduce
our revenues. All of the relationships we have are freely terminable by the
supplier upon notice. None of these arrangements are exclusive and any of our
suppliers could enter into, and in some cases may have entered into, similar
arrangements with our competitors.
We
cannot
assure you that our arrangements with travel suppliers will remain in effect
or
that any of these suppliers will continue to supply us and our agents with
the
same level of access to inventory of travel offerings in the future. If access
to inventory is affected, or our ability to obtain inventory on favorable
economic terms is diminished, it could reduce our revenues.
PRO
TRAVEL NETWORK, INC.
NOTES
TO FINANCIAL STATEMENTS
Our
failure to establish and maintain representative relationships for any reason
could negatively impact sales of our products and reduce our revenues.
We
distribute our products through independent representatives, and we depend
upon
them for sales revenue. For the six months ended December 31, 2006, 12% of
our
revenues were comprised of commissions. To increase our revenue, we must
increase the number of, or the productivity of, our representatives.
Accordingly, our success depends in significant part upon our ability to
attract, retain and motivate a large base of representatives. There may be
a
high rate of turn-over among our representatives. Since our inception, we have
had approximately 1,900 independent travel agents that have become inactive
for
non-payment of the annual fee after their first year as an agent. The loss
of a
significant number of representatives without replacements being secured for
any
reason could reduce sales of our products and could impair our ability to
attract new representatives.
If
we fail to attract and retain representatives in a cost-effective manner, our
ability to grow and become profitable may be impaired.
Our
business strategy depends on increasing our overall number of customer
transactions in a cost-effective manner. In order to increase our number of
transactions, we must attract new representatives. Although we have spent
significant financial resources on sales and marketing and plan to continue
to
do so, these efforts may not be cost effective in attracting new representatives
or increasing transaction volume. If we do not achieve our marketing objectives,
our ability to grow and increase revenues may be impaired.
Our
success depends on maintaining the integrity of our systems and infrastructure,
which if not maintained could reduce our revenues.
In
order
to be successful, we must provide reliable, real-time access to our systems
for
our representatives, customers and suppliers. As our operations grow in both
size and scope, we will need to improve and upgrade our systems and
infrastructure to offer an increasing number of people and travel suppliers
enhanced products, services, features and functionality. The expansion of our
systems and infrastructure will require us to commit substantial financial,
operational and technical resources before the volume of business increases,
with no assurance that the volume of business will increase. Consumers and
suppliers will not tolerate a service hampered by slow delivery times,
unreliable service levels or insufficient capacity, any of which could reduce
our revenues.
Our
computer systems may suffer failures, capacity constraints and business
interruptions that could increase our operating costs and cause us to lose
customers and reduce our revenues.
Our
operations face the risk of systems failures. Our systems and operations are
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, computer hacking break-ins, earthquake, terrorism
and similar events. The occurrence of a natural disaster or unanticipated
problems at our facilities or locations of key vendors could cause interruptions
or delays in our business, loss of data or render us unable to process
reservations. In addition, the failure of our computer and communications
systems to provide the data communications capacity required by us, as a result
of human error, natural disaster or other occurrence of any or all of these
events could adversely affect our reputation, brand and business. In these
circumstances, our redundant systems or disaster recovery plans may not be
adequate. Similarly, although many of our contracts with our service providers
require them to have disaster recovery plans, we cannot be certain that these
will be adequate or implemented properly. In addition, our business interruption
insurance may not adequately compensate us for losses that may
occur.
Rapid
technological changes may render our technology obsolete or decrease the
attractiveness of our products to representatives and consumers.
To
remain
competitive in the online travel industry, we must continue to enhance and
improve the functionality and features of our website. The Internet and the
online commerce industry are rapidly changing. In particular, the online travel
industry is characterized by increasingly complex systems and infrastructures
and new business models. If competitors introduce new products embodying new
technologies, or if new industry standards and practices emerge, our existing
website, technology and systems may become obsolete.
PRO
TRAVEL NETWORK, INC.
