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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For The Quarterly Period Ended September 30, 1999
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 033-07811NY
GARY PLAYER DIRECT, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 93-0943925
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
710 AEROVISTA, SUITE B, SAN LUIS OBISPO, CALIFORNIA 93401
(Address of Principal Executive Offices)
(805) 783-1011
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes __ No X
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes __ No __
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of: September 30, 1999: 7,059,144
Common Stock
Transitional Small Business Disclosure Format (check one):
Yes __ No X
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GARY PLAYER DIRECT, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
PART 1 - FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - for the Six Months ended
September 30, 1999 (Unaudited) and fiscal year ended
March 31, 1999. 3
Consolidated Statements of Operations - for the
Three Months ended September 30, 1999 and 1998 and for
the Six Months ended September 30, 1999 and 1998
(Unaudited). 4
Consolidated Statements of Cash Flows - for the Six Months
ended September 30, 1999 and 1998 (Unaudited). 5
Notes to Consolidated Financial Statements - September 30,
1999. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
</TABLE>
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PART I - FINANCIAL INFORMATION
GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND MARCH 31, 1999
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 103,139 $ 249,545
Accounts receivable 31,522 2,001
Inventories 307,283 355,226
Prepaid expenses and other 77,919 230,041
------------ ------------
Total current assets 519,863 836,813
Furniture, Fixtures, Property and Equipment, net 145,232 241,856
Other assets 895,480 807,791
------------ ------------
Total Assets $ 1,560,575 $ 1,886,460
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued liabilities $ 8,662,085 $ 7,332,273
Notes payable 4,835,881 4,404,220
Customer refunds, deferred revenue and allowance for
returns 4,281,625 4,837,136
------------ ------------
Total current liabilities 17,779,591 16,573,629
Notes Payable 650,000 650,000
Stockholders' Deficit
Common stock, par value $.001 per share - authorized
50,000,000 shares, issued and outstanding 7,059,144 and
5,794,758, shares respectively 7,059 5,795
Preferred stock, par value $.001 per share - authorized
5,000,000 shares -- --
Series B convertible preferred stock - authorized
750,750 shares -- --
Capital in excess of par value 15,540,480 13,012,466
Common stock subscribed -- (60,711)
Accumulated deficit (32,416,555) (28,294,719)
------------ ------------
Total Stockholders' Deficit (16,869,016) (15,337,169)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 1,560,575 $ 1,886,460
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Gross Sales $ 0 $ 4,899,902 $ 1,439,689 $ 9,966,908
Less allowances for returns and discounts 100,530 2,642,069 870,504 4,856,008
------------- ------------- ------------- -------------
Net Sales (100,530) 2,257,833 569,185 5,110,900
Cost of goods sold 122,208 817,724 502,441 1,992,148
------------- ------------- ------------- -------------
Gross Profit (222,738) 1,440,109 66,744 3,118,752
Operating expenses
Telemarketing and infomercial expenses 116,658 1,419,089 545,763 2,911,695
Selling expenses 217,843 1,101,807 553,132 1,990,529
General and administrative 1,231,566 377,534 1,867,028 787,021
Depreciation and amortization 19,508 20,495 37,366 37,546
Litigation settlement expense -- 28,381 -- 51,714
------------- ------------- ------------- -------------
Total operating expenses 1,585,575 2,947,306 3,003,289 5,778,505
------------- ------------- ------------- -------------
Operating loss (1,808,313) (1,507,197 (2,936,545) (2,659,753)
Other expenses
Interest expense 806,845 571,489 1,162,067 1,968,230
Other (income) expense, net 20,680 (52,732) 23,224 (84,386)
------------- ------------- ------------- -------------
Total other expenses 827,525 518,757 1,185,291 1,883,844
------------- ------------- ------------- -------------
NET LOSS $ (2,635,838) $ (2,025,954) $ (4,121,836) $ (4,543,597)
============= ============= ============= =============
Weighted average shares of common stock outstanding 6,510,440 1,820,396 6,212,826 1,784,021
============= ============= ============= =============
Net loss per share - Basic and diluted $ (0.40) $ (1.11) $ (0.66) $ (2.54)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Increase (decrease) in cash: Cash flows from operating activities:
Net loss $(4,121,836) $(4,543,597)
Adjustments to reconcile net loss to net cash
used in operating activities:
Allowance for uncollectible receivables -- 27,660
Depreciation and amortization 37,366 37,546
Amortization of discount on debt -- 1,464,340
Issuance of Class A warrants for new notes payable 100,000 --
Issuance of common stock for consulting services 511,875 14,441
Issuance of common stock to employees 30,000 720
Issuance of common stock for loan extensions 205,000 --
Issuance of common stock for vendor settlements 51,245 --
Issuance of common stock for loan fees 618,126 744,809
Changes in assets and liabilities
Accounts receivables (29,521) (96,947)
Inventories 112,344 (746,927)
Prepaid expenses and other 152,122 (253,165)
Other assets (87,689) (528,904)
Accounts payable and accrued liabilities 1,349,029 1,930,113
Customer refunds, deferred revenue and
allowance for returns (555,511) 1,666,789
----------- -----------
Net cash used in operating activities (1,627,450) (283,122)
----------- -----------
Cash flows from investing activities:
Purchases of equipment (5,143) (170,680)
Cash flows from financing activities:
Proceeds from issuance of debt 480,269 489,109
Proceeds from sale of stock 993,814 --
Proceeds from common stock subscribed 60,711 --
Debt repayments (57,607) --
----------- -----------
Net cash provided by financing activities 1,486,187 489,109
----------- -----------
Net increase (decrease) in cash (146,406) 35,307
Cash at beginning of period 249,545 129,008
----------- -----------
Cash at end of period $ 103,139 $ 164,315
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 38,150 $ 3,602
----------- -----------
Supplemental disclosure of noncash financing activity:
Issuance of common stock for note extensions $ 205,000 $ --
----------- -----------
Issuance of common stock for new notes payable $ 618,126 $ 744,809
----------- -----------
Issuance of common stock for consulting fees $ 511,875 $ 14,441
----------- -----------
Issuance of common stock for employee services $ 30,000 $ 720
----------- -----------
Issuance of common stock for vendor settlements $ 51,245 $ --
----------- -----------
Issuance of warrants for new note payable $ 100,000 $ --
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. GENERAL
The accompanying unaudited interim financial statements of Gary Player Direct,
Inc. (the "Company") include the accounts of the Company and its wholly-owned
subsidiaries, after elimination of all significant intercompany transactions,
accounts and profits. These statements include all adjustments (consisting
solely of normal recurring adjustments) which, in the opinion of management, are
necessary to fairly present the financial position of the Company as of
September 30, 1999 and the results of its operations and its cash flows for the
three months ended and six months ended September 30, 1999 and 1998. The results
of operations for this interim period are not necessarily indicative of results
to be expected for the full year.
These interim financial statements should be read in conjunction with the
Summary of Significant Accounting Policies and other Notes to Financial
Statements included in the Company's annual audited financial statements for the
year ended March 31, 1999. Certain prior year amounts have been reclassified to
conform with the current period presentation.
2. DESCRIPTION OF BUSINESS
The Company is engaged principally in the direct marketing within the United
States and Canada of Gary Player brand golf clubs pursuant to an exclusive
license from the Gary Player Group, Inc. ("GPG"). The Company's golf clubs are
currently marketed and sold under the names Gary Player Black Knight and Gary
Player.
On March 29, 1999, Grafix Corporation completed a merger with Golf One, in which
Golf One merged with and into Grafix, and the Company changed its name to "Gary
Player Direct, Inc." Pursuant to the terms of the Agreement of Merger, the
Company issued 3,817,244 shares of its common stock to Golf One's shareholders
and lenders, resulting in a change of control of the Company. As part of the
merger with Golf One, the Company effected a 1-for-20 reverse split of its
issued and outstanding common stock. As of March 31, 1999, the Company had
5,794,758 shares of common stock issued and outstanding, including the 3,817,244
shares owned by Golf One's former shareholders and lenders.
The Company as Grafix Corporation designed, developed, assembled and distributed
golf products, clothing and accessories worldwide utilizing the Carrera (R)
brand name and logo, pursuant to an exclusive licensing agreement with Carrera
Optyl GmBh, a
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subsidiary of Safilo SpG ("Safilo"), owner of the Carrera brand name. The
Company has discontinued Grafix's operations including the sale of Carrera Golf
brand products. Upon closing of the 1999 Merger, the Company's operations, which
had ceased on or about September 30, 1998, became that of those conducted by
Golf One since 1995.
Golf One, Inc. was incorporated in Delaware in October 1995. In November 1995,
the Company acquired Rhino Marketing, Inc. ("Rhino"), which was engaged in the
direct marketing of golf clubs and accessories. On October 10, 1995, Rhino
entered into a licensing agreement with Robert Mann, a well-known golf
professional, to endorse the Rhino Rifle brand name golf clubs and accessories.
Rhino commenced sales of golf clubs under the Bob Mann brand name in November,
1995 and terminated the Mann licensing agreement in January, 1997. After the
termination of this licensing agreement in January, 1997, the Company
discontinued active operations of Rhino.
