As filed with the Securities and Exchange Commission on May 15, 2007
Registration Number 333-139461
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
JOYSTAR, INC.
(Name of Small Business Issuer in its Charter)
California 4700 68-0406331
---------- ---- ----------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer)
incorporation or organization) Classification Code Number) Identification No.
95 Argonaut Street, First Floor
Aliso Viejo, CA 92656
(949) 837-8101
(Address and telephone number of principal executive offices)
William Alverson
Chief Executive Officer
Joystar, Inc.
95 Argonaut Street, First Floor
Aliso Viejo, CA 92656
(949) 837-8101
(Name, address and telephone number of agent for service)
Copies to:
Richard A. Friedman, Esq.
Sichenzia Ross Friedman Ference LLP
61 Broadway, 32nd Floor
New York, New York 10006
Tel: (212) 930-9700
Fax: (212) 930-9725
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]______
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
========================================== ===================== ====================== ===================== ==================
Proposed Maximum Proposed Maximum
Title of each class of securities Amount to be Offering Price Per Aggregate Offering Amount of
to be registered Registered (1) Security (2) Price Registration Fee
------------------------------------------ --------------------- ---------------------- --------------------- ------------------
Common Stock, no par value per share 3,212,000 (3) $1.08 $3,468,960 $371.18
Common Stock, no par value per share 200,750 (4) $1.08 $216,810 $23.20
Common Stock, no par value per share 200,750 (5) $1.08 $216,810 $23.20
Common Stock, no par value per share 3,575,028 (6) $1.08 $3,861,030 $413.13
------------------------------------------ --------------------- ---------------------- --------------------- ------------------
Total 7,188,528 $7,763,610 $830.71*
========================================== ===================== ====================== ===================== ==================
* Previously Paid.
(1) Includes shares of our common stock, no par value per share, which may be
offered pursuant to this registration statement. In addition to the shares set
forth in the table, the amount to be registered includes an indeterminate number
of shares issuable upon the exercise of the warrants; as such number may be
adjusted as a result of stock splits, stock dividends and similar transactions
in accordance with Rule 416.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, using the average
of the high and low prices as reported on the Over The Counter Bulletin Board on
May 8, 2007, which was $0.91 per share.
(3) Represents shares of common stock sold in the November 2006 private
placement.
(4) Represents shares of common stock underlying Series A warrants exercisable
at the price of $0.85 per share sold in connection with the November 2006
private placement.
(5) Represents shares of common stock underlying Series B warrants exercisable
at the price of $1.00 per share sold in connection with the November 2006
private placement.
(6) Represents shares of common stock issued to certain of the selling
stockholders in private transactions of 357,143 shares at the price of $.070 per
share, 550,000 shares at the price of $0.50 per share, 1,025,000 shares issued
for services and 1,642,885 shares issued to two officers and directors upon
conversion of their respective loans to us totaling $575,000.
EXPLANATORY NOTE: As we currently do not have enough authorized shares of common
stock to issue upon exercise of all of the Series A, Series B and broker common
stock purchase warrants issued pursuant to our November 2006 private placement,
as well as common stock purchase warrants which we issued to certain of the
selling stockholders in private transactions, we intend to register the
remaining shares in an amendment to this registration statement subsequent to
obtaining the requisite approval of our stockholders to increase our authorized
shares of common stock from 50,000,000 to 200,000,000 shares. Thus, the total
amount of shares included in this registration statement represent (i) 100% of
the common stock sold in the private placement concluded in November of 2006,
(ii) 50% of the number of shares underlying the Series A and Series B common
stock purchase warrants that we are required to register in connection with the
November 2006 private placement, (iii) none of the broker common stock purchase
warrants that we are required to register in connection with the November 2006
private placement, and (iv) none of the common stock purchase warrants which we
issued to certain of the selling stockholders in private transactions.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
Subject to Completion, Dated May 15, 2007
JOYSTAR, INC.
7,188,528 Shares of Common Stock
This prospectus relates to the resale by the selling stockholders of up to
7,188,528 shares of our common stock. The selling stockholders may sell common
stock from time to time in the principal market on which the stock is traded at
the prevailing market price or in negotiated transactions.
The selling shareholders named in this prospectus are offering to sell up to
7,188,528 shares of common stock including (i) up to 3,212,000 shares of our
common stock issued pursuant to our November 2006 private placement (ii) up to
401,500 shares issuable upon the exercise of Series A and Series B warrants
issued pursuant to our November 2006 private placement, and (iii) 3,575,028
shares of common stock issued to certain of the selling stockholders in private
transactions. We are not selling any shares of common stock in this offering and
therefore will not receive any proceeds from this offering. We will, however,
receive proceeds from the exercise, if any, of the Series A and Series warrants
to purchase up to 401,500 shares of common stock. All costs associated with this
registration will be borne by us.
Our common stock currently trades on the Over the Counter Bulletin Board (the
"OTCBB") under the symbol "JYSR.OB."
On May 8, 2007, the last reported sale price for our common stock on the
OTCBB was $0.95 per share.
The securities offered in this prospectus involve a high degree of risk.
See "Risk Factors" beginning on page 3 of this prospectus to read about factors
you should consider before buying shares of our common stock.
No underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is May 15, 2007
JOYSTAR, INC.
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................................... 1
Risk Factors................................................................. 3
Forward-Looking Statements................................................... 12
Use of Proceeds.............................................................. 12
Selling Stockholders......................................................... 12
Plan of Distribution......................................................... 15
Market for Common Equity and Related Stockholder Matters..................... 16
Description of Business...................................................... 18
Management's Discussion and Analysis or Plan of Operation.................... 23
Description of Property...................................................... 27
Legal Proceedings............................................................ 27
Management................................................................... 28
Executive Compensation....................................................... 29
Certain Relationships and Related Transactions............................... 29
Security Ownership of Certain Beneficial Owners and Management............... 30
Description of Securities.................................................... 30
Disclosure of Commission's Position on Indemnification for Securities Act
Liabilities.................................................................. 31
Legal Matters................................................................ 31
Experts...................................................................... 32
Changes in Accountants....................................................... 32
Additional Information....................................................... 32
Financial Statements.........................................................F-1
You may only rely on the information contained in this prospectus or that we
have referred you to. We have not authorized anyone to provide you with
different information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the common stock
offered by this prospectus. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any common stock in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made in connection with this prospectus shall, under any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained by
reference to this prospectus is correct as of any time after its date.
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the notes to the financial
statements. As used throughout this prospectus, the terms "Joystar", "we," "us,"
or "our" refer to Joystar, Inc.
JOYSTAR, INC.
General
We specialize in selling complex travel products including cruises, vacation
packages and group travel through our national sales force of cruise and
vacation specialists. Our comprehensive business opportunity combines innovative
technology, marketing programs and expert support services to entrepreneurial
travel agents giving them the competitive advantage they need to succeed. With
Joystar, travel agents can concentrate on promoting travel and creating client
loyalty without the administrative and financial burden of owning and operating
a traditional storefront travel agency. We are proving to be the hands-down
choice for serious travel professionals who want to flourish in this changing
and exciting time in the industry. As of November 30, 2006, our membership was
4,544 agents.
Revenues for the year ended December 31, 2006 increased to $6,932,277 from
$1,942,526 for the year ended December 31, 2005. In addition, revenues for the
year ended December 31, 2005 increased to $1,942,526 from $68,995 for the year
ended December 31, 2004. We had a cash balance of $2,102,861 at December 31,
2006 as compared to $218,948 at December 31, 2005. For the year ended December
31, 2006 and the year ended December 31, 2005, we had total net loss of
$10,648,509 and $3,885,479, respectively. As a result of recurring losses from
operations our auditors, in their report dated April 18, 2007, have expressed
substantial doubt about our ability to continue as a going concern.
Our corporate offices are located at 95 Argonaut St., First Floor, Aliso Viejo,
CA 92656. Our telephone number is (949) 837-8101. We are a California
corporation.
Recent Developments
November 2006 Private Placement
On November 16, 2006, we sold in a private placement of up to $2,500,000, a
total of 3,212,000 shares (the "Shares") of our common stock, no par value per
share, at a purchase price of $0.625 per share to institutional and accredited
investors, for a total purchase price of $2,007,500. In addition to the Shares,
on the closing date, we issued and delivered Series A and B Warrants to the
investors (collectively the "Warrants"). One Series A Warrant and one Series B
Warrant was issued for each four Shares issued, for a total of 803,000 Series A
Warrants and 803,000 Series B Warrants. Series A Warrants are exercisable into
common stock at $0.85 per share and Series B Warrants are exercisable at $1.00
per share. The Series A and B Warrants are exercisable until five (5) years
after the closing date.
We paid 10% commissions in cash in the amount of $200,750 and issued 321,200
common stock purchase warrants to First Montauk Securities Corp. of Red Bank,
New Jersey, member NASD, who acted as a selling agent for the financing. We
received total net proceeds of $1,766,750, after deducting the legal fees and
commissions. The net proceeds will be used by us for working capital purposes.
Shares and Warrants Issued.
On August 25, 2006, we sold in a private transaction to accredited investors, a
total of 550,000 shares of our common stock, no par value per share, at a
purchase price of $0.50 per share. In addition to the shares, we delivered one
warrant for every two shares purchased. On September 22, 2006, we sold in a
private transaction to an accredited investor, a total of 357,143 shares of our
common stock, no par value per share, at a purchase price of $0.70 per share. In
addition to the shares, we delivered one warrant for every two shares purchased.
Shares in the amount of 1,642,885 were issued on June 30, 2005 to two officers
and directors upon conversion of their respective loans to us totaling $575,000
including one warrant for every two shares converted. The warrants are
exercisable into common stock at $0.35 per share.
On December 2, 2005 we issued 1,000,000 shares for services and on September 27,
2006, 25,000 shares were issued for services performed on behalf of our company.
The shares and warrants were offered and sold by us to investors whom we had
reasonable grounds to believe were "accredited investors" within the meaning of
Rule 501 of Regulation D under the Securities Act of 1933, as amended (the
"Securities Act"). The investors were provided access to business and financial
about us and had such knowledge and experience in business and financial matters
that it was able to evaluate the risks and merits of an investment in our
company. Each certificate evidencing securities issued to the investors included
a legend to the effect that the securities were not registered under the
Securities Act and could not be resold absent registration or the availability
of an applicable exemption from registration. No general solicitation or
advertising was used in connection with the transaction.
1
The Offering
------------
Common stock outstanding before the offering................ 49,119,006 shares
Common stock offered by selling stockholders................ Up to 7,188,528 shares, including the following:
- up to 3,212,000 shares of common stock
that have already been issued to the
selling stockholders,
- up to 401,500 shares of common stock issuable
upon the exercise of Series A and Series B
common stock purchase warrants, and
- up to 3,575,028 shares of common stock
issued to certain of the selling stockholders
in private transactions.
This number represents 14.98% of our current
outstanding stock.
Common stock to be outstanding after the offering........... Up to 56,307,534 shares.
Use of proceeds............................................. We will not receive any proceeds from the sale
of the common stock. However, we will receive
the sale price of any common stock we sell to
the selling stockholder upon the exercise of the
Series A and Series B common stock purchase
warrants, and common stock purchase warrants
issued to certain of the selling stockholders in
private transactions. We expect to use the
proceeds received from the exercise of the
warrants, if any, for general working capital
purposes.
Over-The-Counter Bulletin Board Symbol...................... JYSR.OB
The above information regarding common stock to be outstanding after the
offering is based on 49,119,006 shares of common stock outstanding as of May 8,
2007.
2
RISK FACTORS
An investment in our shares involves a high degree of risk. Before making an
investment decision, you should carefully consider all of the risks described in
this prospectus. If any of the risks discussed in this prospectus actually
occur, our business, financial condition and results of operations could be
materially and adversely affected. If this were to happen, the price of our
shares could decline significantly and you may lose all or a part of your
investment. The risk factors described below are not the only ones that may
affect us. Our forward-looking statements in this prospectus are subject to the
following risks and uncertainties. Our actual results could differ materially
from those anticipated by our forward-looking statements as a result of the risk
factors below. See "Forward-Looking Statements."
Risks Related to Our Financial Results
We have incurred significant operating losses since our inception and we cannot
assure you that we will ever achieve profitability.
Revenues for the year ended December 31, 2006 increased to $6,932,277 from
$1,942,526 for the year ended December 31, 2005. In addition, revenues for the
year ended December 31, 2005 increased to $1,942,526 from $68,995 for the year
ended December 31, 2004. We had a cash balance of $2,102,861 at December 31,
2006 as compared to $218,948 at December 31, 2005. For the year ended December
31, 2006 and the year ended December 31, 2005, we had total net loss of
$10,648,509 and $3,885,479, respectively. We cannot assure you that we can
achieve or sustain profitability in the future. Our operations are subject to
the risks and competition inherent in the establishment of a business
enterprise. There can be no assurance that future operations will be profitable.
Revenues and profits, if any, will depend upon various factors, including
whether our product will achieve market acceptance. We may not achieve our
business objectives and the failure to achieve such goals would have an adverse
impact on us. These matters raise substantial doubt about our ability to
continue as a going concern.
Our future capital needs are uncertain. We will need to raise additional funds
in the future and these funds may not be available on acceptable terms or at
all.
We believe that our current cash and cash equivalents are sufficient to meet
projected operating requirements through December 31, 2007. Therefore, we may
seek additional funds from public and private stock or debt offerings,
borrowings or other sources prior to such time. Our capital requirements will
depend on many factors, including:
o The revenues generated by sales of our travel products;
o The costs required to develop new travel products;
o The costs of obtaining and defending patents, trademarks and copyrights of our
travel products;
o The costs associated with expanding our sales and marketing efforts;
o The expenses we incur in selling our products;
o The costs associated with any expansion of operations;
o The costs associated with capital expenditures; and
o The number and timing of any business acquisitions or other strategic
transactions.
As a result of these factors, we will need to raise additional funds, and these
funds may not be available on favorable terms, or at all. Furthermore, if we
issue equity or debt securities to raise additional funds, our existing
stockholders may experience dilution, and the new equity or debt securities may
have rights, preferences and privileges senior to those of our existing
stockholders. If we cannot raise funds on acceptable terms, we may not be able
to develop or enhance our travel products, execute our business plan, take
advantage of future opportunities, or respond to competitive pressures or
unanticipated customer requirements.
Our auditor's opinion expresses substantial doubt about our ability to continue
as a "going concern"
The independent auditors report on our April 18, 2007 financial statements state
that our historical losses raise substantial doubts about our ability to
continue as a going concern. We cannot assure you that we will be able to
maintain any growth in our revenues or achieve profitability. Accordingly, a
purchase of our common stock should be considered a high-risk investment Despite
obtaining funding in the amount of approximately $2.0 million dollars as of
November 16, 2006, our ability to continue as a going concern is subject to our
ability to generate a profit or obtain further necessary funding from outside
sources, including obtaining additional funding from the sale of our securities,
generating revenues/sales or obtaining credit lines or loans from various
financial institutions where possible. If we are unable to develop our business,
3
we may have to discontinue operations or cease to exist, which would be
detrimental to the value of our common stock. We can make no assurances that our
business operations will develop and provide us with significant cash to
continue operations.
Risks Related to Our Business
Our inability to be successful in responding to the following conditions and
failure to accomplish the objectives presented by them may have a material
adverse effect on our business, operating results and financial condition.
As a result of the numerous factors that could potential impact our operating
results and the rapidly changing nature of the markets in which we compete, our
quarterly and annual revenues and operating results are likely to fluctuate from
period to period. These fluctuations may be caused by a number of factors, many
of which are beyond our control. These factors include the following, as well as
others discussed elsewhere in this prospectus:
o The risks, uncertainties, expenses and difficulties frequently encountered by
companies in their early stages of development; o Our inability to obtain new
customers at reasonable cost, retain existing customers or encourage repeat
purchases. o Decreases in the number of visitors to our websites or our
inability to convert visitors to our websites into customers; o Our inability to
adequately maintain, upgrade and develop our websites, the systems that we use
to process customers' orders and payments or our computer network.; o Our
inability to retain existing airlines, hotels, rental car companies and other
suppliers of travel services ("travel suppliers") or to obtain new travel
suppliers; o Our inability to obtain travel products on satisfactory terms from
our travel suppliers; o The ability of our competitors to offer new or enhanced
websites, services or products; o Fluctuating gross margins due to a changing
mix of revenues; o The termination of existing relationships with key service
providers or failure to develop new ones; o The amount and timing of operating
costs relating to expansion of our operations; o Economic conditions specific to
the Internet, online commerce and the travel industry; o Attract additional
travel suppliers and consumers to our service; o Maintain and enhance our brand;
o Expand our service offerings; o Operate, expand and develop our operations and
systems efficiently; o Maintain adequate control of our expense; o Respond to
technological changes; and o Respond to competitive market conditions
Our inability to be successful in responding to factors set forth above or
accomplishing the objectives presented by them, may have a material adverse
effect on our business, operating results and financial condition.
We depend on our relationships with travel suppliers; our business could be
harmed by adverse changes in these relationships.
Our business model relies on relationships with travel suppliers, and it would
be negatively affected by adverse changes in these relationships. We depend on
travel suppliers to enable us to offer our customers comprehensive access to
travel services and products. Consistent with industry practices, we currently
have few agreements with our travel suppliers obligating them to sell services
or products through our websites. It is possible that travel suppliers may
choose not to make their inventory of services and products available through
online distribution. Travel suppliers could elect to sell exclusively through
other sales and distribution channels or to restrict our access to their
inventory, either of which could significantly decrease the amount or breadth of
our inventory of available travel offerings. We will also depend on travel
suppliers for advertising revenues.
Our business model relies on our relationships with licensees and computer
reservations systems.
In addition to our relationships with travel suppliers, our business model
relies on our relationships with licensees and computer reservations systems.
Our license revenues are generated through new and existing travel agents.
Adverse changes in any of these relationships could have a material adverse
effect on our business, operating results and financial condition.
A decline in commission rates or the elimination of commissions could hurt our
business.
A substantial majority of our online revenues depends on the commissions paid by
travel suppliers for bookings made through our online travel service. Generally,
we do not have written commission agreements with our suppliers. As is standard
practice in the travel industry, we rely on informal arrangements for the
payment of commissions. Travel suppliers are not obligated to pay any specified
commission rate for bookings made through our websites. We cannot assure you
that airlines, hotel chains or other travel suppliers will not reduce current
industry commission rates or eliminate commissions entirely, either of which
could have a material adverse effect on our business, operating results and
financial condition.
4
Consumers, travel suppliers and advertisers may not accept our website as a
valuable commercial tool which would harm our business.
For us to achieve significant growth, travel agents, consumers, travel
suppliers, and advertisers must accept our website as a valuable commercial
tool. Consumers who have historically purchased travel products using
traditional commercial channels, such as local travel agents and calling
airlines directly must instead purchase these products through our website.
Similarly, travel suppliers and advertisers will also need to accept or expand
their use of our website. Travel suppliers will need to view our websites as an
efficient and profitable channel of distribution for their travel products.
Advertisers will need to view our website as effective ways to reach their
potential customers.
In order to achieve the acceptance of consumers, travel suppliers and
advertisers contemplated by our business plan, we will need to continue to make
substantial investments in our technology and brand. We cannot at this time
determine how much of an investment it will take nor, be assured that we will be
able to secure the funds required. We do not have specific plans or budget at
this time. Our failure to make progress in these areas may harm our business.
Intense competition could reduce our market share and harm our financial
performance.
The markets for the products and services offered by us are intensely
competitive. We compete with other online travel reservation services,
traditional travel agencies, and travel suppliers offering their services. We
also compete with many of the same parties and others in the licensing of
technology to home based travel agents and corporate travel agencies.
We compete with a variety of companies with respect to each product or service
we offer. These competitors include: Internet travel agencies such as Expedia,
Orbitz, and Travelocity; local, regional, and national and international
traditional travel agencies; consolidators and wholesalers of airline tickets
and other travel products, including online consolidators such as
Cheaptickets.com, Hotwire and Priceline.com.; individual airlines, hotels,
rental car companies, cruise operators and other travel service providers, some
of which are suppliers to our websites; operators of travel industry reservation
databases.
