UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(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, 2007
[ ] 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.
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(Exact name of registrant as specified in its charter)
Florida 65-0701352
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1801 N.W. 66th Avenue, Suite 102, Plantation, Florida 33313
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(Address of principal executive offices) (Zip Code)
(954) 377-6400
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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 shell company (as
defined in Rule 12b-2 of the Exchange Act): Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 1, 2007, there were 18,492,977 shares of Common Stock, par value,
$0.0001 per share outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Explanatory Note Regarding Amendment
We are filing this amendment to our quarterly report on Form 10-QSB for the
quarter ended March 31, 2007, originally filed May 14, 2007, for the sole
purpose of correcting a typographical error in Part I- Item 2-Management's
Discussion and Analysis of Financial Condition and Results of Operation,
whereby, "Selling and marketing expenses increased by $901,830, 226%..." in lieu
of the previously filed 326%. The amended filing is otherwise identical to our
prior filing.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward Looking Statements
This Quarterly Report on Form 10-QSB 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-QSB 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, 2006 filed with the SEC on March 21, 2007 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
Online Vacation Center Holdings Corp. (the "Company") is a Florida holding
company, focused on building a network of diversified vacation marketers with a
range of products that can be cross-sold to an extensive customer base. Target
businesses will be financially and technologically sound and provide a high
degree of personalized service to help consumers research, plan and purchase a
vacation.
We provide vacation marketing services through our wholly owned subsidiaries:
o Online Vacation Center, Inc., an internet-based vacation seller
focused on serving the affluent retiree market,
o Phoenix International Publishing, LLC ("Phoenix"), the United
Kingdom's leading publisher of consumer magazines and guides
about travel to the U.S. and Canada,
o Thoroughbred Travel, LLC, a Houston, Texas based upscale travel
agency, operating as Journeys Unlimited,
o La Fern, Inc., operating as eLeisureLink.com, a Florida travel
agency that sells land-based vacations,
o La Tours and Cruises, Inc., a Houston, Texas based travel agency,
operating as West University Travel, focused on providing luxury
personal travel products such as cruises, European tours and
all-inclusive vacations, and
o Dunhill Vacations, Inc., a Fort Lauderdale, Florida travel
newsletter and media provider.
Additionally, we acquired certain assets of SmartTraveler.com, Inc. in January
2007, including two online consumer travel newsletters as well as a home-based
travel selling group.
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
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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 primarily those items necessary to advertise our
services, produce our marketing materials, maintain and staff our travel
reservation and fulfillment center including technological enhancements,
payroll, commissions and benefits, telephone, ticket delivery and general and
administrative expenses including rent and computer maintenance fees.
Results of Operations
Quarter Ended March 31, 2007 Compared to Quarter Ended March 31, 2006
Revenues increased by 32.4%, $654,852, from $2,022,901 for the quarter ended
March 31, 2006 ("first quarter of 2006") to $2,677,753 for the quarter ended
March 31, 2007 ("first quarter of 2007"). The increase is attributable to the
revenues of the six acquisitions that we completed during the fourth quarter of
2006 and the first quarter of 2007 ("the acquisitions").
Selling and marketing expenses increased by $901,830, 226% to $1,300,395 for the
first quarter of 2007 as compared to $398,565 for the first quarter of 2006. The
increase is primarily attributable to the acquisitions and partially
attributable to an increase in co-op marketing projects during the first quarter
of 2007 for Online Vacation Center, Inc. Selling and marketing expenses
primarily consist of sales staff compensation and costs to produce marketing
materials.
General and administrative expenses increased by $226,349 or 19.4% to $1,390,659
for the first quarter of 2007 as compared to $1,164,310 for the first quarter of
2006. The increase is entirely attributable to the acquisitions. 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 2007 was $84,015
as compared to $21,656 for the first quarter of 2006. Amortization expense
increased by $60,816 during the first quarter of 2007 as a result of
amortization of intangible assets acquired in conjunction with the acquisitions.
The remaining increase of $1,543 is attributable to an increase in depreciation
expense.
Interest Income/ (Expense) increased from an expense of $40,036 for the first
quarter of 2006 to income of $5,480 for the first quarter of 2007. The first
quarter of 2006 expense was attributable to accrued interest on subordinated
debt which was ultimately exchanged for 1,500,310 shares of our common stock in
conjunction with the Share Exchange Agreement in March 2006. 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.
Our loss before benefit for income taxes was $91,836 in the first quarter of
2007 compared to income before provision for income taxes of $398,334 in the
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first quarter of 2006. These results are primarily attributable to the six
acquisitions that we completed in the first quarter of 2007 and the fourth
quarter of 2006.
The provision for income taxes decreased from an expense of $177,926 for the
first quarter of 2006 compared to a tax benefit of $24,647 for the first quarter
of 2007. The decrease is directly related to a decrease in results from
operations whereby income before income taxes for the first quarter of 2006 was
$398,334 whereas the loss before income taxes for the first quarter of 2007 was
$91,836. The tax rate in the first quarter of 2006, 44.6%, was due to the gain
on sale of cigar assets, the result of the transaction wherein the Company
distributed the assets relating to the cigar business to a former director and
majority shareholder in exchange for 2.7 million shares of its common stock. The
Company recognized gain on each asset distributed based upon the difference
between the fair market value and the Company's adjusted basis in each asset at
the time of closing. The benefit rate in the first quarter of 2007, 26.8% was
due to the tax effect of non-deductible items.
