Item 1. Business.
Organization
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. 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 affect the proposed capital restructure. Following this cancellation, we had 69,000,000 shares issued and outstanding. 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.
In May 2009 we changed our name to PTN, Inc. with plans to implement 5 operating divisions:
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Pro Travel Network
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Pro Travel Retail
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The Honeymoon Registry (Honeymoons for Free)
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PTN Business
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The Destinations Club
Pro Travel Network Pro Travel Network is a Seller of Travel operating as a Host Agency. Pro Travel Network provides the online travel stores, accounting, training, marketing, licensing, and supplier contracts for those operating home based Travel businesses or agencies. Pro Travel Network markets and establishes independent travel agencies.
Pro Travel Network’s marketing strategy is to create a network of commissioned sales representatives who exclusively market the online travel agency suite of products of Pro Travel Network.
Purchasers of its online travel agencies are known as Independent Travel Agents or ITAs or Referring Travel Associates (RTAs). Each ITA pays a fee of $439.99 for the initial purchase of our Independent Travel Agent Program (ITAP) product, and $49.99 monthly license for continued access to our systems. Each RTA pays $149.99 and $39.99 monthly license. Pro Travel Network also retains a percentage of the travel commissions generated by each ITA or RTA.
Pro Travel Network currently offers the following products:
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Independent Travel Agent - Program (ITAP) - $339.99 initial fee; $39.99 monthly renewal fee - sold by our Independent Representatives.
Once a sale is made, the purchaser becomes an Independent Travel Agent. We refund the initial fee to those purchasers who cancel within ten days of their purchase. We provide ITAs with booking and marketing tools, support systems, industry booking codes, required initial and on-going training, consumer travel websites, accounting tools and access to outside industry training and seminars. Commissions from any and all bookings made by the new agents are split with Pro Travel Network; in general with agents earning 70% and PTN retaining 30%. Additional income streams are derived from the ordering of additional marketing materials and other promotional items.
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Referring Travel Associate - Program (RTAP) $99.00 initial fee; $39.99 monthly license fee - sold by our Independent Representatives
Once a sale is made, the purchaser becomes a Referring Travel Associate (RTA). We refund the initial fee to those purchasers who cancel within ten days of their purchase. We provide RTAs with a consumer travel website, marketing and accounting tools, and access to trained Pro Travel Network staff to assist them in earning income by making all of their bookings in house by a qualified agent. RTA's are able to earn income by simply referring friends, family, or anyone they know to Pro Travel Network. Professional Pro Travel Network staff travel agents then handle the full booking process, directly with the consumer. Commissions from any and all bookings referred by the RTA are split with Pro Travel Network at 50%. Additional income streams are derived from the ordering of additional marketing materials and other promotional items.
The Destinations Club Membership - $99.99 initial fee; $9.99 monthly membership dues - sold by our Independent Representatives.
The Destinations Club offers members the ability to travel to various preselected vacation destinations and cruises at specially negotiated rates. The Club uses its buying power and large membership base to acquire this special pricing, which is then passed on to the members of the Destinations Club. While the Destinations Club will be marketed openly to the public and is a separate division of PTN, the membership itself will be available as a Product of Pro Travel Network; however will also be sold through its own marketing outside of the Pro Travel Network framework. The Destinations Club is still in development, and is currently being test marketed to our existing database only
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Representative Trainer - $99.99 initial fee; $9.99 monthly renewal fee.
RT: The optional RT program is not a product of Pro Travel Network, but a packaged business opportunity, called the “RT Opportunity”. The RT Opportunity allows the RT to have full license to market the ITAP and/or RTAP products of Pro Travel Network and may sell memberships to the Destination Club. Pro Travel Network aggressively looks to recruit new RTs, who once trained on the benefits of the RTAP and ITAP products, may sell these products to the general public and earn commissions. RTs may also, and are encouraged to, recruit other RTs and may earn commissions on all products sales by their team of RTs. The act of recruiting additional RTs however, pays no commission.
We pay commissions for each ITAP or RTAP sold depending upon factors such as number of prior ITAP's sold. New representatives pay a one-time nominal fee to participate in the RT Opportunity, plus a small monthly license fee in order to access marketing tools, DVDs, individual websites, personal marketing system and other support systems needed for each representative to market his business effectively. Independent Representatives are able to market the ITAP and RTAP throughout North America, with Australian operations expected to commence in mid 2010.
We currently support approximately 4,500 Independent Travel Agents and over 1,200 Independent Representatives throughout North America. Since our inception, we have had approximately 15,000 Independent Travel Agents that have become inactive for non-payment of the annual fee after their first year as an agent. Anyone can become and Independent Representative of PTN; individuals are not required to first purchase an ITAP or RTAP or Destination Club membership in order to be eligible..
Our agents and referral associates are provided with a reliable source of travel products and services through agreements with selected travel providers, including major airlines, cruise lines, hotels and car rental agencies, including wholesale travel providers. Airlines provide airline tickets, hotels provide hotel rooms, car rental agencies provide rental cars and wholesale travel providers provide package tours at discounted rates. These agreements are all terminable at will by the providers. We do not rely on a single provider for these services and none of these agreements is exclusive. No provider provides services which account for more than 10% of our revenues. Neither we nor our agents pay any fees to obtain the services provided by these providers. In addition, we offer our agents the ability to make reservations on over 25 airlines, at more than 300 hotels and with several major car rental companies, cruise lines and tour package operators.
Home-based travel agency business
The Pro Travel Network model of using many outside or home based agents is called the Hosted Agency model. This model is similar to the franchise model, although the cost of entry is much smaller. Commissions are split between host and member. Usually the host gets anywhere between 20%-40%.
A significant driver of change in our industry is the Internet. Travelers are attracted to the Internet by its 24-hour access, convenience, the reliability of the content, and the ability to tailor information to individual needs and preferences. The Internet also provides a convenient and efficient medium for sales of travel product by affording customers direct access to up-to-the-minute travel information, including changing fares and routes, the ability to engage in competitive shopping, and the capacity to book tickets. Effectively, technology is decreasing or eliminating the need for inventory access and ticket delivery.
Hosted Model
We have many competitors in the Hosted model, YTB International, and Global Travel International.
We compete with these direct competitors in various ways, including:
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Having revenue sources other than commissions, such as the ITAP, RTAP, and Destinations Club Memberships.
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Providing better service to our agents.
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Using a network of commissioned only Independent Representatives to sell our ITAP, RTAP and Destinations Club membership through the RT Opportunity
Independent Model
Although it is difficult to determine the size of the independent home-based agent space, there are literally thousands of agents that fall under this category. These agents are typically aligned with a consortium and they tend to book through the supplier-direct channel. The vast majority of the home-based agents appear to be affiliated with an umbrella organization. Cooperatives, or consortia, are membership-based, marketing service organizations for independent travel agencies. Advantages of membership include programs to educate, train, reduce cost, and the opportunity to generate higher commissions/overrides due to the greater leverage and volume associated with a large consortium.
We are a small competitor compared to many of these companies. Many of our competitors have longer operating histories, larger customer bases, more established brands and significantly greater financial, marketing and other resources than we do. Some of our competitors have operated their respective businesses for significantly longer and may benefit from greater market share, brand recognition, product diversification, scale and operating experience than we do. In addition, some of our competitors have each established exclusive relationships as preferred travel partners for widely used Internet destinations such as America Online, MSN and Yahoo! These exclusive arrangements, and similar relationships that may be able to be secured in the future, could provide these competitors with a significant advantage in obtaining new customers.
We expect existing competitors and business partners and new entrants to the travel business to constantly revise and improve their business models in response to challenges from competing Internet-based businesses, including ours. For example, firms that provide services to us and our competitors may introduce pricing or other business changes that adversely affect our attractiveness to suppliers in favor of our competitors. Similarly, some of our airline suppliers have recently entered into arrangements with GDS providers containing "most favored nations" obligations in which they have committed, in exchange for reduced GDS (defined below) booking fees, to provide to the GDS and its subscribers, including some of our online travel agency competitors, all fares the supplier offers to the general public through any distribution channel.
In addition, consumers may use our or our representatives' websites for route pricing and other travel information, and then may choose to purchase travel products from a source other than ours or our representatives, including travel suppliers' own websites. Many travel suppliers, including airlines, lodging, car rental companies and cruise operators, also offer and distribute travel products, including products from other travel suppliers, directly to the consumer through their own websites. In many cases, these competitors offer advantages, such as bonus miles or lower transaction fees that we do not or cannot provide to consumers. In addition, the airline industry has experienced a shift in market share from full-service carriers to low-cost carriers that focus primarily on discount fares to leisure destinations. Some low-cost carriers do not distribute their tickets through other third-party intermediaries.