The Company's second subsidiary, Gran Prix, was formed by the Company in
January, 1997 as a wholly-owned subsidiary of the Company, and commenced sales
of golf clubs and related golf products and accessories under the Gary Player
Gran Prix brand name in February, 1997. Such sales were made through
direct-marketing pursuant to an exclusive long-term direct marketing agreement
between the Company and Gary Player Golf Equipment, Inc. ("GPGE"). The Gary
Player Gran Prix line of golf products was discontinued by Gran Prix on or about
the date of the 1999 Merger.
As a result of the 1999 Merger, substantially all of the operations of the
Company relate to the operations of the Gary Player line of branded products and
the focus of the Company's activities going forward will be the development of
revenue from manufacturing, marketing, licensing and distributing golf equipment
and apparel resulting from licenses (the "Player Licenses") acquired from The
Gary Player Group, Inc. ("GPG"). In November 1996, the Company entered into a
20-year direct marketing agreement ("the Licensing Agreement"), with GPG,
pursuant to which the Company obtained the exclusive right to market and sell
golf clubs and golf accessories and apparel under the name "Gary Player" on a
direct marketing basis in the United States and Canada.
The 1999 Merger was accounted for as a purchase of the Company by Golf One in a
"reverse acquisition" because the existing stockholders of the Company did not
have voting control of the combined entity after the transaction. In a reverse
acquisition, the accounting treatment differs from the form of the transaction,
as the continuing legal entity is not considered to be the acquirer and the
financial statements of the combined entity are those of the accounting acquirer
(Golf One), including any comparative prior year financial statements presented
by the combined entity after the business transaction. Accordingly, the 1998
financial statements of the Company will consist of the comparative historical
financial statements of the Golf One, with accompanying disclosure concerning
the change in capital structure effected by the acquisition.
In connection with the 1999 Merger, the Company changed its fiscal year-end from
September 30 to March 31, which is the fiscal year end of Golf One.
3. GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has incurred substantial losses
from operations since inception. In addition, the Company has used, rather than
provided, cash in its operations and at September, 1999, the Company has a
deficit working capital of $17,029,762 and a stockholders' deficit of
$16,869,016. As discussed in Notes 4 and 7, the Company is also in default on
the payment of certain notes payable and its Licensing Agreement with GPG, and
is subject to significant litigation, claims and assessments. These matters,
among others, raise substantial doubt about the Company's ability to continue as
a going concern.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is
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dependent upon continued operations of the Company, which in turn, is dependent
upon the Company's ability to meet its financial requirements on a continuing
basis, to maintain adequate financing, and to succeed in its future operations.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
Management's plans to address these matters are summarized below. There can be
no assurance that management will be successful in resolving these matters, or
that the Company will be able to maintain operations until March 31, 2000.
A new Board of Directors was elected on October 14, 1999, and a new management
team was put into place. Since then, the Company has been attempting to
identify, resolve and settle any unpaid amounts. Management has been successful
in settling many obligations or obtaining extended payment terms. There can be
no assurance that all significant obligations can be resolved satisfactorily.
Until October 14, 1999, Gary Player Group's ("GPG") relationship with the
Company was that of a licensor of the Gary Player name under the Licensing
Agreement. The twenty year Licensing Agreement provides for the direct marketing
of Gary Player branded golf equipment and accessories in North America
principally through telemarketing activities by the Company. Effective as of
October 14, 1999 Marc Player, Mr. Player's son, and Pamela Campbell, the
Controller of GPG, were appointed two of the three members of the Board of
Directors of the Company along with Thomas P. Gallagher who became the Chairman
of the Board of Directors. Also, as of October 14, 1999, the Company's Licensing
Agreement with GPG was in default as a result of the Company's failure to
satisfy certain provisions of the Licensing Agreement including the failure to
make certain royalty payments, the failure to meet certain sales minimums and
the failure to pay miscellaneous other charges under the Licensing Agreement. As
of November 9, 1999 and November 11, 1999, the Company and GPG executed certain
amendments to the Licensing Agreement and the Company is no longer in default as
of the date of this report. The Company has made payments to GPG and Marc Player
totaling $555,000 between October 14, 1999 and November 16, 1999.
The Company anticipates selling additional Common Stock under Regulation S to
fund its operating plan. The offering is dependent upon the Company
re-activating its listing on the NASD Bulletin Board. Additional capital
transactions will likely be required to meet the Company's funding needs. There
can be no assurance that the Company will be able to re-activate its listing in
a timely manner, nor to successfully complete the offering.
The Company plans to pursue a marketing strategy directed more towards internet
sales,
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which management believes will lower the overall cost of sales and marketing for
the Company, while increasing revenues worldwide. Complete implementation of the
Company's internet strategy will require significant additional capital. There
can be no assurance that management will be able to obtain the necessary capital
or that its efforts will be successful.
As a result of the Company's limited sales and significant liabilities, the
Company anticipates that it will be heavily dependent upon sales of its equity
or debt securities over the next twelve months. There can be no assurance that
the Company will be successful in raising such additional capital or that if
available it will be on terms acceptable to the Company. In addition, there can
be no assurance that if the Company cannot raise additional capital, that the
Company's revenues from operations will be sufficient to meet its working
capital, product development costs and capital to satisfy its past due
obligations. Accordingly, if the Company is not successful in funding its
operations over the next twelve months through the sale of its equity or debt
securities, the Company reserves the right to restructure its operations by any
means available including the possibility of some form of creditor protection
for the Company or one or more of its subsidiaries. In addition, it is likely
that any financing conducted by the Company will cause substantial dilution to
the Company's existing shareholders.
4. SHORT-TERM DEBT
During the quarter ended September 30, 1999, the Company obtained several loans
from different private parties to fund its operations.
On July 6, 1999, the Company obtained loans from Monte Stern ("Stern"), the
Hollander Family Trust ("HFT"), Jerome Hollander ("Hollander"), and the Hyman
Harris Irrevocable Trust ("HHIT") (collectively, the "July 6 Loans"). In
consideration of the July 6 Loans, the Company executed promissory notes in the
amounts of $20,000, $10,000, $10,000 and $10,000, respectively, with annual
interest accruing at 10%, and issued 20,000 shares of common stock to Stern,
10,000 shares of common stock to HFT, 10,000 shares of common stock to
Hollander, and 10,000 shares of common stock to HHIT, respectively. The July 6
Loans are due on the earlier of (i) the completion of the Company's anticipated
secondary stock offering or (ii) six months from the date of execution of the
promissory notes. On July 12, 1999, the Company obtained a loan from Kenneth
Richland ("Richland"), in the amount of $20,000 upon the same terms as the July
6 Loans. In consideration of the loan, the Company issued to Richland 20,000
shares of common stock.
On July 15, 1999 and July 25, 1999, the Company obtained two loans from J.M.
Kealy ("JMK"), in the amounts of $100,000 and $50,000, respectively (the "JMK
Loans"). In consideration of the JMK Loans, the Company executed two promissory
notes in the amounts of the loans with annual interest at 10%, and issued an
aggregate of 100,000 shares of common stock to JMK, 50,000 shares for each loan.
The July 15th loan had a
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maturity date of sixty (60) days from the date of execution, and the July 25th
loan is a demand promissory note. The Company is currently in default of the
July 15th loan.
During the quarter ended June 30, 1999, the Company obtained several loans from
different private parties to fund its operations.
On April 20, 1999, the Company entered into a certain agreement with PayPro
Resources, Inc. ("PayPro"), whereby PayPro agreed to lend $79,269 to the Company
under the terms of a client service agreement, which agreement required a
personal guaranty by Mr. Alfonso J. Cervantes, Jr., the Company's CEO at the
time of issuance ("Cervantes"). The loan is evidenced by a promissory note dated
April 20, 1999 with annual interest accruing at 10%. The Company is currently in
default of such loan.
On May 17, 1999, the Company obtained a loan from Mr. Richard Casey ("Casey"),
in the amount of $40,000 (the "Casey May Loan"). In consideration of the Casey
May Loan, the Company executed a promissory note in the amount of $40,000 with
annual interest accruing at 12%, and issued 10,000 shares of common stock to
Casey. The Casey May Loan was due on July 16, 1999. On July 6, 1999, the Company
obtained an additional loan from Casey in the amount of $20,000 (the "Casey July
Loan"). In consideration of the Casey July Loan, the Company executed a
promissory note in the amount of $20,000 with annual interest accruing at 10%
and issued 25,000 shares of common stock to Casey. Pursuant to a Modification
Agreement dated September 15, 1999 the maturity dates of the Casey May Loan and
the Casey July Loan were extended to November 15, 1999 in consideration of the
issuance of an additional 15,000 shares of common stock of the Company. The
Company is currently in default of the Casey May Loan and the Casey July Loan.
On May 17, 1999, the Company obtained a loan from Dr. Michael Freilich
("Freilich"), in the amount of $20,000 (the "Freilich May Loan"). In
consideration of the Freilich May Loan, the Company executed a promissory note
in the amount of $20,000 with annual interest accruing at 15%, and issued 7,500
shares of common stock to Freilich. The Freilich May Loan was extended on June
22, 1999 for an additional thirty (30) days in consideration of the issuance of
an additional 5,000 shares of common stock. On August 16, 1999, the Company
extended the maturity dates on the Freilich May Loan and the previous March Loan
in the amount of $25,000 to September 1 and 6, 1999, respectively, in
consideration of the issuance of an additional 17,500 shares of common stock of
the Company. On September 13, 1999, the Company once again extended the maturity
dates on the Freilich May and March Loans through November 15, 1999 in
consideration of the issuance of an additional 2,500 shares of common stock of
the Company. The Company is currently in default of such loans.
