Online Vacation Center Holdings Corp. Quarterly Report For the Three Months Ended March 31, 2017

Transcription

1 Online Vacation Center Holdings Corp. Quarterly Report For the Three Months Ended March 31, 2017

2 Online Vacation Center Holdings Corp. Index Page No. Item 1. Exact name of the issuer and the address of its principal executive offices 3 Item 2. Shares outstanding 3 Item 3. Interim financial statements 4 Item 4. Management s discussion and analysis or plan of operation 15 Item 5. Legal proceedings 16 Item 6. Defaults upon senior securities 16 Item 7. Other information 16 Item 8. Exhibits 16 Item 9. Certifications 17 2

3 DISCLOSURE DOCUMENT Item 1. Exact name of the issuer and the address of its principal executive offices Name of Issuer: Online Vacation Center Holdings Corp. Principal Executive Offices: 2307 West Broward Boulevard, Suite 400 Fort Lauderdale, FL Phone: Fax: Website: Investor Relations Contact: John Stunson, Chief Financial Officer 2307 West Broward Boulevard, Suite 400 Fort Lauderdale, FL Phone: Item 2. Shares outstanding The following table sets forth information concerning the equity securities of Online Vacation Center Holdings Corp. ( OVCH ) as of March 31, Class As of Number of Shares Authorized Common Stock March 31, Preferred Stock 2017 March 31, 2017 Number of Shares Outstanding Freely Tradable Shares or Public Float (1) Total Number of Stockholders of Record 80,000,000 11,261,878 1,858, ,000,000 0 N/A 0 (1) Defined as shares not held directly or indirectly by an officer, director or any person who is the beneficial owner of more than 10 percent of the total shares outstanding. OVCH affirms that the number of beneficial shareholders owning at least 100 shares of common stock exceeds 100 for the three months ended March 31, Item 3. Interim financial statements 3

4 CONSOLIDATED BALANCE SHEETS March 31, 2017 December 31, 2016 ASSETS (Unaudited) (Audited) Current assets Cash and cash equivalents $ 6,827,620 $ 7,988,482 Accounts receivable, net 1,423,619 1,531,504 Deposits and prepaid items 3,581,587 3,371,191 Deferred tax asset, net 553, ,099 Total current assets 12,386,516 13,373,276 Restricted cash 342, ,208 Property and equipment, net 699, ,640 Intangible assets, net 900, ,804 Goodwill 64,526 64,526 Total assets $ 14,393,177 $ 15,424,454 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities $ 5,940,984 $ 7,259,052 Deferred revenue 3,368,579 3,054,446 Deferred rent 56,585 50,168 Total current liabilities 9,366,148 10,363,666 Deferred tax liability, net 119,680 39,379 Deferred rent 713, ,847 Total liabilities 10,199,265 11,147,892 Commitments and contingencies Note 12 Stockholders equity Preferred stock, 1,000,000 shares authorized at $.0001 par value; 0 shares issued and outstanding - - Common stock, 80,000,000 shares authorized at $.0001 par value; 11,261,878 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively 1,126 1,126 Additional paid-in capital 2,150,667 2,150,667 Retained earnings 2,042,119 2,124,769 Total stockholders' equity 4,193,912 4,276,562 Total liabilities and stockholders' equity $ 14,393,177 $ 15,424,454 See accompanying notes to consolidated financial statements. 4

5 CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, 2017 (Unaudited) 2016 (Unaudited) Net revenues $ 3,910,674 $ 4,205,774 Operating expenses Selling and marketing 1,532,288 1,354,922 General and administrative 2,286,021 1,949,748 Depreciation and amortization 183, ,902 Operating income (loss) (91,082) 704,202 Interest income, net Income (Loss) before provision for income taxes (90,637) 704,465 Provision (Benefit) for income taxes (7,987) 278,012 Net Income (Loss) $ (82,650) $ 426,453 Earnings (Loss) per share basic and diluted $ (0.007) $ Weighted average shares outstanding basic and diluted 11,261,878 11,358,581 See accompanying notes to consolidated financial statements. 5

6 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited) Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Treasury Stock Total Balance, December 31, ,261,878 1,126 2,150,667 2,124,769-4,276,562 Net loss (82,650) - (82,650) Balance, March 31, ,261,878 $ 1,126 $ 2,150,667 $ 2,042,119 $ - $ 4,193,912 See accompanying notes to consolidated financial statements. 6