Pro Travel Retail Division
In December 2008, Pro Travel Network acquired K.G&S Pty Ltd, operating as Laser Travel in Melbourne Australia. This acquisition set the stage for the planned entry of the Pro Travel Network Host Agency Program into the Australian market. Due to the economic decline and worst than expected impact to Pro Travel Network, we postponed launch of the Pro Travel Network opportunity in Australia until conditions improved. In the interim period, Laser Travel has continued to operate as a Brick and Mortar agency. During this period, it was decided that a retail division would be established.
Based upon our experience in the industry, we believe that Brick and Mortar operations continue to sell more high priced, and high commissioned complex vacations and cruises, than online retailers. Pro Travel Retail includes retail store locations where people can book travel face to face with a trained and qualified agent. PTNs executive management staff has many years of successful retail experience, prompting the decision to enter the retail business. In May 2009, the second retail location was launched in Fresno CA, and in July 2009, PTN purchased Cruise Adventures, a 10 year old agency located in the upscale River Park area of Fresno. The existing owner of Cruise Adventures agreed to stay on to oversee the development and expansion of Pro Travel Retail. We currently have two locations in Fresno, CA and one location in Australia.
Destinations Club
The Destinations Club is a program that allows individuals the opportunity to purchase heavily discounted vacation packages. Initial enrollment in the Destinations Club is $99.00 and the monthly fee is $9.99. As part of the old Pro Travel Network program, reduced rate and discount travel was a huge draw to our company. However, many who were attracted to Pro Travel network for this purpose only, proved to be a drain on the resources of the company as these agents did not book travel. However, reduced rate travel was only offered to agents who had achieved certain levels of proficiency, such as earning of the globally respected IATAN distinction. Once these individuals realized that Pro Travel network was not a viable way to gain discount travel, they generally quit. The Destinations Club was borne out of the premise that there is a niche of people who would join and become a member of a Club that was able to offer them discounted travel by using its buying power, similar to the Costco model for merchandise. This also, allowed us to clearly differentiate Pro Travel Network as having everything to do with the potential of earning income by booking travel. Should a person’s main interest be accessing vacations and cruises at discount rate, The Destinations Club membership is offered. This program is still under development with limited availability and is being test marketed to our existing database only. Product launch is scheduled for early 2010.
Honeymoon Registry
Honeymoon Registry at this point in the developmental stage is about creating a website in which people wanting to get married can register their honeymoon plans in the same way they would register at a department store. Guest would then be able to go online and purchase part of their honeymoon, see wedding plans, etc.
PTN Business
Pro Travel Business at this point in the developmental stage is about creating online tools that help businesses track and forecast travel expenditures booked through our Pro Travel Business travel service department.
Regulation
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.
There could be 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.
We are also subject to Seller of Travel Laws in California and Nevada. Among other things, these laws and related regulations require us to maintain a trust account for customer funds required to be segregated, to have at least $1,000,000 in Errors and Omissions insurance and to establish and maintain registration with the state. We have complied with these requirements for all prior periods and currently comply with these requirements.
Competition
We operate in a highly competitive market and we may not be able to compete effectively. The market for travel products is intensely competitive. We compete with a variety of companies with respect to each product or service we offer, including:
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InterActiveCorp, an interactive commerce company, which owns or controls numerous travel-related enterprises, including Expedia, an online travel agency.
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Hotels.com, a representative of online lodging reservations, Hotwire, a wholesaler of airline tickets, lodging and other travel products and Ticketmaster.
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Citysearch, both of which offer destination information and tickets to attractions.
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Sabre Holdings, which owns Travelocity, an online travel agency, GetThere, a provider of online corporate travel technology and services, and the Sabre Travel Network, a GDS (or "global distribution system" as described below).
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Orbitz, Inc., an online travel company that enables travelers to search for and purchase a broad array of travel products, including airline tickets, lodging, rental cars, cruises and vacation packages.
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Cendant, a provider of travel and vacation services, which owns or controls the following: Galileo International, a worldwide GDS; Cheap Tickets, an online travel agency; Lodging.com, an online representative of hotel rooms; Howard Johnson, Ramada Inns and other hotel franchisors; and Avis and Budget car rental companies.
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Travelport, a provider of online corporate travel services and other travel-related brands.
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Expedia, Lowestfare.com and Priceline.com are our primary competitors in the referral marketing business.
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Other consolidators and wholesalers of airline tickets, lodging and other travel products, including Priceline.com and Travelweb.
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Other local, regional, national and international traditional travel agencies servicing leisure and business travelers.
We are a relatively small player in this market. These competitors are in general larger, have greater financial and personnel resources and have achieved greater market penetration than we have.
Based solely upon management’s knowledge of and experience in the industry and not upon any research or other verifying data from independent third parties, our agents are quoted the same rates from travel service providers as other travel agents and agencies.
In the home-based market, we compete with the following, based upon the following information is taken from “Home Bookin’,” a research report by Credit Suisse First Boston dated January 7, 2005.
Employees
We have 35 employees, including Paul Henderson, our CEO and President, and the following:
Full time:
Item 2.
Item 2. Properties.
We lease office space for our principal place of business located at 516 W. Shaw Avenue # 103, Fresno, California 93704. The lease began in March 2005 for a term of seven years and was amended on April 16, 2007, to add 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 March 1, 2007, we moved our offices from London, Ontario Canada to Mississauga, Ontario Canada and leased 1,000 square feet of office space under a one year non-cancelable operating lease beginning in March 2007. On February 20, 2008, we renewed our lease for two years beginning March 2008 with all terms remaining the same.
On July 01, 2007, we leased 1,170 square feet of office space in St Jerome, Quebec Canada under a two year non-cancelable operating lease beginning in July 2007. Currently we operate month to month.
On April 28, 2008, we leased 911 square feet of office space in Surrey, British Columbia Canada under a three year non-cancelable operating lease beginning in July 2008.
On October 30, 2008, we leased a space in Mentone, Vic. Australia under a three year operating lease beginning in November 2008. This lease has can be extended two more terms of three years.
We believe that our facilities are adequate to meet our current needs. Should we need to expend, which is not currently contemplated, we anticipate such facilities are available to meet our development and expansion needs in existing and projected target markets for the foreseeable future. Our offices are in good condition and are sufficient to conduct our operations.
Item 3.
Item 3. Legal Proceedings.
On October 5th, 2008, a lawsuit was filed against PTN by a recently dismissed employee. The lawsuit alleges that she was fired due to retaliation for filing a complaint of workplace sexual harassment. PTN vehemently denies any and all allegations as completely false and without merit. It is remote that this lawsuit will settle in favor of the employee and, therefore, no contingency is recorded.
We are currently pursuing an operating credit card processing service that failed to return our deposit of approximately $35,000. The credit card processing service is currently pursuing action against its bank to recover this sum and has orally agreed to pay us this amount if recovered. However, as the processor is not located in the U.S., if they do not pay us as orally agreed, we do not intend to institute litigation due to the cost of litigation and uncertainty of collection. Although as the company is still in business and we may be able to collect, recovery is uncertain, so we have provided an allowance on our financial statements for the entire balance in case it is not collected.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
We did not submit any matters to a vote of our security holders, through the solicitation of proxies or otherwise, during the fourth year of the fiscal year covered by this report.
PART II
Item 5.
Item 5. Market for Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
PTN, Inc. (OTCBB: PTVL) completed the necessary SEC filings and began trading as a publicly held company on November 27, 2006.
The following table sets forth the range of high and low bid prices of our common stock as reported by the National Association of Securities Dealers composite feed or other qualified inter-dealer quotation medium, as compiled by Pink Sheets LLC for the periods indicated. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions or trades.
COMMON STOCK
Holders of Record
As of October 1, 2009, there were approximately 114 shareholders of record of our common stock.
Dividends
We have not declared any cash dividends on our common stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business. Any decisions as to future payments of dividends will depend on our earnings and financial position and such other facts, as the Board of Directors deems relevant.
Options, Warrants, Convertible Securities
On June 04, 2008, we entered into a consulting agreement with AGORACOM. In accordance with the terms and provisions of the consulting agreement: (i) we shall issue to AGORACOM 250,000 warrants to purchase up to 250,000 of our restricted common stock at $0.50 per share ; and (ii) AGORACOM shall perform such consulting services involving general business matters and other business consulting as mutually agreed upon.