On June 1, 1999, the Company obtained a loan from Mr. Thomas Imming ("Imming"),
in the amount of $10,000 (the "Imming Loan"). In consideration of the Imming
Loan, the Company executed a promissory note in the amount of $10,000 with
annual interest accruing at 10%, and issued 5,000 shares of common stock to
Imming. The Imming Loan was due on June 17, 1999. The Company is currently in
default of the Imming Loan.
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On June 6, 1999, in return for a loan from Lava Investments Limited in the
amount of $50,000 (the "Lava Loan"), the Company executed a secured convertible
promissory note in the amount of $75,000 with interest at 10% per annum in favor
of Lava. The note was secured with a UCC-1 financing statement and guaranteed by
Cervantes. The note issued to Lava is due on July 6, 1999. As further
consideration for making the loan, Lava was granted a warrant to purchase
100,000 shares of the Company's common stock at $1.00 per share. The Company
defaulted on the Lava Loan. On July 14, an amendment was executed extending the
time of payment to July 21, 1999 in consideration for payment of an extension
fee of $6,250 and the issuance of 10,000 shares of the Company's Common Stock.
The Note was not repaid by July 21, 1999, and in accordance with the terms of
the Note the Company issued another 10,000 shares of the Company's Common Stock
and paid a $12,500 extension fee. The Lava Loan was paid in full on or about
September of 1999.
On June 10, 1999, the Company obtained a loan from Mid-American General Agency,
Inc. ("Mid-American"), in the amount of $50,000 (the "Mid-American Loan"). In
consideration of the Mid-American Loan, the Company executed a promissory note
in the amount of $50,000 with annual interest accruing at 12%, and issued 25,000
shares of common stock to Mid-American. The Mid-American Loan is due on
September 8, 1999. Pursuant to a Modification Agreement dated September 27,
1999, the maturity date of the Mid-American Loan was extended to December 7,
1999 in consideration of the issuance of an additional 15,000 shares of common
stock of the Company.
5. EQUITY TRANSACTIONS
On May 21, 1999, the Company issued 10,000 shares of the Company's Common Stock
to a Mr. Hirsch in consideration for services rendered to the Company. The
shares were valued at $3.00 per share by the Company.
On May 21, 1999, the Company issued 10,000 shares to Joseph DePanfilis - an
officer of the Company in consideration for services rendered to the Company.
These shares were valued at $3.00 per share.
On May 21, 1999, the Company issued 15,000 shares of the Company's Common Stock
as a security deposit for the entering into of a lease agreement. These shares
were valued at $3.00 per share.
On May 27, 1999, the Company issued 18,750 shares of the Company's Common Stock
to a Mr. Cox in consideration for consulting services rendered and to be
rendered to the Company in the fiscal quarter ended June 30, 1999. These shares
were valued at $3.00 per share.
On June 2, 1999, Mr. Gary Kucher entered in a consulting agreement with the
Company to provide consulting services for a one year period in consideration
for the issuance of 50,000 shares of the Company's Common Stock. The Company was
obligated to register these shares under the Securities Act of 1933, as amended
(the "Act") within thirty days of their issuance. In addition, the consulting
agreement provides for certain monetary penalties in the event that the shares
are not timely registered under the Act. These shares have been valued by the
Company at $3.00 per share.
On July 2, 1999, the Board of Directors approved of the issuance of 20,000
shares per year for each of the outside members of the Board of Directors in
consideration for their service as directors. Accordingly, Mr. Robert Friedland
was awarded 80,000 shares for his four years of service on the Board of
Directors. Mr. Friedland's shares were valued at $210,000, or $2.625 per share.
On July 2, 1999, the Board of Directors awarded Ace Investors 25,000 shares of
the Company's Common Stock for services rendered to the Company. These shares
were valued at $65,625, or $2.625 per share.
On September 30, 1999, Mr. Sheldon Silver converted $6,245, of indebtedness that
the Company owed to him in consideration for the receipt of 12,490 shares of the
Company's Common Stock or a conversion price of $2.00 per share.
During August through September 30, 1999, the Company sold 737,647 shares of
Common Stock to one offshore accredited investor, resulting in net proceeds
of $993,814 through a Regulation S offering. The Company anticipates selling
additional Regulation S shares in this private placement during the remainder of
the fiscal year ending March 31, 2000, resulting in additional gross proceeds of
$5,000,000.
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6. LOSS PER SHARE
Common share equivalents were not considered as they would be anti-dilutive and
had no impact on the loss per share for the three-month periods presented. There
were no dilutive stock options or warrants for the six-month periods ended
September 30, 1999 and 1998.
7. SUBSEQUENT EVENTS
Effective as of October 14, 1999 Marc Player, Mr. Player's son, and Pamela
Campbell, the Controller of GPG, were appointed two of the three members of the
Board of Directors of the Company along with Thomas P. Gallagher who became the
Chairman of the Board of Directors. Also, as of October 14, 1999, the Company's
Direct Marketing Agreement (the "Licensing Agreement") with GPG was in default
as a result of the Company's failure to satisfy certain provisions of the
Licensing Agreement including the failure to make certain royalty payments, the
failure to meet certain sales minimums and the failure to pay miscellaneous
other charges under the Licensing Agreement. As of November 9, 1999, the Company
and GPG executed certain amendments to the Licensing Agreement and the Company
is no longer in default as of the date of this report. The Company has made
payments to GPG and Marc Player totaling $555,000 between October 14, 1999 and
November 16, 1999.
On October 14, 1999, Mr. Cervantes tendered his resignation to the Company for
all of his positions and received certain allowances in consideration therefore
pursuant to the terms of the Succession Plan and Agreement. Pursuant to the
Succession Plan and Agreement the Company acknowledged that Mr. Cervantes'
employment agreement was being terminated by the Company without cause,
provided, however, Mr. Cervantes agreed not to pursue or institute any action
against the Company for termination without cause unless the Company or any
subsidiary instituted an action against Mr. Cervantes (other than an action for
breach of the Succession Plan and Agreement or certain other claims that the
Company may raise).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This report was prepared and filed in December 1999, and accordingly
this report addresses and reflects not only matters relevant to the reporting
period during the period ended September 30, 1999, but also certain events and
matters during the period October 1, 1999 through and including the date of this
report (the "Subsequent Period") which management believes are material and
useful to the reader's understanding of this report. The events of the
Subsequent Period that are addressed herein are included because this report has
not been timely filed with the Securities and Exchange Commission
("Commission"). The events of the Subsequent Period included a substantial
transition in the Company's Board and management, and the Company's engagement
of new auditors during October, 1999, which has been described in the
description of new management and directors in the Company's 1999 Annual Report
on Form 10-KSB ("1999 Form 10-KSB"), Item 9, "Directors, Executive Officers,
Promoters and Control Persons, Compliance with Section 16(a) of the Exchange
Act". Accordingly, the information contained herein is qualified to the extent
of the knowledge possessed by the Company's new management team as of the date
of this report with respect to the affairs of the Company.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
Since inception, the Company's cash requirements have exceeded its cash
flows from operations and, at September 30, 1999, the Company had a working
capital deficit of $17,259,728. As a result, the Company has depended on loans
and sales of securities to fund its operations. The Company must increase its
net sales to obtain sufficient cash flows from operations to meet its cash
requirements. The Company is dependent upon the proceeds of securities offerings
and loans to implement its growth strategy and finance its short-term working
capital requirements. Subsequent to the date of the 1999 Merger, the Company has
continued to sustain substantial losses and has had substantially reduced sales
of its golf products.
During the period ended September 30, 1999, the Company raised an
aggregate of $993,814 net of offering costs, through the sale of capital stock,
as follows: (i) the Company sold 737,647 shares of Common Stock and (ii) the
Company issued promissory notes in the aggregate amount of $489,269 bearing
interest at rates ranging from 12% to 15% per annum and issued 242,500 shares of
Common Stock to the lenders in connection with these loans.
At September 30, 1999, the Company had outstanding borrowings of
$5,485,881, of which the Company was in default on $4,835,881 of the outstanding
indebtedness.
At September 30, 1999, the Company had customer refunds payable,
deferred revenue and allowances for returns totalling $4,281,625.
Other assets at September 30, 1999 included principally deferred direct
response advertising costs of $90,000, a loan receivable of $15,000 from a
corporation owned by the former CEO and President of the Company until October
14, 1999, deferred acquisition costs of $300,274 and advertising credits of
$390,239.