In addition to the traditional travel agency channel, many travel suppliers,
including many suppliers with which we will do business, also offer their travel
services as well as third- party travel services directly through their own
websites. Suppliers also sell their own services directly to consumers,
predominantly by telephone. As the market for online travel services grows, we
believe that the companies involved in the travel services industry, including
travel suppliers, traditional travel agencies and travel industry information
providers, will increase their efforts to develop services that compete with our
services by selling inventory from a wide variety of suppliers. We cannot assure
you that our online operations will compete successfully with any current or
future competitors.
Our limited operating history and the greater size and resources of competitors
may have a significant impact on our operations.
Many of our competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we have and may enter into strategic or commercial
relationships with larger, more established and better-financed companies. Some
of our competitors may be able to secure services and products from travel
suppliers on more favorable terms, devote greater resources to marketing and
promotional campaigns and commit more resources to website and systems
development than we are able to devote. In addition, the introduction of new
technologies and the expansion of existing technologies may increase competitive
pressures. Increased competition may result in reduced operating margins, as
well as loss of market share and brand recognition. We cannot assure you that we
will be able to compete successfully against current and future competitors.
Competitive pressures faced by us could have a material adverse effect on our
business, operating results and financial condition.
Establishing, maintaining and enhancing our brand will be a critical aspect of
our efforts to attract and expand our online traffic.
We believe that establishing, maintaining and enhancing our brand will be a
critical aspect of our efforts to attract and expand our online traffic. The
number of Internet sites that offer competing services, many of which already
have well-established brands in online services or the travel industry
generally, increases the importance of establishing and maintaining brand
recognition. Promotion of the Joystar brand will depend largely on our success
in providing a high-quality online experience supported by a high level of
customer service. In addition, to attract and retain online users and to respond
to competitive pressures, we intend to increase our spending substantially on
marketing and advertising with the intention of expanding our brand recognition.
However, we cannot assure you that these expenditures will be effective to
promote our brand or that our marketing efforts generally will achieve our
goals.
If we are unable to provide high-quality online services or customer support, if
we fail to promote and maintain our brand or if we incur excessive expenses in
these efforts, our business, operating results and financial condition would be
materially adversely affected. If we are unable to introduce and sell new
products and services, our business may be harmed.
We need to broaden the range of travel products and services and increase the
availability of products and services that we offer in order to enhance our
service. We will incur substantial expenses and use significant resources trying
to expand the range of products and services that we offer. However, we may not
be able to attract sufficient travel suppliers and other participants to provide
desired products and services to our consumers. In addition, consumers may find
5
that delivery through our service is less attractive than other alternatives. If
we launch new products and services and they are not favorably received by
consumers, our reputation and the value of the Joystar brand could be damaged.
Our relationships with consumers and travel suppliers are mutually dependent
since consumers will not use a service that does not offer a broad range of
travel services. Similarly, travel suppliers will not use a service unless
consumers actively make travel purchases through it. We cannot predict whether
we will be successful in expanding the range of products and services that we
offer. If we are unable to expand successfully, our business, operating results
and financial condition may be materially adversely affected. We may be unable
to plan and manage our operations and growth effectively.
Our growth may increase our expense levels and the difficulties we face in
managing our operations.
Growth and our anticipated future operations will continue to place, a
significant strain on our management, systems and resources. We will continue to
increase the scope of our operations and the size of our workforce. In addition
to needing to train and manage our workforce, we will need to continue to
improve and develop our financial and managerial controls and our reporting
systems and procedures. A failure to plan, implement and integrate these systems
successfully could adversely affect our business.
Declines or disruptions in the travel industry, such as those caused by
terrorism or general economic downturns, could reduce our revenues.
We rely on the health and growth of the travel industry. Travel is highly
sensitive to travel safety concerns, and thus declines may occur after acts of
terrorism that affect the safety of travelers. The terrorist attacks of
September 11, 2001 on the World Trade Center in New York City and the Pentagon
in northern Virginia using hijacked commercial airliners resulted in bookings
industry wide. The long-term effects of these events could include, among other
things, a protracted decrease in demand for air travel due to fears regarding
additional acts of terrorism, military responses to acts of terrorism and
increased costs and reduced operations by airlines due, in part, to new security
directives adopted by the Federal Aviation Administration. These effects,
depending on their scope and duration which we cannot predict at this time
together with any future terrorist attacks, could significantly impact our
long-term results of operations or financial condition.
The travel industry is sensitive to business and personal discretionary spending
levels and tends to decline during general economic downturns, which could also
reduce our revenues.
The travel industry is sensitive to business and personal discretionary spending
levels and tends to decline during general economic downturns, which could also
reduce our revenues. Other adverse trends or events that tend to reduce travel
are likely to hurt our business. These may include:
o Price escalation in the airline industry or other travel-related industries.
o Increased occurrence of travel-related accidents.
o Airline or other travel-related strikes.
o Political instability.
o Regional hostilities and terrorism.
o Bad weather
Interruptions in service from third parties could hurt our business.
We rely on third-party computer systems and third-party service providers,
including the computerized central reservation systems of the airline, hotel and
car rental industries to make airline ticket, hotel room and car rental
reservations and credit card verifications and confirmations. Any interruption
in these third-party services or deterioration in their performance could hurt
our business. If our arrangement with any of these third parties is terminated,
we may not find an alternate source of systems support on a timely basis or on
commercially reasonable terms.
Our success depends on maintaining the integrity of our systems and
infrastructure.
As our operations grow in both size and scope, domestically and later
internationally, we will need to improve and upgrade our systems and
infrastructure to offer an increasing number of travel agents, customers and
travel suppliers enhanced products, services, features and functionality. The
expansion of our systems and infrastructure will require us to commit
substantial financial, operational and technical resources before the volume of
business increases, with no assurance that the volume of business will increase.
Travel agents, consumers and suppliers will not tolerate a service hampered by
slow delivery times, unreliable service levels or insufficient capacity, any of
which could have a material adverse effect on our business, operating results
and financial condition.
6
In this regard, our operations face the risk of systems failures. Our systems
and operations are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, break-ins, earthquake and similar events.
Business interruption insurance may not adequately compensate us for losses that
may occur. The occurrence of a natural disaster or unanticipated problems at our
leased facilities could cause interruptions or delays in our business, loss of
data or render us unable to process reservations. In addition, the failure of
our computer and communications systems to provide the data communications
capacity required by us, as a result of human error, natural disaster or other
operational disruption could result in interruption of our service. The
occurrence of any or all of these events could adversely affect our reputation,
brand and business.
Rapid technological changes may render our technology obsolete or decrease the
competitiveness of our services.
To remain competitive, we must continue to enhance and improve the functionality
and features of our website. The Internet and the online commerce industry are
rapidly changing. If competitors introduce new services embodying new
technologies, or if new industry standards and practices emerge, our existing
website and proprietary technology and systems may become obsolete. Our future
success will depend on our ability to do the following:
o Enhance our existing services;
o Develop and license new services and technologies that address the
increasingly sophisticated and varied needs of our prospective customers and
suppliers; and
o Respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
Developing our website and other proprietary technology entails significant
technical and business risks. We may use new technologies ineffectively or we
may fail to adapt our websites, transaction-processing systems and network
infrastructure to customer requirements or emerging industry standards. If we
face material delays in introducing new services, products and enhancements, our
customers and suppliers may forego the use of our services and use those of our
competitors.
The success of our business will depend on continued growth of online commerce
and the Internet.
Our future revenues and profits depend upon the widespread acceptance and use of
the Internet and online services as a medium for commerce. Rapid growth in the
use of the Internet and online services is a recent phenomenon. This growth may
not continue. A sufficiently broad base of consumers may not accept, or continue
to use, the Internet as a medium of commerce. Demand for and market acceptance
of recently introduced products and services over the Internet are subject to a
high level of uncertainty.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a reliable
network backbone with the necessary speed, data capacity and security and the
timely development of complementary products for providing reliable Internet
access and services. Major online service providers and the Internet itself have
experienced outages and other delays as a result of software and hardware
failures and could face such outages and delays in the future. Outages and
delays are likely to affect the level of Internet usage and the processing of
transactions on our websites. In addition, the Internet could lose its viability
because of delays in the development or adoption of new standards to handle
increased levels of activity or of increased government regulation. The adoption
of new standards or government regulation may require us to incur substantial
compliance costs.
Our business is exposed to risks associated with online commerce security and
credit card fraud.
Consumer concerns over the security of transactions conducted on the Internet or
the privacy of users may inhibit the growth of the Internet and online commerce.
To transmit confidential information such as customer credit card numbers
securely, we rely on encryption and authentication technology. Unanticipated
events or developments could result in a compromise or breach of the systems we
use to protect customer transaction data. Furthermore, our servers may also be
vulnerable to viruses transmitted via the Internet. While we proactively check
for intrusions into our infrastructure, a new and undetected virus could cause a
service disruption.
Under current credit card practices, we may be held liable for fraudulent credit
card transactions and other payment disputes with customers. A failure to
control fraudulent credit card transactions adequately would adversely affect
our business.
Our planned international operations will involve risks.
At some time in the future, we plan to operate in the United Kingdom, Germany,
Canada, France, the Netherlands and Italy and may expand our operations to other
countries. In order to achieve widespread acceptance in each country we enter,
we believe that we must tailor our services to the unique customs and cultures
of that country. Learning the customs and cultures of various countries,
particularly with respect to travel patterns and practices, is a difficult task
and our failure to do so could slow our growth in those countries. We will be
subject to the normal risks of doing business internationally, as well as risks
specific to Internet-based companies in foreign markets. These risks include:
7
o Delays in the development of the Internet as a broadcast, advertising and
commerce medium in international markets;
o Difficulties in managing operations due to distance, language and cultural
differences, including issues associated with establishing management systems
infrastructures in individual foreign markets;
o Unexpected changes in regulatory requirements;
o Export and import restrictions;
o Tariffs and trade barriers and limitations on fund transfers;
o Difficulties in staffing and managing foreign operations;
o Potential adverse tax consequences; and
o Exchange rate fluctuations.
We may be found to have infringed on intellectual property rights of others
which could expose us to substantial damages and restrict our operations.
We could be subject to claims that we have infringed the patents, copyrights or
other intellectual property rights of others. In addition, we may be required to
indemnify travel suppliers for claims made against them. Any claims against us
could require us to spend significant time and money in litigation, delay the
release of new products or services, pay damages, develop new intellectual
property or acquire licenses to intellectual property that is the subject of the
infringement claims. These licenses, if required, may not be available on
acceptable terms or at all. As a result, intellectual property claims against us
could have a material adverse effect on our business, operating results and
financial condition.
Because our market is seasonal, our quarterly results will fluctuate.
Our limited operating history and anticipated rapid growth will make it
difficult for us to assess the impact of seasonal factors on our business.
Nevertheless, we expect our business to be subject to seasonal fluctuations,
reflecting seasonal trends for the products and services offered by our
websites. For example, demand for travel bookings may increase in anticipation
of summer vacations and holiday periods, but online travel bookings may decline
with reduced Internet usage during the summer months. These factors could cause
our revenues to fluctuate from quarter to quarter. Our results may also be
affected by seasonal fluctuations in the inventory made available to our service
by travel suppliers. Airlines, for example, typically enjoy high demand for
tickets through traditional distribution channels for travel during holiday
periods. As a result, during these periods, airlines may either have fewer
inventories to offer through our service or available tickets may be less
competitively priced. These same factors are expected to affect rental cars,
hotels and other travel products and services.
We are dependent on our management and our ability to retain qualified
individuals; the loss of any officer could hinder the implementation of our
business plan.
We are heavily dependent upon management, the loss of any of whom could have a
material adverse affect on our ability to implement our business plan. While we
have entered into an employment agreement with William M. Alverson, our Chief
Executive Officer and President, this employment agreement may be terminated for
a variety of reasons. If, for some reason, the services of management, or of any
member of management, were no longer available to us, our operations and
proposed businesses and endeavors may be materially adversely affected. Mr.
Alverson, has been primarily responsible for setting up our business plan and
our infrastructure. As we continue with our intended operations, other officers
may be instrumental in setting up our financial and operational controls and
procedures, and we may need to hire additional personnel to perform such
functions. Any failure of management to implement and manage our business
strategy and growth may have a material adverse affect on us. There can be no
assurance that our operating control systems will be adequate to support its
future operations and anticipated growth. Failure to manage our growth properly
could have a material adverse affect on our business, financial condition or
result of operations.
Furthermore, our success depends in large part on the continuing efforts of a
few individuals and our ability to continue to attract, retain and motivate
highly skilled employees, qualified travel agents and personnel. Because
consumers and suppliers rely on travel agents as intermediaries to provide
information on their travel choices and help them purchase their trips, we are
highly dependent on attracting and retaining professional home-based travel
agents. We currently have over 5,000 independent travel agents; we aim to enroll
10,000 members by 2010.
Because two of our directors, Mr. William M. Alverson and Ms. Katherine T. West,
control approximately 32.28% of our outstanding common stock, investors may find
that corporate decisions influenced by Mr. Alverson are inconsistent with the
best interests of other stockholders.
8
Mr. William Mr. Alverson, our chief executive officer and director, and Ms.
Katherine T. West control approximately 32.28% of our issued and outstanding
shares of common stock the interests of Mr. Alverson and Ms. West may not be, at
all times, the same as those of other shareholders. Since Mr. Alverson and Ms.
West are not simply passive investors but are also our executive officer and two
directors, their interests as an executive and a director, at times, be adverse
to those of passive investors. Where those conflicts exist, our shareholders
will be dependent upon Mr. Alverson and Ms. West exercising, in a manner fair to
all of our shareholders, their fiduciary duties as an officer and/or as a member
of our board of directors. Also, Mr. Alverson and Ms. West will have the ability
to significantly influence the outcome of most corporate actions requiring
shareholder approval, including any potential merger of Joystar with or into
another company, the sale of all or substantially all of our assets and
amendments to our articles of incorporation. This concentration of ownership
with Mr. Alverson and Ms. West may also have the effect of delaying, deferring
or preventing a change in control of Joystar which may be disadvantageous to
minority shareholders.
Our website will rely on intellectual property, and we cannot be sure that this
intellectual property will be protected from copy or use by others, including
potential competitors.
We regard some of our content and technology as proprietary and will try to
protect our proprietary technology by relying on trademarks, copyrights, trade
secret laws and confidentiality agreements with consultants. In connection with
our license agreements with third parties, we seek to control access to and
distribution of our technology, documentation and other proprietary information.
Even with all of these precautions, it is possible for someone else to copy or
otherwise obtain and use our proprietary technology without our authorization or
to develop similar technology independently. Effective trademark, copyright and
trade secret protection may not be available in every country in which our
services are made available through the Internet, and policing unauthorized use
of our proprietary information is difficult and expensive. We cannot be sure
that the steps we will take will prevent misappropriation of our proprietary
information. This misappropriation could have a material adverse effect on our
business. In the future, we may need to go to court to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. This litigation might result in
substantial costs and diversion of resources and management attention.
We plan to license from third parties, certain technologies incorporated into
our website. As we introduce new services that incorporate new technologies, we
may be required to license additional technology from third parties. We cannot
be sure that these third-party technology licenses will continue to be available
on commercially reasonable terms, if at all.
We are potentially subject to a concentration of credit risk from our accounts
receivable. Also, we record a reserve against the use of fraudulent credit cards
on our Web sites and customer service related chargebacks.
We are subject to other risks and uncertainties common to growing
technology-based companies, including rapid technological change, growth and
commercial acceptance of the Internet, dependence on third-party technology,
challenges to patents, new service introductions and other activities of
competitors, dependence on key personnel, international expansion, and limited
operating history. In addition, we are subject to uncertainty caused by
economic, political and transportation climates and events, such as the
September 11, 2001 terrorist activities, which may impact future demand for the
products and services that we sell.
Regulatory and legal uncertainties could harm our business.
The laws and regulations applicable to the travel industry affect us and our
travel suppliers. We are subject to laws and regulations relating to the sale of
travel services, including those prohibiting unfair and deceptive practices and
those requiring us to register as a seller of travel, comply with disclosure
requirements and participate in state restitution funds. In addition, many of
our travel suppliers and computer reservation systems providers are heavily
regulated by the United States and other governments. Our services are
indirectly affected by regulatory and legal uncertainties affecting the
businesses of our travel suppliers and computer reservation systems providers.
We are also subject to laws and regulations applicable to businesses generally
and online commerce. Currently, few laws and regulations directly apply to the
Internet and commercial online services. Moreover, there is currently great
uncertainty about whether or how existing laws governing issues such as property
ownership, sales and other taxes, libel and personal privacy apply to the
Internet and commercial online services. It is possible that laws and
regulations may be adopted to address these and other issues. Further, the
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws. New laws or different applications of
existing laws would likely impose additional burdens on companies conducting
business online and may decrease the growth of the Internet or commercial online
services. In turn, this could decrease the demand for our products and services
increase our cost of operations or otherwise hurt our business.
Risks Related to Our Common Stock
The market price for our common stock is likely to be highly volatile and
subject to wide fluctuations in response to factors including the following:
o Actual or anticipated variations in our quarterly operating results.
9
o Announcements of technological innovations or new services by us or our
competitors.
o Changes in financial estimates by securities analysts.
o Conditions or trends in the Internet or online commerce industries.
o Changes in the economic performance or market valuations of other Internet,
online commerce or travel companies.
o Announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments.
o Additions or departures of key personnel.
o Release of lock-up or other transfer restrictions on our outstanding shares of
common stock or sales of additional shares of common stock.
o Potential litigation
Because we have a limited operating history, you may consider any one of these
factors to be material. Our stock price may fluctuate widely as a result of any
of the above listed factors, as well as others. In addition, the securities
markets have from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect
the market price of our common stock.
There is no assurance of an established public trading market, which would
adversely affect the ability of investors in our company to sell their
securities in the public markets.
Although our common stock trades on the Over-the-Counter Bulletin Board (the
"OTCBB"), a regular trading market for the securities may not be sustained in
the future. The NASD has enacted recent changes that limit quotations on the
OTCBB to securities of issuers that are current in their reports filed with the
Securities and Exchange Commission. The effect on the OTCBB of these rule
changes and other proposed changes cannot be determined at this time. The OTCBB
is an inter-dealer, Over-The-Counter market that provides significantly less
liquidity than the NASD's automated quotation system (the "NASDAQ Stock
Market"). Quotes for stocks included on the OTCBB are not listed in the
financial sections of newspapers as are those for The Nasdaq Stock Market.
Therefore, prices for securities traded solely on the OTCBB may be difficult to
obtain and holders of common stock may be unable to resell their securities at
or near their original offering price or at any price. Market prices for our
common stock will be influenced by a number of factors, including:
o the issuance of new equity securities;
o changes in interest rates;
o competitive developments, including announcements by competitors of new
products or services or significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
o variations in quarterly operating results;
o change in financial estimates by securities analysts;
o the depth and liquidity of the market for our common stock;
o investor perceptions of our company and the technologies industries generally;
and
o general economic and other national conditions.
The limited public market and trading market may cause volatility in the market
price of our common stock.
Our common stock is currently traded on a limited basis on the OTCBB under the
symbol "JYSR.OB" The quotation of our common stock on the OTCBB does not assure
that a meaningful, consistent and liquid trading market currently exists, and in
recent years such market has experienced extreme price and volume fluctuations
that have particularly affected the market prices of many smaller companies like
us. Our common stock is thus subject to volatility. In the absence of an active
trading market:
o investors may have difficulty buying and selling or obtaining market
quotations;
o market visibility for our common stock may be limited; and
o a lack of visibility for our common stock may have a depressive effect on the
market for our common stock.
Our stock price has historically been volatile and the future market price for
our common stock may continue to be volatile. Further, the limited market for
our shares will make our price more volatile. This may make it difficult for you
to sell our common stock for a positive return on your investment.
The public market for our common stock has historically been very volatile. For
example since January 1, 2004 the closing market price for our common stock has
ranged from $2.81to $0.25. Any future market price for our shares may
10
continue to be very volatile. This price volatility may make it more difficult
for you to sell shares when you want at prices you find attractive. We do not
know of any one particular factor that has caused volatility in our stock price.