As a result of the foregoing, our net loss for the first quarter of 2007 was
$67,189 compared to net income of $220,408 in the first quarter of 2006.
Liquidity and Capital Resources
Cash at March 31, 2007 was $2,054,104 as compared to $2,658,885 at December 31,
2006. The primary source of our liquidity and capital resources has come from
our operations.
Cash flows provided by operating activities for first quarter of 2007 and 2006
were $280,728 and $261,932, respectively. Although the first quarter of 2007 had
a net loss of $67,189 as compared to a net profit of $220,408 in the first
quarter of 2006, this decrease of $287,597 was offset by improvements in non
cash operating items. This was comprised of an increase in depreciation and
amortization of $84,015 as a result of increased amortization expense associated
with amortization of intangible assets acquired in conjunction with the
acquisitions and an increase in stock based compensation of $62,080 as result of
the issuance of restricted stock grants and options under our 2005 Management
and Director Equity Incentive and Compensation Plan. Additionally, accounts
receivable decreased by $289,025 as a result of increased collection efforts
during the first quarter of 2007.
Cash flows used in investing activities for the first quarter of 2007 increased
to $885,509 compared to $496 during the first quarter of 2006. The primary cash
out flow related to the excess of cash paid over cash received totaling $858,133
in conjunction with the three acquisitions completed during the first quarter of
2007. The balance of the increase, $27,376, is attributable to capital
expenditures, primarily computers and software, made during the first quarter of
2007.
There were no cash flows from financing activities during the first quarter of
2007 and 2006; however, in conjunction with the Share Exchange Agreement in
March 2006, $3,000,000 of 8% subordinated debentures due on January 1, 2008 were
ultimately exchanged for 1,500,310 shares of our common stock effective as of
March 16, 2006.
At March 31, 2007, we had a working capital deficit of $432,460, a decrease of
$1,013,941 from December 31, 2006 and an accumulated deficit of $1,424,716, an
increase of $67,189 from December 31, 2006.
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
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liquidity needs of our operations. We may need to seek to sell equity or debt
securities or obtain credit lines from financial institutions to meet our
longer-term liquidity and capital requirements, which includes strategic growth
through mergers and acquisitions. We can not provide any assurances that we will
be able to obtain additional capital or financing in amounts or on terms
acceptable to us, if at all or on a timely basis.
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 but hope to mitigate the effects of seasonality by acquiring
companies in the travel industry that are not as sensitive to seasonality, such
as travel advertising. We do not expect inflation to materially affect our
revenues and net income.
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 2006 Annual Report on Form 10-KSB filed on March
21, 2007, 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 media.
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
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net amount, which is the amount charged to the customer less the amount to be
paid to the supplier. The method of net revenue presentation does not impact
operating profit, net income, earnings per share or cash flows.
Intangible Asset Testing
Absent any circumstances that warrant testing at another time, we test for
goodwill and non-amortizing intangible asset impairment as part of our year-end
closing process. Our goodwill testing consists of comparing the estimated fair
values of each of our operating entities to their carrying amounts, including
recorded goodwill. We estimate the fair value of our reporting unit by
discounting its projected future cash flow. Developing future cash flow
projections requires us to make significant assumptions and estimates regarding
the sales, gross margin and operating expenses of our reporting unit, as well as
economic conditions and the impact of planned business or operational
strategies. Should future results or economic events cause a change in our
projected cash flows, or should our operating plans or business model change,
future determinations of fair value may not support the carrying amount of our
unit, and the related goodwill would need to be written down to an amount
considered recoverable. Any such write down would be included in the operating
expenses. While we make reasoned estimates of future performance, actual results
below these expectations, or changes in business direction can result in
additional impairment charges in future periods.
ITEM 6. EXHIBITS
Exhibit No. Exhibit Description
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2.1 Acquisition Agreement, dated January 3, 2007, by and among
Online Vacation Center Holdings Corp., La Tours and
Cruises, Inc., and Ray Schutter and Ceciliae Schutter
(incorporated by reference to Exhibit 2.1 in the Company's
Current Report on Form 8-K filed with the SEC on January
4, 2007 and as amended on March 21, 2007).
2.2 Acquisition Agreement, dated January 5, 2007, by and among
Online Vacation Center Holdings Corp., Dunhill Vacations,
Inc. and Messrs. Pat Daly, James DiStefano and Robert
Dunhill (incorporated by reference to Exhibit 2.1 in the
Company's Current Report on Form 8-K filed with the SEC on
January 11, 2007 and as amended on March 22, 2007).
2.3 Acquisition Agreement, dated January 19, 2007, by and
among Online Vacation Center Holdings Corp.,
SmartTraveler.com, Inc. and Pat Coloyan (incorporated by
reference to Exhibit 2.1 in the Company's Current Report
on Form 8-K filed with the SEC on January 22, 2007).
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. +
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+ Filed herewith
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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
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Chief Executive Officer, President,
Chief Financial Officer and Director
Date: May 15, 2007
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