7 CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2017 (Unaudited) 2016 (Unaudited) Cash flows from operating activities Net income (loss) $ (82,650) $ 426,453 Adjustments to reconcile net income (loss) to net cash used in operating activities Depreciation and amortization 183, ,902 Deferred income tax benefit 8,710 57,610 Changes in operating assets and liabilities (Increase) / decrease in accounts receivable 107,885 (560,845) (Increase) / decrease in deposits and prepaid items (210,396) 497,850 (Decrease) in accounts payable and accrued liabilities (1,318,068) (1,295,070) Increase in deferred revenue 314,133 55,426 Increase / (decrease) in deferred rent (24,993) 17,954 Net cash used in operating activities (1,021,932) (603,720) Cash flows from investing activities Capital expenditures (6,417) (12,595) Acquisition of intangible assets (132,513) (129,762) Increase in restricted cash - (104) Net cash used in investing activities (138,930) (142,461) Cash flows from financing activities Net cash used in financing activities - - Net change in cash and cash equivalents (1,160,862) (746,181) Beginning cash and cash equivalents 7,988,482 6,690,565 Ending cash and cash equivalents $ 6,827,620 $ 5,944,384 Supplemental cash flow information Cash paid for taxes $ 116,000 $ 244,203 Retirement of treasury stock $ - $ - See accompanying notes to consolidated financial statements. 7

8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2017 (UNAUDITED) NOTE 1 BACKGROUND Overview: Online Vacation Center Holdings Corp. (the Company ) is a Florida holding company, focused on internally growing and developing its group of diversified vacation marketers with a range of products that can be cross-sold to an extensive database. The Company provides vacation travel and marketing services through its wholly-owned subsidiaries. Its portfolio of travel companies include: Online Vacation Center, Inc., a full service vacation seller focused on serving the affluent retiree market. Enrichment Journeys, LLC, a developer and seller of unique river, ocean, and land vacation packages. Dunhill Vacations, Inc., the publisher of three travel newsletters, "Top Travel Deals", "Spotlight", and "TravelFlash". Luxury Link, LLC, a website connecting travelers with websites to purchase hotel, resort, and vacation experiences. Home Based Travel Experts, LLC, an Expedia CruiseShipCenters franchise focused on travel sales through a team of mobile agents. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Preparation of Interim Financial Statements: The accompanying consolidated financial statements included in this report are unaudited and have been prepared by the Company and, in the opinion of management, include all adjustments (consisting of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the results of the interim periods shown. Management believes that its disclosures are sufficiently presented to prevent this information from being misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for a full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company s 2016 Consolidated Financial Statements. Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Online Vacation Center Holdings Corp. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The Company makes operating decisions, assesses performance and manages the business as one reportable segment. Use of Estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ( U.S. GAAP ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting periods. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates. Revenue Recognition: The Company recognizes revenue when it is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the seller's price to the buyer is fixed or determinable, and collectability is reasonably assured. Vacation travel sales transactions are billed to customers at the time of booking; however, commission revenue is not recognized in the accompanying consolidated financial statements until the 8