However, the stock market in general has experienced extreme price and volume
fluctuations that often are unrelated or disproportionate to the operating
performance of companies. Broad market factors and the investing public's
negative perception of our business may reduce our stock price, regardless of
our operating performance. Market fluctuations and volatility, as well as
general economic, market and political conditions, could reduce our market
price. As a result, this may make it difficult or impossible for you to sell our
common stock for a positive return on your investment.
The Company's common stock may be considered a "penny stock" and may be
difficult to sell.
To be considered to be a "penny stock," securities must meet one or more of the
definitions in Rules 15g-2 through 15g-6 promulgated under Section 15(g) of the
Securities Exchange Act of 1934, as amended. These include but are not limited
to the following: (i) the stock trades at a price less than $5.00 per share;
(ii) it is NOT traded on a "recognized" national exchange; (iii) it is NOT
quoted on the NASDAQ Stock Market, or even if so, has a price less than $5.00
per share; or (iv) is issued by a company with net tangible assets less than
$2.0 million, if in business more than a continuous three years, or with average
revenues of less than $6.0 million for the past three years. The principal
result or effect of being designated a "penny stock" is that securities
broker-dealers cannot recommend the stock but must trade in it on an unsolicited
basis. Section 15(g) of the Securities Exchange Act of 1934, as amended, and
Rule 15g-2 promulgated thereunder by the SEC require broker-dealers dealing in
penny stocks to provide potential investors with a document disclosing the risks
of penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor's
account.
Potential investors in the Company's common stock are urged to obtain and read
such disclosure carefully before purchasing any shares that are deemed to be
"penny stock." Moreover, Rule 15g-9 requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for holders of the Company's
common stock to resell their shares to third parties or to otherwise dispose of
them in the market or otherwise.
Shares eligible for future sale may adversely affect the market price of our
common stock, as the future sale of a substantial amount of our restricted stock
in the public marketplace could reduce the price of our common stock.
From time to time, certain of our stockholders may be eligible to sell all or
some of their shares of common stock by means of ordinary brokerage transactions
in the open market pursuant to Rule 144, promulgated under the Securities Act
("Rule 144"), subject to certain limitations. In general, pursuant to Rule 144,
a stockholder (or stockholders whose shares are aggregated) who has satisfied a
one-year holding period may, under certain circumstances, sell within any
three-month period a number of securities which does not exceed the greater of
1% of the then outstanding shares of common stock or the average weekly trading
volume of the class during the four calendar weeks prior to such sale. Rule 144
also permits, under certain circumstances, the sale of securities, without any
limitations, by a non-affiliate of our company that has satisfied a two-year
holding period. Any substantial sale of common stock pursuant to Rule 144 or
pursuant to any resale prospectus may have an adverse effect on the market price
of our securities.
The market price of the Company's common stock may be adversely affected by
several factors.
The market price of our common stock could fluctuate significantly in response
to various factors and events, including:
o our ability to execute our business plan;
o operating results below expectations;
o loss of any strategic relationship;
o industry developments; o economic and other external factors; and
o period-to-period fluctuations in its financial results.
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of our common stock.
We have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on investment may be limited to the value of our common stock
We have never paid cash dividends on our common stock and do not anticipate
paying cash dividends in the foreseeable future. The payment of dividends on our
common stock will depend on earnings, financial condition and other business and
economic factors affecting it at such time as the board of directors may
consider relevant. If we do not pay dividends, our common stock may be less
valuable because a return on your investment will only occur if its stock price
appreciates.
11
FORWARD-LOOKING STATEMENTS
We and our representatives may from time to time make written or oral statements
that are "forward-looking," including statements contained in this prospectus
and other filings with the Securities and Exchange Commission, reports to our
stockholders and news releases. All statements that express expectations,
estimates, forecasts or projections are forward-looking statements within the
meaning of the Act. In addition, other written or oral statements which
constitute forward-looking statements may be made by us or on our behalf. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "projects," "forecasts," "may," "should," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in or suggested by such forward-looking statements. We
undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Important
factors on which such statements are based are assumptions concerning
uncertainties, including but not limited to uncertainties associated with the
following:
(a) volatility or decline of our stock price;
(b) potential fluctuation in quarterly results;
(c) our failure to earn revenues or profits;
(d) inadequate capital and barriers to raising the additional capital or to
obtaining the financing needed to implement its business plans;
(e) inadequate capital to continue business;
(f) changes in demand for our products and services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by outside parties; and
(i) insufficient revenues to cover operating costs.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and
sold from time to time by the selling stockholders. We will not receive any
proceeds from the sale of shares of common stock in this offering. However, we
will receive the sale price of any common stock we sell to the selling
stockholder upon exercise of the 401,500 warrants. We expect to use the proceeds
received from the exercise of these warrants, if any, for general working
capital purposes
SELLING STOCKHOLDERS
The following table sets forth the common stock ownership of the selling
stockholders as of May 8, 2007. The selling stockholders acquired their
securities through a private placement of common stock and Series A and Series B
warrants pursuant to a private placement completed in November of 2006 and in
various private transactions. For more information on this private placement,
please see below.
We will not receive any proceeds from the resale of the common stock by the
selling stockholders, except for any proceeds received upon the exercise by the
selling stockholders of 401,500 warrants issued in connection with the private
placement which completed in November of 2006. Assuming all the shares
registered below are sold by the selling stockholders, none of the selling
stockholders will continue to own any shares of our common stock. Other than as
set forth in the following table, the selling stockholders have not held any
position or office or had any other material relationship with us or any of our
predecessors or affiliates within the past three years. In addition, none of the
selling stockholders are registered broker-dealers.
Total
Shares Owned Percentage
and/or Issuable of Common Number of Number of Shares
Upon Exercise of Stock, Shares Owned After Percentage of Common
Warrants Before Assuming Offered for Completion of Stock Owned After
Name Offering Full Exercise Sale (3) Offering (1) Completion of Offering (2)
-------------------------------- ------------------- ------------- ----------- --------------- -----------------------
Whalehaven Capital Fund Limited (4) 720,000 1.50% 720,000 --- ---
Nite Capital, L.P. (5) 360,000 * 360,000 --- ---
12
Crescent International (6) 540,000 1.11% 540,000 --- ---
*
ICON Capital (7) 180,000 180,000 --- ---
*
Jerome Belson (8) 270,000 270,000 --- ---
*
Daniel J. Walsh (9) 180,000 180,000 --- ---
*
Martin Beck (10) 90,000 90,000 --- ---
*
---
Kevin J. Martin (11) 180,000 180,000 ---
*
Paul Becker (12) 135,000 135,000 --- ---
*
Susan Brauser (13) 180,000 180,000 --- ---
*
Scott Eagle (14) 135,000 135,000 --- ---
*
Barry Berger (15) 112,500 112,500 --- ---
Kevin W. Hurley and Jeanine *
Hurley (16) 90,000 90,000 --- ---
*
Steven Kelley (17) 36,000 36,000 --- ---
*
Robert Karsten (18) 225,000 225,000 --- ---
*
E Gerald Kay (19) 180,000 180,000 --- ---
William Alverson(20) 1,578,818 2.19% 1,052,545 526,273 1.10%
Katherine West(20) 885,510 1.23% 590,340 295,170 *
Kevin Adams(20) 1,375,000 2.61% 1,250,000 125,000 *
Produce Center Profit Sharing(21) 450,000 * 300,000 150,000 *
Jeffrey Juergens(20) 535,715 * 357,143 178,572 *
Chris Markley(20) 25,000 * 25,000 --- ---
* Less than 1%.
(1) Assumes that all securities registered will be sold.
(2) Applicable percentage ownership is based on 49,119,006 shares of common
stock issued and outstanding as of May 8, 2007, together with securities
exercisable into shares of common stock within 60 days of May 8, 2007 for each
stockholder. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock that are
currently exercisable or exercisable within 60 days of May 8, 2007 are deemed to
be beneficially owned by the person holding such securities for the purpose of
computing the percentage of ownership of such person, but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person. However the selling stockholders have contractually agreed to restrict
their ability to own shares of common stock or exercise their warrants and
receive shares of our common stock such that the number of shares of common
stock held by them in the aggregate and their affiliates after such conversion
or exercise does not exceed 4.99% of the then issued and outstanding shares of
common stock as determined in accordance with Section 13(d) of the Exchange Act.
Accordingly, the number of shares of common stock set forth in the table for the
selling stockholders exceeds the number of shares of common stock that the
selling stockholders could own beneficially at any given time through their
ownership of the shares and the warrants. In that regard, the beneficial
ownership of the common stock by the selling stockholder set forth in the table
is not determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934, as amended.
(3) As we currently do not have enough authorized shares of common stock to
issue upon exercise of all of the Series A, Series B and broker common stock
purchase warrants issued pursuant to our November 2006 private placement, as
well as common stock purchase warrants which we issued to certain of the selling
stockholders in private transactions we intend to register the remaining shares
in an amendment to this registration
13
statement subsequent to obtaining the requisite approval of our stockholders to
increase our authorized shares of common stock from 50,000,000 to 200,000,000
shares. Thus, the total amount of shares included in this registration statement
represent (i) 100% of the common stock sold in the private placement concluded
in November of 2006, (ii) 50% of the number of shares underlying the Series A
and Series B common stock purchase warrants that we are required to register in
connection with the November 2006 private placement, (iii) none of the broker
common stock purchase warrants that we are required to register in connection
with the November 2006 private placement, and (iv) none of the common stock
purchase warrants which we issued to certain of the selling stockholders in
private transactions.
(4) Includes (i) 99,632 shares issuable upon exercise of Series A warrants,
(ii) 99,632 shares issuable upon exercise of Series B warrants, and (iii)
640,000 shares of common stock. In accordance with rule 13d-3 under the
securities exchange act of 1934, Whalehaven Capital Fund Limited is a private
investment fund that is owned by all of its investors and managed by Michael
Finkelstein and Bhavesh Singh. Evan Schemenauer, Arthur Jones and Jennifer Kelly
may be deemed control persons of the shares owned by such entity, with final
voting power and investment control over such shares. The selling stockholder
has notified us that they are not broker-dealers and/or affiliates of
broker-dealers.
(5) Includes (i) 49,816 shares issuable upon exercise of Series A warrants,
(ii) 49,816 shares issuable upon exercise of Series B warrants, and (iii)
320,000 shares of common stock. In accordance with rule 13d-3 under the
securities exchange act of 1934, Nite Capital L.P., is a private investment fund
that is owned by its investors and managed by the general partner whose manager
is Keith Goodman, who, has voting and investment control, over the shares
listed. Mr. Goodman disclaims beneficial ownership of such shares. The selling
stockholder has notified us that they are not broker-dealers and/or affiliates
of broker-dealers.
(6) Includes (i) 74,724 shares issuable upon exercise of Series A warrants,
(ii) 74,724 shares issuable upon exercise of Series B warrants, and (iii)
480,000 shares of common stock. In accordance with rule 13d-3 under the
securities exchange act of 1934, Mel Craw, Maxi Brezzi and Bachir
Taleb-Ibrahimi, in their capacity as managers of Cantara (Switzerland) SA, the
investment advisor to Crescent International Ltd., have voting control and
investment discretion over the shares owned by Crescent International Ltd.
Messrs. Craw, Brezzi and Taleb-Ibrahimi disclaim beneficial ownership of such
shares. The selling stockholder has notified us that they are not broker-dealers
or affiliates of broker-dealers and that they believe they are not required to
be broker-dealers.
(7) Includes (i) 24,908 shares issuable upon exercise of Series A warrants,
(ii) 24,908 shares issuable upon exercise of Series B warrants, and (iii)
160,000 shares of common stock. In accordance with rule 13d-3 under the
securities exchange act of 1934, ICON Capital is a limited partnership that is
owned by its limited and general partners and managed by Adam Cabibi. Adam
Cabibi has voting and investment control, over the shares listed. The selling
stockholder has notified us that they are not broker-dealers or affiliates of
broker-dealers and that they believe they are not required to be broker-dealers.
(8) Includes (i) 37,362 shares issuable upon exercise of Series A warrants,
(ii) 37,362 shares issuable upon exercise of Series B warrants, and (iii)
240,000 shares of common stock. The selling stockholder has notified us that he
is not a broker-dealer or affiliate of broker-dealers and that he believes he is
not required to be a broker-dealer.
(9) Includes (i) 24,908 shares issuable upon exercise of Series A warrants,
(ii) 24,908 shares issuable upon exercise of Series B warrants, and (iii)
160,000 shares of common stock. The selling stockholder has notified us that he
is not a broker-dealer or affiliate of broker-dealers and that he believes he is
not required to be a broker-dealer.
(10) Includes (i) 12,454 shares issuable upon exercise of Series A warrants,
(ii) 12,454 shares issuable upon exercise of Series B warrants, and (iii) 80,000
shares of common stock. The selling stockholder has notified us that he is not a
broker-dealer or affiliate of broker-dealers and that he believes he is not
required to be a broker-dealer.
(11) Includes (i) 24,908 shares issuable upon exercise of Series A warrants,
(ii) 24,908 shares issuable upon exercise of Series B warrants, and (iii)
160,000 shares of common stock. The selling stockholder has notified us that he
is not a broker-dealer or affiliate of broker-dealers and that he believes he is
not required to be a broker-dealer.
(12) Includes (i) 18,681 shares issuable upon exercise of Series A warrants,
(ii) 18,681 shares issuable upon exercise of Series B warrants, and (iii)
120,000 shares of common stock. The selling stockholder has notified us that he
is not a broker-dealer or affiliate of broker-dealers and that he believes he is
not required to be a broker-dealer.
(13) Includes (i) 24,908 shares issuable upon exercise of Series A warrants,
(ii) 24,908 shares issuable upon exercise of Series B warrants, and (iii)
160,000 shares of common stock. The selling stockholder has notified us that she
is not a broker-dealer or affiliate of broker-dealers and that she believes she
is not required to be a broker-dealer.
(14) Includes (i) 18,681 shares issuable upon exercise of Series A warrants,
(ii) 18,681 shares issuable upon exercise of Series B warrants, (iii) 120,000
shares of common stock. The selling stockholder has notified us that he is not a
broker-dealer or affiliate of broker-dealers and that he believes he is not
required to be a broker-dealer.
(15) Includes (i) 15,568 shares issuable upon exercise of Series A warrants,
(ii) 15,568 shares issuable upon exercise of Series B warrants, and (iii)
100,000 shares of common stock. The selling stockholder has notified us that he
is not a broker-dealer or affiliate of broker-dealers and that he believes he is
not required to be a broker-dealer.
(16) Includes (i) 12,454 shares issuable upon exercise of Series A warrants,
(ii) 12,454 shares issuable upon exercise of Series B warrants, and (ii) 80,000
shares of common stock. The selling stockholders have notified us that they are
not broker-dealers or affiliates of broker-dealers and that they believe they
are not required to be broker-dealers.
(17) Includes (i) 4,982 shares issuable upon exercise of Series A warrants, (ii)
4,982 shares issuable upon exercise of Series B warrants, and (iii) 32,000
shares of common stock. The selling stockholder has notified us that he is not a
broker-dealer or affiliate of broker-dealers and that he believes he is not
required to be a broker-dealer.
(18) Includes (i) 31,135 shares issuable upon exercise of Series A warrants,
(ii) 31,135 shares issuable upon exercise of Series B warrants, and (iii)
200,000 shares of common stock. The selling stockholder has notified us
14
that he is not a broker-dealer or affiliate of broker-dealers and that he
believes he is not required to be a broker-dealer.
(19) Includes (i) 24,908 shares issuable upon exercise of Series A warrants,
(ii) 24,908 shares issuable upon exercise of Series B warrants, and (iii)
160,000 shares of common stock. The selling stockholder has notified us that he
is not a broker-dealer or affiliate of broker-dealers and that he believes he is
not required to be a broker-dealer.
(20) Includes 3,275,028 shares of common stock issued to the selling stockholder
and 1,125,015 shares issuable upon exercise of warrants. The selling stockholder
has notified us that he/she is not a broker-dealer or affiliate of
broker-dealers and that he/she believes he/she is not required to be a
broker-dealer.
(21) Includes 300,000 shares of common stock issued to the selling stockholder
and 150,000 shares issable upon exercise of warrants. In accordance with rule
13d-3 under the securities exchange act of 1934, Produce Center Profit Sharing,
is a corporation that is owned by Frank Mascari and managed by Frank Mascari,
who, has voting and investment control, over the shares listed. The selling
stockholder has notified us that they are not broker-dealers and/or affiliates
of broker-dealers.
The following is a description of the selling shareholders relationship to us
and how each the selling shareholder acquired the shares to be sold in this
offering:
November 2006 Private Placement
On November 16, 2006, we sold in a private placement of up to $2,500,000, a
total of 3,212,000 shares (the "Shares") of our common stock, no par value per
share, at a purchase price of $0.625 per share to institutional and accredited
investors, for a total purchase price of $2,007,500. In addition to the Shares,
on the closing date, we issued and delivered Series A and B Warrants to the
investors (collectively the "Warrants"). One Series A Warrant and one Series B
Warrant was issued for each four Shares issued, for a total of 803,000 Series A
Warrants and 803,000 Series B Warrants. Series A Warrants are exercisable into
common stock at $0.85 per share and Series B Warrants are exercisable at $1.00
per share. The Series A and B Warrants are exercisable until five (5) years
after the closing date.
We paid 10% commissions in cash in the amount of $200,750 and issued 321,200
common stock purchase warrants to First Montauk Securities Corp. of Red Bank,
New Jersey, member NASD, who acted as a selling agent for the financing. We
received total net proceeds of $1,766,750, after deducting the legal fees and
commissions. The net proceeds will be used by us for working capital purposes.
Shares and Warrants Issued.
On August 25, 2006, we sold in a private transaction to accredited investors, a
total of 550,000 shares of our common stock, no par value per share, at a
purchase price of $0.50 per share. In addition to the shares, we delivered one
warrant for every two shares purchased. On September 22, 2006, we sold in a
private transaction to an accredited investor, a total of 357,143 shares of our
common stock, no par value per share, at a purchase price of $0.70 per share. In
addition to the shares, we delivered one warrant for every two shares purchased.
Shares in the amount of 1,642,885 were issued on June 30, 2005 to two officers
and directors upon conversion of their respective loans to us totaling $575,000
including one warrant for every two shares converted. The warrants are
exercisable into common stock at $0.35 per share.
On December 2, 2005 we issued 1,000,000 shares for services and on September 27,
2006, 25,000 shares were issued for services performed on behalf of our company.
The shares and warrants were offered and sold by us to investors whom we had
reasonable grounds to believe were "accredited investors" within the meaning of
Rule 501 of Regulation D under the Securities Act of 1933, as amended (the
"Securities Act"). The investors were provided access to business and financial
about us and had such knowledge and experience in business and financial matters
that it was able to evaluate the risks and merits of an investment in our
company. Each certificate evidencing securities issued to the investors included
a legend to the effect that the securities were not registered under the
Securities Act and could not be resold absent registration or the availability
of an applicable exemption from registration. No general solicitation or
advertising was used in connection with the transaction.
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees, assignees
and other successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
15
o privately-negotiated transactions;
o short sales that are not violations of the laws and regulations of any state
or the United States;
o broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
o through the writing of options on the shares;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders may also engage in short sales against the box, puts
and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades.
The selling stockholders or their respective pledgees, donees, transferees or
other successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration of the
shares, including fees and disbursements of counsel to the selling stockholders,
but excluding brokerage commissions or underwriter discounts.
The selling stockholders, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter. No selling stockholder has
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
The selling stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling stockholder defaults on a
margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the selling stockholders or any other such person. In the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. In regards to short sells, the selling stockholder can only cover
its short position with the securities they receive from us upon conversion. In
addition, if such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale of our
common stock. All of these limitations may affect the marketability of the
shares.
We have agreed to indemnify the selling stockholders, or their transferees or
assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the selling
stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such liabilities.
If the selling stockholders notify us that they have a material arrangement with
a broker-dealer for the resale of the common stock, then we would be required to
amend the registration statement of which this prospectus is a part, and file a
prospectus supplement to describe the agreements between the selling
stockholders and the broker-dealer.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock has been quoted on the OTC Bulletin Board under the symbol
"JYSR.OB." The following table shows the reported high and low closing bid
quotations per share for our common stock based on information provided by the
16
OTC Bulletin Board. Particularly since our common stock is traded infrequently,
such over-the-counter market quotations reflect inter-dealer prices, without
markup, markdown or commissions and may not necessarily represent actual
transactions or a liquid trading market.