NOTES
TO FINANCIAL STATEMENTS
Our
future success will depend on our ability to do the following:
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enhance
our existing products;
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develop
and license new products and technologies that address the increasingly
sophisticated and varied needs of our prospective customers and suppliers;
and
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respond
to technological advances and emerging industry standards and practices
on
a cost-effective and timely basis.
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Developing
our website and other technology entails significant technical and business
risks which could reduce our revenues.
We
may
use new technologies ineffectively or we may fail to adapt our website,
transaction processing systems and network infrastructure to consumer
requirements or emerging industry standards. For example, our website
functionality that allows searches and displays of ticket pricing and travel
itineraries is a critical part of our service, and it may become out-of-date
or
insufficient from our customers' perspective and in relation to the search
and
display functionality of our competitors' websites. If we face material delays
in introducing new services, products and enhancements, our representatives,
customers and suppliers may forego the use of our products and use those of
our
competitors.
Declines
or disruptions in the travel industry, such as those caused by general economic
downturns, terrorism, health concerns, strikes or bankruptcies within the travel
industry could reduce our revenues.
Our
business is affected by the health of the travel industry. Travel expenditures
are sensitive to business and personal discretionary spending levels and tend
to
decline during general economic downturns. Since 2001, the travel industry
has
experienced a protracted downturn, and there is a risk that a future downturn,
or the continued weak demand for travel, could adversely affect the growth
of
our business. Additionally, travel is sensitive to safety concerns, and thus
may
decline after incidents of terrorism, during periods of geopolitical conflict
in
which travelers become concerned about safety issues, or when travel might
involve health-related risks. For example, the terrorist attacks of September
11, 2001, which included attacks on the World Trade Center and the Pentagon
using hijacked commercial aircraft, resulted in a decline in travel bookings
throughout the industry. The long-term effects of events such as these could
include, among other things, a protracted decrease in demand for air travel
due
to fears regarding terrorism, war or disease. These effects, depending on their
scope and duration, which we cannot predict at this time, could significantly
reduce our revenues.
Other
adverse trends or events that tend to reduce travel and may reduce our revenues
include:
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higher
fares and rates in the airline industry or other travel-related
industries;
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labor
actions involving airline or other travel
suppliers;
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political
instability and hostilities;
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travel-related
accidents; and
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bankruptcies
or consolidations of travel suppliers and vendors.
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Evolving
government regulations could impose taxes or other burdens which increase the
cost of travel or otherwise make travel less desirable, which could decrease
demand for travel and have the potential to materially reduce our revenues.
We
must
comply with laws and regulations applicable to online commerce and the sale
of
travel services. Increased regulation of the Internet or travel services or
different applications of existing laws might slow the growth in the use of
the
Internet and commercial online services, or could increase the cost of travel
services, which could decrease travel and thus lead to reduced commission
revenues.
PRO
TRAVEL NETWORK, INC.
NOTES
TO FINANCIAL STATEMENTS
In
addition to federal regulation, state and local governments could impose
additional taxes on Internet-based sales or on travel services such as air
fares
and hotel room and car rental rates. We would not have to pay these taxes;
rather, they would be added to the room rates or other travel purchased and
paid
directly by the traveler. However, these taxes would increase travel costs.
Increased travel costs could decrease the demand for travel and thus lead to
reduced commission revenues. Any state and local governments in any jurisdiction
in which we do business could, without us being aware, impose additional taxes
on Internet-based sales or on travel services such as air fares and hotel room
and car rental rates, including increased hotel occupancy taxes. If these types
of taxes were imposed and travel and related hotel bookings materially
decreased, the amount of commissions we receive and thus our revenues could
be
materially reduced. The statutes and case law governing online commerce are
still evolving, and new laws, regulations or judicial decisions may impose
on us
additional risks which may lead to reduced revenues. In addition, new
regulations, domestic or international, regarding the privacy of our users'
personally identifiable information may impose on us additional costs and
operational constraints.
Because
our market is seasonal, our quarterly results could fluctuate.
Our
market experiences seasonal fluctuations, reflecting seasonal trends for the
products offered by our representatives, as well as Internet services generally.