As a result of the Company's limited sales and significant liabilities,
the Company anticipates that it will be heavily dependent upon sales of its
equity or debt securities over the next twelve months. There can be no assurance
that the Company will be successful in raising such additional capital or that
if available it will be on terms acceptable to the Company. In addition, there
can be no assurance that if the Company cannot raise additional capital, that
the Company's revenues from operations will be sufficient to meet its working
capital, product development costs and capital to satisfy its past due
obligations. Accordingly, if the Company is not successful in funding its
operations over the next twelve months through the sale of its equity or debt
securities, the Company reserves the right to restructure its operations by any
means available including the possibility of some form of creditor protection
for the Company or one or more of its subsidiaries. In addition, it is likely
that any financing conducted by the Company will cause substantial dilution to
the Company's existing shareholders.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Net sales for the three months ended September 30, 1999 were a negative
($100,530), as compared to net sales of $2,257,833 for the three months ended
September 30, 1998. Net sales were derived from gross sales of $0 and $4,899,902
for the three months ended September 30, 1999 and 1998, respectively. The
decrease in net sales was due to lack of working capital and accompanying
unavailability of products for sale. Substantially all sales in the three months
ended September 30, 1999 and 1998 were generated by telemarketing. As of April
1, 1999, the Company commenced the development of a new program whereby it
offers new purchasers of clubs certain incentives to "waive" the 60-day buy-back
right. These buy-back waivers can include bonus clubs, golf balls, golf tip
videos, and under certain circumstances, cash discounts. The goal of this
program is to reduce returns. As a result of this program, the Company incurred
sales costs for the value of these incentives and recorded them as sales
discounts.
The Company recorded allowances for returns of $(100,530) and $2,642,069 of net
sales for the three months ended September 30, 1999 and 1998, respectively. The
Company establishes allowances for returns at the time of recording sales based
on its historical return rates.
Cost of goods sold was $122,208 for the three months ended September 30, 1999,
as compared to cost of goods sold of $817,724 for the three months ended
September 30, 1998, and the gross margins were a negative $(222,738) and
$1,440,109, respectively, during these quarters. The Company recorded no sales
during the quarter ended September 30, 1999 due to working capital constraints.
The Company's waiver program to decrease returns resulted in the Company
recording an expense of $100,530 for the quarter ended September 30, 1999. The
cost of sales for the quarter ended September 30, 1999 includes adjustments for
realizable value of inventory, promotions and shrinkage. As a result, the
Company recorded a negative gross profit for the quarter ended September 30,
1999 of $222,738.
Operating expenses were $1,585,575 for the quarter ended September 30, 1999, a
decrease of 46% as compared to operating expenses of $2,947,306 for the quarter
ended September 30, 1998.
Telemarketing, infomercial, and selling expenses were $334,501 for the three
months ended September 30, 1999, a decrease of 86% from these expenses of
$2,520,896 for the three months ended September 30, 1998. These expenses include
production and advertising and commissions, royalties, and related fees,
salaries, wages and benefits of management personnel involved in sales and
marketing, customer service and sales support, fees paid to the credit card
processor and lead generation costs. These expenses decreased in the three
months ended September 30, 1999 due principally to a reduction in sales, staff,
and advertising due to working capital constraints.
General and administrative expenses were $1,231,566 for the three months ended
September 30, 1999, an increase of 326% as compared to general and
administrative expenses of $377,534 for the three months ended September 30,
1998. General and administrative expenses include primarily salaries and
benefits of executive officers and administrative personnel, consulting fees,
rent and utilities. This increase is principally due to an increase in
consulting fees (including shares issued to consultants), legal fees, accounting
fees, commissions and use of temporary service agencies.
Interest expense was $806,845 for the three months ended September 30, 1999, an
increase of 41% as compared to interest expense of $571,489 for the three months
ended September 30, 1998.
As a result of the foregoing, the Company incurred a net loss of $2,635,838 for
the three months ended September 30, 1999, as compared to a net loss of
$2,025,954 for the three months ended September 30, 1998.
Six Months Ended September 30, 1999 Compared to September 30, 1998
Net sales for the six months ended September 30, 1999 were $569,185, as compared
to net sales of $5,110,900 for the six months ended September 30, 1998. Net
sales were derived from gross sales of $1,439,689 and $9,966,908 for the six
months ended September 30, 1999 and 1998, respectively. The decrease in net
sales was due to lack of working capital and accompanying unavailability of
product. Substantially all sales in the six months ended September 30, 1999 and
1998 were generated by telemarketing.
The Company recorded allowances for returns of 60% and 48% of gross sales for
the six months ended September 30, 1999 and 1998, respectively. The Company
establishes allowances for returns at the time of recording sales based on its
historical return rates.
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Cost of goods sold was $502,441 for the six months ended September 30, 1999, as
compared to cost of goods sold of $1,992,148 for the six months ended September
30, 1998, and the gross margins were 12% and 61% of net sales, respectively,
during these periods. The decrease in gross margins was due principally to
substantially lower sales volumes.
As of April 1, 1999, the Company commenced the development of a new program
whereby it offers new purchasers of clubs certain incentives to "waive" the
60-day buy-back right. These buy-back waivers can include bonus clubs, golf
balls, golf tip videos, and under certain circumstances, cash discounts. The
goal of this program is to reduce returns. As a result of this program, the
Company incurred sales costs for the value of these incentives.
Operating expenses were $3,003,289 for the six months ended September 30, 1999,
a decrease of 48% as compared to operating expenses of $5,778,505 for the
six months ended September 30, 1998.
Telemarketing, infomercial, and selling expenses were $1,098,395 for the six
months ended September 30, 1999, a decrease of 77% from selling expenses of
$4,902,224 for the six months ended September 30, 1998. These expenses include
production and advertising and commissions, royalties, and related fees,
salaries, wages and benefits of management personnel involved in sales and
marketing, customer service and sales support, fees paid to the credit card
processor and lead generation costs. These expenses decreased in the six months
ended September 30, 1999 due principally to lower sales volumes resulting from
lack of working capital.
General and administrative expenses were $1,867,038 for the six months ended
September 30, 1999, an increase of 146% as compared to general and
administrative expenses of $787,021 for the six months ended September 30, 1998.
General and administrative expenses include primarily salaries and benefits of
executive officers and administrative personnel, consulting fees, rent and
utilities. The increase in these expenses was due principally to an increase in
consulting services (including consultants paid in common stock of the
Company), legal fees, accounting fees and expenses associated with the
relocation of the Company's offices.
Interest expense was $1,162,067 for the six months ended September 30, 1999, a
decrease of 69% as compared to interest expense of $1,968,230 for the six months
ended September 30, 1998. The decrease in interest expenses is principally due
to the reduction in shares issued to new lenders during the period and the
resulting reduction in amortization of loan discounts.
As a result of the foregoing, the Company incurred a net loss of $4,121,836 for
the six months ended September 30, 1999, as compared to a net loss of $4,543,597
for the six months ended September 30, 1998.
PLAN OF OPERATIONS FOR THE COMPANY
On March 29, 1999, Grafix Corporation completed a merger (the "1999
Merger") with Golf One, in which Golf One merged with and into the Company, and
the Company changed its name to "Gary Player Direct, Inc." Pursuant to the terms
of the Agreement of Merger, a copy of which was filed as an exhibit in a Current
Report on Form 8-K filed with the Securities and Exchange Commission on April
14, 1999, and which is incorporated herein by reference, the Company issued
3,817,244 shares of its common stock to Golf One's shareholders and lenders,
resulting in a change of control of the Company. As part of the merger with Golf
One, the Company effected a 1:20 reverse split of its issued and outstanding
common stock. As of March 31, 1999, the Company had 5,794,758 shares of common
stock issued and outstanding, including the 3,817,244 shares owned by Golf One's
former shareholders. The Company's NASD trading symbol was changed from "CRRA"
to "GPLY" to reflect the Company's changed name following the 1999 Merger.
As part of the 1999 Merger, Messrs. Arnold Guttenberg and Clifford
Cozier resigned as directors of the Company. Mr. Kenneth Krausman remained as
the sole director of the Company, and Mr. Alfonso J. Cervantes and Mr. Robert J.
Friedland were appointed directors of the Company. The Board of Directors also
appointed Mr. Cervantes as President, Chief Executive Officer, Chairman of the
Board and Secretary of the Company, Mr. Joseph A. DePanfilis as Executive Vice
President, Mr. Richard S. Schonfeld as Chief Financial Officer and Treasurer,
and Mr. Krausman as Senior Vice President, Business and Legal Affairs. Mr.
Krausman resigned from all of his positions with the Company on September 1,
1999. Messrs. Cervantes and Friedland resigned from all of their positions on
October 14, 1999 in connection with a certain Succession Plan and Agreement
effective on October 14, 1999. Messrs. DePanfilis and Schonfeld also resigned in
July, 1999 and May, 1999, respectively.
As a result of the 1999 Merger, substantially all of the operations of
the Company relate to the operations of the Gary Player line of branded products
and the focus of the Company's activities going forward will be the development
of revenue from manufacturing, marketing, licensing and distributing golf
equipment and apparel resulting from licenses (the "Player Licenses") acquired
from The Gary Player Group, Inc. ("GPG"). As a result of a lack of financing
affecting the Carrera Golf branded products during the fiscal year ended
September 30, 1998 and for the subsequent period up until the 1999 Merger and a
deterioration in relations between the Company and Citizen's Trading Group of
Japan ("Citizen"), the Company has not recognized revenue from the sale of
Carrera Golf branded products since September 30, 1998. The Company is currently
reviewing its relationship with Citizen and its licensing arrangement with
Carrera.
The 1999 Merger was accounted for as a purchase of the Company by Golf
One in a "reverse acquisition" because the pre-existing stockholders of the
Company did not have voting control of the combined entity after the 1999
Merger. In a reverse acquisition,
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the accounting treatment differs from the legal form of the transaction, as the
continuing legal entity is not considered to be the acquirer and the financial
statements of the combined entity are those of the accounting acquirer (Golf
One), including any comparative prior year financial statements presented by the
combined entity after the business combination. Accordingly, the financial
statements of the Company presented herein are the comparative historical
financial statements of Golf One, the accounting acquirer, with accompanying
disclosure concerning the change in capital structure effected at the
acquisition date.