Year Ended December 31, 2007
High Low
----- ----
Quarter ended June 30, 2007* $0.95 $0.75
Quarter ended March 31, 2007 $1.14 $0.83
Year Ended December 31, 2006
High Low
---- ----
Quarter ended December 31, 2006 $1.11 $0.75
Quarter ended September 30, 2006 $0.81 $0.52
Quarter ended June 30, 2006 $1.37 $0.75
Quarter ended March 31, 2006 $1.04 $0.26
Year Ended December 31, 2005
High Low
---- ----
Quarter ended December 31, 2005 $0.33 $0.25
Quarter ended September 30, 2005 $0.52 $0.34
Quarter ended June 30, 2005 $0.64 $0.41
Quarter ended March 31, 2005 $0.70 $0.58
*As of May 8, 2007
Number of Stockholders
As of May 8, 2007, there were approximately 145 of our common stock.
Dividend Policy
The Company does not expect to pay any dividends at this time. The payment of
dividends, if any, will be contingent upon the Company's revenues and earnings,
if any, capital requirements, and general financial condition. The payment of
any dividends will be within the discretion of the Company's Board of Directors
and may be subject to restrictions under the terms of any debt or other
financing arrangements that the Company may enter into in the future. The
Company presently intends to retain all earnings, if any, for use in the
Company's business operations and accordingly, the Board does not anticipate
declaring any dividends in the foreseeable future.
Equity Compensation Plan Information
In April 2003, our Board of Directors adopted our 2003 Company Stock Option Plan
("2006 Stock Option Plan" or "Plan"), which was amended by the Company in July
of 2003 to increase the amount of shares of Common Stock which the Company was
authorized to issued under the plan from 480,000 shares to 2,500,000 shares. The
Plan provides the Company's board of directors to grant to the Company's
directors, officers, employees and consultants stock options under the Plan.
The Plan provides that the exercise price for ISOs and NSOs is not less than the
Ffair market value per share of our common stock at the date of grant. The
Company cannot reprice outstanding options granted under the 2003 Stock Option
Plan without the consent of its stockholders. The option exercise price must be
paid in full at the time the notice of exercise of the option is delivered to us
and must be tendered in cash, or by personal or certified check. The Plan's
Administrator has the discretion to permit a participant to exercise by
delivering a combination of shares and cash. The term of each option may not
exceed a term of 10 years of the date of grant. However, if ISOs are granted to
persons owning more than 10% of our voting stock, the exercise price may not be
less than 110% of the fair market value per share at the date of grant, and the
term of the ISOs may not exceed five years. As of the six month period ending
June 30, 2006, no securities were granted under this plan.
Other than the Plan, we maintain no other equity compensation plan pursuant to
which we may grant equity awards to eligible persons.
17
DESCRIPTION OF BUSINESS
Overview
We specialize in selling complex travel products including cruises, vacation
packages and group travel through our national sales force of cruise and
vacation specialists. Our comprehensive business opportunity combines innovative
technology, marketing programs and expert support services to entrepreneurial
travel agents giving them the competitive advantage they need to succeed. With
Joystar, travel agents can concentrate on promoting travel and creating client
loyalty without the administrative and financial burden of owning and operating
a traditional storefront travel agency. We are proving to be the hands-down
choice for serious travel professionals who want to flourish in this changing
and exciting time in the industry.
We maintain our corporate offices at 95 Argonaut St. First Floor, Aliso Viejo,
CA 92656. Our telephone number is (949) 837-8101. Our Florida office is located
at 2875 NE 191st Street, Suite 305, Aventura, FL 33180. The telephone number is
305-933-0663.
Company History
We were incorporated in the State of California on February 5, 1998 under the
name Advanced Refrigeration Technologies, Inc. Our original business operations
consisted of designing, manufacturing and marketing an energy efficiency
evaporator fan motor controller for walk-in refrigerators and freezers. We were
unsuccessful in that business and were unable to continue our operations. From
August 2002, we were actively engaged in finding a potential investor to acquire
it and bring in a new business.
As of June 11, 2003, we consummated a transaction, whereby we acquired all of
the issued and outstanding shares of Joystar, Inc., a Nevada corporation
("Joystar - Nevada") in exchange for the issuance by us of a total of 13,880,599
newly issued restricted shares of common voting stock to the Joystar-Nevada
shareholders pursuant to the Agreement and Plan of Reorganization, dated as of
June 10, 2003, by and between our company and Joystar. We issued a total of
13,880,599 shares of common stock to Joystar-Nevada shareholders in the
transaction. We paid $60,000 at the closing of the transaction for some of the
debts of Advanced Refrigeration Technologies, Inc., and assumed additional
liabilities of our company in the approximate amount of $55,000. Upon the
closing, the all present officers of our company resigned and William M.
Alverson was appointed as our President, Chief Financial Officer and Secretary.
Upon the closing, William M. Alverson was appointed to our Board of Directors.
An additional director was appointed as of June 18, 2003. Immediately prior to
the share exchange, there were approximately 3,322,840 shares of our common
stock issued and outstanding. As a result of the acquisition, there were
approximately 17,203,439 shares of common stock issued and outstanding.
The Asset Sale and Purchase Contract which was entered by and between Advanced
Refrigeration Technologies, Inc. and Advanced Refrigeration Controls, Inc, a
newly formed corporation by the former shareholders of our company, included the
total assets consisting of inventories, fixed assets and patents for a total
value of $85,063 and the assumption of liabilities including primarily former
shareholders loans, for a total amount of $105,217. We had a gain of $20,154 on
the disposition of assets and liabilities.
As of June 4, 2004, we and our wholly-owned subsidiary were officially merged
with and into Joystar, Inc., a California corporation (formerly Advanced
Refrigeration Technologies, Inc.) pursuant to Section 1110(a) of the California
Corporations Code and Section 92A.200 of Nevada Revised Statutes. In connection
with the merger we provided for the name change from Advanced Refrigeration
Technologies, Inc. to Joystar, Inc., pursuant to Section 1110(d) of the
California Corporations Code. The merger and the name change were approved by
our Board of Directors pursuant to Section 1110(a). The shareholders approval
was not required under the California law to effect the merger and the name
change and was not obtained for this action.
Recent Developments
On November 16, 2006, we sold in a private placement of up to $2,500,000, a
total of 3,212,000 shares (the "Shares") of our common stock, no par value per
share, at a purchase price of $0.625 per share to institutional and accredited
investors, for a total purchase price of $2,007,500. In addition to the Shares,
on the closing date, we issued and delivered Series A and B Warrants to the
investors (collectively the "Warrants"). One Series A Warrant and one Series B
Warrant was issued for each four Shares issued, for a total of 803,000 Series A
Warrants and 803,000 Series B Warrants. Series A Warrants are exercisable into
common stock at $0.85 per share and Series B Warrants are exercisable at $1.00
per share. The Series A and B Warrants are exercisable until five (5) years
after the closing date.
We paid 10% commissions in cash in the amount of $200,750 and issued 321,200
common stock purchase warrants to First Montauk Securities Corp. of Red Bank,
New Jersey, member NASD, who acted as a selling agent for the financing. We
received total net proceeds of $1,766,750, after deducting the legal fees and
commissions. The net proceeds will be used by us for working capital purposes.
The shares and warrants were offered and sold by us to investors whom we had
reasonable grounds to believe were "accredited investors" within the meaning of
Rule 501 of Regulation D under the Securities Act of 1933, as amended (the
"Securities Act"). The investors were provided access to business and financial
about us and had such knowledge and experience in business and financial matters
that it was able to evaluate the risks and merits of an investment in our
company. Each certificate evidencing securities issued to the investors included
18
a legend to the effect that the securities were not registered under the
Securities Act and could not be resold absent registration or the availability
of an applicable exemption from registration. No general solicitation or
advertising was used in connection with the transaction.
Business
We specialize in selling complex travel products including cruises, vacation
packages and group travel through its national sales force of cruise and
vacation specialists. Consumers planning and purchasing a trip generally engage
in a predictable process that begins with considering destinations, dates and
budgets, and progresses to a series of purchase decisions involving
transportation, accommodations and destination activities. Historically, this
planning and purchasing process has been inefficient because consumers have to
spend a significant amount of time piecing together the information from a
variety of sources. Consumers frequently consulted many different media and
people, such as guidebooks, magazines, travel agents, friends, co-workers and
individual travel suppliers. The supply side of the travel industry can be
equally inefficient. The supplier community includes hundreds of airlines,
thousands of hotels, dozens of car rental companies, numerous vacation packagers
and cruise lines and hundreds of thousands of destination services merchants
such as restaurants, attractions, and local transportation and tour providers.
These suppliers spend substantial amounts of money to reach and attract
potential purchasers. The fragmental nature of the global consumer travel market
makes it difficult and inefficient for suppliers to effectively target those
consumers who are currently engaged in the travel planning process.
Consumers and suppliers rely on travel agents as intermediaries to provide
information on their travel choices and help them purchase their trips. Our
travel agents have access to comprehensive information on the availability and
pricing of airline seats through global distribution systems. We make it
possible for our travel agents to provide consumers reliable, comprehensive
travel information.
We have been able to combat the inefficiency and fragmentation of the industry
with technology. We use technology to make the process of planning and
purchasing travel easier for our agents and customers.
We plan to offer travel planning services in the United Sates, the United
Kingdom, Canada, and the Puerto Rico. Our products are planned to include
direct-to- consumer travel planning services sold via the Internet and call
centers, our co-branded private label business.
TRAVEL AGENCY MODEL
When selling travel, we act as either an intermediary or a merchant. When we
transact travel bookings acting as an intermediary, we pass a customer's
reservation to the travel supplier (hotel, cruise line, tour operator, car
rental, etc.). In the intermediary transaction, the supplier sets the retail
price paid by the customer, and the supplier is the merchant of record for the
transaction. We receive a commission from the travel supplier after the travel
has been completed.
In a merchant transaction, we receive access to consolidator fares (wholesale
airline seats and hotel rooms) from suppliers at negotiated net rates. We
determine the "mark-up" and process the transaction as the merchant of record.
Acting as a merchant enables us to achieve a higher level of gross profit than
in the agency model.
HOST AGENCY MODEL
We provide syndicated technology, hosting, and support services to a growing
network of both part-time and full-time independent cruise and vacation agents.
We provide our independent agents with the technology, tools, training and back
office support to facilitate the operation of a successful and rewarding
business.
We benefit from membership fees, a share of the commission generated by the
travel agent, overrides and annual bonuses from the supplier community.
Additionally, the value of the members' total bookings allows us to negotiate
higher commissions, marketing dollars and co-op support from the supplier
community.
EXPERIENCED TRAVEL AGENTS
A large number of experienced travel agents and agency owners are closing their
"bricks-n-mortar" agencies in an effort to control costs. We have developed
three programs which address the unique needs of the travel agent community.
The benefits of our programs include private label and co-branded consumer
websites, 24/7 access to "myJoystar" - our popular "agents only" extranet, sales
and product training, email marketing programs, the latest booking tools, weekly
e-newsletter, daily conference calls, access to the Joystar Community and CEO
Blog, and unlimited access to our always friendly toll-free agent support staff.
WE ARE CREATING THE NEW BREED OF TRAVEL SELLERS
According to the Department of Labor statistics over 13 million people currently
operate a home-based business and over 1,500 new home-based businesses are
opened every day. Technology advances within the travel industry have made it
very easy for someone without travel agency experience to succeed as a
home-based agent.
19
The benefits of "owning a travel agency" for as little as $500 per year appeal
to small business owners, home-based and internet entrepreneurs, stay-at-home
moms, affluent travelers, web masters and super-affiliates, churches, little
league teams, schools and other non-profit organizations. The potential market
for this model is in the millions of home-based travel agents and online
affiliates.
In order to ensure the success of new agents, improve the income of our
experienced agents, and reduce the potential customer service burden, we are
developing a "mentor" program. Each new agent will be assigned to a qualifying
experienced agent that will provide guidance during the training period. The
commission generated during this mentorship will be shared between the trainee
and the mentor.
Revenues from commissions and transaction fees generated by the agents through
booking travel with their clients are shared between us and the agent. We aim to
develop a membership base of 50,000 agents and online affiliates over the next 5
years. We believe that with the tools, technology, marketing resources and
superior support we provide our agents, they will produce an average of $10,000
per year in leisure bookings.
Our Strategy
As professional travel agents are adapting to a changing industry, a new
business model has emerged - home-based travel agent hosting and IT outsourcing.
Independent agents and agency owners are looking for ways to increase revenues,
reduce costs, and streamline operations. They are also becoming more and more
reliant on both technology and the Internet. We answer the call by relieving
travel agents and agency owners of non-revenue producing tasks, providing
instant technology solutions, marketing programs, and unlimited support -
empowering them to do what they do best - sell travel.
We are proving to be the hands-down choice for serious travel professionals who
want to flourish in this changing and exciting time in the industry. Since the
launch of our hosting program in August of 2004, we have signed up over 3,000
agents making us the largest and fastest growing agency in the industry.
We believe that the hosting models for professional home-based agents will
complement our program targeted to the over 13 million Americans who are
currently operating home-based businesses. In this model, we aim to enroll
50,000 members by 2010. Our strategy for reaching this massive group of
home-based entrepreneurs covers multiple channels including marketing websites,
search engine optimization, email marketing and print advertising.
Target Market
Consumers planning and purchasing a trip generally engage in a predictable
process that begins with considering destinations, dates and budgets, and
progresses to a series of purchase decisions involving transportation,
accommodations and destination activities. Historically, this planning and
purchasing process has been inefficient because consumers have to spend a
significant amount of time piecing together the information from a variety of
sources. Consumers frequently consulted many different media and people, such as
guidebooks, magazines, travel agents, friends, co-workers and individual travel
suppliers. The supply side of the travel industry can be equally inefficient.
The supplier community includes hundreds of airlines, thousands of hotels,
dozens of car rental companies, numerous vacation packagers and cruise lines and
hundreds of thousands of destination services merchants such as restaurants,
attractions, and local transportation and tour providers. These suppliers spend
substantial amounts of money to reach and attract potential purchasers. The
fragmental nature of the global consumer travel market makes it difficult and
inefficient for suppliers to effectively target those consumers who are
currently engaged in the travel planning process.
Consumers and suppliers rely on travel agents as intermediaries to provide
information on their travel choices and help them purchase their trips. Our
travel agents have access to comprehensive information on the availability and
pricing of airline seats through global distribution systems. We make it
possible for our travel agents to provide consumers reliable, comprehensive
travel information.
We have been able to combat the inefficiency and fragmentation of the industry
with technology. We use technology to make the process of planning and
purchasing travel easier for their agents and customers.
Geographic Area of Services
We plan to offer travel planning services in the United Sates, the United
Kingdom, Canada, Puerto Rico, and China. Our products are planned to include
direct-to-consumer travel planning services sold via the Internet, call centers,
and our co-branded private label website solutions.
20
Industry
According to a recent report by Credit Suisse/First Boston, there are
approximately 20,000 professional travel agents working from their homes. That
number is expected to grow to nearly 50,000 by 2010. This emerging group
represents an estimated $7.6 billion annually in travel sales. While online
travel continues to grow, travel agents are the dominant force in travel
distribution, especially in the complex, high-grossing products including
vacations, cruises, and group travel. A recent study conducted by the Cruise
Line Industry, concluded that 90% of the 10 million people who went on a cruise
last year, booked through a travel agent.
Typical of traditional travel agencies in America, the competitive landscape in
the Host Travel Agency space is highly fragmented. The American Society of
Travel Agents reported recently that there are approximately 21,000 "Mom & Pop"
travel agencies, each hosting between one and five home-based agents. And while
there are several "mid-tier" host agencies with sales ranging from $50 million
to $100 million, no dominant player exists. We aim to be the dominant
participant in the industry.
Government Regulation
TRAVEL INDUSTRY REGULATION
We must comply with laws and regulations relating to the travel industry and the
sale of travel services. These include registering with various states and
countries as a seller of travel, complying with certain disclosure requirements
and participating in state restitution funds. Both the Federal Trade Commission
and the Department of Transportation take the position that their regulations
prohibiting unfair and deceptive advertising practices apply to our business.
REGULATIONS OF THE INTERNET
Currently, few laws and regulations apply directly to the Internet and
commercial online services and, to the extent such laws exist or apply to us, we
believe we are in compliance with all of them. The following summary does not
purport to be complete discussion of all enacted or pending regulations and
policies that may affect our business. This summary focuses primarily on the
enacted federal, state and international legislation specific to businesses that
operate as we do. For further information concerning the nature and extent of
federal, state and international regulation of online businesses, you should
review public notices and rulings of the U.S. Congress, state and local
legislature and international bodies.
Due to the growth of the Internet and online commerce, coupled with publicity
regarding Internet fraud, new laws and regulations are continually being
considered (at the federal, state and international levels) regarding property
ownership, sales and other taxes, pricing and content, advertising, intellectual
property rights, libel, user privacy, and information security. New laws or
different applications of existing laws would likely impose additional burdens
on companies conducting business online and may decrease the growth of the
Internet or commercial online services. In turn, this could decrease the demand
for our products and services or increase our cost of doing business. We cannot
predict whether any of the proposed privacy legislation currently pending will
be enacted and what effect, if any, it would have on our company.
TAXES
Federal regulation imposing limitations on the ability of states to impose taxes
on Internet-based sales was enacted in 1998 and extended in 2001. The Internet
Tax Non-Disclosure Act, as this legislation is known, exempts certain types of
sales transactions conducted over the Internet from multiple or discriminatory
state and local taxation through November 1, 2003. It is possible this
legislation will not be renewed when it terminates. Failure to renew this
legislation could allow state and local governments to impose taxes on
Internet-based sales, and these taxes could decrease the demand for our products
or services or increase our cost of operations.
PRIVACY
As an online business, customers provide us with personally identifiable
information (PII) that has been specifically and voluntarily given. PII includes
information that can identify a customer as a specific individual, such as name,
phone number, or e-mail address. This information is used only for the purpose
of responding to and fulfilling customer requests for our travel products and
services. We will only share customer PII with our authorized travel service
providers, and only as necessary in order to complete a transaction that
customers specifically request. We do not sell or rent PII to anyone. We provide
customers with choice and control over the collection and use of their PII, as
well as a means of updating, correcting, or removing any PII stored in their
customer profile. Customers are provided the opportunity to specifically choose
the promotional marketing communications they wish to receive from our company.
If they choose to opt-out any of the promotional e-mail services that we
provide, then we will only send e-mail that relates to a specific travel
purchase they have made through us.
CURRENT US FEDERAL PRIVACY REGULATION
Increasing concern over consumer privacy, including regulations related to the
use of the Internet for conducting transactions and electronic commerce, has led
to the introduction of proposed legislation at the federal level. The most
far-reaching of these current laws are focused on financial institutions, health
21
care providers, and companies that voluntarily solicit information form
children. For businesses that operate online such as us, the Unsolicited
Electronic Mail Act of 1999 has been enacted to protect individuals, families,
and internet service providers form unsolicited and unwanted electronic mail,
commonly referred to as spamming. Additionally, the Federal Trade Commission has
a role in consumer privacy protection and is involved with related enforcement
activities.
CURRENT STATE PRIVACY REGULATION
Most states have enacted legislation to regulate the protection of consumer's
information on the Internet. Much of this legislation is focused on financial
institutions and health care providers. The legislation that has become state
law is a small percentage of the number still pending, and is similar to what
has been enacted at the federal level. We cannot predict whether any of the
proposed state privacy legislation currently pending review will be enacted and
what effect, if any, it would have on our company.
Competition
We cannot assure you that we will be able to compete successfully against
current and future competitors. Competitive pressures faced by us could have a
material adverse effect on our business, operating results and financial
condition.
We believe that establishing, maintaining and enhancing our brand will be a
critical aspect of our efforts to attract and expand our online traffic. The
number of Internet sites that offer competing services, many of which already
have well-established brands in online services or the travel industry
generally, increases the importance of establishing and maintaining brand
recognition. Promotion of the Joystar brand will depend largely on our success
in providing a high-quality online experience supported by a high level of
customer service. In addition, to attract and retain online users and to respond
to competitive pressures, we intend to increase our spending substantially on
marketing and advertising with the intention of expanding our brand recognition.