For example, traditional leisure travel bookings are higher in the first two
calendar quarters of the year in anticipation of spring and summer vacations
and
holiday periods, but online travel reservations may decline with reduced
Internet usage during the summer months. In the last two quarters of the
calendar year, demand for travel products generally declines and the number
of
bookings flattens or decreases. These factors could cause our revenues to
fluctuate from quarter to quarter. Our results may also be affected by seasonal
fluctuations in the inventory made available to us by travel
suppliers.
Our
business is exposed to risks associated with online commerce security and credit
card fraud which could reduce our revenues.
Consumer
concerns over the security of transactions conducted on the Internet or the
privacy of users may inhibit the growth of the Internet and online commerce.
To
transmit confidential information such as customer credit card numbers securely,
we rely on encryption and authentication technology. Unanticipated events or
developments could result in a compromise or breach of the systems we use to
protect customer transaction data. Our servers and those of our service
providers may be vulnerable to viruses or other harmful code or activity
transmitted over the Internet. A virus or other harmful activity could cause
a
service disruption.
In
addition, we bear financial risk from products or services purchased with
fraudulent credit card data. Although we have implemented anti-fraud measures,
a
failure to adequately control fraudulent credit card transactions could
adversely affect our business. Because of our limited operating history, we
cannot assure you that our anti-fraud measures are sufficient to prevent
material financial loss. Since we cannot exert the same level of influence
or
control over our representatives as we could were they our own employees, our
representatives could fail to comply with our policies and procedures, which
could result in claims against us that could harm our financial condition and
operating results. We are not in a position to directly provide the same
direction, motivation and oversight for our representatives as we would if
such
representatives were our own employees. As a result, there can be no assurance
that our representatives will participate in our marketing strategies or plans,
accept our introduction of new products and services, or comply with our
policies and procedures.
Because
it can be difficult to enforce policies and procedures designed to govern the
conduct of our representatives and to protect the goodwill associated with
our
business because of the number of representatives and their independent status,
our revenues could be reduced if we fail to enforce these policies and
procedures.
Violations
by our representatives of applicable laws or our policies and procedures in
dealing with customers could reflect negatively on our products and operations
and harm our business reputation. In addition, it is possible that a court
could
hold us civilly or criminally accountable based on vicarious liability because
of the actions of our representatives.
PRO
TRAVEL NETWORK, INC.
NOTES
TO FINANCIAL STATEMENTS
Adverse
publicity concerning any actual or purported failure of us or our
representatives to comply with applicable laws and regulations, whether or
not
resulting in enforcement actions or the imposition of penalties, could harm
the
goodwill of our company and could reduce our ability to attract, motivate and
retain representatives, which would reduce our revenues. We cannot ensure that
all representatives will comply with applicable legal requirements.
Our
marketing program could be found not to be in compliance with current or newly
adopted laws or regulations in one or more markets, which could prevent us
from
conducting our business in these markets and reduce our revenues.
Our
network marketing program is subject to a number of federal and state
regulations administered by the Federal Trade Commission and various state
agencies in the United States. We are subject to the risk that, in one or more
markets, our network marketing program could be found not to be in compliance
with applicable laws or regulations. Regulations applicable to network marketing
organizations generally are directed at preventing fraudulent or deceptive
schemes, often referred to as "pyramid" or "chain sales" schemes, by ensuring
that product sales ultimately are made to consumers and that advancement within
an organization is based on sales of the organization's products rather than
investments in the organization or other non-retail sales-related criteria.
The
regulatory requirements concerning network marketing programs do not include
"bright line" rules and are inherently fact-based and thus, even in
jurisdictions where we believe that our network marketing program is in full
compliance with applicable laws or regulations governing network marketing
systems, we are subject to the risk that these laws or regulations or the
enforcement or interpretation of these laws and regulations by governmental
agencies or courts can change. The failure of our network marketing program
to
comply with current or newly adopted regulations could reduce our
revenues.