In connection with the 1999 Merger, the Company changed its fiscal year
end from September 30th to March 31st, which is the fiscal year end of Golf One.
Other material developments during the Subsequent Period include the
Company's execution of an agreement to transition the Company's prior management
and Board of Directors. Effective October 14, 1999, the Company entered into a
Succession Plan and Agreement (the "Succession Plan and Agreement") pursuant to
which the existing Board of Directors and senior management of the Company were
replaced with new directors and senior management. Additional information
regarding the Succession Plan and Agreement is contained in a press release
issued by the Company on October 19, 1999 which was filed as an exhibit to a
Current Report on Form 8-K filed October 25, 1999. The Succession Plan and
Agreement was also filed with the Commission as an exhibit to the aforementioned
8-K report.
As of October, 1999 and following the implementation of the Succession
Plan and Agreement, the Company and the new Board and management team have
adopted immediate near-term and long-term business strategies. The immediate
strategies address the following objectives:
1. Bring the Company current in its Securities and Exchange Commission
reporting obligations;
2. Restructure existing obligations with creditors and taxing
authorities;
3. Access additional capital through available equity sources;
4. Modify business operations to attain profitability including the
introduction of certain new products; and
5. Complete the acquisition of the assets of the golf equipment
division of GPG (the "Player Acquisition"), which division is known as
Gary Player Golf Equipment ("GPGE").
There can be no assurance that the Company will be successful in achieving any
of the above-stated objectives.
The near-term business strategy is to fully capitalize on the rights
received by the direct marketing agreement to use the Gary Player brand name
executed on November 1, 1996 between the Company and GPGE, Inc. ("GPGE"), a
division of GPG (the "Licensing Agreement"). One of the most successful
international golfers of his generation, Mr. Player has achieved the kind of
worldwide recognition reserved for only a handful of figures in the world of
sports. Should the Company complete the acquisition of the golf equipment
division of GPG, the Company will be in a position to market and sell an
expanded array of golf equipment and accessories worldwide. The assets of the
golf equipment operations of GPG include principally two licenses which together
give the Company the perpetual, worldwide, exclusive right to use the name and
likeness of Gary Player, the professional golfer, and ancillary marks, including
Black Knight and the Knight's Head Logo, in connection with the manufacture,
marketing and distribution of golf clubs, accessories and apparel for an annual
license fee and a royalty payable based on net receipts. As part of the Player
Acquisition, the Company will also acquire existing sub-licenses based on the
Player Licenses and accounts receivable. The inventory previously owned by GPG
has been transferred to the Company as part of the terms of the Company's
Licensing Agreement.
The Company is exploring the possibility of expanding its internet
sales strategy over the coming months, creating strategic alliances to further
market the Company's products. Additionally, it is the Company's objective to
increase direct response television marketing through utilization of an
infomercial featuring Mr. Player and the continued telemarketing activities that
have been the primary source of revenue to date. Over the longer term, the
Company looks to engage in strategic acquisitions of golf related businesses
that complement or diversify the Company's existing product mix and if the
Company completes the Player Acquisition, enter into sub-license agreements with
third parties. There can be no assurance that the Company will be successful in
achieving any, or all, of the above-stated objectives.
The Company implemented a one-for-three stock split in July 1998 and a
one-for-twenty stock split in May 1999. In addition, Golf One shareholders
received one (1) share of the Company's Stock for each two (2) Golf One shares
owned at the date of the 1999 Merger. Unless otherwise indicated, all references
to the Company's Common Stock in this report give effect to both of these stock
splits.
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The Company's Strategic Plan is to position the Company as an
internet-driven direct marketing golf equipment company in addition to its
telemarketing sales. The Strategic Plan also calls for the expansion of
international marketing activities to fully exploit the Gary Player name.
Until October 14, 1999, GPG's relationship with the Company was that of
a licensor of the Gary Player name for the direct marketing of Gary Player
branded golf equipment and accessories in North America principally through
telemarketing activities. Effective as of October 14, 1999, Marc Player, Mr.
Player's son, and Pamela Campbell, the Controller of GPG, were appointed two of
the three members of the Board of Directors of the Company along with Thomas P.
Gallagher, who became the Chairman of the Board of Directors. Also, as of
October 14, 1999, the Company's Licensing Agreement with GPG was in default as a
result of the Company's failure to satisfy certain provisions of the Licensing
Agreement including the failure to make certain royalty payments, the failure to
meet certain sales minimums and the failure to pay miscellaneous other charges
under the Licensing Agreement. As of November 9, 1999, and November 11, 1999,
the Company and GPG executed certain amendments to the Licensing Agreement and
the Company is no longer in default as of the date of this report. The Company
has made payments to GPG and Marc Player totaling $555,000 since October 14,
1999.
In addition, Gary Player, GPG and the Company anticipate finalizing the
Asset Purchase Agreement ("APA") which will allow the Company to market, sell,
distribute and sublicense premium golf equipment and accessories worldwide under
the Gary Player name. Upon the completion of the APA, GPG will be one of the
largest shareholders of the Company. On October 28, 1999, Marc Player became the
interim Chief Executive Officer of the Company. Furthermore, Mr. Gary Player
plans to become more actively involved in the design of the Company's golf
equipment and in assisting the Company in forming strategic relationships to
assist the Company in many areas including advertising and internet sales. Mr.
Gary Player has also pledged to assist the Company in making available his
worldwide business and financial contacts to create licensing and acquisition
opportunities for the Company.
INTERNET MARKETING
A historically unprecedented amount of publicity has been generated
about the internet and its impact on the American culture and commerce in the
last several years. Management believes it is well positioned to capitalize on
this fundamental paradigm shift in the commercial and informational processes of
the American and international consumer through the merger of Grafix and Golf
One.
The Company's strategy for its internet advertising is to create a
highly interactive and graphically attractive internet site integrating
animation, live and recorded video, interactivity and commerce to inform,
entertain, and provide a convenient and enjoyable place for e-commerce via the
Gary Player Pro Shop, while concurrently creating a lower cost sales and
marketing channel for the Company. The strategic plan is designed to increase
revenues, lower corporate expense, increase margins and result in an inexpensive
generator of leads as well as an overall marketing tool.
Within the context of the Company's plan is the aggressive development
of an e-mail database of golfers, both domestic and internationally. This data
base will lend itself to the creation of "The Gary Player VIP e-club," offering
golfers a broad array of services ranging from monthly newsletters and golf
tips, announcements of new products, discounted clubs and accessories, and news
information. The e-communications will have a number of embedded links to the
Company's website, allowing the golfer to inspect the product, check competitive
price points, obtain news, order products and ultimately check the status of
existing orders. With respect to ordering products, the customers will be able
to custom design their own equipment utilizing point and click technology to
specify components such as shafts, heads and grips. The Company is currently
evaluating vendors and other professionals who can develop the Company's
internet site to accomplish the above goals.
To generate significant traffic for the Company's website, in addition
to the e-marketing program described above, the Company intends to implement a
multi-pronged approach: (i) utilize Gary Player as a spokesman to promote the
website in all media; (ii) produce and broadcast quarterly thirty minute
"webcasts" concurrent with major tournaments such as the Masters or the British
Open featuring Gary Player during which he will detail the tournament history,
the course upon which the tournament is being held, some of the history of
golf's legends, and provide tips for viewers who log on; (iii) use print and
electronic advertising placed in conjunction with Tradewell, Inc., an
international barter and media placement company; (iv) utilize Company
infomercials (being developed) to promote the website; and (v) pursue a campaign
to form strategic alliances with numerous high traffic sites, ranging from
sports to business, designed to link traffic flows and in certain cases share
revenue.
In addition to creating more widespread internet presence through
expansion of its existing website, the Company is launching a program to
identify and acquire high traffic golf-content internet sites which can be
consolidated under the Gary Player brand name.
Golf One has already implemented a number of web-based promotional
programs designed to generate direct marketing
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leads. These programs, which include sweepstakes and product giveaways, were
carried on Golf One's web site as well as on other web sites whereby Golf One
sponsored an annual Gary Player sweepstakes inviting visitors to the Golf One
web site to enter sweepstakes for a chance to win golf clubs, other golf
products and, for first place winners, the opportunity to play nine holes of
golf with Gary Player. The information obtained from the sweepstakes entry forms
is then used by the Company in its telemarketing efforts and contributes to a
mailing list for the Company's catalogs.
The Company intends to invest a significant portion of the proceeds of
any financing received from any public or private offerings to increase
advertising of its website and create or obtain additional content for its
internet activities.
STRATEGIC ACQUISITIONS
The Company has commenced a program to identify and acquire certain
golf related companies or assets of companies which are consistent with its
strategic plan of increasing revenues and earnings. These acquisitions will be
sought pursuant to certain specific profiles which range from strategic synergy
to valuation and financing availability.