However, we cannot assure you that these expenditures will be effective to
promote our brand or that our marketing efforts generally will achieve our
goals.
If we are unable to provide high-quality online services or customer support, if
we fail to promote and maintain our brand or if we incur excessive expenses in
these efforts, our business, operating results and financial condition would be
materially adversely affected. If we are unable to introduce and sell new
products and services, our business may be harmed.
We need to broaden the range of travel products and services and increase the
availability of products and services that we offer in order to enhance our
service. We will incur substantial expenses and use significant resources trying
to expand the range of products and services that we offer. However, we may not
be able to attract sufficient travel suppliers and other participants to provide
desired products and services to our consumers. In addition, consumers may find
that delivery through our service is less attractive than other alternatives. If
we launch new products and services and they are not favorably received by
consumers, our reputation and the value of the Joystar brand could be damaged.
Our relationships with consumers and travel suppliers are mutually dependent
since consumers will not use a service that does not offer a broad range of
travel services. Similarly, travel suppliers will not use a service unless
consumers actively make travel purchases through it. We cannot predict whether
we will be successful in expanding the range of products and services that we
offer. If we are unable to expand successfully, our business, operating results
and financial condition may be materially adversely affected. We may be unable
to plan and manage our operations and growth effectively.
On February 28, 2005, we announced a new program for professional home-based
travel agents. PRO-100 offers independent and home-based travel agents all of
the benefits of our popular AGENT ADVANTAGE PRO, including a consumer website,
"Agents Only" extranet and live toll free support.
We offer two booking solutions, a consumer view and an "Agents Only" booking
tool. This combination blends real-time access to cruise line inventory to
deliver the best response times and closing ratios. The features included are:
Co-branded Private Label Cruise Web-Site - An easy, no maintenance solution
providing cruise content, technology, and fulfillment with no up-front costs.
Private Label Cruise Web-Site - Content, technology, and fulfillment services
are housed in a customized user interface. Maintains look and feel as well as
branding integrity of the partner's Web site. Connectivity as well as access to
robust cruise content, including cruise descriptions, cabin categories, deck
plans, amenities, and more.
Seasonality
Our limited operating history and anticipated rapid growth will make it
difficult for us to assess the impact of seasonal factors on our business.
Nevertheless, we expect our business to be subject to seasonal fluctuations,
reflecting seasonal trends for the products and services offered by our
websites. For example, demand for travel bookings may increase in anticipation
of summer vacations and holiday periods, but online travel bookings may decline
with reduced Internet usage during the summer months. These factors could cause
our revenues to fluctuate from quarter to quarter. Our results may also be
affected by seasonal fluctuations in the inventory made available to our service
by travel suppliers. Airlines, for example, typically enjoy high demand for
tickets through traditional distribution channels for travel during holiday
periods. As a result, during these periods, airlines may either have fewer
inventories to offer through our service or available tickets may be less
competitively priced. These same factors are expected to affect rental cars,
hotels and other travel products and services.
22
Employees
As of May 8, 2007, we had a total of approximately 30 employees. None of our
employees are represented by a labor union. We have not experienced any work
stoppages and consider our relations with our employees to be good.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with our condensed
financial statements and notes to those statements. The discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those expressed or implied in these
forward-looking statements as a result of various factors, including those set
forth at the end of this section under "Factors That May Impact Our Results of
Operations".
Cautionary and Forward Looking Statements
In addition to statements of historical fact, this prospectus contains
forward-looking statements. The presentation of aspect of our future found
herein is subject to a number of risks and uncertainties that could cause actual
results to differ materially from those reflected in such statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date hereof. Without limiting
the generality of the foregoing, words such as "may", "will", "expect",
"believe", "anticipate", "intend", or "could" or the negative variations thereof
or comparable terminology are intended to identify forward-looking statements.
These forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results to be materially different from
any future results expressed or implied by us in those statements. Important
facts that could prevent us from achieving any stated goals include, but are not
limited to, the following:
(a) volatility or decline of the our stock price;
(b) potential fluctuation in quarterly results;
(c) our failure to earn revenues or profits;
(d) inadequate capital to continue or expand its business, inability to raise
additional capital or financing to implement our business plans;
(e) failure to commercialize our technology or to make sales;
(f) rapid and significant changes in markets;
(g) litigation with or legal claims and allegations by outside parties
(h) insufficient revenues to cover operating costs.
There is no assurance that we will be profitable, and we may not be able to
successfully develop, manage or market our products and services. We may not be
able to attract or retain qualified executives and technology personnel and our
products and services may become obsolete. Government regulation may hinder our
business. Additional dilution in outstanding stock ownership may be incurred due
to the issuance of more shares, warrants and stock options, or the exercise of
warrants and stock options, and other risks inherent in our businesses.
Overview
Joystar, Inc. sells complex leisure travel products through our virtual network
of travel agents, company branded and private label websites. We empower travel
entrepreneurs and leisure travelers with the tools and information they need to
efficiently research, plan, and book travel. The effect of having such a massive
and growing network of independent and home-based travel retailers all booking
under the Joystar Agency umbrella is significantly increasing our sales and
revenue, and building strong brand recognition.
We refer to Joystar, Inc. and its brands collectively as "Joystar," the
"Company," "us," "we" and "our" in this management's discussion and analysis of
financial condition and results of operations. For additional information about
our brands, see the disclosure set forth in Part I, Item 1, Business, under the
caption "Management Overview."
Tens of thousands of travel agents who are closing their storefront agencies and
moving to a home-based operation are creating a value migration in the rapidly
emerging host travel agency model. Because of our strong value proposition, we
have been very successful in attracting profession travel agents and at the same
time, eroding our competitors' market share. Since going to market with our
hosting programs in August 2004, Joystar has signed up over 4,000 travel agents
making it one of the fastest growing and largest leisure travel network in the
industry.
Throughout 2006, Joystar's commission levels with our preferred suppliers
increased substantially. With the acquisition of the Miami Cruise Center, the
enhanced commission levels that Joystar offers travel agents are some of the
highest in the industry.
TRENDS
The travel industry and particularly the travel agency business model, has
experienced significant change in this decade. The advent of the Internet and
online travel agencies has forever changed the way travel products are
distributed. Travel agents were forced to retool their business models which
included the elimination of high costs associated with operating a store fronts
and identifying markets where their knowledge and service would ensure they
remained relevant in the eyes of travelers.
23
Today, similar to the way real estate agents, mortgage bankers, stock brokers
and insurance agents have been able to effectively telecommute, tens of
thousands of experienced travel sellers operate their businesses virtually.
According to a recent report issued by Credit Suisse/First Boston, there are
currently 25,000 professional, home-based agents. This number is expected to
grow to approximately 50,000 agents by 2010.
In the United States, Telecommuting has been growing at 15% a year since 1990.
It is believed that approximately 80% of Fortune 1000 companies are likely to
employ telecommuters within this decade.
Factors that will continue to affect the future of telecommuting worldwide
include the availability of bandwidth and fast Internet connections in a given
country; social methodologies for balancing work control and work freedom; the
perceived values and economies in telecommuting; and the opportunities and need
for working collaboratively across large distances, including globally.
According to the Direct Sales Association, the number of Americans operating a
home-based business has grown from 8.5 million in 1996 to 14.1 million in 2005.
The baby-boomer population is estimated at over 70 million domestically and 450
million worldwide. This group is expected to spend both their discretionary time
and income on travel related products and services.
STRATEGY
We intend to aggressively innovate on behalf of travel agents including building
a scalable, service -oriented technology platform which will extend across our
consumer brands. We expect this to increase the income opportunity+ for our
travel network as we will be providing them consumer leads and also drive
profitability for the company as we will create travel bookings at a lower
commission payout than our existing host travel agent programs.
We also intend to continue innovating on behalf of our preferred supplier
partners. As an example, we launched Starbase, a customer relationship
management system for our agents to better manage their businesses. Starbase
streamlines the interaction and booking process between our agents, customers
and suppliers. Through this "direct connect" technology, our agents can complete
the booking process with some of our cruise lines and vacation suppliers easier
and in a more cost effective for our suppliers. It also automatically notifies
Joystar's internal accounting of bookings and cancellations and provides agents
with real time commission tracking. In the absence of this direct connect
technology, these processes are completed manually via a proprietary extranet.
Currently, cruise vacations represent over two-thirds of our travel products
sold. Although we expect continued significant increase in our cruise business,
our goal is to grow our land-based vacation packages and tours to represent 75%
of total gross bookings.
Our preferred supplier development team is negotiating with major vacation
suppliers to increase our commissions to the levels we have attained with our
major cruise suppliers. We believe this will attract high producing vacation
agents to our network and drive sales and product mix.
SEASONALITY
We generally experience seasonal fluctuations in the demand for our travel
products and services. For example, leisure travel bookings are generally the
highest in the first quarter and gradually decline over the subsequent three
quarters. The first quarter is highest due to wave season, when an estimated 70%
of the yearly cruise line inventory is booked. There is a gradual drop off in
the second and third quarters as travelers plan and book their spring, summer
and winter vacations. In the fourth quarter, the number of leisure bookings
decreases significantly. We have been able to offset the quarterly decline in
bookings and revenue typical to the industry through the aggressive growth of
our travel agent network.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
To understand our financial position and results of operations, it is important
to understand our critical accounting policies and estimates and the extent to
which we use judgment and estimates in applying those policies. We prepared our
financial statements and accompanying notes in accordance with generally
accepted accounting principles in the United States. Preparation of the
financial statements and accompanying notes requires that we make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities as of the date of the financial
statements and revenue and expenses during the periods reported. We base our
estimates on historical experience, where applicable and other assumption that
we believe are reasonable under the circumstances. Actual results may differ
from our estimates under different assumptions or conditions.
24
There are certain critical estimates that we believe require significant
judgment in the preparation of our financial statements. We consider an
accounting estimate to be critical if:
o It requires us to make assumption because information was not available at the
time or it included matters that were highly uncertain at the time we were
making the estimate, and o Changes in the estimate or different estimates that
we could have selected may have had a material impact on our financial condition
or results of operations.
For more information on each of these policies, see Note 2 -- Significant
Accounting Policies, in the notes to financial statements. We discuss
information about the nature and rationale for our critical accounting estimates
below.
STOCK-BASED COMPENSATION
We record stock-based compensation expense net of estimated forfeitures. In
determining the estimated forfeiture rates for stock-based awards, we
periodically conduct an assessment of the actual number of equity awards that
have been forfeited to date as well as those expected to be forfeited in the
future. We consider many factors when estimating expected forfeitures, including
the type of award, the employee class and historical experience. The estimate of
stock awards that will ultimately be forfeited requires significant judgment and
to the extent that actual results or updated estimates differ from our current
estimates, such amounts will be recorded as a cumulative adjustment in the
period such estimates are revised.
NEW ACCOUNTING PRONOUNCEMENTS
For a discussion of new accounting pronouncements, see Note 2 -- Significant
Accounting Policies, in the notes to financial statements.
OPERATING METRICS
Gross travel bookings represent the total dollar value of transactions booked
for both agency and merchant transactions, recorded at the time of booking
reflecting the total price due for travel, including taxes, fees and other
charges, and are generally not reduced for cancellations and refunds. The term
"gross travel bookings" is a "non-GAAP financial measure", as such term is
defined by the Securities and Exchange Commission, and may differ from non-GAAP
financial measures used by other companies. The measure of "gross travel
bookings" is in no way derived from the financial statements. Revenue recorded
in the Company's financial statements represents a percentage of commissions or
ticketing fees paid by travel suppliers on travel bookings, membership services
revenue and override commissions from travel suppliers. The Company believes
that the measure "gross travel bookings" is useful for investors to evaluate the
Company's future ongoing performance because they enable a more meaningful
comparison of the activity levels of the Company's travel agent network with its
historical results from prior periods.
RESULTS OF OPERATIONS
Please refer to the financial statements, which are a part of this report, for
further information regarding the results of operations of the Company.
Results of Operations for the Year Ended December 31, 2006 to the Year Ended
December 31, 2005.
GROSS TRAVEL BOOKINGS
Gross travel bookings for the year ended December 31, 2006 increased 316% to
$65,594,000 compared to $15,750,000 for the year ended December 31, 2005. As
described below, the Company received $6,933,000 and $1,943,000 of revenues for
the years ended December 31, 2006, and December 31, 2005, from such bookings.
REVENUE
Revenues for the year ended December 31, 2006 increased 257% to $6,933,000
compared to $1,943,000 for the year ended December 31, 2005.
The increase in both gross travel bookings and revenues are due to continued
substantial growth of our travel agent network and higher preferred supplier
commission levels.
25
SELLING AND MARKETING
Selling and marketing expenses relate to direct advertising and distribution
expense, including traffic generation from Internet, search engines, private
label and affiliate programs. The remainder of the expense relates to personnel
costs, including staffing in our Agent Support Services and Preferred Supplier
Relations to enhance supplier commission levels.
Marketing and sales expenses for the year ended December 31, 2006 were
$5,466,958 compared to $1,853,353 for the year ended December 31, 2005. The
increase of $3,613,605 was primarily due to the increased payments to our travel
agents as a result of their increased sales levels. Selling and marketing
expenses relate to travel agent commissions, direct advertising and distribution
expense, including traffic generation from Internet, search engines, private
label and affiliate programs. The remainder of the expense relates to personnel
costs, including staffing in our agent support services and preferred supplier
relations.
GENERAL AND ADMINISTRATIVE
General and Administrative expenses for the year ended December 31, 2006
increased to $4,119,326 from $3,687,826 for the year ended December 31, 2005.
The increase was primarily due to $267,936 in option expense associated with the
adoption of FAS 123R. We expect absolute amounts spent on corporate personnel
and professional service to increase over time as we develop new business units
requiring additional headcount and continue incurring incremental costs
associated with being a public company.
TECHNOLOGY AND CONTENT
Technology and content expense includes product development expenses such as
payroll and related expenses and depreciation of technology infrastructure,
travel agent intranets, travel agent website, and consumer and social networking
site development costs. In 2006, moved our software development to an
India-based operation with our own employees. We employ web developers and
designers in Kuala Lumpur, Pakistan, India and Spain. We also began outsourcing
the development of certain large scale projects to China including the
development of our consumer travel comparison marketplace, VacationCompare.com
and our group travel social networking site, Travelstar.com.
Technology and content expenses for the year ended December 31, 2006 were
$198,621. Given the increasing complexity of our business, geographic expansion,
increased supplier integration, service-oriented architecture improvements and
other initiatives, we expect absolute amounts spent in technology and content to
increase over time.
ACCRUED LIABILITY RELATED TO WARRANTS AND STOCK PURCHASE RIGHTS
The Company accounts for freestanding derivative financial instruments
potentially settled in its own common stock under Emerging Issues Task Force
("EITF") Issue No. 00-19, "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock." As the Company
potentially does not have sufficient authorized shares available to settle its
open stock-based contracts, the initial fair value of the applicable contracts
(consisting primarily of non-employee stock warrants and rights to purchase
common stock- (see Note 5) has been classified as "accrued liability related to
warrants and stock purchase rights" on the accompanying balance sheet and
measured subsequently at fair value (based on a Black-Scholes computation), with
gains and losses included in the statement of operations. The accrued liability
has a balance of $7,801,193 at December 31. 2006.
Net other income for the year ended December 31, 2006 was $5,312 compared to an
expense of $9,641 in the year ended December 31, 2005. This change was primarily
due to the elimination of interest expense as the loans from two officers were
repaid.
The Company left development stage as of January 1, 2005 when it started to make
substantially more sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased to $2,102,861 at December 31, 2006 as
compared to $218,948 at December 31, 2005.The Company has funded certain
expenses by issuing shares for compensation and services. During the year ended
December 31, 2006 the Company issued $1,617,501 in shares for services.
The Company's receivables principally consist of commissions due from travel
suppliers. The Company recognizes revenue and books a receivable in the quarter
when the reservation has been made by the travel agent. Typically, the travel
suppliers pay the commissions after the travel has been completed
The amount reflected in receivables as of December 31, 2006 represents the net
amount that Company believes is collectible as of that date, based on an
analysis of our collection experience in 2006 and anticipated collections in
2007.
During the first three months of 2007 the Company collected commissions of
approximately $1,300,000, principally consisting of receivables generated during
2006.
PROFITABILITY/LOSS
Net loss for the year ended December 31, 2006 was $10,648,509 compared to a net
loss of $3,885,479 for the year ended December 31, 2005.
The increase in net loss was primarily due to the provision of the accrued
liability of $7,801,193 related to warrants and stock purchase rights. The
Company's operating loss for the year ended December 31, 2006 was $2,852,628
Compared to an operating loss of $3,875,838 for the year ended December 31,
2005.
Our business continues to be dominated by complex leisure travel. Commission
revenue for these types of bookings is paid to the company by travel suppliers,
typically upon completion of the travel. Because the average time lag between
booking travel and receiving the commission is approximately six months, we
determined it prudent to recognize a reserve against revenues for the
possibility of cancellations or other factors. Therefore, we recognized a
reserve equal to 25% of the gross commissions generated for the year ended
December 31, 2006. The company will be monitoring receivables and adjusting the
reserve levels on a regular basis, as required.
26
FULL YEAR 2006 HIGHLIGHTS:
o Joystar's Block Group Cruise Space program grew to over 25,000 cabins across
12 major cruise lines. Joystar travel agents and clients can take advantage of
inventories, favorable pricing, availability and amenities that may not be
available through other sales channels.
o Joystar's gross bookings surpassed $65 million. High-revenue margin cruises
and vacation packages represent 90% of the Company's sales with a large portion
of the growth coming from its group and incentive travel division.
o Joystar signed a distribution agreement with Amadeus, a global leader in
technology and distribution solutions for the travel and tourism industry. The
relationship provides Joystar's network of travel agency partners and clients
with access to more than 95% of the world's scheduled airline seats; 56,700
hotel properties; 42 car rental companies and other provider groups including
cruise, ferry, rail, insurance and tour operators.
o Joystar listed as "Host with The Most" by James Shillinglaw, Editor-in-Chief
of leading travel industry trade, Agent @ Home Magazine.
o Joystar recognized as a Carnival Cruise Lines National Account, Celebrity and
Royal Caribbean International Key Account; a Regent Seven Seas Cruises Top
account; a Cunard Inner Circle Agency; a Princess I-Excel Agency. These
preferred supplier relationships give Joystar access to top account commission
levels and special promotions.
o Joystar recognized for its sales performance and inducted into Norwegian
Cruise Line's Captain's Club Agency program. Benefits of the expanded
relationship include top account commission levels and special promotions.
o Joystar signed an agreement with Holland America Line offering the Company top
account commission levels and special promotions. Joystar's relationship with
the cruise line continues under the banner of a Holland America Centurion
Agency.
o Joystar rewarded with an increase in commission levels and special promotions
by Oceania Cruises. Joystar is one of Oceania's valued travel agency partners
and is considered a top producer.
o Joystar achieved exclusive Club 500 status with Funjet Vacations based on
sales production through the Company's network of professional sellers of
travel. Funjet Vacation is the flagship brand of the Mark Travel Corporation.
o Joystar formed a strategic partnership with Bedsonline to promote the
company's 20,000 plus hotel and accommodation types. The program includes
national account commission levels, automation and marketing initiatives.
o Joystar attains Crystal Apple status, the highest level with Apple Vacations.
o Joystar receives Star Award from Sandals for 2006 production levels.
o Joystar recognized by Travel Impressions, a wholly owned subsidiary of
American Express, as "Best of the Best" travel agency partner.
o Joystar acknowledged as "Top 200" travel agencies by Classic Vacations, a
subsidiary of Expedia, Inc.
o Joystar recognized as a Premiere Agency Partner by The Globus family of brands
27
Results of Operations for the Fiscal Year Ended December 31, 2005, Compared To
Fiscal Year Ended December 31, 2004
Gross travel bookings and revenues increased by more than 20% for the fifth
sequential quarter. Gross bookings for 2005 were $15,750,000. Revenues for the
year ended December 31, 2005 were $1,943,000 compared to $69,000 for the year
ended December 31, 2004. The increase of $1,874,000 is due to the substantial
increase in professional agent membership, increase in commission levels from
our preferred suppliers, and our comprehensive agent recruitment and branding
efforts.
