NOTES TO FINANCIAL STATEMENTS
March 31, 2013
(unaudited)
Note 1 - Organization and Description of Business
Privileged World Travel Club, Inc., formerly APEX 4 Inc., (the “Company”) was incorporated under the laws of the State of Delaware on May 18, 2012.
On July 17, 2012, Richard Chiang, the sole director and stockholder of APEX 4, appointed Gregory Lykiardopoulos as a director of APEX 4. Subsequently, on July18, 2012, Mr. Chiang and Mr. Lykiardopoulos entered into a Stock Purchase Agreement whereby Mr. Lykiardopoulos purchased from Mr. Chiang 10,000,000 shares of common stock of APEX 4 for a purchase price of $40,000, which constituted 100% of the issued and outstanding shares of APEX 4 common stock. Mr. Chiang then resigned from all positions with APEX 4.
Mr. Lykiardopoulos, as the sole director and stockholder of APEX 4, then appointed himself as President, Chief Executive Officer, and Chairman of the Board of APEX 4, and adopted an amendment to the Certificate of Incorporation, changing the name of the Company to Privileged World Travel Club, Inc., on July 19, 2012.
The unaudited consolidated financial statements were prepared by Privileged World Travel Club, Inc., pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. The results for the period ended March 31, 2013, are not necessarily indicative of the results to be expected for the year ending December 31, 2013.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation - Development Stage Company
As of the date of this Report, the Company had not earned any revenue from operations. Accordingly, the Company’s activities have been accounted for as those of a “Development Stage Company” as set forth in Financial Accounting Standards Board Statement (“FASB”) ASC 915. Among the disclosures required by ASC 915 are that the Company’s financial statements be identified as those of a development stage company, and that the statements of operations, stockholders’ equity and cash flows disclose activity since the date of the Company’s inception.
Accounting Method
The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on December 31.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.
PRIVILEGED WORLD TRAVEL CLUB, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2013
(unaudited)
Income Taxes
Income taxes are provided in accordance with Accounting Standards Codification (“ASC”) No. 740 (ASC 740), Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. There were no current or deferred income tax expenses or benefits due to the Company not having any material operations for period ended March 31, 2013.
Basic Earnings (Loss) per Share
In February 1997, the FASB issued ASC 260, “Earnings per Share,” which specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock. ASC 260 supersedes the provisions of APB No. 15, and requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share. The Company has adopted the provisions of ASC 260.
Basic net loss per share amounts is computed by dividing the net income by the weighted average number of common shares outstanding. Diluted earnings per share are the same as basic earnings per share due to the lack of dilutive items in the Company.
Intangible Assets
The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible and other long-lived assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. As of March 31, 2013 and December 31, 2012, the Company performed the required impairment review and no impairment adjustment was required.
Recent Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-04 which was issued to provide a consistent definition of fair value (“FV”) and ensure that the FV measurement and disclosure requirements are similar between accounting principles generally accepted in the United States of America (“US GAAP”) and IFRS. ASU 2011-04 changes certain FV measurement principles and enhances the disclosure requirements particularly for Level 3 FV measurements. This guidance was effective for us beginning May 18, 2012. The adoption of ASU 2011-04 did not have a significant impact on the Company’s financial statements.
In June 2011, the FASB issued ASU 2011-05,
Presentation of Comprehensive Income
. ASU 2011-05 revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in Accounting Standards Codification (“ASC”) 220,
Comprehensive Income
, and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income. In December 2011, the FASB issued ASU 2011-12 which defers the requirement in ASU 2011-05 that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. ASU 2011-05 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2011, with early adoption permitted. The adoption of ASU 2011-05, as amended by ASU 2011-12, did not have a significant impact the Company’s financial statements.
PRIVILEGED WORLD TRAVEL CLUB, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2013
(unaudited)
In September 2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the FV of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard was effective for us for our annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 did not have a significant impact on the Company’s financial statements.
In July 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the FV of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this pronouncement will not have a material impact on the Company’s financial statements.
In February 2013, the FASB issued ASU No. 2013-02, which amends the authoritative accounting guidance under ASC Topic 220 “Comprehensive Income”. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under generally accepted accounting principles in the United States of America (“GAAP”) to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, and entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The amendments in this update are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. Adoption of this update is not expected to have a material effect on the Company’s consolidated results of operations or financial condition.
The Company’s financial statements are prepared using US GAAP applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not established any source of revenue to cover its operating costs. The Company will engage in limited activities without incurring any liabilities that must be satisfied in cash until a source of funding is secured. The Company will offer noncash consideration and seek equity or debt investment as a means of financing its operations. If the Company is unable to obtain revenue producing contracts or financing or if the revenue or financing it does obtain is insufficient to cover any operating losses it may incur, it may substantially curtail or terminate its operations or seek other business opportunities through strategic alliances, acquisitions or other arrangements that may dilute the interests of existing stockholders.
PRIVILEGED WORLD TRAVEL CLUB, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2013
(unaudited)
Note 4 – Related Party Transactions
An officer and director of the Company performed services for the Company during the period the value of which was $1,000, in exchange for 10,000,000 shares of common stock. An officer and director of the Company loaned $1,000 to the Company during the quarter ended June 30, 2012. This loan was subsequently forgiven by the officer and director.