OTHER MARKETING AND EXPANSION STRATEGIES
- - Increase Direct Response Television Marketing. The Company believes that
direct response television will generate substantial additional inbound sales
which, by definition, decreases product returns as a percentage of sales. Direct
response television includes infomercials and direct response commercials. This
direct marketing channel generates sales through customers calling the Company
as compared to telemarketing, where the Company initiates the call. In addition
to generating sales, direct response television is expected to increase consumer
awareness of the Company's products and brand name, thereby enhancing the
effectiveness of other marketing activities. In December 1998, Golf One entered
into a strategic alliance with Caudill and Associates, a prominent international
infomercial producer and direct marketer. Pursuant to the terms of the
agreement, Golf One completed principal photography in December 1998 with Gary
Player for an approximately thirty minute infomercial for its Black Knight Par
Saver state-of-the-art wedges and a two minute direct response commercial for
the Heavy Hitter, a training aid.
- - Create and Distribute Mail Order Product Catalogs. The Company believes that
it can increase sales and exposure as well as drive sales to its internet site
through targeted mailings of product catalogs to existing and potential
customers. The Company anticipates that its catalogs will feature products of
both the Company and its sublicensees as well as other manufacturers.
- - Establish International Marketing Operations. Golf One's marketing of Gary
Player products has been limited to the United States and Canada under its
Licensing Agreement with GPGE. The proposed Player Acquisition will allow the
Company to expand into global marketing. The Company expects that its
international marketing efforts will focus on sublicensing, joint venture and
other arrangements for the marketing and distribution of Gary Player golf
products on a territory and/or product specific basis. The Company believes that
Mr. Player's international reputation will be valuable in creating international
interest in the Company's products.
- - Increase Advertising and Trade Show Participation. The Company believes that
its overall sales efforts will be enhanced by greater consumer recognition of
the Company and its products. The Company intends to increase its expenditures
on print advertising in various golf and golf-related publications and golf and
direct marketing industry trade shows to create consumer awareness.
- - Telemarketing Activities. Virtually all of Golf One's sales have been
generated through telemarketing prior to the launch of its website in the spring
of 1999, which has led to excessive product returns. The Company will begin to
focus more on internet driven sales and streamline its telemarketing efforts by
updating its technology and increasing training of its sales representatives.
Prior to the 1999 Merger, Golf One began this process by consolidating its
telesales operations, terminating a significant number of telemarketers, as well
as a number of middle managers, resulting in the substantial reduction of its
overhead.
YEAR 2000
The Company has reviewed its operations and administrative systems
relative to year 2000 ("Y2K") matters. The Company's review includes a series of
initiatives to ensure that all of the Company's computer equipment and software
will function properly into the next millennium. Computer hardware and software
includes systems generally thought of as information-technology dependent, such
as accounting, data processing, and telephone equipment ("IT systems"), as well
as systems not obviously information-technology dependent, such as fax machines
and security systems ("non-IT systems"). These systems may contain embedded
technology which require the Company's review, including broad identification,
assessment, remediation and testing efforts.
The Company performed a review of its operational and administrative
systems and as a result of that analysis updated its word processing and
accounting software to become fully Y2K compliant. Furthermore, the Company has
made arrangements to
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employ a Y2K consultant to examine the Company's network systems and update or
replace portions of the system to render it compliant by December 31, 1999.
Based upon its identification and assessment efforts to date, the
Company believes that its IT systems will not require material replacement or
modification other than the updates which have already been made or scheduled.
However, in the ordinary course of business, the Company periodically replaces
computer equipment and software, and in so doing, seeks to acquire only Y2K
compliant software and hardware. The Company plans to complete its assessment of
its non-IT systems during December 1999. The Company presently believes that its
planned modifications or replacements of existing IT systems and non-IT systems
will be completed on a timely basis so as to avoid any of the potential year
2000-related disruptions or malfunctions of the computer equipment and software
it has identified.
The Company intends to complete its survey of vendors and services
providers by December 1999 to determine where external Y2K compliance or
noncompliance might materially affect the Company's operations.
At this point in the review process, the Company cannot reasonably
estimate the cost of achieving Y2K compliance; however, the Company does not
anticipate the cost of implementing its Y2K efforts to be material. The Company
plans to determine the Y2K readiness of its key suppliers, identify alternative
sources for materials and services in the event that lack of Y2K compliance is
indicated, and make inquires regarding the Y2K readiness of any potential
strategic partners. Management is continuing to examine the Y2K issues as they
potentially impact the Company, and will be developing contingency plans as
necessary.
There can be no assurance that the failure of the Company or any third
parties to achieve Y2K compliance would not have a material adverse effect on
the Company. A contingency plan has not yet been developed for dealing with the
most reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. However, given the fact the Company is involved in an
internet driven business and the Company relies on computer driven programs for
its sales and operations, Y2K compliance is essential to the continuing success
of the Company.
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a new
"safe harbor" for certain forward-looking statements. Statements contained in
this report that are not historical facts are forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those stated in the forward-looking statements. Factors that
could cause actual results to differ materially include, among others: general
economic conditions, changes in laws and government regulations, fluctuations in
demand for the Company's products, the Company's ability to consummate strategic
alliances, technology development problems, and the Company's ability to
successfully finance future plant and equipment plans, as well as its current
ongoing operations.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please see Item 3, "Legal Proceedings" of the 1999 Form 10-KSB filed
with the Securities and Exchange Commission on December 7, 1999 for a
description of the Company's litigation during the quarter ended September 30,
1999.
ITEM 2. CHANGES IN SECURITIES
No changes in securities were effected during the quarter ended
September 30, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Please see Item 3, "Legal Proceedings" and Note G and Note K to the
Consolidated Financial Statements of the 1999 Form 10-KSB filed with the
Securities and Exchange Commission on December 7, 1999 for a description of
the Company's defaults upon senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the
quarter ended September 30, 1999.
18
<PAGE> 19
ITEM 5. OTHER INFORMATION
During the quarter ended September 30, 1999, the Company obtained
several loans from different private parties to fund its operations.
On July 6, 1999, the Company obtained loans from Monte Stern ("Stern"),
the Hollander Family Trust ("HFT"), Jerome Hollander ("Hollander"), and the
Hyman Harris Irrevocable Trust ("HHIT") (collectively, the "July 6 Loans"). In
consideration of the July 6 Loans, the Company executed promissory notes in the
amounts of $20,000, $10,000, $10,000 and $10,000, respectively, with annual
interest accruing at 10%, and issued 20,000 shares of common stock to Stern,
10,000 shares of common stock to HFT, 10,000 shares of common stock to
Hollander, and 10,000 shares of common stock to HHIT, respectively. The July 6
Loans are due on the earlier of (i) the completion of the Company's anticipated
secondary stock offering or (ii) six months from the date of execution of the
promissory notes.
On July 12, 1999, the Company obtained a loan from Kenneth Richland
("Richland"), in the amount of $20,000 upon the same terms as the July 6 Loans.
In consideration of the loan, the Company issued to Richland 20,000 shares of
common stock.
On July 15, 1999 and July 25, 1999, the Company obtained two loans from
J.M. Kealy ("JMK"), in the amounts of $100,000 and $50,000, respectively (the
"JMK Loans"). In consideration of the JMK Loans, the Company executed two
promissory notes in the amounts of the loans with annual interest at 10%, and
issued an aggregate of 100,000 shares of common stock to JMK, 50,000 shares for
each loan. The July 15th loan had a maturity date of sixty (60) days from the
date of execution, and the July 25th loan is a demand promissory note. The
Company is currently in default of the JMK Loans.
On June 6, 1999, in return for a loan from Lava Investments Limited
("Lava") in the amount of $50,000 (the "Lava Loan"), the Company executed a
secured convertible promissory note in the amount of $75,000 with interest at
10% per annum in favor of Lava. The note was secured with a UCC-1 financing
statement and guaranteed by Cervantes. The note issued to Lava was due on July
6, 1999. As further consideration for making the loan, Lava was granted a
warrant to purchase 100,000 shares of the Company's common stock at $1.00 per
share. The Company defaulted on the Lava Loan. On July 14, an amendment was
executed extending the time of payment to July 21, 1999 in consideration for
payment of an extension fee of $6,250 and issuance of 10,000 shares of the
Company's common stock. The note was not repaid by July 21, 1999 and in
accordance with the terms of the note the Company issued another 10,000 shares
of the Company's common stock. The Lava Loan was paid in full on or about
September of 1999.
On May 17, 1999, the Company obtained a loan from Mr. Richard Casey
("Casey"), in the amount of $40,000 (the "Casey May Loan"). In consideration of
the Casey May Loan, the Company executed a promissory note in the amount of
$40,000 with annual interest accruing at 12%, and issued 10,000 shares of common
stock to Casey. The Casey May Loan was due on July 16, 1999. On July 6, 1999,
the Company obtained an additional loan from Casey in the amount of $20,000 (the
"Casey July Loan"). In consideration of the Casey July Loan, the Company
executed a promissory note in the amount of $20,000 with annual interest
accruing at 10% and issued 25,000 shares of common stock to Casey. Pursuant to a
Modification Agreement dated September 15, 1999 the maturity dates of the Casey
May Loan and the Casey July Loan were extended to November 15, 1999 in
consideration of the issuance of an additional 15,000 shares of common stock of
the Company and made an extension payment of $12,500. The Company is currently
in default of the Casey May Loan and the Casey July Loan.