In the quarter ended December 31, 2005 our leisure travel network increased by
566 members for a total year end of 3,466 independent travel agents.
Selling and Marketing
Selling and marketing expenses relate to direct advertising and distribution
expense, including traffic generation from Internet, search engines, private
label and affiliate programs. The remainder of the expense relates to personnel
costs, including staffing in our Agent Support Services and Preferred Supplier
relations to enhance supplier commission levels.
Marketing and sales expenses for the year ended December 31, 2005 were
$1,853,000 compared to $1,453,000 for the year ended December 31, 2004. The
increase of $400,000 was due to the increased advertising spending.
General and Administrative
General and Administrative expenses for the year ended December 31, 2005 were
$3,688,000 compared to $1,987,000 for the year ended December 31, 2004. The
increase of $1,701,000 was due to increased business activities, as well as
increases in management team and support staff. We expect absolute amounts spent
on corporate personnel and professional service to increase over time as we add
headcount and continue incurring incremental costs as a public company.
Technology and Content
Technology and content expense includes product development expenses such as
payroll and related expenses and depreciation of website development costs.
Technology and content expenses for the year ended December 31, 2005 were
$277,000 as we increased our software development and engineering teams, and
increased our level of site innovation. Given the increasing complexity of our
business, geographic expansion, increased supplier integration, service-oriented
architecture improvements and other initiatives, we expect absolute amounts
spent in technology and content to increase over time.
Interest expense for the year ended December 31, 2005 was $10,000 compared to $0
in the year ended December 31, 2004 due to the interest on loans from two
officers which were converted to shares.
Net loss for the year ended December 31, 2005 was $3,885,000 compared to a net
loss of $3,372,000 for the year ended December 31, 2004. The increase in net
loss $513,000 was due to the additional general and administrative expenses.
We left development stage as of January 1, 2005 when we started to make
substantially more sales.
Liquidity and Capital Resources
We had a cash balance of $218,948 at December 31, 2005 as compared to $283,869
at December 31, 2004. We had negative working capital at December 31, 2005. We
have been able to raise sufficient capital to continue operations by its
securities. We have funded certain expenses by issuing shares for compensation
and services. During the year ended December 31, 2005, we issued $1,750,000 in
shares for services and $1,802,000 in 2004.
28
DESCRIPTION OF PROPERTY
We maintain our corporate offices in Aliso Viejo, California. We occupy
approximately 6,135 square feet pursuant to the lease agreement entered on
February 15, 2005. We pay $1.80 per square foot for the first 0-12 months, full
service gross; $1.85 per square foot, full service gross for the next 13-24
months, and $1.90 per square, full service gross for the next 25-36 months. The
lease agreement is for a term of 36 months with an option to extend for a period
of three years.
Rental expense for this location was $120,400 and $70,860 for the years ended
December 31, 2005 and 2004, respectively.
We also occupy approximately 2,884 square feet (Net Rentable Area) pursuant to
the lease agreement entered on October 15, 2005. The premises are located in
Aventura, Florida. We agreed to pay annually an amount equal to $29.00 times the
Net Rentable Area of the premises for the first 0-12 months. For the next 13-24
months, we agreed to pay annually an amount equal to $30.00 times the Net
Rentable Area of the premises. For the months 25-36, we agreed to pay the amount
of $31.00 times the Net Rentable Area of the premises. The lease agreement is
for a term of 36 months.
We believe that our existing facilities are adequate to meet our current needs
and that suitable additional or alternative space will be available in the
future on commercially reasonable terms, although we have no assurance that
future terms would be as favorable as our current terms.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
MANAGEMENT
Directors and Executive Officers
Our executive officers and directors and their respective ages and positions as
of May 8, 2007 are as follows:
Name Age Position
------------------- --------- ------------------------------------------------
William M. Alverson 42 Chief Executive Officer and Director
Katharine West 37 Executive Vice President and Director
William Fawcett 52 Director
Jerry Galant 67 Chief Financial Officer
William Fawcett 52 Director
The term of office of each director of our company ends at the next annual
meeting of our stockholders or when such director's successor is elected and
qualifies. No date for the annual meeting of stockholders is specified in our
bylaws or has been fixed by the Board of Directors. Pursuant to our bylaws, the
date of the annual meeting is to be determined by the current Board of
Directors.
The following information sets forth the backgrounds and business experience of
the directors, executive officers and key employees:
William M. Alverson, Chief Executive Officer, Chief Financial Officer and
Director. Mr. Alverson has been an officer and director of our company since our
inception. Mr. Alverson has spent the last fifteen years working in the
financial and travel services industries. He began his career as a financial
advisor at American Express. He also served as Chairman and Chief Executive
Officer at a financial services firm where he guided private companies through
their first rounds of financing and public listings. In 1995, Mr. Alverson
founded and served as Chairman and CEO of a travel services company with
independent contractors. Under his leadership, that company grew from seven to
220 employees handling the back office support to over 44,000 travel agents
nationwide. Since then he has been active in financing and consulting to both
private and public companies including Baby Genius, Inc. and FreeRealTime.com.
He is married to Katherine West, the co-founder of the Company.
Katherine West, Executive Vice President and Director. West has been an officer
and director of our company since our inception. Mrs. West supervises the Vice
President of Agent Services and Vice President of Travel Services. Additionally,
she is responsible for the day to day management and supervision of customer
service, human resources, accounting, budget, payroll and contracts. Mrs. West
began her management career in the travel industry in 1989 with Thrifty Car
Rental where she was responsible for the franchise's operations, reporting,
forecasting, and accounting & tax preparation. From 1992 to 1996 she held the
position of Senior Account Executive with Metromedia Communications, Inc. During
her career with the telecom giant, she consistently exceeded revenue targets
with a primary focus on small to mid-sized businesses and trade associations.
She is married to William M. Alverson, our founder, Chief Executive Officer,
Chief Financial Officer and Director.
Jerry Galant, Chief Financial Officer, joined the company in March 2007. Mr.
Galant is a financial executive with over 30 years of experience. From January
2005, through December 2006, Mr. Galant was a CFO of HomeAway.com, the leading
vacation rental listing site. From July 2002 until December 2004, Mr. Galant was
a Director of Research for Huberman Financial. From October 2001 until June
2002, Mr. Galant served as the CFO of Travelhero.com, an online site
specializing in hotel reservations. Mr. Galant is a graduate of University of
Pennsylavania in Economics (B.A., 1971) and Harvard University (M.B.A. 1975).
William Fawcett, was appointed by the Board of Directors as the director of our
company in November, 2004. Mr. Fawcett has an MBA from Harvard Business School,
is a graduate of Loyola Law School and also graduated with honors from Boston
College. Mr. Fawcett is on the Dean's Graduate School Advisory Board for
Concordia University and is a professor for Concordia's Master of Business
Administration (MBA) Entrepreneurial program. In addition to being an outside
Director for Joystar, he also serves on the Board of Directors of Case Post,
Inc. Fawcett has been the recipient of the Jordan Whitney Award for Infomercial
Excellence, the Aurora Award for the Best Infomercial in 1997, Two Clios for
production of direct-response TV commercials, a Cannes Film Award for Best
Sports Documentary and a Spanish Infomercial Telemundo Award Best in Class.
Board Committees
We do not currently have standing audit, nominating or compensation committees
of the Board of Directors, or committees performing similar functions.
Code of Business Conduct and Ethics
Our code of business conduct and ethics, as approved by our board of directors,
is annexed as Exhibit 14.1 to our 10KSB filed with the SEC on April 14, 2004. It
is also available on our website at www.joystar.com.
Director Compensation
Directors that are non-officers of our company do not receive a cash retainer
annually nor do they receive any remuneration for attendance at a board meeting,
other than reimbursement for travel expenses.
29
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, or the
Exchange Act, requires our executive officers and directors, and persons who
beneficially own more than 10% of a registered class of our common stock, to
file initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission, or the SEC. These officers, directors and
stockholders are required by SEC regulations to furnish us with copies of all
such reports that they file.
Based solely upon a review of copies of such reports furnished to us during the
fiscal year ended December 31, 2005 and thereafter, or any written
representations received by us from reporting persons that no other reports were
required, we believe to the best of our knowledge, that, during our fiscal 2005,
all Section 16(a) filing requirements applicable to our reporting persons were
met, however, some of the filings may have been filed late.
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid or accrued for
the three fiscal years ended December 31, 2006 to or for the benefit of our
Chief Executive Officer and our four most highly compensated executive officers
and employees whose total annual salary and bonus compensation exceeded
$100,000.
Summary Compensation Table
-------------- -------- ----------- ---------- ---------- ---- -------------- ----------------- -------- -----------
Name & Year Salary ($) Bonus ($) Stock OptioNon-Equity Change in All Total ($)
Principal Awards($) AwardIncentive Pension Value Other
Position ($) Plan and Compensation
Compensation Non-Qualified ($)
($) Deferred
Compensation
Earnings ($)
-------------- -------- ----------- ---------- ---------- ---- -------------- ----------------- -------- -----------
William M. 2006 180,000 -- 138,000 N/A N/A N/A N/A 318,000
Alverson
Chief
Executive (1)
Officer,
President
and Director
-------------- -------- ----------- ---------- ---------- ---- -------------- ----------------- -------- -----------
2005 180,000 -- 220,000 N/A N/A N/A N/A 400,000
(2)
-------------- -------- ----------- ---------- ---------- ---- -------------- ----------------- -------- -----------
2004 180,000 -- 60,000 N/A N/A N/A N/A 240,000
(2)
-------------- -------- ----------- ---------- ---------- ---- -------------- ----------------- -------- -----------
Katherine 2006 144,000 -- 57,500 N/A N/A N/A N/A 201,500
West,
Executive
Vice (1)
President
and Director
-------------- -------- ----------- ---------- ---------- ---- -------------- ----------------- -------- -----------
2005 120,000 -- 110,000 N/A N/A N/A N/A 230,000
(1)
-------------- -------- ----------- ---------- ---------- ---- -------------- ----------------- -------- -----------
2004 $88,500 -- 30,000 N/A N/A N/A N/A 118,500
(2)
-------------- -------- ----------- ---------- ---------- ---- -------------- ----------------- -------- -----------
(1) On December 13, 2005, our Board of Directors authorized 1,000,000 shares of
common stock to be issued to Mr. Alverson and 500,000 shares of common stock to
be issued to Ms. West for services rendered in fiscal year ended December 31,
2005 valued at $220,000 and $110,000, respectively pursuant to our 2003 Equity
Compensation Plan. Pursuant to an Employment Agreement dated December 13, 2005,
our Board of Directors authorized 600,000 shares of common stock to be issued to
Mr. Alverson and 250,000 shares of common stock to be issued to Ms. West for
services rendered in fiscal year ended December 31, 2006 valued at $138,000 and
$57,500, respectively pursuant to our 2003 Equity Compensation Plan.
(2) On August 27, 2004, we authorized 100,000 shares of common stock to be
issued to Mr. Alverson and 50,000 shares of common stock to be issued to Ms.
West for services rendered in fiscal year ended December 31, 2004 valued at
$60,000 and $30,000, respectively.
30
Outstanding Equity Awards at Fiscal Year-End Table
---------------------------------------------------------------------- ----------------------------------
Option Awards Stock Awards
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
Name Number Number Equity Option Option Number Market Equity Equity
of of IncentiveExercise Expiration of Value Incentive Incentive
Securities Securities Plan Price Date Shares of Plan Plan
Underlying Underlying Awards: ($) or Shares Awards: Awards:
Unexercised Unexercised Number Units or Number Market
Options Options of of Units of or
(#) (#) Securities Stock of Unearned Payout
Exercisable Unexercisab Underlying That Stock Shares, Value
Unexercised Have That Units of
Unearned Not Have or Unearned
Options Vested Not Other Shares,
(#) (#) Vested Rights Units
($) That or
Have Other
Not Rights
Vested That
(#) Have
Not
Vested
($)
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
William 100,000 N/A N/A 0.66 8/27/09 N/A N/A N/A N/A
Alverson
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
William 800,000 1,200,000 N/A 0.50 400,000 N/A N/A N/A N/A
Alverson annually
commencing
12/15/10
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
Katherine 50,000 N/A N/A 0.66 8/27/09 N/A N/A N/A N/A
West
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
Katherine 500,000 750,000 N/A 0.66 400,000 N/A N/A N/A N/A
West annually
commencing
12/15/10
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
Director Compensation
There was no additional compensation awarded to directors in the last three
fiscal years, other than that disclosed in the summary table.
Employment Agreements
The new employment agreement with our Chief Executive Officer, William M.
Alverson, became effective December 15, 2005. Our Board of Directors approved
the major terms of the employment agreement which includes an annual salary of
$180,000 for Mr. Alverson and the issuance of 600,000 shares of common stock and
an option to purchase 400,000 shares of our common stock. The Company has not
yet finalized the new employment agreement with Katherine T. West, our Executive
Officer. The Company's Board of Directors has approved the major terms of such
employment agreement with Ms. West which includes an annual salary of $144,000,
the issuance of 250,000 shares of common stock and an option to purchase 250,000
shares of our common stock. None of the above shares or options have been issued
yet.
31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had an unsecured loan dated December 15, 2004, payable to William M.
Alverson, its Chief Executive Officer in the amount of $259,834, due on demand
with interest at 6%.
In March, 2005, Katherine T. West, the Company's director and Executive Vice
President loaned the Company an amount equal to $105,997.
During the year ended December 31, 2005 both of the above loans and accrued
interest, totaling $371,000 were converted to 1,059,999 shares of common stock.
The conversion price of $0.35 per share was based on the same terms of a private
placement sold to institutional and accredited investors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of
our common stock as of May 8, 2007 by:
o each person known by us to be the beneficial owner of more than 5% of our
Common Stock;
o each of our directors; o each of our executive officers; and
o our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and
includes voting and investment power. Under SEC rules, a person is deemed to be
the beneficial owner of securities which may be acquired by such person upon the
exercise of options and warrants or the conversion of convertible securities
within 60 days from the date on which beneficial ownership is to be determined.
Each beneficial owner's percentage ownership is determined by dividing the
number of shares beneficially owned by that person by the base number of
outstanding shares, increased to reflect the beneficially-owned shares
underlying options, warrants or other convertible securities included in that
person's holdings, but not those underlying shares held by any other person.
Unless indicated otherwise, the address for each person named is c/o Joystar,
Inc., 95 Argonaut St., First Floor, Aliso Viejo, CA 92656.
Number of Percentage of
Shares Class
Beneficially Beneficially
Owned Prior to Owned Prior
Name Offering to Offering
----------------------- --------------- ----------------
William M. Alverson 15,092,328 (1)(3) 32%
Katharine T. West 15,092,328 (2)(3) 32%
Jerry Galant 0 0%
Kyaw Myint J. 9,376,957 19%
William Fawcett 0 --
All current directors and named
officers as a group (2 in all) 15,092,328 32%
(1) Includes 2,757,510 shares of common stock held by Katherine T. West with
respect to which shares Mr. Alverson, her husband, disclaims beneficial
ownership.
(2) Includes 12,334,818 shares of common stock held by William Alverson with
respect to which shares Ms. West, his wife, disclaims beneficial ownership.
(3) Does not include a total of 850,000 shares of common stock authorized to be
issued to Mr. Alverson (600,000 shares) and Ms. West (250,000 shares) for
services rendered in fiscal year 2006. The shares are considered subscribed and
not issued at December 31, 2006.
The Company had 49,119,006 shares of common stock issued and outstanding as of
May 8, 2007. The Company had approximately 145 shareholders as of May 8, 2007.
DESCRIPTION OF SECURITIES TO BE REGISTERED
The following description of our capital stock and provisions of our articles of
incorporation and bylaws, each as amended, is only a summary. You should also
refer to the copies of our articles of incorporation and bylaws which are
included as exhibits to our Report on 10-KSB for the fiscal year ended December
31, 2004.
We are authorized to issue up to 50,000,000 shares of common stock, no par value
per share. As of May 8, 2007, there were 49,119,006 shares of common stock
outstanding. We are authorized to issue up to 10,000,000 shares of preferred
stock, no par value per share, of which none were outstanding as of May 8, 2007.
Common Stock
32
Holders of our common stock are entitled to one vote for each share held on all
matters submitted to a vote of our stockholders. Holders of our common stock are
entitled to receive dividends ratably, if any, as may be declared by the board
of directors out of legally available funds, subject to any preferential
dividend rights of any outstanding preferred stock. Upon our liquidation,
dissolution or winding up, the holders of our common stock are entitled to
receive ratably our net assets available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding preferred
stock. Holders of our common stock have no preemptive, subscription, redemption
or conversion rights. The outstanding shares of common stock are fully paid and
nonassessable. The rights, preferences and privileges of holders of our common
stock are subject to, and may be adversely affected by, the rights of holders of
shares of any series of preferred stock which we may designate and issue in the
future without further stockholder approval.
Preferred Stock
Our board of directors is authorized without further stockholder approval, to
issue from time to time up to a total of 10,000,000 shares of preferred stock in
one or more series and to fix or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of each series,
including the dividend rights, dividend rates, conversion rights, voting rights,
term of redemption, redemption price or prices, liquidation preferences and the
number of shares constituting any series or designations of these series without
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of our
management without further action by the stockholders and may adversely affect
the voting and other rights of the holders of common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others. Currently, there are no shares of preferred stock outstanding
and we have no present plans to issue any shares of preferred stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Integrity Stock
Transfer, 2920 North Green Valley Parkway, Building 5, Suite 527, Henderson,
Nevada 89014.
DISCLOSURE OF COMMISSION'S POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Section 204 of the California General Corporation Law permits a corporation to
include in its Articles of Incorporation provisions eliminating or limiting the
personal liability of directors for monetary damages in an action brought by or
in the right of the corporation for breach of a director's fiduciary duties,
subject to certain limitations. Section 317 of the California General
Corporation Law requires a corporation to indemnify its directors and other
agents to the extent they incur expenses in successfully defending lawsuits
brought against them by reason of their status as directors or agents. Section
317 also permits a corporation to indemnify its directors and other agents to a
greater extent than specifically required by law.
Our Articles of Incorporation, as amended, eliminate the personal liability of
directors of the Company for monetary damages to the fullest extent permissible
under California law. Our Bylaws require that the Company, to the maximum extent
permitted by California law, indemnify each of its agents against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with any proceeding arising by reason of the fact such person is
or was an agent of Joystar. The term "agent" includes any person who (i) is or
was a director, officer, employee or other agent of Joystar; (ii) is or was
serving at the request of Joystar, as a director, officer, employee or agent of
another business entity; or (iii) was a director, officer, employee or agent of
a corporation which was a predecessor corporation of Joystar or of another
enterprise at the request of such predecessor corporation.
The effect of these provisions in our Articles of Incorporation and Bylaws is to
eliminate our ability and that of our shareholders (through shareholder
derivative suits) to recover monetary damages against a director except as
limited by California law. These provisions do not limit or eliminate the rights
of Joystar or those of any shareholder to seek non-monetary relief. In any
proceeding arising by reason of the fact a person is or was an agent of Joystar,
the agent will be indemnified if he or she acted in good faith and in a manner
the person reasonably believed to be in the best interests of the corporation
and, in the case of a criminal proceeding, had no reasonable cause to believe
the conduct of the person was unlawful. There can be no indemnification with
respect to any matter as to which the agent is adjudged to be liable to Joystar,
unless and only to the extent that the court in which such proceeding was
brought determines upon application that, in view of all of the circumstances of
the case, the agent is fairly and reasonably entitled to indemnity for expenses
as the court shall deem proper.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling Joystar
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
LEGAL MATTERS
The validity of the common stock has been passed upon by Sichenzia Ross Friedman
Ference LLP, New York, New York.
33
EXPERTS
Our December 31, 2005 and 2004 financial statements included in the Prospectus
have been audited by Mendoza Berger & Company, LLP, a limited liability
partnership of certified public accountants to the extent and for the periods
set forth in their report appearing elsewhere herein and are included in
reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities Act of
1933, as amended, relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of Joystar, Inc., filed as part of the
registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the Securities and Exchange Commission.
