Friday, 13 May 2005
No deep pockets for ".travel" buyer
While my questions about the financial soundness of the would-be operators of the ".travel" top-level Internet domain remain unanswered by ICANN , new information continues to be made public (although not by ICANN, despite its professed commitment to "openness and transparency") about their under-capitalization.
As I've previously reported , the supposed policy-making body for "travel", the Travel Partnership Corporation (TTPC), reported in its own annual report that it was insolvent as of the end of 2004. We don't know who's been paying its bills, or would finance the much increased costs of actually setting up ".travel" policies, but it appears likely that would be funded by Tralliance Corp., the successful (subject to my request for indepndent review) applicant for the ".travel" registry franchise from ICANN.
But Tralliance Corp. itself has no current income, and will have to pay its own start-up costs -- as well as, presumably, those of TTPC -- before it starts generating any revenue from ".travel" registration fees. Tralliance Corp. has been subsisting on loans from TheGlobe.com (a/k/a Voiceglo.com) advanced against a lien by TheGlobe.com on Tralliance's assets. (Tralliance's only known assets, of course, are the "rights" in ".travel" which were assigned to Tralliance under the still-secret deal between Tralliance and IATA, whose existence was revealed in April 2005, just days before ICANN's meeting to delegate ".travel" to Tralliance.)
Now that Tralliance has been bought by TheGlobe.com, does that give it, and ".travel" operations, sound financial backing?
As was reported last month in the Mimai Herald, TheGlobe.com admitted in its 30 March 2005 Form 10-KSB filed with the SEC that it had less than US$4 million in the bank as of April 2005, with a "burn rate" of about $1 million a month. "Company management does not presently believe that cash on hand and cash flow generated internally by the Company will be adequate to fund the operation of its businesses and the implementation of its current VoIP business plan beyond a short period of time," raising doubt as to its "ability to continue to operate as a going concern in the future". The same filing notes that TheGlobe.com had already advanced Tralliance corp. US$1 million as loans in 2003-2004, and that it may "need to fund start-up and initial operating expenses [of Tralliance for ".travel"] of a yet undetermined amount."
Today TheGlobe.com filed a Form 10-Q with the SEC that both reiterates its financial shakiness and reveals more details about its acquisition of Tralliance:
During 2004, the Company expended significant costs to implement a number of marketing programs geared toward increasing the number of its VoIP retail customers and telephony revenue. None of these programs have proven to be successful to any significant degree. At March 31, 2005, the Company's sole source of liquidity consisted of $3,280,189 of cash and cash equivalents. The Company continues to incur substantial consolidated net losses and management believes the Company will continue to be unprofitable for the foreseeable future. These conditions raise significant doubt about the Company's ability to continue as a going concern....
On February 25, 2003, theglobe.com entered into a Loan and Purchase Option Agreement, as amended, with Tralliance Corporation ("Tralliance"), a development stage Internet related business venture, pursuant to which it agreed to fund, in the form of a loan, at the discretion of the Company, Tralliance's operating expenses and obtained the option to acquire all of the outstanding capital stock of Tralliance in exchange for, when and if exercised, $40,000 in cash and the issuance of an aggregate of 2,000,000 unregistered restricted shares of theglobe.com's Common Stock (the "Option"). The Loan was secured by a lien on the assets of the venture. On May 5, 2005, Tralliance and the Internet Corporation for Assigned Names and Numbers ("ICANN") entered into an agreement designating Tralliance as the registry for the ".travel" top-level domain. On May 9, 2005, the Company exercised its option to acquire all of the outstanding capital stock of Tralliance. The purchase price consisted of the issuance of 2,000,000 shares of theglobe.com Common Stock, warrants to acquire 475,000 shares of theglobe.com Common Stock and $40,000 in cash. The warrants are exercisable for a period of five years at an exercise price of $0.11 per share. The Common Stock issued as a result of the acquisition of Tralliance is entitled to certain "piggy-back" registration rights. In addition, as part of the transaction, the Company agreed to pay approximately $154,000 in outstanding liabilities of Tralliance immediately after the closing of the acquisition.
Upon acquisition, the existing CEO and CFO of Tralliance entered into employment agreements, which include certain non-compete provisions, whereby each would agree to remain in the employ of Tralliance for a period of two years in exchange for base compensation plus participation in a bonus pool based upon the pre-tax income of the venture.
Advances to Tralliance totaled $1,231,500 as of March 31, 2005. Due to the uncertainty of the ultimate collectibility of the Loan, the Company has historically provided a reserve equal to the full amount of the funds advanced to Tralliance. Additions to the reserve of $230,000 and $110,000 were included in other expense in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2005 and 2004, respectively.
There's no telling how much of this was known to ICANN when they made their dcecisions on ".travel", but there is growing reason for doubt as to the financial fitness of the would-be ".travel" operator to even finance the start-up of the new domain name, much less ensure its ongoing operational stability.Link | Posted by Edward on Friday, 13 May 2005, 17:26 ( 5:26 PM)