9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2017 (UNAUDITED) customers travel occurs. Advertising revenue is recognized upon distribution of the marketing publication. Override (volume incentive) revenue is recognized when the agreed-upon goal is achieved as specified in the override agreement. After considering and weighing relevant qualitative factors regarding the Company s status as a primary obligor, the extent of the pricing latitude of the Company s vacation travel sales transactions and in accordance with the various indicators, the Company s vacation travel suppliers assume the majority of the business risks such as providing the service and the risk of unsold travel packages. As such, all vacation travel sales transactions are recorded at the net amount, which is the amount charged to the customer less the amount to be paid to the supplier. The Company frequently reviews its product offerings to determine whether the vacation package falls into gross revenue reporting. The method of net revenue presentation does not impact operating income, net income, earnings per share or cash flows. Fair Value: The fair value of the Company s financial instruments approximate their carrying value due to their short-term nature. Concentrations of Credit Risk: The Company s business is subject to certain risks and concentrations, including dependence on relationships with travel suppliers (primarily cruise lines), and to a lesser extent, exposure to risks associated with online commerce security and credit card fraud. The Company is highly dependent on its relationships with five major cruise lines: Celebrity Cruises, Norwegian Cruise Line, Royal Caribbean Cruise Line, Oceania Cruises and Viking River Cruises. The Company also depends on third party service providers for processing certain fulfillment services. Concentrations of credit risk with respect to client accounts receivable are limited because of the Company's policy to require deposits from customers, the number of customers comprising the client base and their dispersion across geographical locations. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and bank certificates of deposit. These accounts are maintained with financial institutions insured by the Federal Deposit Insurance Corporation (FDIC) for balances up to $250,000. At March 31, 2017 and 2016, the Company had cash deposits that exceeded the federally insured limit of $250,000. The Company believes that no significant concentration of credit risk exists with respect to these cash balances because of its assessment of the creditworthiness and financial viability of the financial institutions. Marketing Costs: Substantially all marketing costs are charged to expense as incurred and principally represent production, printing, direct mail costs, and online advertising. Marketing expense for the three months ended March 31, 2017 and 2016 was $806,126 and $710,023, respectively. Cash and Cash Equivalents: The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents included cash in the bank, cash on hand and highly liquid investments. Accounts Receivable: Accounts receivable is stated at the amounts invoiced to suppliers, commissions earned on travel that has commenced, or override income that has been earned, less an allowance for doubtful accounts. Travel suppliers generally pay commissions between 60 days before to 90 days after travel has commenced, overrides in the first quarter following the period earned, and marketing and advertising invoices between 30 days to 90 days after the invoice date. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company s previous loss history, the specific supplier s current ability to pay its obligation to the Company and the condition of the general economy and the industry as a whole. The Company 9

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2017 (UNAUDITED) writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are recognized as revenue in the period received. At March 31, 2017 and December 31, 2016, the allowance for doubtful accounts was $21,739 and $26,605, respectively. Restricted Cash: Cash which is restricted as to withdrawal is considered a noncurrent asset. At March 31, 2017 and December 31, 2016, certificates of deposit of $342,208 are collateral for outstanding letters of credit. The letters of credit are required by the Company s landlord, a supplier and industry regulations and will be renewed upon expiration. Property and Equipment: Property and equipment are recorded at cost. Repairs and maintenance and any gains or losses on dispositions are recognized as incurred. Depreciation is provided for on a straightline basis to allocate the cost of depreciable assets to operations over their estimated service lives. Depreciation Asset Category Period Office equipment Furniture and fixtures Leasehold Improvements 1 to 5 Years 5 to 8 Years 8 Years Goodwill: Goodwill represents the excess of the purchase price over the fair value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the acquisition method. Goodwill acquired in business combinations is assigned to reporting units that are expected to benefit from the synergies of the combination as of the acquisition date. The Company assesses goodwill for impairment annually during the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference. Long-Lived Assets: The Company's accounting policy regarding the assessment of the recoverability of the carrying value of long-lived assets, including property and equipment and assets with finite lives, is to review the carrying value of the assets, annually, during the fourth quarter, or whenever events or changes in circumstances indicate that they may be impaired. If this review indicates that the carrying value will not be recoverable, as determined based on the projected undiscounted future cash flows, the carrying value is reduced to its estimated fair value. Deferred Rent: Deferred rent represents the difference between actual rental payments and the amount of such payments recognized on a straight-line basis over the terms of the operating leases, as well as landlord incentives that are deferred and amortized over the operating lease terms. Income Taxes: The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The Company applies the guidance issued by the Financial Accounting Standards Board (the FASB ) with respect to accounting for uncertainty in income taxes. A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded. 10