We
are
also subject to the risk of private party challenges to the legality of our
network marketing program. The multi-level marketing programs of other companies
have been successfully challenged in the past. An adverse judicial determination
with respect to our network marketing program, or in proceedings not involving
us directly but which challenge the legality of multi-level marketing systems,
in any market in which we operate, could reduce our revenues.
Because
insiders control our activities, they may block or deter actions that you might
otherwise desire that we take and may cause us to act in a manner that is most
beneficial to such insiders and not to outside
shareholders.
Our
CEO,
President and sole director, Mr. Paul Henderson, controls approximately 52.3%
of
our common stock, and we do not have any non-employee directors. As a result,
he
effectively controls all matters requiring director and stockholder approval,
including the election of directors, the approval of significant corporate
transactions, such as mergers and related party transaction. He also has the
ability to block, by his ownership of our stock, an unsolicited tender offer.
This concentration of ownership could have the effect of delaying, deterring
or
preventing a change in control of our company that you might view favorably.
Our
management decisions are made by Paul Henderson, CEO and President; if we lose
his services, our revenues may be reduced.
The
success of our business is dependent upon the expertise of Paul Henderson,
CEO
and President. Because Paul Henderson is essential to our operations, you must
rely on his management decisions. Paul Henderson, CEO and President will
continue to control our business affairs after the filing. We have not obtained
any key man life insurance relating to Paul Henderson. Paul is currently subject
to an IRS lien. If we lose his services, we may not be able to hire and retain
another CEO or President with comparable experience. As a result, the loss
of
the services of Paul Henderson could reduce our revenues.
Risk
Related To Our Common Stock
Pro
Travel Network, Inc. (Pink Sheets: PTVL) completed the necessary SEC filings
and
began trading as a publicly held company on November 27, 2006.
PRO
TRAVEL NETWORK, INC.
NOTES
TO FINANCIAL STATEMENTS
Because
the offering price of our most recent sales of common stock of $1.25 per share
was arbitrarily set by our Board of Directors and accordingly does not indicate
the actual value of our business, investors may not be able to sell their stock
for a price in excess of $1.25 per share and thus could suffer an investment
loss.
The
offering price of our most recent sales of common stock of $1.25 per share
was
not based upon earnings or operating history, does not reflect our actual value,
and bears no relation to our earnings, assets, book value, net worth or any
other recognized criteria of value. No independent investment banking firm
was
retained to assist in determining the offering price for the shares.
Accordingly, the offering price should not be regarded as an indication of
any
future price of our stock. Any investors in our common stock, including those
who invest in our common stock at a price less than $1.25 per share, could
suffer an investment loss.
Because
sales of our common stock under Rule 144 could reduce the price of our stock
investors may not be able to sell their stock for a price in excess of the
price
they paid to acquire our stock and thus could suffer an investment loss.
As
of
November 13, 2006, there are 900,340 shares of our common stock held by
non-affiliates and 23,000,000 shares of our common stock held by officers,
directors and stockholders that currently own more than 5% of our securities
that Rule 144 of the Securities Act of 1933 defines as restricted securities.
We
registered 400,340 of these shares with the SEC on a registration statement
on
Form SB-2, as amended, File No. 333-132127, which was declared effective on
July
19, 2006. No Shares have been sold pursuant to Rule 144 of the Securities Act
of
1933.
In
addition to the registered shares that are available for resale, as a result
of
the provisions of Rule 144, restricted securities could be available for sale
in
a public market, if developed, generally beginning 90 days after the effective
date of the registration statement, assuming the holding period, volume and
method of sale limitations in Rule 144 can be satisfied to the extent required.
The availability for sale of substantial amounts of common stock under Rule
144
could reduce prevailing market prices for our securities.
Because
we do not have an audit or compensation committee, shareholders will have to
rely on the entire Board of Directors, all of which are not independent, to
perform these functions.
We
do not
have an audit or compensation committee comprised of independent directors.
Indeed, we do not have any audit or compensation committee. These functions
are
performed by the Board of Directors as a whole. All members of the Board of
Directors are not independent directors. Thus, there is a potential conflict
in
that board members who are management will participate in discussions concerning
management compensation and audit issues that may affect management
decisions.
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