On September 25, 2008, we granted 800,000 options to Ray Lopez, CFO, under PTN, Inc. 2008 Stock Incentive Plan to purchase up to 800,000 of our restricted common stock at $0.50 per share. The options will vest in equal amounts of 160,000 and stage over the next 60 months. All options not exercised by the expiration date are forfeited.
Securities Authorized for Issuance under Equity Compensation Plans
Description of PTN 2008 Stock Incentive Plan
The PTN 2008 Stock Incentive Plan is intended to secure for the Company and its Affiliates the benefits arising from ownership of the Company's Common Stock by the Employees, Officers, Directors, Consultants of the Company and its Affiliates, all of whom are and will be responsible for the Company's future growth. The Plan is designed to help attract and retain for the Company and its Affiliates personnel of superior ability for positions of exceptional responsibility, to reward Employees, Officers, Directors and Consultants for their services and to motivate such individuals through added incentives to further contribute to the success of the Company and its Affiliates.
Awards under the Plan may be made to an Eligible Person in the form of (i) Nonqualified Stock Options; (ii) Restricted Stock; (iii) Stock Awards; (iv) Performance Shares; or (v) any combination of the foregoing.
The maximum aggregate number of shares of Common Stock which may be issued pursuant to Awards under the Plan shall be One Million Two Hundred Thousand (1,200,000) shares.
Stock Options
The Board, in its sole discretion, may from time to time on or after the Effective Date grant Nonqualified Stock Options to Eligible Persons, subject to the provisions of this Article IV and Articles III and V and subject to the following conditions:
(a) Nonqualified Stock Options may be granted to any Eligible Person, each of whom may be granted one or more of such Nonqualified Stock Options, at such time or times determined by the Board.
(b) The Option Price per share of Common Stock for a Nonqualified Stock Option shall be set in the Award Agreement and may be less than one hundred percent (100%) of the Fair Market Value of the Common Stock at the Grant Date; provided, however, that the exercise price of each Nonqualified Stock Option granted under the Plan shall in no event be less than the par value per share of the Company’s Common Stock.
(c) A Nonqualified Stock Option may be exercised in full or in part from time to time within the Option Period specified by the Board and set forth in the Award Agreement; provided, however, that, in any event, the Nonqualified Stock Option shall lapse and cease to be exercisable upon a Termination of Service or within such period following a Termination of Service as shall have been determined by the Board and set forth in the related Award Agreement.
Restricted Stock
The Board, in its sole discretion, may from time to time on or after the Effective Date award shares of Restricted Stock to Eligible Persons as a reward for past service and an incentive for the performance of future services that will contribute materially to the successful operation of the Company an its Affiliates, subject to the terms and conditions set forth in this Article VI.
The Board shall determine the terms and conditions of any Award of Restricted Stock, which Shall be set forth in the related Award Agreement, including without limitation:
(a) the purchase price, if any, to be paid for such Restricted Stock, which may be zero, subject to such minimum consideration as may be required by applicable law;
(b) the duration of the Restriction Period or Restriction Periods with respect to such Restricted Stock and whether any events may accelerate or delay the end of such Restriction Period(s);
(c) the circumstances upon which the restrictions or limitations shall lapse, and whether such restrictions or limitations shall lapse as to all shares of Restricted Stock at the end of the Restriction Period or as to a portion of the shares of Restricted Stock in one or more installments during the Restriction Period by means of one or more vesting schedules;
(d) whether such Restricted Stock is subject to repurchase by the Company or to a right of first refusal at a predetermined price or if the Restricted Stock may be forfeited entirely under certain conditions;
(e) whether any performance goals may apply to a Restriction Period to shorten or lengthen such period; and
(f) whether dividends and other distributions with respect to such Restricted Stock are to be paid currently to the Participant or withheld by the Company for the account of the Participant.
Administration of the Incentive Plan
The Plan shall be administered by the Board of Directors of the Company. The Board shall have the exclusive right to interpret and construe the Plan, to select the Eligible Persons who shall receive an Award, and to act in all matters pertaining to the grant of an Award and the determination and interpretation of the provisions of the related Award Agreement, including, without limitation, the determination of the number of shares subject to Stock Options and the Option Period(s) and Option Price(s) thereof, the number of shares of Restricted Stock or shares subject to Stock Awards or Performance Shares subject to an Award, the vesting periods (if any) and the form, terms, conditions and duration of each Award, and any amendment thereof consistent with the provisions of the Plan. The Board may adopt, establish, amend and rescind such rules, regulations and procedures as it may deem appropriate for the proper administration of the Plan, make all other determinations which are, in the Board’s judgment, necessary or desirable for the proper administration of the Plan, amend the Plan or a Stock Award as provided in the Plan, and terminate or suspend the Plan as provided in the Plan. All acts, determinations and decisions of the Board made or taken pursuant to the Plan or with respect to any questions arising in connection with the administration and interpretation of the Plan or any Award Agreement, including the severability of any and all of the provisions thereof, shall be conclusive, final and binding upon all persons.
Amendments
The Board of Directors at any time and from time to time may amend or terminate the Plan as may be necessary or desirable to implement or discontinue the Plan or any provision hereof. No amendment to or discontinuance of the Plan or any provision hereof by the Board of Directors or the shareholders of the Company shall, without the written consent of the Participant, adversely affect (in the sole discretion of the Board) any Award theretofore granted to such Participant under this Plan; provided, however, that any Award is annulled and voided and no shares shall be issued under any Award if the Participant’s relationship with the Company is terminated for any reason as determined by the Board or if the Participant terminates employment or other relationship for any reason prior to the Vesting Date of any shares under an Award or the Exercise Date for any unexercised Option.
Recent Sales of Unregistered Securities
During the fiscal year ended June 30, 2009, Pro Travel Network, Inc. issued 783,805 shares to thirty third parties for services rendered valued at their fair market value using quoted market prices on the date of grant, resulting in total share-based compensation expense of $154,854, 1,105,000 shares to executive officers of Pro Travel Network, for services rendered valued at their fair market value using quoted market prices on the date of grant, resulting in total share-based compensation expense of $331,500, and 115,000 shares of common stock to twelve (12) employees based on a two year plus vesting with the company valued at their fair market value using quoted market prices on the date of grant, resulting in total share-based compensation expense of $34,500.
We relied upon Section 4(2) of the Securities Act of 1933, as amended for the above issuances.
We believed that Section 4(2) of the Securities Act of 1933 was available because:
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None of these issuances involved underwriters, underwriting discounts or commissions.
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Restrictive legends were and will be placed on all certificates issued as described above.
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The distribution did not involve general solicitation or advertising.
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The distributions were made only to investors who were sophisticated enough to evaluate the risks of the investment.
Item 6.
Item 6. Selected Consolidated Financial Data
Not required.
Item 7.
Item 7. 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 currently support approximately 4500 independent travel agents and over 1200 Independent Representatives throughout North America.
The most major goal towards achieving our business objectives over the next year is our goal of having 100% of our agents booking travel. This is an ambitious goal that may be impossible to attain as many prospective agents or would be agents do not fully work the program. However, we continue to upgrade our training and mentoring programs in pursuit of this goal. Also, continuing operations will always focus on ways to increase our marketing sales force, which by definition will produce more sales of our ITAP and RTAP products which should produce more travel sales to ultimate consumers of travel. Pro Travel Network retains approximately 20-25% of the commission derived from bookings by our ITA (purchasers of our ITAP and RTAP).
The economic downturn has had a significant effect on our operations over the past year and we expect that it will continue to be a significant factor going forward. Most notably was the reduction in our investments as unrealized and realized losses, due to the severe contraction in stock prices across the board. Lower sales and the resulting reduction in revenues was also a serious issue that we attribute to the recession gaining in intensity.
We continue to believe that we must cut additional costs. While we have reduced expenses significantly through several strong cost-cutting measures, including but not limited to layoffs and bonus and salary reductions, we are looking at possibly closing one or more of our non performing Canadian offices in order to shift our resources where productivity is still vigorous and where we believe we can quickly achieve profitability, namely the new Pro Travel Retail Division. While Pro Travel Network is now leaner, we believe we must be leaner still, as the results the negative economy on our financial situation will take some time to correct, and will still be a major factor working against profitability and revenue growth in the coming months. However, we believe that should we have to make additional cuts, they would be sufficient, combined with previously made and on-going significant marketing adjustments, to carry us through 2010.