We are subject to the informational requirements of the Securities Exchange Act
of 1934 which requires us to file reports, proxy statements and other
information with the Securities and Exchange Commission. Such reports, proxy
statements and other information may be inspected at public reference facilities
of the SEC at 100 F Street N.E. Washington, D.C. 20549. Copies of such material
can be obtained from the Public Reference Section of the SEC at 100 F Street
N.E. Washington, D.C. 20549 at prescribed rates. Because we file documents
electronically with the SEC, you may also obtain this information by visiting
the SEC's Internet website at http://www.sec.gov.
34
JOYSTAR, INC.
INDEX TO FINANCIAL STATEMENTS
Joystar, Inc. - Years Ended December 31, 2006 and December 31, 2005
Balance Sheet....................................................... F-2
Statements of Operations............................................ F-3
Statement of Stockholders' Equity (deficit)......................... F-4
Statements of Cash Flows............................................ F-5
Notes to Financial Statements....................................... F-6 - F-7
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
Board of Directors and Stockholders
Joystar, Inc.
We have audited the accompanying balance sheets of Joystar, Inc. (the "Company")
as of December 31, 2006 and 2005, and the related statements of operations,
changes in stockholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit includes consideration of internal
controls 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 the Company'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 financial statements referred to above present fairly, in
all material respects, the financial position of Joystar, Inc. as of December
31, 2006 and 2005, and the 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed further in Note 3, the
Company continues to incur significant losses. The Company's viability is
dependent upon its ability to obtain future financing and the success of its
future operations. These factors raise substantial doubt as to the Company's
ability to continue as a going concern. Management's plan in regard to these
matters is also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Mendoza Berger & Company, LLP
Irvine, California
April 18, 2007
F-1
Joystar, Inc.
Balance Sheets
December 31, December 31,
2006 2005
------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 2,102,861 $ 218,948
Accounts receivable 2,701,253 398,827
Prepaid expenses 76,757 48,572
------------ ------------
Total current assets 4,880,871 666,347
Property and equipment, net 267,036 138,723
Intangible assets, net of amortization 50,525 54,205
Other assets 18,970 --
------------ ------------
Total assets $ 5,217,402 $ 859,275
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 1,743,324 $ 520,457
Accrued salaries 75,770 46,786
Accrued expenses 128,865 128,865
Accrued liabilities 534,491 412,258
Accrued rent 34,825 35,000
Loans from shareholders 472 472
Accrued liability related
to warrants and stock purchase rights 7,801,193 --
------------ ------------
Total current liabilities 10,318,940 1,143,838
------------ ------------
Commitments -- --
Stockholders' equity
Preferred stock, no par value, 10,000,000
shares authorized; none issued -- --
Common stock, no par value, 50,000,000 shares authorized;
48,772,340 and 34,103,309 shares issued and outstanding at
December 31, 2006 and December 31, 2005 respectively 14,071,359 7,952,026
Stock issued for deferred compensation (122,500) (356,000)
Stock subscribed not issued, 356,000 shares at
December 31, 2006 and 2,584,476 shares at
December 31, 2005 respectively 313,501 834,800
Accumulated (deficit) (19,363,898) (8,715,389)
------------ ------------
Total stockholders' equity (deficit) (5,101,538) (284,563)
------------ ------------
Total liabilities and stockholders' equity $ 5,217,402 $ 859,275
============ ============
The accompanying notes are an integral part of these financial statements
F-2
JOYSTAR, INC.
STATEMENTS OF OPERATIONS
For the Years ended December 31, 2006 December 31, 2005
------------ ------------
Revenue $ 6,932,277 $ 1,942,526
Selling and marketing 5,466,958 1,853,353
General and administrative 4,119,326 3,687,826
Technology 198,621 277,185
------------ ------------
Total operating expenses 9,784,905 5,818,364
------------ ------------
Operating loss (2,852,628) (3,875,838)
------------ ------------
Other income/(expense) 5,312 (9,641)
Loss on fair value of warrants
and stock purchase rights (7,801,193) --
------------ ------------
Other income/(expense) (7,795,881) (9,641)
------------ ------------
Loss before income taxes (10,648,509) (3,885,479)
Income tax provision -- --
------------ ------------
Net loss $(10,648,509) $ (3,885,479)
============ ============
Loss per share- basic
and diluted $ (0.25) $ (0.14)
============ ============
Weighted average number of
common shares-
basic and diluted 42,493,109 27,579,406
============ ============
The accompanying notes are an integral part of these financial statements
F-3
JOYSTAR, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
-------------------------- Stock issued Stock Total
for Subscribed Stockholders'
Number of Deferred not Accumulated Equity
Shares Amount Compensation Issued (Deficit) (Deficit)
----------- ----------- ------------ ----------- ------------ -----------
Balance at December 31, 2004 23,228,633 $4,178,663 $ (621,250) $794,800 $(4,829,910) $(477,697)
Stock issued for services 4,731,577 1,485,131 -- -- -- 1,485,131
Stock issued for cash 4,664,213 1,748,632 -- (590,000) -- 1,158,632
Stock issued for note payable to shareholder 742,411 259,834 -- -- -- 259,834
Stock issued for accrued payroll 571,429 200,000 -- -- -- 200,000
Stock issued for interest 27,546 9,641 -- -- -- 9,641
Stock issued for assets 137,500 70,125 -- -- -- 70,125
Subscribed stock not issued to officers
(1,500,000 shares) -- -- -- 330,000 -- 330,000
Subscribed stock not issued (857,143 shares) -- -- -- 300,000 -- 300,000
Deferred compensation earned -- -- 265,250 -- -- 265,250
Net loss -- -- -- -- (3,885,479) (3,885,479)
----------- ----------- ------------ ----------- ------------ -----------
Balance December 31, 2005 34,103,309 $ 7,952,026 $ (356,000) $ 834,800 $(8,715,389) $ (284,563)
Stock issued for services 3,630,814 1,617,501 -- (414,000) -- 1,203,501
Stock issued for cash 11,038,307 4,233,896 -- (303,000) -- 3,930,896
Subscribed stock not issued to
officers (685,965 shares) -- -- -- 195,500 -- 195,500
Subscribed stock (400 shares) -- -- -- 201 -- 201
Deferred compensation earned -- -- 233,500 -- -- 233,500
Share based compensation -- 267,936 -- -- -- 267,936
Net loss -- -- -- -- (10,648,509) (10,648,509)
----------- ----------- ------------ ----------- ------------ -----------
Balance December 31, 2006 48,772,430 $14,071,359 $ (122,500) $ 313,501 $(19,363,898) $(5,101,538)
=========== =========== ============ =========== ============ ===========
The accompanying notes are an integral part of these financial statements.
F-4
JOYSTAR, INC.
STATEMENTS OF CASH FLOW
For the year ended For the year ended
December 31, 2006 December 31, 2005
----------------- -----------------
Cash flows from operating activities
Net loss $(10,648,509) $ (3,885,479)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 57,618 18,522
Share based compensation 501,436 -
Stock issued for services 1,203,501 1,750,381
Stock issued for interest -- 9,641
Stock subscribed for compensation 195,500 330,000
Changes in assets and liabilities
Increase in prepaid expenses (28,185) (35,572)
Increase in receivables (2,302,426) (395,462)
Increase in other assets (18,970) -
Increase in accounts payable 1,222,867 375,121
(Decrease)Increase in accrued expenses (175) 128,865
Increase in accrued salaries and payroll taxes 151,217 283,036
Increase in accrued liability relating
to warrants and other stock purchase rights 7,801,193 --
------------ ------------
Net cash used by operations (1,864,933) (1,420,947)
------------ ------------
Cash flows from investing activities
Acquisition of property and equipment (182,251) (103,078)
------------ ------------
Net cash used by investing activities (182,251) (103,078)
Cash flows from financing activities
Loans from shareholders -- 472
Issuance of common stock for cash 3,930,896 1,158,632
Stock subscribed but not issued 201 300,000
------------ ------------
Net cash provided by financing activities 3,931,097 1,459,104
------------ ------------
Increase(Decrease) in cash 1,883,913 (64,921)
Cash at the beginning of the year 218,948 283,869
----------- ------------
Cash at the end of the year $ 2,102,861 $ 218,948
========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of stock for services $ 1,203,501 $ 1,750,381
Shares issued for shareholder loan $ -- $ 361,359
Shares issued for interest $ -- $ 9,641
Shares issued for fixed assets and customer list $ -- $ 70,125
Subscribed shares issued $ -- $ 590,000
Subscribed shares issued to officers $ 195,500 $ 330,000
Share based compensation $ 501,436 --
The accompanying notes are an integral part of these financial statements
F-5
JOYSTAR, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 1 -- ORGANIZATION
DESCRIPTION OF BUSINESS
Joystar, Inc., (a California corporation) specializes in selling complex travel
products including cruises, vacation packages and group travel through its
national sales force of independent travel agents and independent travel
agencies in the United States. These travel products and services are offered
both online and offline through a diversified portfolio of brands including:
Joystar-branded travel websites, private label websites, and
VacationCompare.com. We refer to Joystar, Inc. and its brands collectively as
"Joystar," the "Company," "us," "we" and "our" in these financial statements.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
We use estimates and assumptions in the preparation of our financial statements
in accordance with accounting principles generally accepted in the United States
("GAAP"). Our estimates and assumptions affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities as of the
date of our financial statements. These estimates and assumptions also affect
the reported amount of net income during any period. Our actual financial
results could differ significantly from these estimates. Our significant
estimates underlying our financial statements include revenue recognition,
accounting for merchant payables, recoverability of long-lived and intangible
assets and goodwill, income taxes, and stock-based compensation.
F-6
REVENUE RECOGNITION
We offer travel products and services through two business models: the travel
agency model and the host agency model.
Under the travel agency model, we act as the agent in the transaction, passing
reservations booked by the traveler to the relevant travel provider. We receive
commissions or ticketing fees from the travel supplier and/or traveler. We
record revenue based principally on Staff Accounting Bulletin ("SAB") No. 104
"Revenue Recognition." We recognize revenue when it is earned and realizable
based on the following criteria: persuasive evidence of an arrangement exists,
services have been rendered, the price is fixed or determinable and
collectibility is reasonably assured.
The prevailing accounting guidance with respect to the presentation of revenue
on a gross versus a net basis is contained in Emerging Issues Task Force No.
99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent ("EITF
99-19")." The consensus of this literature is that the presentation of revenue
as "the gross amount billed to a customer because it has earned revenue from the
sale of goods or services or the net amount retained (that is, the amount billed
to a customer less the amount paid to a supplier) because it has earned a
commission or fee" is a matter of judgment that depends on the relevant facts
and circumstances. If the conclusion drawn is that we perform as an agent or a
broker without assuming the risks and rewards of ownership of goods, revenue
should be reported on a net basis.
In making an evaluation of this issue, some of the factors that should be
considered are: whether we are the primary obligor in the arrangement (strong
indicator); whether we have general inventory risk (before customer order is
placed or upon customer return) (strong indicator); and whether we have latitude
in establishing price. EITF 99-19 clearly indicates that the evaluations of
these factors, which at times can be contradictory, are subject to significant
judgment and subjectivity.
Our travel agency revenue comes from cruise transactions, vacation package
transactions, airline ticket transactions, hotel transactions as well as car
rental reservations. We record travel agency revenue on a net basis when the
traveler books the transaction, as we have no significant post-delivery
obligations. We record an allowance for cancellations and on this revenue based
on historical experience. Under our host agency model, we offer technology,
marketing, and support services to a growing network of independent travel
agencies.
We recognize agency revenues on hotel, cruise and car rental reservations at the
earlier of notification of the amount of the commission from a commission
clearinghouse or a supplier or on receipt of the commissions from an individual
supplier.
The Company recognizes revenue for additional payments from travel suppliers
that are commonly referred to as "overrides" or "co-op marketing dollars".
Typically these payments are contingent upon the Company producing a certain
threshold level of bookings or sales with these suppliers. The Company monitors
agreements that it has with various suppliers.
Override commissions are recognized each period based upon our projected and
actual attainment of predetermined target sales levels. Where historical
financial data is not available to project the target sales levels, we record
the override commission upon receipt of the commission from the supplier.
Our merchant revenues are derived from transactions where we are the merchant of
record and determine the price. We have agreements with suppliers for blocks of
inventory that we sell and these sales generate the majority of our total
merchant revenues. We do not have purchase obligations for unsold inventory.
Recognition of merchant revenue occurs on the date the traveler uses the
inventory, such as the date of airline departure or hotel stay.
The Company generates membership service revenues derived from the operation of
the host-agency model in which the Company provides support services to travel
agents. These revenues include fee-based month-to-month non-obligatory payments,
set-up fees and ongoing membership dues for members in renewal periods paid
annually.
The Company receives overrides from certain travel suppliers in the form of
commissions as well as co-op marketing earnings based on the Company's gross
travel bookings with the supplier, recognized each period based upon the
Company's actual attainment of predetermined target sales levels.
F-7
Accounting estimates are an integral part of the financial statements prepared
by management and are based on management's current judgments. Those judgments
are normally based on knowledge and experience about past and current events and
on assumptions about future events. Commission revenue for reservations is paid
to the company by the travel suppliers, typically upon completion of the travel
associated with the reservation. Because the average time lag between booking
date and commission payment date is approximately six months, the company
recognizes a reserve against revenues for bookings that may not produce a
collectible commission due to possible cancellations or other factors. For the
year ended December 31, 2006 the company recognized a reserve equal to 25% of
the gross commissions generated. The company will be monitoring receivables and
adjusting the reserve levels on a regular basis, as required.
Our host agency revenue includes the set-up, monthly and annual renewal fees we
receive from our travel agency partners and are recorded in the period we
receive them.
SEASONALITY
We generally experience seasonal fluctuations in the demand for our travel
products and services. For example, leisure travel bookings are generally the
highest in the first quarter and gradually decline over the subsequent three
quarters. The first quarter is highest due to "Wave Season", when an estimated
70% of the yearly cruise line inventory is booked. There is a gradual drop off
in the second and third quarters as travelers plan and book their spring, summer
and winter vacations. In the fourth quarter, the number of leisure bookings
decreases significantly. We have been able to offset the quarterly decline in
bookings and revenue typical to the industry through the aggressive growth of
our travel agent network
OTHER
We record revenue from all other sources either upon delivery or when we provide
the service.
CASH AND CASH EQUIVALENTS
Our cash and cash equivalents include cash and liquid financial instruments with
original maturities of 90 days or less when purchased.
F-8
ACCOUNTS RECEIVABLE
Accounts Receivable primarily consist of commissions due from travel suppliers
for reservations made by the Company's travel agents. The Company recognizes
revenue and books a receivable in the quarter when the reservation has been made
by the travel agent. Typically travel suppliers pay commissions after the travel
has been completed.
The amount reflected as of December 31, 2006 represents the net amount that the
Company believes is collectible as of that date, based on an analysis of our
collection experience in 2006 and anticipated collections in 2007.
During the first three months of 2007 the Company collected commissions of
approximately $1,300,000, principally consisting of receivables generated during
2006.
PROPERTY AND EQUIPMENT
We record property and equipment at cost, net of accumulated depreciation and
amortization. We also capitalize certain costs incurred related to the
development of internal use software in accordance with Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," and EITF No. 00-02, "Accounting for Website Development Costs."
We capitalize costs incurred during the application development stage related to
the development of internal-use software. We expense costs incurred related to
the planning and post-implementation phases of development as incurred.
We compute depreciation using the straight-line method over the estimated useful
lives of the assets, which range from three to five years for computer equipment
and capitalized software development, and three to seven years for furniture and
other equipment. We amortize leasehold improvement using the straight-line
method, over the shorter of the estimated useful life of the improvement or the
remaining term of the lease.
INTANGIBLE ASSET
The Company acquired a client list for $55,125 in order to promote sales. The
Company believes that the client list has a minimal useful life of five years
and is amortizing it over that time. If it should lose value prior to the five
years the Company will write it off earlier. The amortization for the years
ended December 31, 2005 and December 31, 2006 was $920 and $3,680.
Management reviews, on an annual basis, the carrying value of its intangible
asset in order to determine whether impairment has occurred. Impairment is based
on several factors including the Company's projection of future discounted
operating cash flows. If an impairment of the carrying value were to be
indicated by this review, the Company would perform the second step of the
impairment test in order to determine the amount of impairment, if any. There
was no impairment charge during the years ended December 31, 2006 and 2005.
F-9
INCOME TAXES
In accordance with SFAS No. 109, "Accounting for Income Taxes," we record income
taxes under the liability method. Deferred tax assets and liabilities reflect
the expected future tax consequences of temporary differences between the
carrying amounts of assets and liabilities for book and tax purposes. We
determine deferred income taxes based on the differences in accounting methods
and timing between financial statement and income tax reporting. Accordingly, we
determine the deferred tax asset or liability for each temporary difference
based on the tax rates that we expect will be in effect when we realize the
underlying items of income and expense. We consider many factors when assessing
the likelihood of future realization of our deferred tax assets, including our
recent earnings experience by jurisdiction, expectations of future taxable
income, and the carryforward periods available to us for tax reporting purposes,
as well as other relevant factors. We may establish a valuation allowance to
reduce deferred tax assets to the amount we expect to realize. Due to inherent
complexities arising from the nature of our businesses, future changes in income
tax law, tax sharing agreements or variances between our actual and anticipated
operating results, we make certain judgments and estimates. Therefore, actual
income taxes could vary from these estimates.
ADVERTISING EXPENSE
We incur advertising expense consisting of offline costs, including print
advertising, and online advertising expense to promote our brands. We expense
the production costs associated with advertisements in the period in which the
advertisement first takes place. We expense the costs of communicating the
advertisement as incurred each time that the advertisement is shown. We incurred
advertising expense of $348,327 and $189,601 during the years ended December 31,
2006 and 2005, respectively.
STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted the fair value recognition provisions of
SFAS No. 123R, Share-Based Payment. Prior to January 1, 2006, the Company
accounted for share-based payments under the recognition and measurement
provisions of APB Opinion NO. 25, Accounting for Stock Issued to Employees, and
related Interpretations, as permitted by FASB Statement No. 123, Accounting for
Stock Based Compensation. In accordance with APB 25, no compensation cost was
required to be recognized for options granted that had an exercise price equal
to the market value of the underlying common stock on the date of grant.
The Company adopted FAS 123R using the modified prospective transition method.
Under this method, compensation cost recognized in the year ended December 31,
2006 includes: a) compensation cost for all share-based payments granted prior
to, but not yet vested as of January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of FAS 123, and b)
compensation cost for all share-based payments granted subsequent to January 1,
2006, based on the grant-date fair value estimated in accordance with the
provisions of FAS 123R.
F-10
NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128 "Earnings Per Share" which requires the Company to present basic and
diluted earnings per share, for all periods presented. The computation of loss
per common share (basic and diluted) is based on the weighted average number of
shares actually outstanding during the period. The Company has common stock
equivalents, including warrants to purchase common stock which would dilute
earnings per share.
ACCRUED LIABILITY RELATED TO WARRANTS AND STOCK PURCHASE RIGHTS
The Company accounts for freestanding derivative financial instruments
potentially settled in its own common stock under Emerging Issues Task Force
("EITF") Issue No. 00-19, "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock." As the Company
potentially does not have sufficient authorized shares available to settle its
open stock-based contracts, the initial fair value of the applicable contracts
(consisting primarily of non-employee stock warrants and rights to purchase
common stock- (see Note 5) has been classified as "accrued liability related to
warrants and stock purchase rights" on the accompanying balance sheet and
measured subsequently at fair value (based on a Black-Scholes computation), with
gains and losses included in the statement of operations. The accrued liability
has a balance of $7,801,193 at December 31. 2006.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist principally of cash and various current
liabilities. The estimated fair value of these instruments approximates their
carrying value.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has reviewed recent accounting pronouncements that have been adopted
and have concluded that they will not have any material impact on its financial
statements.
CERTAIN RISKS AND CONCENTRATIONS
Our business is subject to certain risks and concentrations including dependence
on relationships with our travel agent partners and travel suppliers, dependence
on third party technology providers, exposure to risks associated with online
commerce security and credit card fraud. We are highly dependent on our
relationships with major cruise lines and packaged vacation companies. We also
depend on global distribution system partners and third party service providers
for certain fulfillment services.