On August 21, 2012, the Company entered into a license agreement with Triton Distribution Services, Inc. (“Triton”). Pursuant to the agreement, the Company obtained a non-exclusive right and license to use Triton’s Reservation Expert, for the purpose of providing services to the Company’s Members. The Company agreed to pay to Triton a license fee $150,000, not later than fifteen (15) days following the execution of the Triton Agreement, subsequently extended to January 31, 2013, as a one-time license fee for the software. The Company also agreed to pay to Triton an annual royalty payment $2,000,000, payable annually on the anniversaries of the effective date of the agreement.
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On July 19, 2012, Mr. Lykiardopoulos was issued a total of 750,000 shares of Common Stock as partial compensation for certain services provided to the Company and Privileged, Inc., a Nevada corporation (“Privileged Nevada”).
In September 2012, the Company issued shares of common stock to certain of Triton’s creditors in exchange for their right to receive payment under obligations owed by Triton. The aggregate amount of shares of common stock issued to former Triton creditors was 5,595,500, and the amount of obligations given to the Company in exchange for the shares was $5,595,500. As discussed in Note 5, on October 10, 2012, the Company entered into a Prospective Member List Purchase Agreement (the “List Purchase Agreement”) that memorialized a prior verbal agreement with Triton, pursuant to which Triton sold a list of potential members to the Company, and the Company agreed to the cancellation and return to Triton of $5,595,000 in promissory notes which the Company had acquired from prior holders of the Notes. The Notes had previously been issued by Triton to certain individuals and investors in Triton, who had exchanged their Notes, either directly with the Company for the issuance of shares of the Company’s common stock, or with the UCST Trust, which had exchanged the Notes with the Company for the issuance of shares of the Company’s restricted common stock. The fair value of the potential member list is $30,700, which is the price paid by Triton to acquire the member lists. As the Company and Triton are considered related parties, the Company has followed the guidance in ASC 470-50-40 and has recorded the loss on extinguishment as a capital transaction. A loss in the amount of $5,564,800 has been recorded as a reduction in additional paid in capital.
During the period ended March 31, 2013, Mr. Lykiardopoulos advanced $14,608 to the Company. The advance is non-interest bearing and payable upon demand.
Also see Note 5 below for additional related party transactions.
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Note 5 – Intangible Asset
As noted above, on October 10, 2012, the Company entered into the List Purchase Agreement with Triton that memorialized a prior verbal agreement with Triton. Prior to and in anticipation of the commencement of the Company’s operations, Triton had acquired a list of names and contact information for approximately 9 million individuals (the “Potential Member List”) that the Company anticipates using as its initial marketing base to offer memberships in the Company’s Privileged World Travel Club. Following the commencement of the Company’s business, the Company and Triton had verbally agreed to the terms of the sale of the Potential Member List to the Company, in exchange for the cancellation of certain debts of Triton acquired or to be acquired by the Company. The Company and Triton entered into the List Purchase Agreement, pursuant to which Triton sold the Potential Member List to the Company, and the Company agreed to the cancellation and return to Triton of $5,595,000 in promissory notes which the Company had acquired from prior holders of the Notes. The Notes had previously been issued by Triton to certain individuals and investors in Triton, who had exchanged their notes, either directly with the Company for the issuance of shares of the Company’s common stock, or with the UCST Trust, which had exchanged the Notes with the Company for the issuance of shares of the Company’s restricted common stock.
PRIVILEGED WORLD TRAVEL CLUB, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2013
(unaudited)
Intangible asset at March 31, 2013, and December 31, 2012, consisted of the following:
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March 31
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December 31,
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|
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2013
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|
|
2012
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|
|
|
|
|
|
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Customer list
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$
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30,700
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|
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$
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30,700
|
|
|
|
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30,700
|
|
|
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30,700
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Less: Accumulated amortization
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(3,070
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)
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(1,535
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)
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Intangible asset, net
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$
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27,630
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|
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$
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29,165
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Note 6 – Stockholders’ Equity
Common Stock
Upon formation, the Board of Directors issued 10,000,000 shares of common stock for $1,000 in services to the founding stockholder of the Company.
As noted above, on July 18, 2012, Mr. Lykiardopoulos purchased the shares from the founding stockholder. Mr. Lykiardopoulos subsequently assigned and sold the 10,000,000 shares to Triton, which agreed to the cancellation of 1,875,000 shares. As a result of these transactions, Triton became the sole stockholder of the Company, owning 8,125,000 shares of the Company’s common stock.
During July 2012, the Company issued 4,730,625 shares of common stock to certain individuals and entities that have provided services to the Company or its affiliates. The Company entered into several consulting agreements relating to the provision of services to the Company including initial design and development of the Company's website and website content; sales and marketing of the Company's products and services; technical and financial advice concerning the handling of the Triton note holders and beneficiaries of the UCST Business Trust; creation of travel packages and website content; introductions to other parties in the financial and travel industry; and software implementation and adaptation.