We continue to book travel a satisfactory pace throughout our US office and Toronto offices, and expect that as the economy rebounds, and our enhanced focus on cost cutting and strong marketing push, that we should see profitability by 1st fiscal quarter of 2010, although continuing economic uncertainty could cause us to miss this goal.
Pro Travel Retail
We initiated an expansion into Australia on December 19, 2008 with our acquisition of KG & S Pty. Ltd. KG & S Pty, Ltd. has operated its travel business for nearly 20 years and is among the leading online travel agencies in the Melbourne area. This acquisition brings incremental value to the Company and will immediately increase our customer base along with giving the Company immediate access to already established relationships with all major hotels, airlines and car rentals within the greater Australian area. The Australian market is strategic in the Company’s long term business plans and will allow the Company to expand services to customers in the Australian market. However, to date we have not launched the Pro Travel network opportunity due to our decision that economic forces were not in our favor. Our CEO just recently visited Australia to begin the ground work for a proposed 2010 launch.
The Australian market is large part of our strategic plans for the growth of the Company. We have had a successful track record in business and our experience from our Canadian expansion has served us well and makes us confident in the international markets. Not only do we believe Australia is an important part of our expansion, but it also serves as the perfect launch pad to capture the lucrative Asia-Pacific travel market in the future.
As described below in “Liquidity and Capital Resources,” we believe we will be able to launch our expansion in Australia without any need to obtain additional financing. However, we may delay our expansion into Australia until
Critical Accounting Estimates
The financial statements include estimates made by management that impact the amounts reflected for property and equipment as well as security deposits, as detailed below:
Property & Equipment
Management has estimated the useful lives as the basis for depreciating its property and equipment. Estimated useful lives utilized for depreciating property and equipment is three years for all computer equipment and software and seven years for furniture and fixtures. Management believes these estimates are very conservative.
Security Deposits
Security deposits represent operating lease deposits and amounts on deposit with credit card payment processing services that serve as collateral in case we were to cease operations or experience significant chargebacks from customers. Management has provided an allowance for unrecoverable deposits based on its estimate of collectability in the amount of $35,353 as of June 30, 2009 (See the section entitled “Legal Proceedings,” below)
Goodwill
Goodwill is the excess of the fair values of tangible and identifiable intangible assets acquired over liabilities assumed. The amount recognized as Goodwill includes acquired intangible assets for which fair values could not be determined. Goodwill is not amortized, but is tested for impairment at least annually
Results of Operations
Fiscal Year Ended June 30, 2009 Compared to the Fiscal Year Ended June 30, 2008
For the year ended June 30, 2009, total revenues broke down as follows: Independent Travel Agent Program or ITAP sales - 59%, Travel Commissions - 36% and National Events - 5%. For the year ended June 30, 2008, total revenues broke down as follows: Independent Travel Agent Program or ITAP sales - 71%, Travel Commissions - 24% and National Events - 5%. We had total revenues of $5,438,297 for the year ended June 30, 2009, which is a decrease of $4,173,776, or 43%, below our total revenues for the year ended June 30, 2008, which was $9,612,073. The decrease in total sales was due to a decrease of $3,676,808 in Independent Travel Agent Program or ITAP sales, a decrease of $221,126 in National Events revenue and a decrease of $275,842 in Travel Commissions revenue. The decrease in ITAP sales was due to the decrease in signing up of new agents due to declining economic conditions.
Our cost of sales decreased $3,287,626, or 53%, to $2,922,609 for the year ended June 30, 2009, as compared to cost of sales of $6,210,235 for the fiscal year ended June 30, 2008. The decrease in total cost of sales was due to a decrease of $2,954,792 in Independent Travel Agent Program or ITAP sales, a decrease of $237,767 in National Events cost and a decrease of $95,067 in Travel Commissions. Our cost of sales decreased as a direct result of lower sales of our products offset by reduction in sales bonuses during the year ended June 30, 2009.
We had gross profit of $2,515,688 for the year ended June 30, 2009, which was a decrease of $886,150, or 26%, when compared to our gross profit for the year ended June 30, 2008, which was $3,401,838. Our decrease in gross profit was primarily attributable to the decrease in signing up of new agents due to declining economic conditions.
Operating expenses increased $260,245, or 8%, to $3,435,593 for the year ended June 30, 2009, as compared to total operating expenses of $3,175,348 for the year ended June 30, 2008. The increase in total operating expenses was mainly due to an increase in compensation expense and professional and consulting fees offset by a decrease in general and administrative expenses. Compensation expense increased $366,995 to $2,246,639 for the year ended June 30, 2009, as compared to compensation expense of $1,879,644 for the year ended June 30, 2008. The increase in compensation expense was as follows:
·
$347,000 due to the issuance of 1,220,000 shares to employees and officers.
·
$126,000 due to the increase of our corporate and Canadian staffs and the addition of Ray Lopez, Vice President and COO.
o
Mr. Lopez provides management and other services to us under an employment agreement which was amended July 1, 2008 to increase his annual salary from $96,000 per year to $120,000 per year and change his commission of 2% of the net Travel Agent Product revenue, less all costs of sales expenses to .5% of actual gross revenue.
o
Mr. Henderson provides management and other services to us under an employment agreement which was amended July 1, 2008 to increase his annual salary from $200,000 to $240,000 per year and commission of 1.75% of actual gross revenue.
Professional and consulting fees increased $227,280 to $406,830 for the year ended June 30, 2009, as compared to professional and consulting fees of $179,550 for the year ended June 30, 2008. The increase in professional and consulting fees was primarily due to the issuance of warrants resulting in an expense to the company of $70,725 along with 783,805 shares of common stock issued for services resulting in an expense to the company of $154,070. Depreciation expense increased $7,236 to $23,048 for the year ended June 30, 2009, as compared to depreciation expense of $15,812 for the year ended June 30, 2008. Impairment expense increased to $65,000 for the year ended June 30, 2009, as compared to none for the year ended June 30, 2008. General and administrative expenses decreased $406,266 to $694,076 for the year ended June 30, 2009, as compared to general and administrative expenses of $1,100,342 for the year ended June 30, 2008. The decrease in general and administrative expenses was primarily attributable to the decrease in office expense and travel resulting from the expansion of our US and Canadian operations in 2008 and merchant fees associated with the decrease in overall sales.
Other income and expenses included a decrease in net interest income of $8,753, to $15,689 for the year ended June 30, 2009, as compared to net interest income of $24,442 for the year ended June 30, 2008, along with a loss on sale of investments of $133,057 for the year ended June 30, 2009, compared to gain on sale of investments of $8,243 for the year ended June 30, 2008, and a gain on foreign currency of $16,784 for the year ended June 30, 2009, compared to a gain on foreign currency of $2,111 for the year ended June 30, 2008.
We had a net loss applicable to common stock of $1,020,489 for the year ended June 30, 2009, as compared to net income applicable to common stock of $261,286 for the year ended June 30, 2008. The increase in net loss applicable to common stock was primarily attributable to the issuance of 2,003,805 shares of common stock for services along with the issuance of options/warrants resulting in a non-cash expense to the company of $616,175 and a decrease in signing up of new agents due to declining economic conditions along with the increase in our corporate and Canadian staffs.
We had other comprehensive loss for the year ended June 30, 2009, consisting of unrealized loss on investments of $127,171 resulting from market to market adjustment of stock owned by the Company at June 30, 2009 compared to an unrealized loss on investment of $75,647 for the year ended June 30, 2008.
Our comprehensive loss was $1,147,660 for the year ended June 30, 2009, as compared to comprehensive income of $185,639 for the year ended June 30, 2008. The increase in comprehensive loss of $1,333,299 for the year ended June 30, 2009 was primarily attributable to the increase in unrealized loss on investments of $127,171 and issuance of 2,003,805 shares of common stock for services along with the issuance of options/warrants resulting in a non-cash expense to the company of $616,175 and a decrease in signing up of new agents due to declining economic conditions along with the increase in our corporate and Canadian staffs.
Liquidity and Capital Resources
As of June 30, 2009, we had total current assets of $542,495 consisting of cash and cash equivalents of $164,703, accounts receivable of $12,026, inventory of $9,950, and investments of $355,816.
We had total current liabilities of $449,162 consisting of accounts payable of $70,571, accrued expenses of $337,961 and deferred revenue of $40,630. We have no long-term debt. Accrued expenses consisted of accrued employees salaries and benefits of $105,539, other expenses of $39,835 and commissions and rewards owed our representatives in the amount of $192,587, of which approximately $33,645 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 $93,333 as of June 30, 2009 and $657,530 as of June 30, 2008. This is a decrease of $564,197 and due to a decrease in the value of our investments.