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2017 (UNAUDITED) The Company files income tax returns in the U.S. federal jurisdiction and various states. It is subject to U.S. federal and certain state tax examinations for years after To the Company s knowledge, none of its federal or state income tax returns are currently under examination. The Company s policy is to account for interest and penalties in income tax expense. There was no interest or penalties during the three months ended March 31, 2017 and 2016, respectively. Earnings Per Share: Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vested resulting in the issuance of common stock or the conversion of notes into shares of common stock that could share in the earnings of the Company. This calculation is not done for periods in a loss position as this would be antidilutive. Stock-Based Compensation: Compensation costs related to share-based payment transactions are recognized in the consolidated statements of operations. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. Recent Accounting Pronouncement: In May, 2014, the FASB issued Accounting Standards Update ( ASU ) , Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU will replace most of the existing revenue recognition guidance in U.S. GAAP when it becomes effective. This new accounting standard was initially effective for the Company on January 1, 2017 but was subsequently deferred by one year to January 1, Early application is permitted only as of the Company s fiscal year beginning January 1, This new accounting standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. NOTE 3 DEPOSITS AND PREPAID ITEMS Deposits and prepaid items consist of the following: March 31, December 31, Prepaid expenses $ 3,126,543 $ 2,908,088 Prepaid commissions and employee advances 41,262 33,340 Refundable deposits with suppliers 413, ,763 Deposits and prepaid items $ 3,581,587 $ 3,371,191 11

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2017 (UNAUDITED) NOTE 4 PROPERTY AND EQUIPMENT, NET Property and equipment consist of the following: March 31, December 31, Office equipment $ 544,687 $ 541,736 Furniture and fixtures 329, ,021 Leasehold improvements 810, ,054 1,684,228 1,677,811 Less: Accumulated depreciation (984,650) (934,171) Property and equipment, net $ 699,578 $ 743,640 Depreciation expense for the three months ended March 31, 2017 and 2016 was $50,479 and $53,265, respectively. NOTE 5 INTANGIBLE ASSETS, NET Intangible assets other than goodwill are capitalized at their respective fair values and are amortized over their estimated useful lives ranging from four to fifteen years. The Company conducted annual tests for impairment during the fourth quarters of 2016 and The results of the impairment tests indicated that the intangibles were not impaired. Intangible assets consist of the following: March 31, December 31, Customer lists $ 5,177,355 $ 5,044,842 Trade names 201, ,307 Franchise fee and organizational costs 8,939 8,939 5,387,601 5,255,088 Less: Accumulated amortization (4,487,252) (4,354,284) Intangible assets, net $ 900,349 $ 900,804 Amortization expense for the three months ended March 31, 2017 and 2016 was $132,968 and $143,637, respectively. NOTE 6 GOODWILL The Company recorded goodwill in conjunction with its acquisition of Dunhill Vacations, Inc. and assets of Smart Traveler LLC in During the fourth quarter of 2010, the Company tested the carrying value of goodwill for impairment and determined that the goodwill related to the Smart Traveler LLC acquisition was impaired and it was written off. During the fourth quarters of 2015 and 2016, the Company tested the carrying value of the Dunhill goodwill for impairment. The results of the tests indicated that the carrying value of the goodwill was not impaired. At March 31, 2017 and December 31, 2016, the carrying amount of goodwill was $64,

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2017 (UNAUDITED) NOTE 7 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of the following: March 31, 2017 December 31, 2016 Customer deposits $ 4,007,042 $ 5,235,675 Accrued compensation 1,166,471 1,448,089 Other accrued expenses 216, ,819 Accounts payable 551, ,469 Total $ 5,940,984 $ 7,259,052 NOTE 8 DEFERRED REVENUE Deferred revenue consists of sales commissions received from vacation travel suppliers net of cancellations, administrative fees received from passengers in advance of passenger travel dates and amounts invoiced for publishing advertising to be contained in future publications. The advance sales commissions, administrative fees and publishing advertising revenue are considered unearned revenue and recorded as deferred revenue in the accompanying consolidated balance sheets. Deferred revenue is recognized in net revenues in the accompanying consolidated statements of operations when the passenger travel occurs or the publication is distributed. At March 31, 2017 and December 31, 2016, deferred revenue was $3,368,579 and $3,054,446, respectively. NOTE 9 - INCOME TAXES The provision (benefit) for income taxes for the three months ended March 31, 2017 and 2016 consists of the following: March 31, March 31, Current Federal State $ (19,778) 3,081 $ 185,046 35,356 (16,697) 220,402 Deferred Federal 7,437 49,190 State 1,273 8,420 8,710 57,610 Provision for income taxes, net $ (7,987) $ 278,012 The difference between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense is as follows: March 31, 2017 March 31, 2016 Statutory federal income tax rate 34.0% 34.0% State income taxes Tax effect of non-deductible items Other (3.2) (24.4) (0.1) Effective tax rate 8.8% 39.5% 13