Also in September 2012, the Company issued shares of common stock to certain of Triton’s creditors in exchange for their right to receive payment under obligations owed by Triton. The aggregate amount of shares of common stock issued to former Triton creditors was 5,595,500, and the amount of obligations given to the Company in exchange for the shares was $5,595,500.
Common Stock Purchase Agreement
On October 5, 2012, the Company entered into an agreement to sell and issue 5,000,000 shares of its restricted common stock in exchange for a purchase price of Five Million Dollars ($5,000,000).
PRIVILEGED WORLD TRAVEL CLUB, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2013
(unaudited)
Pursuant to the agreement, the purchase price, minus any prior advances to the Company, will be paid to the Company within ten (10) days of the date of effectiveness of the Company’s Registration Statement on Form S-1. On January 18, 2013, the Company’s registration statement on Form S-1 was declared effective.
The purchaser is committed to purchasing the shares and as of March 31, 2013, the purchaser had paid $500,000 toward the purchase of these shares. The Company has issued 500,000 shares in connection with the initial payment, and recognizes its obligation to issue the remaining 4,500,000 shares upon payment of the proceeds.
Note 7 – Travel Service Agreement
On October 8, 2012, the Company entered into a Travel Services Agreement (the “Travel Agreement”) with China International Group Travel (“CIGT”), a division of China International Travel Service Limited, a Republic of China Government Enterprise (“CITS”), relating to the provision of travel services by the Company.
Pursuant to the Travel Agreement, the Company agreed to build a develop a travel-related website (the “Privileged Website”), using proprietary reservation software, that will permit the preparation of consolidated itineraries for travel within China, through a link to an external Chinese GDS to be provided by CIGT, and for international travel and travel within the US, including travel relating to the following cities: San Francisco, California; Los Angeles, California; Las Vegas, Nevada; Chicago, Illinois; Miami, Florida; Boston, Massachusetts; New York, New York; New Orleans, Louisiana; and Orlando, Florida (collectively, the “Travel Cities”). Additionally, through the Privileged Website, the Company agreed to provide consolidated itineraries for both the Chinese domestic travel and international travel to and among the Travel Cities by Chinese Citizens traveling to any one or more of the Travel Cities (collectively, the “Covered Travelers”). Finally, the Company agreed to work with CIGT to arrange package tours to the Travel Cities, and will provide tour guide and assistance for such tours, pursuant to agreements, the terms and conditions of which will be determined by the Parties.
In exchange for these services to be provided by the Company, pursuant to the Travel Agreement, CIGT agreed to book all travel for the Covered Travelers through the Privileged Website. CIGT further agreed that it would provide to the Company a functional link (together with all necessary technical support for functionality) to a TravelSky Technology Limited (“TravelSky”), a Chinese State-owned enterprise and dominant provider of IT solutions to China's air travel and tourism industries, and to obtain all necessary and proper permission and approval from TravelSky for use of the link on the Privileged Website. CIGT further agreed to use the Privileged Website to book all domestic travel for the Covered Travelers in connection with their travel to the Travel Cities, using the link to TravelSky on the Privileged Website. Finally, CIGT agreed to pay for all booked travel pursuant to the terms to be provided by the Company in connection with applicable tour packages for the Travel Cities.
Both the Company and CIGT agreed to maintain the confidentiality of each others’ confidential and trade secret information and documentation. Moreover, the Company and CIGT agreed that each would be responsible for payment of their respective taxes in connection with the operation of their businesses.
The term of the Travel Agreement runs from October 8, 2012, through December 31, 2015, and may be renewed for additional one-year terms on the written agreement of the Company and CITG.
Note 8 – Commitment and Contingency
There is no commitment or contingency to disclose during the quarter ended March 31, 2013.
PRIVILEGED WORLD TRAVEL CLUB, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2013
(unaudited)
Note 9 – Subsequent Events
Management has evaluated subsequent events up to and including May 17, 2013, which is the date the statements were available for issuance and determined there are no reportable subsequent events except for the following:
On May 13, 2013, the Company announced that it had entered into an exclusive partnership agreement (the “SCLC Agreement”) with the Southern Christian Leadership Conference, which is a nonprofit organization. The Southern Christian Leadership Conference is an African-American civil rights organization.
Pursuant to the SCLC Agreement, the Company will be branded as the official "Travel Club" Partner of the SCLC, and will be entitled to several benefits to represent the close partnership relationship between SCLC and Privileged. Additionally, pursuant to the SCLC Agreement, the Company will participate in previously scheduled events such as the 50th Anniversary of March on Washington, the 57th SCLC Conference, and the Kingonomics Entrepreneurship Conference.
As of the date of this Report, the Company was working to prepare a definitive version of the SCLC Agreement.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events, and they are applicable on as of the dates of such statement. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “forecast,” “expect,” “plan,” anticipate,” believe,” estimate,” continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” and those listed in our other SEC filings. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report. Throughout this Quarterly Report on Form 10-Q we will refer to Privileged World Travel Club, Inc., together with its subsidiaries, as “Privileged,” the “Company,” “we,” “us,” and “our.”