On May 17, 1999, the Company obtained a loan from Dr. Michael Freilich
("Freilich"), in the amount of $20,000 (the "Freilich May Loan"). In
consideration of the Freilich May Loan, the Company executed a promissory note
in the amount of $20,000 with annual interest accruing at 15%, and issued 7,500
shares of common stock to Freilich. The Freilich May Loan was extended on June
22, 1999 for an additional thirty (30) days in consideration of the issuance of
an additional 5,000 shares of common stock. On August 16, 1999, the Company
extended the maturity dates on the Freilich May Loan and the previous March Loan
in the amount of $25,000 to September 1 and 6, 1999, respectively, in
consideration of the issuance of an additional 17,500 shares of common stock of
the Company. On September 13, 1999, the Company once again extended the maturity
dates on the Freilich May and March Loans through November 15, 1999 in
consideration of the issuance of an additional 2,500 shares of common stock of
the Company. The Company is currently in default of such loans.
On June 10, 1999, the Company obtained a loan from Mid-American General
Agency, Inc. ("Mid-American"), in the amount of $50,000 (the "Mid-American
Loan"). In consideration of the Mid-American Loan, the Company executed a
promissory note in the amount of $50,000 with annual interest accruing at 12%,
and issued 25,000 shares of common stock to Mid-American. The Mid-American Loan
was due on September 8, 1999. Pursuant to a Modification Agreement dated
September 27, 1999, the maturity date of the Mid-American Loan was extended to
December 7, 1999 in consideration of the issuance of an additional 15,000 shares
of common stock of the Company.
On July 2, 1999 the Board of Directors approved of the issuance of
20,000 shares per year for each of the outside members of the Board of Directors
in consideration for their service as directors. Accordingly, Mr. Robert
Friedland was awarded 80,000 shares for his four years of service on the Board
of Directors. Mr. Friedland's shares were valued at $210,000, or $2.625 per
share.
On July 2, 1999 the Board of Directors awarded Ace Investors 25,000
shares of the Company's Common Stock for services rendered to the Company. These
shares were valued at $65,625, or $2.625 per share.
During the Quarter ended September 30, 1999, the Company issued shares
of the Company's common stock to various individuals & entities.
On September 30, 1999 Mr. Sheldon Silver converted $6,245, of
indebtedness that the Company owed to him in consideration for the receipt of
12,490 shares of the Company's common stock for a conversion price of $2.00 per
share.
During August through September 30, 1999, the Company sold 737,647
shares of Common Stock resulting in net proceeds of $993,814 through a
Regulation S offering to one offshore accredited investor. The Company
anticipates selling additional Regulation S shares in this private placement
during the remainder of the fiscal year ending March 31, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
3.1 Certificate of Amendment of Certificate of Incorporation of
Gary Player Direct, Inc. (Incorporated by reference to Gary
Player Direct, Inc.'s Annual Report on Form 10-KSB filed
December 7, 1999, Exhibit 3.3)
10.1 Promissory Note dated July 6, 1999 between Gary Player Direct,
Inc. and Monte Stern
10.2 Promissory Note dated July 6, 1999 between Gary Player Direct,
Inc. and Hollander Family Trust
10.3 Promissory Note dated July 6, 1999 between Gary Player Direct,
Inc. and Jerome Hollander
10.4 Promissory Note dated July 6, 1999 between Gary Player Direct,
Inc. and Hyman Harris Irrevocable Trust
10.5 Promissory Note dated July 12, 1999 between Gary Player
Direct, Inc. and Kenneth Richland
10.6 $100,000 Promissory Note dated July 15, 1999 between Gary
Player Direct, Inc. and J.M. Kealy
10.7 $50,000 Promissory Note dated July 25, 1999 between Gary
Player Direct, Inc. and J.M. Kealy
10.8 Conversion Agreement of Sheldon Silver effective as of
September 30, 1999
10.9 Regulation S Investment Purchase Agreement dated November 30,
1999 (to be filed by amendment)
27.1 Financial Data Schedule
b) Form 8-K Reports during the Quarter Ended September 30, 1999
None.
19
<PAGE> 20
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GARY PLAYER DIRECT, INC.
By: /s/ Marc B. Player
-------------------------------------
Marc B. Player,
Chief Executive Officer
(Principal Executive Officer)
/s/ Carl Casareto
-------------------------------------
Carl Casareto,
Executive Vice President and Treasurer
(Principal Financial Officer)
Date: December 8, 1999
20
<PAGE> 1
Exhibit 10.1
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 ("THE ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM
IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
PROMISSORY NOTE
San Luis Obispo, California Principal Amount: $20,000
July 6, 1999
FOR VALUE RECEIVED Gary Player Direct, Inc., a Delaware corporation, having an
address of 710 Aerovista, Suite B, San Luis Obispo, California 93401
("BORROWER"), unconditionally promises to pay to Monte Stern, an individual, or
registered assigns, ("LENDER") Twenty Thousand Dollars ($20,000) together with
interest thereon at a rate of 10% per annum from the date hereof. As additional
consideration, Borrower will issue 20,000 shares of Borrower's common stock.
Unless otherwise defined herein, capitalized terms used in this Note shall have
the meanings ascribed to them in the Loan Agreement.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable on the earlier of (a) the completion of the Company's anticipated
secondary stock offering or (b) six months from the date of execution of the
Note (the "MATURITY DATE"). All payments shall be sent to Lender's address as
set forth in the Loan Agreement, or such address as later specified by Lender
or any successor in writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty
or premium.
3. Application of Payment. All payments made under this Note shall be
applied first against payment of interest accrued to the date of any payment
and then against principal due.
4. Costs of Collection. Borrower shall pay all costs of collection of Lender,
together with reasonable attorney's fees and costs, to enforce this Note in the
event of a default whether or not a suit is brought. Borrower waives demand,
protest and notice of maturity and non-payment, and all requirements necessary
to hold Borrower liable hereunder.
5. Miscellaneous. This Note shall be governed by, and construed in accordance
with, the laws of the State of California.
BORROWER:
Gary Player Direct, Inc.
By: /s/ Alfonso J. Cervantes
________________________________
Alfonso J. Cervantes, President
<PAGE> 1
EXHIBIT 10.2
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 ("THE ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM
IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
PROMISSORY NOTE
San Luis Obispo, California Principal Amount: $10,000
July 6, 1999
FOR VALUE RECEIVED Gary Player Direct, Inc., a Delaware corporation, having an
address of 710 Aerovista, Suite B, San Luis Obispo, California 93401
("BORROWER"), unconditionally promises to pay to Hollander Family Trust, or
registered assigns, ("LENDER") Ten Thousand Dollars ($10,000) together with
interest thereon at a rate of 10% per annum from the date hereof. As additional
consideration, Borrower will issue 10,000 shares of Borrower's common stock.
Unless otherwise defined herein, capitalized terms used in this Note shall have
the meanings ascribed to them in the Loan Agreement.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable on the earlier of (a) the completion of the Company's anticipated
secondary stock offering or (b) six months from the date of execution of the
Note (the "MATURITY DATE"). All payments shall be sent to Lender's address as
set forth in the Loan Agreement, or such address as later specified by Lender
or any successor in writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty
or premium.
3. Application of Payment. All payments made under this Note shall be applied
first against payment of interest accrued to the date of any payment and then
against principal due.
4. Costs of Collection. Borrower shall pay all costs of collection of Lender,
together with reasonable attorney's fees and costs, to enforce this Note in the
event of a default whether or not a suit is brought. Borrower waives demand,
protest and notice of maturity and non-payment, and all requirements necessary
to hold Borrower liable hereunder.
5. Miscellaneous. This Note shall be governed by, and construed in accordance
with, the laws of the State of California.
BORROWER:
Gary Player Direct, Inc.
By: /s/ Alfonso J. Cervantes
__________________________
Alfonso J. Cervantes, President
<PAGE> 1
Exhibit 10.3
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 ("THE ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM
IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
PROMISSORY NOTE
San Luis Obispo, California Principal Amount $10,000
July 6, 1999
FOR VALUE RECEIVED Gary Player Direct, Inc., a Delaware corporation, having an
address of 710 Aerovista, Suite B, San Luis Obispo, California 93401
("BORROWER"), unconditionally promises to pay to Jerome Hollander, an
individual, or registered assigns, ("LENDER") Ten Thousand Dollars ($10,000)
together with interest thereon at a rate of 10% per annum from the date hereof.
As additional consideration, Borrower will issue 10,000 shares of Borrower's
common stock. Unless otherwise defined herein, capitalized terms used in this
Note shall have the meanings ascribed to them in the Loan Agreement.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable on the earlier of (a) the completion of the Company's anticipated
secondary stock offering or (b) six months from the date of execution of the
Note (the "MATURITY DATE"). All payments shall be sent to Lender's address as
set forth in the Loan Agreement, or such address as later specified by Lender
or any successor in writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty
or premium.
3. Application of Payment. All Payments made under this Note shall be
applied first against payment of interest accrued to the date of any payment
and then against principal due.
4. Costs of Collection. Borrower shall pay all costs of collection of Lender,
together with reasonable attorney's fees and costs, to enforce this Note in the
event of a default whether or not a suit is brought. Borrower waives demand,
protest and notice of maturity and non-payment, and all requirements necessary
to hold Borrower liable hereunder.
5. Miscellaneous. This Note shall be governed by, and construed in accordance
with, the laws of the State of California.