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2017 (UNAUDITED) The effective tax rate exceeded the statutory rate primarily as a result of $58,695 related to nondeductible items for tax purposes for the three months ended March 31, 2017 and $28,240 for the three months ended March 31, Other includes tax rate differentials and the true-up of permanent tax differences from prior periods. Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following: March 31, 2017 December 31, 2016 Capitalized list costs $ (295,977) $ (291,063) Federal property and equipment basis difference 34, ,930 State property and equipment basis difference Amortization 19, ,491 19, ,569 Accruals and other 553, ,099 Net deferred income tax asset $ 434,010 $ 442,720 NOTE 10 - EARNINGS PER SHARE As of March 31, 2017 and 2016, there were no stock options or stock awards that would have been included in the computation of diluted earnings per share that could potentially dilute basic earnings per share in the future. NOTE 11 TREASURY STOCK No treasury stock was held by the Company as of March 31, 2017 and December 31, NOTE 12 - COMMITMENTS AND CONTINGENCIES The Company is involved from time to time in various legal claims and actions arising in the ordinary course of business. While from time to time claims are asserted that may make demands for sums of money, the Company does not believe that the resolution of any of these matters, either individually or in the aggregate, will materially affect its financial position, cash flows or the results of its operations. 14

15 Item 4. Management s discussion and analysis or plan of operation Management's Discussion and Analysis and Results of Operations for the three months ended March 31, 2017 is intended to provide in narrative form the perspective of the management of Online Vacation Center Holdings Corp. (the Company) on its financial condition, results of operations, and certain other factors that may affect its future results. This discussion should be read in conjunction with the financial statements and related notes included elsewhere in this document. Overview The Company generated a net loss of $82,650 for the three months ended March 31, 2017, a decrease of 119.4% or $509,103 over the three months ended March 31, The decrease in earnings was driven by revenue decrease of 7% or $295,100 as well as increase in expenses of 14.3% or $500,184. The Company intends to steadily gain market share organically, through an established reputation for marketing innovative travel offerings and strong service to its expanding database of customers. Revenues Revenues decreased by $295,100 or 7%, to $3,910,674 for the three months ended March 31, 2017 as compared with $4,205,774 for the three months ended March 31, The decrease is primarily attributable to a decrease in travel related bookings. Selling and Marketing Expenses Selling and marketing expenses increased by $177,366 or 13.1% to $1,532,288 for the three months ended March 31, 2017 as compared with $1,354,922 for the three months ended March 31, The increase is attributable to an increase in marketing costs and sales staff compensation. Selling and marketing expenses primarily consist of sales staff compensation and costs to produce marketing materials. General and Administrative Expenses G&A expenses increased by $336,273 or 17.2% to $2,286,021 for the three months ended March 31, 2017 as compared with $1,949,748 for the three months ended March 31, The increase is attributable to an increase in management and non-sales staff compensation. G&A expenses primarily include management and non-sales staff compensation, professional services, and occupancy costs. Depreciation and Amortization Expense Depreciation and amortization expense decreased by 6.8%, or $13,455, to $183,447 for the three months ended March 31, 2017 as compared with $196,902 for the three months ended March 31, The decrease is primarily attributable to a decrease in amortization expense for customer lists. Liquidity and Capital Resources Cash balances at March 31, 2017 and 2016 was $6,827,620 and $5,944,384 respectively. The primary source of the Company s liquidity and capital resources has historically come from its operations. Management believes that the existing cash and cash expected to be provided by operating activities will be sufficient to fund the short term capital and liquidity needs of the Company s operations. Additionally, there are no current plans to acquire any significant new assets or sell any of the Company s existing assets. Off-Balance Sheet Arrangements. The Company did not have any off-balance sheet arrangements as of March 31,

16 Item 5: Legal proceedings We are engaged from time to time in the defense of lawsuits arising out of the ordinary course and conduct of our business. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or our subsidiary, threatened against our Company, our common stock, our subsidiary or of our Company or our subsidiary s officers or directors in their capacities as such. Item 6: Defaults upon senior securities Not applicable. Item 7: Other information Not applicable. Item 8: Exhibits Not applicable. Item 9: Certifications Exhibit 9(A) Certification of Principal Executive Officer Exhibit 9(B) Certification of Principal Financial Officer 16

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