During the year ended June 30, 2009, net cash decreased by $203,501 consisting of $117,797 used in operating activities, and $72,617 used in investing activities.
Net cash used in operating activities during the year ended June 30, 2009, consisted of a net loss from operations of $1,020,489, adjustment for impairment in investment of $65,000, adjustments for depreciation and amortization of $23,048 along with share-based compensation of $616,175, an increase in accounts receivable of $11,165, an increase in accounts payable and accrued expenses of $131,377, a decrease in prepaid expenses and other current assets of $16,214 and a decrease in inventory of $7,814 which were offset by a decrease in deferred revenue of $117,241, and an adjustment for gain on sale of investments of $171,470.
Net cash used in investing activities during the year ended June 30, 2009, consisted of property and equipment purchases of $14,450, investments purchases of $309,577 and business acquisition of $41,743 which were offset by sale of investments of $292,722 and a decrease in deposits of $431.
PTN’s plan of operations for the coming fiscal year is to take the steps necessary to maximize its operating ability in the current recessionary economy. The downturn has had a significant effect on our earnings, we had a net loss from comprehensive operations for the year ended June 30, 2009 of $1,147,660, and cash used in operations, we had a net utilization of cash applied to operations for the year ended June 30, 2009 of $117,797, and has had a significant impact on our working capital. However, management believes that it has sufficient liquid assets, unrealized commission income from future travel bookings and other sources of working capital to continue operations for the foreseeable future and avoid any adjustments to the carrying value of our assets or liabilities that may be required if we were unable to continue to operate.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market rates and prices, such as changes in foreign currency exchange rates. A discussion of this is presented below.
Exchange Rate
Although we maintain our books and records in U. S. Dollars, we have offices that operate in both Canada and Australia. The exchange rate between the U.S. Dollar and the Canadian Dollar and also the exchange rate between the U.S. Dollar and the Australia Dollar is subject to the foreign exchange quotation regulated by the Securities and Exchange Commission. Results of operations and cash flows are translated at average exchange rates during the period, as well as assets and liabilities.
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the U.S. Dollar are included in the results of operations. Gains and losses from foreign currency transactions are also included in the results of operations.
Item 8.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
PTN, Inc.
Fresno, California
We have audited the accompanying consolidated balance sheets of PTN, Inc. and subsidiary as of June 30, 2009 and 2008 and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the management of PTN, Inc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. PTN is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of PTN’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of PTN, Inc. and subsidiary as of June 30, 2009 and 2008, and the consolidated results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/S/ Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas
October 8, 2009
PTN, INC.
(Formerly Pro Travel Network, Inc.)
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of the financial statements.
PTN, INC.
(Formerly Pro Travel Network, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of the financial statements.
PTN, INC.
(Formerly Pro Travel Network, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended June 30, 2009 and 2008
The accompanying notes are an integral part of the financial statements.
PTN, INC.
(Formerly Pro Travel Network, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of the financial statement
PTN, INC.
(Formerly Pro Travel Network, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
NOTE A - THE COMPANY
Nature of Business and Plan of Operations
PTN, Inc. (formerly Pro Travel Network, Inc.) is a Nevada corporation that was incorporated on October 23, 2003. The Company was initially named PTN Investment Group, Inc. and up through May 2005 was doing business as Pro Travel Network. In May 2005, the Company amended its Articles of Incorporation and changed its name to Pro Travel Network. In May 2009, the Company changed its name to PTN, Inc.
On December 19, 2008, PTN completed its acquisition of 100% of the common stock of KG & S Pty, Ltd., an Australian company which will form the basis of PTN’s retail operations.
PTN serves the travel industry by providing tools, support systems, and comprehensive training for its extensive network of independent, home-based travel agents throughout North America.
PTN’s plan of operations for the coming fiscal year is to take the steps necessary to maximize its operating ability in the current recessionary economy. The downturn has had a significant effect on our earnings, we had a net loss from comprehensive operations for the year ended June 30, 2009 of $1,147,660, and cash used in operations, we had a net utilization of cash applied to operations for the year ended June 30, 2009 of $117,797, and has had a significant impact on our working capital. However, management believes that it has sufficient liquid assets, unrealized commission income from future travel bookings and other sources of working capital to continue operations for the foreseeable future and avoid any adjustments to the carrying value of our assets or liabilities that may be required if we were unable to continue to operate.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
PTN's consolidated financial statements include the accounts of PTN and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
PTN considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.
Foreign Currency Translation
PTN’s functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with SFAS No. 52 “Foreign Currency Translation”, using the exchange rate prevailing at the balance sheet date. Gains and losses arising from this translation is included in the statement of operations.
Credit Risk
PTN is subject to credit risk relative to its trade receivables. However, credit risk with respect to trade receivables is minimized due to the nature of its customer base and the geographic dispersion of such customers. The Company estimates losses for uncollectible trade receivables based on the aging of the accounts receivable and the evaluation of the likelihood of success in collecting the receivable. For the years ended June 30, 2009 and 2008, respectively, the Company had determined that no allowance for doubtful accounts is necessary.
There are no cash balances that exceed FDIC insurance protection levels at June 30, 2009.
Inventories
Inventories consist primarily of training aids provided to travel agents who register in our Independent Travel Agent Program and other promotional products and are valued at the lower of cost (determined using an average cost method) or market. PTN records provisions to write down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between cost of the inventory and its estimated market value based on assumptions about future market demand and market conditions. For the years ended June 30, 2009 and 2008, respectively, the Company had determined that no obsolete or slow-moving inventory valuation is necessary.
Investments in Marketable Securities
PTN classifies its investments as held-to-maturity or available-for sale based upon the nature of the investment. Held-to-maturity investments primarily consist of certificates of deposit. Earnings on held-to-maturity investments are reflected as a component of net income or loss. Available-for-sale securities are primarily marketable equity securities which are reported at estimated fair market value with unrealized gains and losses included in other comprehensive income or loss net of applicable deferred income taxes. Realized gains and losses on sales are recognized in comprehensive in come on the specific identification basis. The estimated fair values of investments are based on quoted market prices or dealer quotes.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements, as amended in February 2008 by FASB Staff Position (“FSP”) FAS 157-2, Effective Date of FASB Statement No. 157. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 also established a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into the following three levels:
Level 1-quoted prices in active markets for identical assets and liabilities.
Level 2-observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3-unobservable inputs.
The adoption of FAS 157 did not have an effect on the Company’s financial condition or results of operations, but SFAS 157 introduced new disclosures about how we value certain assets and liabilities. Much of the disclosure is focused on the inputs used to measure fair value, particularly in instances where the measurement uses significant unobservable (Level 3) inputs.
Investments in Closely-Held Business
PTN has made an equity investment in a privately held company. The accounting treatment of that investment is dependent upon a number of factors, including, primarily, the Company's ability to exercise significant influence over the operating and financial policies of the investee. Since the Company has no ability to exercise significant influence over the operating and financial policies of the investee, the cost method has been used to account for this investment. PTN has classified this investment as non-current as it is not readily marketable.
Additionally PTN periodically evaluates this investment to determine if the carrying value should be impaired.
Property and Equipment
Property and equipment are recorded at cost. The cost and related accumulated depreciation of assets sold, retired or otherwise disposed of are removed from the respective accounts, and any resulting gains or losses are included in the Statements of Operations. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the related assets as follows:
Depreciation and amortization expense related to property and equipment was approximately $23,048 and $15,812 for the years ended June 30, 2009 and 2008 respectively.
Revenue Recognition
PTN recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered, the sale price is fixed and determinable and collectability is reasonably assured. The Company’s primary sources of revenue are discussed below.
Travel Agent Products
PTN’s revenue from sales of travel agent products relate to sales of its independent travel agent packages and sales of its representative trainer program license (“RT License”). Purchasers of the ITA Kit receive everything they need to start their own travel agency and become an independent travel agent. Purchasers of the RT License gain access to the network marketing side of the Company’s business. All proceeds received from participants and expenses generated are recognized in the period of purchase for proper matching of revenue and expense. It represents a one-time sale and is the property of the consumer from that point on whether they choose to book through the PTN system or not.