F-11
Financial instruments, which potentially subject us to concentration of credit
risk, consist primarily of cash and cash equivalents. We maintain some cash and
cash equivalents balances with financial institutions that are in excess of
Federal Deposit Insurance Corporation insurance limits.
3. GOING CONCERN
The accompanying financial statements, which have been prepared in conformity
with accounting principles generally accepted in the United States of America,
contemplates the continuation of the Company as a going concern. The Company has
sustained significant losses and has used capital raised through the issuance of
stock and debt to fund activities. Continuation of the Company as a going
concern is contingent upon establishing and achieving profitable operations.
Such operations will require management to secure additional financing for the
Company in the form of debt or equity.
Management believes that actions currently being taken to revise the Company's
funding requirements will allow the Company to continue. However, there is no
assurance that the necessary funds will be realized by securing debt or through
stock offerings.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
Office furniture/computers $211,270 $139,313
Booking engine software 57,940 28,385
Web sites 80,739
-------- --------
349,949 67,698
Less: accumulated depreciation 82,913 28,975
-------- --------
$267,036 $138,723
======== ========
5. CAPITAL STOCK
COMMON STOCK
During the year ended December 31, 2005, the Company issued 4,664,213 shares of
common stock in a private placement for a total sales price of $1,748,632 an
average sales price of $0.37 per share.
F-12
During the year ended December 31, 2005 the Company issued 4,731,577 shares of
common stock for services valued at the fair market value price of the Company's
stock on the dates issued for a total of $1,485,131 an average of $0.31 a share.
The Company issued 742,411 shares of common stock for notes payable to
stockholders of $259,834 and 571,429 shares of common stock for accrued payroll
liability of $200,000 . The conversion price of $0.35 per share was based on the
fair market value of the stock, based on a recent private placement sold to
institutional and accredited investors, at the time the conversion was made. The
Company issued 27,546 shares of common stock for interest of $9,641 and 137,500
shares of common stock for assets $70,125, based on the closing price on the
July 7, 2005 date of issue.
During the year ended December 31, 2005 the Company issued $590,000 of common
stock subscribed in prior years. An additional $630,000 of common stock was
subscribed during 2005.
During the three months ended March 31, 2006, the Company issued 246,455 common
shares for services for a total of $78,371, plus deferred compensation of
$63,500. The Company also issued 5,951,455 common shares for cash received of
$2,049,102, $300,000 of which had previously been subscribed.
During the three months ended June 30, 2006, the Company issued 2,845,275 common
shares for services for a total of $1,473,312, plus deferred compensation of
$63,500, $420,000 of which had been previously subscribed. The Company also
issued 65,666 common shares for cash received of $325,200.
During the three months ended September 30, 2006, the Company issued 328,894
common shares for services for a total of $147,765, plus deferred compensation
of $54,000. The Company also issued 987,143 common shares for cash received of
$520,553.
During the three months ended December 31, 2006, the Company issued 456,645
common shares for services for a total of $332,053, plus deferred compensation
of $52,500. The Company also issued 4,034,043 common shares for cash and
received net proceeds of $1,339,041. An additional $195,500 were subscribed
during the period.
As part of the shares issued for cash during the three months ended December 31,
2006, we sold in a private placement of up to $2,500,000, a total of 3,212,000
shares (the "Shares") of our common stock, no par value per share, at a purchase
price of $0.625 per share to institutional and accredited investors, for a total
purchase price of $2,007,500. In addition to the Shares, on the closing date, we
issued and delivered Series A and B Warrants to the investors (collectively the
"Warrants"). One Series A Warrant and one Series B Warrant was issued for each
four Shares issued, or a total of 803,000 Series A Warrants and 803,000 Series B
Warrants. Series A Warrants are exercisable into common stock at $0.85 per share
and Series B Warrants are exercisable at $1.00 per share. The Series A and B
Warrants are exercisable until five (5) years after the closing date. We paid
10% commissions in cash in the amount of $200,750 and issued 321,200 common
stock purchase warrants to First Montauk Securities Corp. of Red Bank, New
Jersey, member NASD, who acted as a selling agent for the financing. We received
total net proceeds of approximately $1,100,000 after deducting the legal fees
and commissions. The net proceeds will be used by us for working capital
purposes.
At December 31, 2005 the Company had 2,550,014 warrants outstanding to purchase
shares of common stock at exercise prices ranging from $0.35 to $0.50 per
shares. The warrants have lives of one to five years remaining.
At December 31, 2006 the Company has 13,257,302 warrants outstanding to purchase
shares of common stock at exercise prices ranging from $0.35 to $$1.00. The
warrants have lives of one to five years remaining.
6. STOCK OPTIONS
The Board of Directors has approved in April, 2003 a Company stock option plan,
which was amended by the Company in July, 2003. All the shares (480,000 shares)
under 2002 Equity and Stock Option Plan were issued in June, 2003. In July,
2003, the Company approved 2003 Equity Compensation Plan which provides for the
grant to directors, officers, employees and consultants of the Company of stock
based awards and options to purchase up to an aggregate of 2,500,000 shares of
Common Stock. On August 16, 2006 the plan was amended to provide for grants of
options up to an aggregate of 3,500,000 shares of Common Stock.
F-13
On December 13, 2005, the Company authorized for two of its officers to receive
1,500,000 shares of common stock. The shares were valued at $330,000 or $0.22
per share. The shares are considered subscribed and not issued at December 31,
2005. The Company has charged $330,000 to compensation expense during the year
ended December 31, 2005.
The following table summarizes annual activity for all stock options for
each of the two years ended December 31:
2006 2005
---------------------------------- ------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER OF SHARES PRICE NUMBER OF SHARES PRICE
---------------- -------------- ---------------- --------------
Outstanding, beginning
of year 3,733,000 $ 0.51 150,000 $ 0.66
Granted 405,000 0.78 3,583,000 0.50
Exercised (400) 0.50 -- --
Forfeited and expired -- -- -- --
---------- -------- ---------- --------
Outstanding, end of year 4,137,600 $ 0.53 3,733,000 $ 0.51
========== ======== ========== ========
Options exercisable, end of
year 897,000 $ 0.55 812,000 $ 0.53
Weighted average fair value
of options granted during the
year $ 0.01 $ 0.02
========== ========
The fair value of the stock options granted during the years ended December
31, 2006 and 2005, was approximately $3,000 and $101,000 or $0.01 and $0.02
per stock option, respectively, and was determined using the Black Scholes
option pricing model. The factors used for the years ended December 31,
2006 and 2005, were the option exercise price of $0.50 to $1.15 per share,
a 5 year life of the options, volatility measure of 85%, a dividend rate of
0% and a risk free interest rate ranging from of 4.95% and 4.28% for 2006
and from 4.38% and 3.77%, respectively.
The following table summarizes information about stock options outstanding
at December 31, 2006, with exercise prices equal to the fair market value
on the date of grant with no restrictions on exercisability after vesting:
F-14
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ------------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER LIFE EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
------------------- ----------------- ---------------- -------------- ------------------------------
$0.50 to $1.15 4,137,600 4.00 $ 0.53 897,000 $ 0.55
=================== ================= ================ ============== ==============================
As of December 31, 2006, there was approximately $534,000 in
unrecognized compensation cost related to unvested stock options. The
amount unrecognized compensation cost will be recognized over its
weighted average life of approximately four years.
The following table illustrates the effect on net loss and loss per
share if the fair value recognition provisions of FAS 123(R) to options
granted under our stock option plan had been applied in the previous
year:
FOR THE YEAR ENDED
DECEMBER 31, 2005
------------------
Net loss as reported $ (3,885,479)
Less: stock based employee compensation
expense included in reported net loss --
Add: compensation expense determined
under fair value method, net of tax (101,238)
------------------
$ (3,986,717)
==================
Net loss per common share, basic and diluted:
As reported $ (0.14)
==================
Pro forma net loss per common share $ (0.14)
------------------
7. INCOME TAXES
The components of the deferred tax asset are as follows:
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
Deferred tax assets:
Net operating loss carry-forward $ 4,629,000 $ 3,471,000
Less: valuation allowance (4,629,000) (3,471,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
F-15
The Company's operations are headquartered in the State of California and are
subject to California state income taxes. The Company had available
approximately $9,712,157 and $8,715,000 and of unused Federal and State net
operating loss carry-forwards at December 31, 2006 and December 31, 2005,
respectively that may be applied against future taxable income. These net
operating loss carry-forwards expire through 2024 for Federal purposes. There is
no assurance that the Company will realize the benefit of the net operating loss
carry-forwards.
SFAS No. 109 requires a valuation allowance to be recorded when it is more
likely that some or all of the deferred tax assets will not be realized. At
December 31, 2005 and 2004, valuations for the full amount of the net deferred
tax asset were established due to the uncertainties as to the amount of the
taxable income that would be generated in future years.
Reconciliation of the differences between the statutory tax rate and the
effective income tax rate is as follows:
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
Statutory federal tax (benefit) rate (34.00)% (34.00)%
Statutory state tax (benefit) rate (5.83)% (5.83)%
---------- ----------
Effective tax rate (39.83)% (39.83)%
Valuation allowance 39.83% 39.83%
---------- ----------
Effective income tax rate 0.00% 0.00%
========== ==========
8. COMMITMENTS
LEASE COMMITMENTS
The Company acquired office space in California in February 2005. The lease was
for 36 months with an option to renew for 36 months. The Company entered into a
lease for its office in Florida in October, 2005. The lease is for 36 months and
there is no renewal option on the lease.
Future payments on the operating lease are as follows:
2007 $ 222,901
2008 86,040
-----------
$ 308,941
===========
Rental expense was $266,462 and $120,399 for the years ended December 31, 2006
and 2005, respectively.
F-16
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
LIMITATION OF LIABILITY: INDEMNIFICATION
Section 204 of the California General Corporation Law permits a corporation to
include in its Articles of Incorporation provisions eliminating or limiting the
personal liability of directors for monetary damages in an action brought by or
in the right of the corporation for breach of a director's fiduciary duties,
subject to certain limitations. Section 317 of the California General
Corporation Law requires a corporation to indemnify its directors and other
agents to the extent they incur expenses in successfully defending lawsuits
brought against them by reason of their status as directors or agents. Section
317 also permits a corporation to indemnify its directors and other agents to a
greater extent than specifically required by law.
Our Articles of Incorporation, as amended, eliminate the personal liability of
directors of the Company for monetary damages to the fullest extent permissible
under California law. Our Bylaws require that the Company, to the maximum extent
permitted by California law, indemnify each of its agents against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with any proceeding arising by reason of the fact such person is
or was an agent of Joystar. The term "agent" includes any person who (i) is or
was a director, officer, employee or other agent of Joystar; (ii) is or was
serving at the request of Joystar, as a director, officer, employee or agent of
another business entity; or (iii) was a director, officer, employee or agent of
a corporation which was a predecessor corporation of Joystar or of another
enterprise at the request of such predecessor corporation.
The effect of these provisions in our Articles of Incorporation and Bylaws is to
eliminate our ability and that of our shareholders (through shareholder
derivative suits) to recover monetary damages against a director except as
limited by California law. These provisions do not limit or eliminate the rights
of Joystar or those of any shareholder to seek non-monetary relief. In any
proceeding arising by reason of the fact a person is or was an agent of Joystar,
the agent will be indemnified if he or she acted in good faith and in a manner
the person reasonably believed to be in the best interests of the corporation
and, in the case of a criminal proceeding, had no reasonable cause to believe
the conduct of the person was unlawful. There can be no indemnification with
respect to any matter as to which the agent is adjudged to be liable to Joystar,
unless and only to the extent that the court in which such proceeding was
brought determines upon application that, in view of all of the circumstances of
the case, the agent is fairly and reasonably entitled to indemnity for expenses
as the court shall deem proper.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling Joystar
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, if any, payable by the Registrant relating to the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee.
SEC registration fee $830.71*
Legal fees and expenses $35,000**
Accounting fees and expenses $15,000**
Miscellaneous expenses $169.29**
Total.......................................................$51,000
* * Previously Paid.
**Estimated.
The Registrant has agreed to bear expenses incurred by the selling stockholders
that relate to the registration of the shares of common stock being offered and
sold by the selling stockholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On December 1, 2006, the Company issued an aggregate of 5,000 shares of Common
Stock to Larry Norman in payment of services rendered to the Company, valued at
$5,500. These shares were issued in reliance on the exemption provided by
Section 4(2) of the Securities Act of 1933, as amended, as transactions not
involving a public offering.
On December 1, 2006, the Company issued an aggregate of 6,250 shares of Common
Stock to Tom Hormann in payment of services rendered to the Company, valued at
$6,875. These shares were issued in reliance on the exemption provided by
Section 4(2) of the Securities Act of 1933, as amended, as transactions not
involving a public offering.
On November 21, 2006, the Company issued an aggregate of 10,000 shares of Common
Stock to Larry Norman in payment of services rendered to the Company, valued at
$8,500. These shares were issued in reliance on the exemption provided by
Section 4(2) of the Securities Act of 1933, as amended, as transactions not
involving a public offering.
On November 16, 2006, we sold in a private placement of up to $2,500,000, a
total of 3,212,000 shares (the "Shares") of our common stock, no par value per
share, at a purchase price of $0.625 per share to institutional and accredited
investors, for a total purchase price of $2,007,500. In addition to the Shares,
on the closing date, we issued and delivered Series A and B Warrants to the
investors (collectively the "Warrants"). One Series A Warrant and one Series B
35
Warrant was issued for each four Shares issued, for a total of 803,000 Series A
Warrants and 803,000 Series B Warrants. Series A Warrants are exercisable into
common stock at $0.85 per share and Series B Warrants are exercisable at $1.00
per share. The Series A and B Warrants are exercisable until five (5) years
after the closing date.
We paid 10% commissions in cash in the amount of $200,750 and issued 321,200
common stock purchase warrants to First Montauk Securities Corp. of Red Bank,
New Jersey, member NASD, who acted as a selling agent for the financing. We
received total net proceeds of $1,766,750, after deducting the legal fees and
commissions. The net proceeds will be used by us for working capital purposes.
As of January 27, 2006, we sold $1,650,000 of the units consisting of a total of
4,000,000 shares of our common stock, no par value per share, at a purchase
price of $0.35 per and share and warrants to purchase two shares of common stock
at $0.50 exercise price to accredited investors. The warrants expire in two
years from the date of issuance.
During the year ended December 31, 2005, we issued a total of 4,664,213 shares
of common stock in a private placement for a total sales price of $1,748,632 an
average sales price of $0.37 per share.
During the year ended December 31, 2005, we issued 4,731,577 shares of common
stock for services valued at the fair market value price of our stock on the
dates issued $1,485,131 or an average of $0.31 a share. We issued 742,411 shares
of common stock for a note payable to stockholder ($259,834) and 571,429 shares
of common stock for accrued payroll liability ($200,000). We issued 27,546
shares of common stock for interest ($9,641) and 137,500 shares of common stock
for assets (70,125).
As of July 18, 2005, we sold in our private placement of up to $1,100,000, a
total of 2,082,143 shares of our common stock, no par value per share, at a
purchase price of $0.35 per share to institutional and accredited investors.
Additionally, William M. Alverson, our CEO and one other officer and director
converted their respective loans to us totaling $575,000 to equity under the
same terms. In addition to common stock shares, each subscriber received one
warrant to purchase our common stock for each two shares purchased. The warrants
have the exercise price of $0.50 per share and expire in five years from the
date of issuance. The warrants are subject to call provisions as described in
the warrant agreement. We received total net proceeds of $728,750, after
deducting the legal fees and commissions, and eliminated the existing
shareholders' loans in the total amount of $575,000.
During the year ended December 31, 2004, we issued 642,223 shares of common
stock in a private placement for a total sales price of $692,185 an average
sales price of $1.08 per share. During 2003 and 2004, we have received
subscriptions to purchase 537,333 shares of common stock for $704,800 and
authorized 150,000 shares subscribed for additional officers compensation
$90,000 at December 31, 2004.
During the year ended December 31, 2004, we issued 1,475,133 shares of common
stock for services valued at the fair market value price of our stock on the
dates issued $1,507,942 an average of $1.02 a share.
Loans payable to shareholder at December 31, 2003, $83,295 were converted to
60,000 shares of common stock during the year ended December 31, 2004.
As of November 8, 2004, we commenced a private placement offering of up to
$1,000,000 of units consisting of four shares of common stock and one warrant to
purchase a share of common stock at an exercise price of $1.25 per share. Each
unit is being sold at $2.00 purchase price. We issued 100,000 units (400,000
shares, $200,000) that were subscribed as of December 31, 2004 in February and
March 2005.
The securities which were issued by us to investors whom we had reasonable
grounds to believe were "accredited investors" within the meaning of Rule 501 of
Regulation D under the Securities Act of 1933, as amended (the "Securities
Act"). The investors were provided access to business and financial about us and
36
had such knowledge and experience in business and financial matters that it was
able to evaluate the risks and merits of an investment in our company. Each
certificate evidencing securities issued to the investors included a legend to
the effect that the securities were not registered under the Securities Act and
could not be resold absent registration or the availability of an applicable
exemption from registration. No general solicitation or advertising was used in
connection with the transaction. The issuance of the shares and warrants was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) of the Securities Act and the rules and regulations, including
Regulation D thereunder, as transactions by an issuer not involving a public
offering.
ITEM 27. EXHIBITS.
2.1 Agreement and Plan of Reorganization (1)
2.2 Articles of Merger (2)
2.3 Certificate of Ownership and Merger (2)
3.1 Articles of Incorporation of the Company (3)
3.2 Articles of Amendment to the Articles of Incorporation of the Company (3)
3.3 By-laws of the Company (3)
5.1 Legality opinion of Sichenzia Ross Friedman Ference LLP.(6)
10.1 Subscription Agreement entered into by and among the Company and the
purchasers signatory thereto (4)
10.2 Warrant Agreement (4)
10.3 Funds Escrow Agreement (4)
10.4 Limited Standstill Agreement (4)
10.5 Agreement for the Purchase and Sale of Assets between Vacation and
Cruise Resources, Inc. and the Company dated August 11, 2005 (5)
10.5 Subscription Agreement dated November 16, 2006 entered into by and among
the Company and the purchasers signatory thereto. (6)
10.6 Funds Escrow Agreement dated November 16, 2006 entered into by and among
the Company, the purchasers signatory thereto and Grushko & Mittman,
P.C. (6)
10.7 Form of Series A Common Stock Purchase Warrant. (6)
10.8 Form of Series B Common Stock Purchase Warrant. (6)
10.9 Form of Common Stock Purchase Warrant (broker). (6)
23.1 Consent of Mendoza Berger & Company, LLP.*
23.2 Consent of Sichenzia Ross Friedman Ference LLP. *
---
* Filed herewith.
(1) Incorporated by reference to the Company's Current Report on Form 8-K filed
with the SEC on July 11, 2003.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB/A
filed with the SEC on July 1, 2005.
(3) Incorporated by reference to the Company's Registration Statement on Form
10-SB filed with the SEC on May 4, 1999.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
filed with the SEC on August 16, 2005.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
filed with the SEC on November 16, 2005.
(6) Previously filed as an exhibit to Registration Statement on Form SB-2 filed
December 19, 2006
37
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of a
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned undertakes that in a primary offering of securities of the
undersigned small business issuer pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned small business issuer will
be a seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned small business
issuer relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned small business issuer or used or referred to by the
undersigned small business issuer;
(iii) The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned small business issuer or
its securities provided by or on behalf of the undersigned small business
issuer; and
(iv) Any other communication that is an offer in the offering made by the
undersigned small business issuer to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
38
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of Aliso
Viejo, State of California, on May 15, 2007.
JOYSTAR, INC.
By: /s/ William M. Alverson
-----------------------
William M. Alverson
Chief Executive Officer (Principal
Executive Officer) and Chief
Financial Officer (Principal
Accounting and Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------------------------------------------------------------------------------
/s/ William M. Alverson Chief Executive Officer, May 15, 2007
----------------------- President and Director
William M. Alverson
/s/ Jerry Galant Chief Financial Officer May 15, 2007
-----------------------
Jerry Galant
/s/ Katherine T. West Executive Vice President May 15, 2007
--------------------- and Director
Katherine T. West
/s/ Director May 15, 2007
-------------------
William Fawcett
39