BORROWER:
Gary Player Direct, Inc.
By: /s/ Alfonso J. Cervantes
________________________________
Alfonso J. Cervantes, President
<PAGE> 1
Exhibit 10.4
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 ("THE ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM
IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
PROMISSORY NOTE
San Luis Obispo, California Principal Amount: $10,000
July 6, 1999
FOR VALUE RECEIVED Gary Player Direct, Inc., a Delaware corporation, having an
address of 710 Aerovista, Suite B, San Luis Obispo, California 93401
("BORROWER"), unconditionally promises to pay to Hyman Harris Irrevocable Trust,
or registered assigns, ("LENDER") Ten Thousand Dollars ($10,000) together with
interest thereon at a rate of 10% per annum from the date hereof. As additional
consideration, Borrower will issue 10,000 shares of Borrower's common stock.
Unless otherwise defined herein, capitalized terms used in this Note shall have
the meanings ascribed to them in the Loan Agreement.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable on the earlier of (a) the completion of the Company's anticipated
secondary stock offering or (b) six months from the date of execution of the
Note (the "MATURITY DATE"). All payments shall be sent to Lender's address as
set forth in the Loan Agreement, or such address as later specified by Lender
or any successor in writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty
or premium.
3. Application of Payment. All payments made under this Note shall be
applied first against payment of interest accrued to the date of any payment
and then against principal due.
4. Costs of Collection. Borrower shall pay all costs of collection of Lender,
together with reasonable attorney's fees and costs, to enforce this Note in the
event of a default whether or not a suit is brought. Borrower waives demand,
protest and notice of maturity and non-payment, and all requirements necessary
to hold Borrower liable hereunder.
5. Miscellaneous. This Note shall be governed by, and construed in accordance
with, the laws of the State of California.
BORROWER:
Gary Player Direct, Inc.
By: /s/ Alfonso J. Cervantes
________________________________
Alfonso J. Cervantes, President
<PAGE> 1
Exhibit 10.5
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 ("THE ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM
IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
PROMISSORY NOTE
San Luis Obispo, California Principal Amount: $20,000
July 12, 1999
FOR VALUE RECEIVED Gary Player Direct, Inc., a Delaware corporation, having an
address of 710 Aerovista, Suite B, San Luis Obispo, California 93401
("BORROWER"), unconditionally promises to pay to Kenneth Richland, an
individual, or registered assigns, ("LENDER") Twenty Thousand Dollars ($20,000)
together with interest thereon at a rate of 10% per annum from the date hereof.
As additional consideration, Borrower will issue 20,000 shares of Borrower's
common stock. Unless otherwise defined herein, capitalized terms used in this
Note shall have the meanings ascribed to them in the Loan Agreement.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable on the earlier of (a) the completion of the Company's anticipated
secondary stock offering or (b) six months from the date of execution of the
Note (the "MATURITY DATE"). All payments shall be sent to Lender's address as
set forth in the Loan Agreement, or such address as later specified by Lender or
any successor in writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty or
premium.
3. Application of Payment. All payments made under this Note shall be applied
first against payment of interest accrued to the date of any payment and then
against principal due.
4. Costs of Collection. Borrower shall pay all costs of collection of Lender,
together with reasonable attorney's fees and costs, to enforce this Note in the
event of a default whether or not a suit is brought. Borrower waives demand,
protest and notice of maturity and non-payment, and all requirements necessary
to hold Borrower liable hereunder.
5. Miscellaneous. This Note shall be governed by, and construed in accordance
with, the laws of the State of California.
BORROWER:
Gary Player Direct, Inc.
By: /s/ Alfonso J. Cervantes
------------------------------
Alfonso J. Cervantes, President
<PAGE> 1
[GARY PLAYER DIRECT LETTERHEAD]
Exhibit 10.6
PROMISSORY NOTE
San Luis Obispo, California Principal Amount $100,000
July 15, 1999
FOR VALUE RECEIVED Gary Player Direct, Inc., a Delaware corporation, having an
address of 710 Aerovista, Suite B, San Luis Obispo, California 93455
("BORROWER"), unconditionally promises to pay to John Martin Kealy, or
registered assigns, ("LENDER") One Hundred Thousand Dollars ($100,000) together
with interest thereon at a rate of 10% per annum from the date hereof.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable sixty (60) days from the date of execution of the Note (the "MATURITY
DATE"). All payments shall be sent to Lender's address or such address as later
specified by Lender or any successor in writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty
or premium.
3. Application of Payment. All Payments made under this Note shall be
applied first against payment of interest accrued to the date of any payment
and then against principal due.
4. Costs of Collection. Borrower shall pay all costs of collection of
Lender, together with reasonable attorney's fees and costs, to enforce this
Note in the event of a default whether or not a suit is brought. Borrower
waives demand, protest and notice of maturity and non-payment, and all
requirements necessary to hold Borrower liable hereunder.
5. Additional Consideration. As additional consideration, Borrower shall issue
to Lender Fifty Thousand (50,000) shares of Borrower's Common Stock.
6. Miscellaneous. This Note shall be governed by, and construed in accordance
with, the laws of the State of California.
BORROWER:
Gary Player Direct, Inc.
By: /s/ Alfonso J. Cervantes
----------------------------------
Alfonso J. Cervantes, President
<PAGE> 1
Exhibit 10.7
DEMAND PROMISSORY NOTE
San Luis Obispo, California Principal Amount: $50,000
July 25, 1999
FOR VALUE RECEIVED Gary Player Direct, Inc., a Delaware corporation, having an
address of 710 Aerovista, Suite B, San Luis Obispo, California 93455
("BORROWER"), unconditionally promises to pay to John Martin Kealy, or
registered assigns, ("LENDER") Fifty Thousand Dollars ($50,000) together with
interest thereon at a rate of 10% per annum from the date hereof.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable on demand (the "MATURITY DATE"). All payments shall be sent to Lender's
address, or such address as later specified by Lender or any successor in
writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty
or premium.
3. Application of Payment. All payments made under this Note shall be
applied first against payment of interest accrued to the date of any payment
and then against principal due.
4. Costs of Collection. Borrower shall pay all costs of collection of
Lender, together with reasonable attorney's fees and costs, to enforce this
Note in the event of a default whether or not a suit is brought. Borrower
waives demand, protest and notice of maturity and non-payment, and all
requirements necessary to hold Borrower liable hereunder.
5. Additional Consideration: As additional consideration, Borrower shall issue
to Lender Fifty Thousand (50,000) shares of Borrower's Common Stock.
6. Miscellaneous. This Note shall be governed by, and construed in accordance
with, the laws of the State of California.
BORROWER:
Gary Player Direct, Inc.
By: /s/ Alfonso J. Cervantes
----------------------------------
Alfonso J. Cervantes, President
<PAGE> 1
Exhibit 10.8
DEBT CONVERSION AGREEMENT
The undersigned creditors of Gary Player Direct, Inc. ("GPDI") has received
GPDI's Confidential Disclosure Memorandum dated June 4, 1999 (the "Memorandum").
GPDI has requested and the undersigned wishes to convert GPDI's outstanding debt
to the undersigned into shares of the Common Stock of GPDI.
Accordingly, the undersigned represents and warrants to, and agrees with,
GPDI as follows:
1. The undersigned agrees to convert all of GPDI's indebtedness to the
undersigned (the "Debt"), into a whole number of shares of Common
Stock of GPDI equal to the Debt divided by $2.00. No fractional shares
of Common Stock will be issued and any fraction remaining after the
foregoing division will be ignored.
2. The conversion will be deemed to occur effective September 30, 1999.
3. The undersigned acknowledges receipt of the Memorandum. The
undersigned believes it has received all information it considers
necessary and appropriate for deciding whether to accept the
conversion. The undersigned has had an opportunity to ask questions of
and receive waivers from officers and directors of GPDI.
4. The undersigned represents that it has not sold, transferred or
assigned, and it agrees that it will not sell, transfer or assign, the
Debt or any interest in the Debt to any person.
5. The undersigned agrees to deliver against receipt of certificates
evidencing the shares of Common Stock an acknowledgement that the Debt
has been paid in full.
6. The undersigned has enclosed an investment representation letter with
respect to the GPDI shares to be named to the undersigned in exchange
for the Debt.
10/23/99 /s/ Sheldon I Silver
-------------- ------------------------------
Date [Signature]
Sheldon I. Silver
------------------------------
[Print Name]
Account of Debt $6,245.00
---------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENYTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 103,139
<SECURITIES> 0
<RECEIVABLES> 31,522
<ALLOWANCES> 0
<INVENTORY> 307,283
<CURRENT-ASSETS> 519,863
<PP&E> 145,232
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,560,575
<CURRENT-LIABILITIES> 17,779,591
<BONDS> 650,000
0
0
<COMMON> 7,059
<OTHER-SE> (16,876,075)
<TOTAL-LIABILITY-AND-EQUITY> 1,560,575
<SALES> 569,185
<TOTAL-REVENUES> 1,439,689
<CGS> 502,441
<TOTAL-COSTS> 1,372,945
<OTHER-EXPENSES> 3,003,289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,162,067
<INCOME-PRETAX> (4,121,836)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,121,836
<EPS-BASIC> (0.66)
<EPS-DILUTED> (0.66)
</TABLE>