National Event Services
National event services revenues relate to special promotional training events PTN organizes for purchasers of its travel agent products that are held three to four times a year at resort destination locations. These are training events designed to give PTN’s independent travel agents the opportunity to enhance their skills by learning new and innovative ways to maximize the earnings potential of their recently acquired travel agent products. Since these trainings events occur at a specific point in time, all proceeds received from participants and expenditures paid to the resort vendors are deferred and recognized in the period in which the event occurs. PTN evaluates the proceeds received from participants relative to non-refundable event expenditures that it has made on a monthly basis to assess expected profitability. At such times PTN makes a determination that it is probable that it will not realize participant bookings sufficient to cover its non-refundable event expenditures PTN recognizes a charge equal to the anticipated deficiency.
Commission Revenue
PTN has negotiated arrangements with many travel industry vendors (e.g., hotels, vacation resorts and cruise lines) (“Preferred Suppliers”) that provide the Company the opportunity to earn a commission when one of its independent travel agents makes a booking with one of the Preferred Suppliers. At the time PTN sells one of its ITA packages, it also enters into an agreement with the independent travel agent wherein the independent travel agent agrees that it will earn a percentage (typically 70%) of any commissions generated from bookings with Preferred Suppliers. As the host travel agency, PTN receives the commission payment directly from the Preferred Supplier. Upon receipt of the commission from the Preferred Supplier, PTN recognizes revenue equal to the gross commission received and recognizes an expense equal to the percentage of the commission due the independent travel agent.
Allowance for Cancellations and Returns
PTN provides an allowance for cancellations and returns of travel agent products based on historical experience. Cancellations and returns are applied to the allowance when realized. No allowance was considered necessary as of June 30, 2009 and 2008.
Income Taxes
PTN recognizes deferred income tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income tax liabilities and assets are determined based on the difference between the financial statement and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. PTN recognizes deferred tax assets if it is more likely than not that the assets will be realized in future years.
Stock-Based Compensation
From time to time, PTN issues shares of common stock to its directors, certain employees and non-employee service providers. PTN recognizes the estimated fair value of those shares at the date of grant and amortizes such amount to compensation expense ratably over the vesting period of each grant. In those instances where the award is immediately vested, PTN recognizes a charge for stock based compensation on the grant date.
PTN follows the criteria in EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services" to determine the measurement date for transactions with non-employees for which the measure of goods acquired or services received is based on the fair value of the equity instruments issued.
New Accounting Standards
In April 2008, the FASB issued FSP SFAS 142-3, "Determination of the Useful Life of Intangible Assets" ("SFAS 142-3"). This statement revises the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. The goal of SFAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R, Business Combinations, and other U.S. GAAP. FSP SFAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company does not expect SFAS 142-3 to have a material impact on its financial statements.
In July 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. The levels of authority of the accounting principles available for the preparation of financial statements were previously issued by the American Institute of Certified Public Accountants. The FASB decided that accounting principles applicable to GAAP should be adopted as a FASB Statement. SFAS 162 does not set an effective date. It will become effective 60 days following approval by the Securities and Exchange Commission of amendments made by the Public Accounting Oversight Board to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles." Effects of applying the provisions of SFAS 162 must be reported as changes in accounting principle in accordance with SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"). A company must follow the disclosure requirements of SFAS 154 and additionally disclose the accounting principles that were used before and after the application of the provisions of SFAS 162 and the reasons why applying this Statement resulted in a change in accounting principle. The Company does not expect SFAS 162 to have a material impact on its financial statements.
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” which establishes general standards for accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The pronouncement requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether that date represents the date the financial statements were issued or were available to be issued. SFAS 165 is effective with interim and annual financial periods ending after June 15, 2009. Management does not expect the adoption of SFAS 165 to impact the Company’s results of operations, financial position or cash flows.
In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162" ("SFAS 168"). SFAS 168 establishes the FASB Standards Accounting Codification ("Codification") as the source of authoritative U.S. generally accepted accounting principles ("GAAP") recognized by the FASB to be applied to nongovernmental entities and rules and interpretive releases of the SEC as authoritative GAAP for SEC registrants. The Codification will supersede all the existing non-SEC accounting and reporting standards upon its effective date and subsequently, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. SFAS 168 also replaces FASB Statement No. 162, "The Hierarchy of Generally Accepted Accounting Principles" given that once in effect, the Codification will carry the same level of authority. We do not anticipate that the adoption of this statement will have a material impact on our consolidated financial statement.
Net Income per Common Share
Basic net income (loss) per common share amounts is computed using the weighted average number of common shares outstanding during the year. Diluted per common share amounts are computed using the weighted average number of common shares outstanding during the year and dilutive potential common shares. Dilutive potential common shares consist of stock options, stock warrants, and Redeemable Convertible Preferred Stock and are calculated using the treasury stock method. As of June 30, 2009, the potentially dilutive instruments were excluded because they would be anti-dilutive.
Goodwill
Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible assets of businesses acquired. The business acquired was KG&S Pty, Ltd. in December 2008. We evaluate goodwill for impairment utilizing undiscounted projected cash flows in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” As of June 30, 2009, we believe that no such impairment has occurred. Goodwill has been adjusted for purchase price adjustments recognized during the current fiscal year, if any.
NOTE C - INVESTMENTS IN MARKETABLE SECURITIES
The aggregate amortized cost, cumulative unrealized gains and losses, and estimated fair value, available for sales securities by major type at June 30, 2009 and 2008, is as follows:
The certificates of deposit as of June 30, 2009 in the amount of $45,463 mature on May 10, 2010.
As required by SFAS 157, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. Following are the major categories of assets and liabilities measured at fair value on a recurring basis as of June 30, 2009, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):
NOTE D - INVESTMENTS IN CLOSELY HELD BUSINESS
PTN made an investment of $65,000 for 100,000 shares of a closely held private company named State CE, Inc. on July 15, 2008. State CE, Inc. is an internet based provider of continuing education services. PTN evaluated this investment as of June 30, 2009 and has determined that the carrying value should be impaired to zero.
NOTE E - PROPERTY & EQUIPMENT
Property & equipment as of June 30, 2009 and 2008, consists of the following:
Depreciation and amortization expense related to property and equipment was approximately $23,048 and $15,812 for the years ended June 30, 2009 and 2008, respectively.
NOTE F - COMMON STOCK
PTN 2008 Stock Incentive Plan
PTN adopted the PTN 2008 Stock Incentive Plan on September 26, 2008. The Plan is intended to secure for the Company and its Affiliates the benefits arising from ownership of the Company's Common Stock by the Employees, Officers, Directors, Consultants of the Company and its Affiliates, all of whom are and will be responsible for the Company's future growth. The Plan is designed to help attract and retain for the Company and its Affiliates personnel of superior ability for positions of exceptional responsibility, to reward Employees, Officers, Directors and Consultants for their services and to motivate such individuals through added incentives to further contribute to the success of the Company and its Affiliates.
Awards under the Plan may be made to an Eligible Person in the form of (i) Nonqualified Stock Options; (ii) Restricted Stock; (iii) Stock Awards; (iv) Performance Shares; or (v) any combination of the foregoing.
The maximum aggregate number of shares of Common Stock which may be issued pursuant to Awards under the Plan shall be One Million Two Hundred Thousand (1,200,000) shares.
Issuances for Services
On September 3, 2008, PTN issued 51,429 shares of common stock to a consultant for services rendered valued at $18,000 based upon a closing price of $0.35 on that date.
On September 25, 2008, PTN issued 1,220,000 shares of common stock to employees for services rendered valued at $366,000 based upon a closing price of $0.30 on that date.
On September 25, 2008, PTN issued 95,000 shares of common stock to consultants for services rendered valued at $28,500 based upon a closing price of $0.30 on that date.
On November 26, 2008, PTN issued 637,376 shares of common stock to consultants for services renders valued at $108,354 based upon a closing price of $0.17 on that date.
NOTE G - STOCK OPTIONS/WARRANTS
On June 04, 2008, we entered into a consulting agreement with AGORACOM. In accordance with the terms and provisions of the consulting agreement: (i) we shall issue to AGORACOM 250,000 warrants to purchase up to 250,000 of our restricted common stock at $0.50 per share ; and (ii) AGORACOM shall perform such consulting services involving general business matters and other business consulting as mutually agreed upon. Cost for the 250,000 warrants issued to AGORACOM for consulting services amounted to $82,928, with $12,203 recognized in the financial statements for the year ended June 30, 2008 and $70,725 recognized in the financial statements for the year ended June 30, 2009. The warrants qualify as “plain vanilla” warrants under the provisions of Staff Accounting Bulletin No. 107 and, due to limited warrant exercise data available to the Company, the term was estimated pursuant to the provisions of SAB 107. The weighted average fair value of the options issued was $0.15. Variables used in the Black Scholes option pricing model includes (i) 2.14% risk-free interest rate (ii) expected life of eighteen four months (iii) expected volatility of 167% and (iv) zero expected dividends.
On September 25, 2008, we granted 800,000 options to Ray Lopez, CFO, under PTN, Inc. 2008 Stock Incentive Plan to purchase up to 800,000 of our restricted common stock at $0.50 per share. The options will vest in equal amounts of 160,000 and stage over the next 60 months. All options not exercised by the expiration date are forfeited. Compensation cost for the 800,000 options issued to Ray Lopez amounted to $117,750, with $24,598 recognized in the financial statements for the year ended June 30, 2009 with the balance of $93,152 to be recognized over the period July 1, 2009 through December 24, 2014. The options qualify as “plain vanilla” options under the provisions of Staff Accounting Bulletin No. 107 and, due to limited option exercise data available to the Company, the term was estimated pursuant to the provisions of SAB 107. The weighted average fair value of the options issued was $0.15. Variables used in the Black Scholes option pricing model includes (i) 1.97% risk-free interest rate (ii) expected life of twelve months (iii) expected volatility of 162% and (iv) zero expected dividends.
Summary information regarding options/warrants is as follows:
(a)
The weighted average fair value of the options issued was $0.33. Variables used in the Black Scholes warrant pricing model includes (i) 2.1% risk-free interest rate (ii) expected life of six months (iii) expected volatility of 167% and (iv) zero expected dividends.
(b)
The weighted average fair value of the options issued was $0.15. Variables used in the Black Scholes warrant pricing model includes (i) 2.0% risk-free interest rate (ii) expected life of six months (iii) expected volatility of 164% and (iv) zero expected dividends.
At June 30, 2009, the exercise price of the options and warrants outstanding was $.50. At June 30, 2009, the weighted average remaining contractual life of the options was 3.45 years and the weighted average remaining contractual life of the warrants was .96 years. At June 30, 2008, there were no options outstanding. At June 30, 2008, the exercise price of the warrants outstanding was $.50. At June 30, 2008, the weighted average remaining contractual life of the warrants was .96 years. The options and warrants outstanding had no intrinsic value at June 30, 2009 or June 30, 2008.
Options/Warrants outstanding and exercisable as of June 30, 2009:
NOTE H - NET INCOME PER COMMON SHARE
Basic net income per common share is calculated by dividing the net income applicable to common shares by the weighted-average number of common shares outstanding during the period. Fully diluted net income per common share is calculated by dividing the net income applicable to common shares by the weighted-average number of common and common equivalent shares outstanding during the period. The weighted average common shares and common stock equivalents for both basic and fully diluted earnings per share calculations at June 30, 2009 and 2008 are as follows:
Common stock equivalents for the year ended June 30, 2009 were not used in calculating fully diluted earnings per share as the effect would be anti-dilutive.
NOTE I - COMMITMENTS AND CONTINGENCIES
On October 5th, 2008, a lawsuit was filed against PTN by a recently dismissed employee. The lawsuit alleges that she was fired due to retaliation for filing a complaint of workplace harassment. PTN vehemently denies any and all allegations as completely false and without merit. It is remote that this lawsuit will settle in favor of the employee and, therefore, no contingency is recorded.
PTN leases office space under four non-cancelable operating leases. Rent expense was $158,806 and $143,939 for the years ended June 30, 2009 and 2008, respectively.
The lease on our primary operating facility was amended in April, 2007, and monthly rent was increased, effective July, 2007, to $9,072 per month. The amount of the increase was due to an additional 2,802 square feet bring our total office space to 6,059 square feet. All other terms remain the same. On March 1, 2007, we moved one of 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 for $1,243 per month. On February 20, 2008, we renewed our lease for two years beginning March 2008 with all terms remaining the same. On July 1, 2007, we leased 1,170 square feet of office space in St Jerome, Quebec Canada under a two year non-cancelable operating lease beginning in July 2007, for $1,029 per month. On April 28, 2008, we leased 911 square feet of office space in Surrey, British Columbia Canada under a three year non-cancelable operating lease beginning in July 2008 for $1,536 per month. On October 30, 2008, we leased a space in Mentone, Vic. Australia under a three year operating lease beginning in November 2008 for $1,300 per month.
The lease on our primary operating facility is an operating lease with escalating lease payments. In accordance with the provisions of SFAS No. 13, Accounting for Leases, rent expense is recognized on a straight line basis over the life of lease. Deferred rent was $34,410 and $11,302 at June 30, 2009 and 2008, respectively, and is included in accrued expenses in the accompanying balance sheets
Future minimum rental payments, by year and in aggregate under these leases are as follows.
During the normal course of business, PTN may become involved in various claims and legal actions. Management of the Company establishes estimated liabilities for contingencies consistent with guidance prescribed in SFAS 5. Currently, Management believes the Company has no material exposure related to litigation or other loss contingencies and therefore no provision has been made for potential loss contingencies for the years ending June 30, 2009, and 2008, respectively.
NOTE J -ACQUISITION OF COMPANY
On December 19, 2008, PTN completed its acquisition of KG & S Pty, Ltd., an Australian company for a cash purchase price of $41,743. The assets we acquired consisted of furnishings and fittings. In connection with the acquisition, we assumed no liabilities. The acquisition cost was allocated to assets as follows:
Goodwill is the excess of the fair values of tangible and identifiable intangible assets acquired over liabilities assumed. The amount recognized as Goodwill includes acquired intangible assets for which fair values could not be determined. Goodwill is not amortized, but is tested for impairment at least annually.
NOTE K -SECURITY DEPOSITS
Deposits are comprised of operating lease deposits of approximately $21,929 and $135,353 on deposit with two third-party credit card payment processing services that serve as collateral in case the Company ceased operations or experienced excessive charge backs with its customers. Of the $135,353, approximately $35,353 relates to a credit card processing services that ceased operations prior to returning PTN’s deposit. Although PTN is pursuing collection of this amount, it has provided an allowance for the entire balance.
NOTE L - ACCRUED EXPENSES
Accrued Expenses consist of the following at June 30, 2009 and 2008:
NOTE M - DEFERRED NATIONAL EVENT REVENUE
Represents payments received in advance for National Events in the amount of $40,630 that are scheduled to take place in a future period. Revenue will be recognized by PTN when this scheduled event takes place and expenses related to this event are incurred.
NOTE N - INCOME TAXES
Income taxes are not due since PTN has continued to operate at net loss since inception. PTN has deductible net operating losses of approximately $2,939,091 at June 30, 2009. These losses begin to expire in 2025. Components of deferred tax assets and liabilities at June 30, 2009 and 2008 are as follows:
PTN has recorded a full valuation allowance against its deferred tax asset since it believes it is likely that such deferred tax asset will not be realized.
NOTE O - SUBSEQUENT EVENTS
PTN has evaluated subsequent events through October 1, 2009 which is the date the financial statements were issued.
On July 1, 2009, PTN completed its acquisition of Cruise Adventures, a sole proprietorship of Craig Mungary. The acquisition includes all of the identifiable assets of Cruise Adventures, but no liabilities, in exchange for a payment arrangement wherein:
·
PTN will pay Mungary the excess of cash collections of receivable existing at July 1, 2009 over expenses for that period.
·
PTN assumes all cost of operations after the date of acquisition in excess of collections and all expenses after the initial three month period.
·
PTN agrees to pay Craig Mungary with PTN common stock an amount equal to all money paid for operating expense and applied to pre-close collections during the payment period which ends October 1, 2009.
On July 1, 2009, the Company has an employment agreement with Craig Mungary, who will serve as VP of Retail Sales. The agreement terminates on June 30, 2011 and states Mungary’s base salary of $72,000 up to June 30, 2010 and increase annually by 10%. Mungary’s performance-based incentive compensation is 10% of actual received commission revenue only after the first $600,000 in revenue.
Mungary is also granted the option to purchase 200,000 common shares per year over the next five years at strike price of $0.20 with each tranche of shares vesting and expiring at the end of each annual period on June 30.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A(T).
Item 9A(T). Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit to the SEC under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our chief executive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management, with the participation of the chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of the Company's “disclosure, controls and procedures”, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework, (as defined in the Exchange Act) Rules 13a-15(3) and 15-d-15(3) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, the chief executive officer and chief financial officer concluded that, as of the Evaluation Date, the Company’s disclosure, controls and procedures are not effective at providing them with material information relating to the Company as required to be disclosed in the reports the Company files or submits under the Exchange Act on a timely basis. The following material weaknesses were noted in the evaluation of our disclosure controls and procedures:
1) There are inadequate controls over the creation and posting of journal entries to ensure they are authorized, accurate, and complete.
2) Financial reporting controls are inadequate to ensure that the financial statements are free of material misstatement and disclosures are in accordance with generally accepted accounting principles.
These material weaknesses have been disclosed to our Board of Directors and PTN will implement compensating controls as resources become available.
Changes in Internal Control Over Financial Reporting
No change in the Company s internal control over financial reporting occurred during the year ended June 30, 2009, that materially affected, or is reasonably likely to materially affect, the Company s internal control over financial reporting.
Item 9B.
Item 9B. Other Information
None
PART III
ITEM 10.
ITEM 10. Directors, Executive Officers And Corporate Governance
Identification of Directors and Executive Officers
All of our directors hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified. Our officers are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal.
Our directors and executive officers, their ages, positions held are as follows:
Name
Age
Position with the Company
Paul Henderson
President, Chief Executive Officer and a Director
Raymond Lopez
Vice President and Chief Operating Officer
Frederick McIntosh
CFO/Controller
Douglas Singer
Director
James Estes
Director
Business Experience
The following is a brief account of the education and business experience of each director, executive officer and key employee during at least the past five years, indicating each person's principal occupation during the period, and the name and principal business of the organization by which he or she was employed, and including other directorships held in reporting companies.
Paul Henderson, President/Chief Executive Officer and a director
Mr. Henderson has been President, Chief Executive Officer and director of PTN, Inc. since its inception in October 2003. From January 2002 to October 2003, Mr. Henderson was a self employed sales and recruiting representative selling and recruiting people to sell long distance services. Prior to that, he was Regional Vice President of ACN, Inc. a long distance service marketing company.
Raymond Lopez, Vice President/Chief Operating Officer
Mr. Lopez brings over 16 years of sales management and finance experience to his role as Chief Operating Officer and Vice President. Most recently, he served as Area Manager for Countrywide Specialty Lending Group. Prior to that, he was the General Sales Manager of Fresno Dodge, the largest selling Dodge dealer in Central California. He has a proven track record of quickly achieving success and being recognized for that success.
Frederick McIntosh, CFO/Controller
Mr. McIntosh brings over 20 years of accounting experience to his role as CFO/Controller. Most recently, he served as Controller for the Fresno Rescue Mission in Fresno, CA.
Douglas Singer, Director
Mr. Singer has been a successful Central Valley small business owner and entrepreneur for nearly 20 years. After earning a BA in history from San Diego State University, he began his first company in 1989, Singer Commercial Spraying. Currently Mr. Singer now owns and operates three ag service companies; Singer Commercial Spraying, Singer Brush Shedding and Singer Farms, which consist of a 40 acre orange orchard and 110 acres of almonds, pistachios and grapes.
Jim Estes, Director
Mr. Estes founded Estes Development, a company that develops and constructs commercial real estate projects. Mr. Estes and his company have completed a range of projects such as shopping centers, various land development projects and auto dealerships. He has been very successful in the auto sales industry and is a Dealer Principal and owner, of a number of successful dealerships. Mr. Estes earned his Bachelor of Science degree in Business Marking from California State University.
Family Relationships
There are no family relationships among our directors or officers.
Audit Committee
As of the date of this Annual Report, we have not appointed members to an audit committee and, therefore, the respective role of an audit committee has been conducted by our Board of Directors as a whole. When established, the audit committee's primary function will be to provide advice with respect to our financial matters and to assist our Board of Directors in fulfilling its oversight responsibilities regarding finance, accounting, tax and legal compliance. The audit committee's primary duties and responsibilities will be to: (i) serve as an independent and objective party to monitor our financial reporting process and internal control system; (ii) review and appraise the audit efforts of our independent accountants; (iii) evaluate our Annual financial performance as well as our compliance with laws and regulations; (iv) oversee management's establishment and enforcement of financial policies and business practices; and (v) provide an open avenue of communication among the independent accountants, management and our Board of Directors.
Code of Ethics
Our board of directors adopted a Code of Ethics in September 2006, meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We will provide to any person without charge, upon request, a copy of such Code of Ethics. Persons wishing to make such a request should contact Paul Henderson, Chief Executive Officer, at 516 West Shaw Avenue # 103, Fresno, California 93704 or at (559) 224-6000.
Item 11.
Item 11. Executive Compensation.
The following table sets forth the compensation paid to our executive officers during fiscal year ended June 30, 2009 and 2008 (collectively, the “Named Executive Officers”):
Summary Compensation Table
(1)
This amount represents fees paid by us to the Named Executive Officer during the past year pursuant to services provided in connection with their respective position as Chief Executive Officer and Chief Operating Officer.
Compensation Agreements
We have an employment agreement with Paul Henderson which provides as follows:
o
The agreement began on July 1, 2008.
o
The agreement was amended July 1, 2008 to increase his annual salary from $200,000 to $240,000 per year and change his performance-based incentive compensation to 1.75% of actual gross revenue.
o
Without cause, we may terminate the agreement at any time prior to the end of the agreement without cause; we are required to pay Mr. Henderson a severance payment in an amount equal to the Executive’s Base Salary for the preceding two years in biweekly increments for the two years following such termination.
For a period of two years after the end of employment, Mr. Henderson shall not control, consult to or be employed by any business similar to that conducted by us, either by soliciting any of our accounts or by operating within our general trading area.
We have an employment agreement with Ray Lopez which provides as follows:
o
The agreement began on July 1, 2008.
o
The agreement was amended July 1, 2008 to increase his annual salary from $96,000 to $120,000 per year and change his performance-based incentive compensation to 0.50% of actual gross revenue.
o
Without cause, we may terminate the agreement at any time prior to the end of the agreement without cause; we are required to pay Mr. Lopez a severance payment in an amount equal to the Executive’s Base Salary for the preceding two years in biweekly increments for the two years following such termination.
For a period of two years after the end of employment, Mr. Lopez shall not control, consult to or be employed by any business similar to that conducted by us, either by soliciting any of our accounts or by operating within our general trading area.
Summary Equity Awards Table
The following table sets forth certain information for our executive officers concerning unexercised options, stock that has not vested, and equity incentive plan awards as of June 30, 2009.
Director Compensation Table
During fiscal year ended June 30, 2009, we did pay compensation to our non-employee directors for their respective position on the Board of Directors.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
As of the date of this Annual Report, the following table sets forth certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated. As of the date of this Annual Report, there are 27,889,145 shares of common stock issued and outstanding.
(1)
Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding as of the date of this Annual Report. As of the date of this Annual Report, there are 25,680,340 shares issued and outstanding.
(2)
The business address of the shareholders is 516 West Shaw Avenue # 103, Fresno, California 93704.
Changes in Control
There are not any pending or anticipated arrangements that may cause a change in control of PTN, Inc.
Item 13.
Item 13. Certain Relationships and Related Transactions and Director Independence.
Director Independence
Our board of directors has determined that we do not have a board member that qualifies as “independent” as the term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities Exchange Act of 1934, as amended, and as defined by Rule 4200(a)(15) of the NASDAQ Marketplace Rules.
Item 14.
Item 14. Principal Accountant Fees and Services.
The aggregate fees billed by our principal accountant for each of the last two fiscal years for Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees are as follows:
PART IV
Item 15.
Item 15. Exhibits.
The following exhibits are filed with this Annual Report on Form 10-K:
Exhibit No.
Description of Exhibit
31.1
CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
31.2
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
32.1
CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
32.2
CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Title
Name
Date
Signature
Principal Executive
Officer
Paul Henderson
October 8, 2009
/s/ Paul Henderson
Principal Accounting
Fred McIntosh
October 8, 2009
/s/ Fred McIntosh
Officer
Principal Financial
Officer
Fred McIntosh
October 8, 2009
/s/ Fred McIntosh
In accordance with the Exchange Act, this report has been signed below by the following persons and in the capacities and on the dates indicated.
SIGNATURE
NAME
TITLE
DATE
/s/ Paul Henderson
Paul Henderson
Director
/s/ Douglas Singer
Douglas Singer
Director
/s/ James Estes
James Estes
Director