<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| Quarterly report pursuant to Section 13 or 15 (d) of the Securities and
Exchange Act of 1934 for the quarterly period ended June 30, 1999; or
|_| Transition report pursuant to Section 13 or 15(d) of the Exchange Act for
the transition period from __________ to ___________
COMMISSION FILE NO. 0-24812
DIVOT GOLF CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 56-1781650
- -------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
927 Lincoln Road, Suite 200, Miami Beach, FL 33139
- ------------------------------------------------------------------------------
(Address of principal executive offices)
(305) 538-2727
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
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
On March 13, 2000 there were 100,779,740 shares of the issuer's Common Stock,
$.001 par value, and shares of the issuer's Preferred Stock, $.001 par
value outstanding.
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DIVOT GOLF CORPORATION
QUARTERLY REPORT FOR THE
PERIODS ENDED JUNE 30, 1999
FORM 10-QSB
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998................................................... 3
Condensed Consolidated Statements of Operations for the three and
six-month periods ended June 30, 1999 and 1998...................... 5
Condensed Consolidated Statements of Changes in Shareholders' Deficit
for the six-month period ended June 30, 1999........................ 6
Condensed Consolidated Statements of Cash Flows for the three and
six-month periods ended June 30, 1999 and 1998....................... 7
Notes to Condensed Consolidated Financial Statements................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................27
Item 2. Changes in Securities................................................31
Item 3. Defaults Upon Senior Securities......................................32
Item 4. Submission of Matters to a Vote of Securities Holders................32
Item 5. Other Information....................................................32
Item 6. Exhibits and Reports on Form 8-K.....................................32
Signatures...................................................................34
2
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3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
DIVOT GOLF CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
June 30,
1999 December 31,
(Unaudited) 1998
--------------- ---------------
Current assets:
Cash $ 4,261 $ 568
Accounts receivable from related parties 95,247 155,362
--------------- ---------------
Total current assets 99,508 155,930
Furniture and equipment, net 60,322 97,523
--------------- ---------------
Total assets $ 159,830 $ 253,453
=============== ===============
</TABLE>
See accompanying notes
3
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DIVOT GOLF CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
<S> <C> <C>
June 30,
1999 December 31,
(Unaudited) 1998
---------------- ---------------
Current liabilities:
Accounts payable $ 1,147,975 $ 914,216
Accrued expenses 1,210,273 1,252,127
Accrued compensation and payroll 432,295 188,708
Amounts due to related parties 34,000 34,000
Dividends payable 730,000 730,000
Notes payable 1,949,304 1,717,504
Notes payable to related parties 410,000 410,000
Other current liabilities 200,000 200,000
---------------- ---------------
Total current liabilities 6,113,847 5,446,555
---------------- ---------------
Shareholders' deficit:
Convertible Preferred Stock, $.001 par value;
1,000,000 shares authorized; 286,835 and 287,025
shares issued and outstanding as of June 30,
1999 and December 31, 1998, respectively
(aggregate liquidation preference $5,585,000) 287 287
Common Stock, $.001 par value; 200,000,000 shares
authorized; 13,753,642 and 4,410,041 shares issued
and outstanding as of June 30, 1999 and
December 31, 1998, respectively 13,354 4,410
Additional paid-in capital 42,523,558 41,722,902
Accumulated deficit (48,280,679) (46,709,764)
Convertible Preferred Stock held in
treasury, 281,250 shares (210,937) (210,937)
--------------- ---------------
Total shareholders' deficit (5,954,017) (5,193,102)
--------------- ---------------
Total liabilities and shareholders' deficit $ 159,830 $ 253,453
================ ===============
</TABLE>
See accompanying notes
4
<PAGE>
DIVOT GOLF CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
<S> <C> <C> <C> <C>
1999 1998 1999 1998
--------------- --------------- -------------- --------------
Operating revenues:
Sales $ - $ 2,602,894 $ - $ 2,602,894
Golf revenues - 1,021 - 102,478
Food and beverage revenues - 241 - 13,992
Proshop revenues - 20 - 9,558
Membership fees and dues - - - 5,784
Management and design fees - 11,437 - 18,375
Other - 5,856 - 5,856
--------------- --------------- -------------- --------------
Total operating revenues - 2,621,469 - 2,758,937
Operating expenses:
Cost of sales - 1,578,042 - 1,578,042
Golf course operations - 923 - 71,290
Cost of food and beverage sales - 287 - 23,255
Cost of proshop sales - 4,689 - 56,296
Marketing expenses - - - 3,956
General and administrative expenses 160,180 1,726,446 468,485 2,631,126
Professional fees, including legal
and accounting - 104,316 85,711 410,595
Depreciation and amortization expense - 50,585 - 136,506
--------------- --------------- -------------- --------------
Total operating expenses 160,180 3,465,288 554,196 4,911,066
--------------- --------------- -------------- --------------
Operating loss (160,180) (843,819) (554,196) (2,152,129)
Other income (expense):
Interest expense-contractual (26,732) (441,214) (54,232) (646,746)
Amortization of debt discount on
convertible debentures - (94,149) - (354,932)
Gain on sale of golf course - 523,799 - 523,799
Writedown of assets - - - (100,000)
Litigation settlement expense (Note C) (982,917) - (982,917) -
Interest and other income 2,991 39,518 20,430 62,155
--------------- --------------- -------------- --------------
Net loss $ (1,166,838) $ (815,865) $(1,570,915) $ (2,667,853)
=============== =============== ============== ==============
Basic and diluted loss per share $ (0.12) $ (0.25) $ (0.28) $ (0.83)
=============== =============== ============== ==============
Weighted average number of common
shares outstanding 9,528,642 3,315,520 5,703,600 3,209,110
=============== =============== ============== ==============
</TABLE>
See accompanying notes
5
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DIVOT GOLF CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
DEFICIT
<TABLE>
<CAPTION>
Convertible
Convertible Preferred
Common Stock Preferred Stock Additional Treasury Stock
------------------ ---------------- Paid-in Accumulated -----------------
Shares Amount Shares Amount Capital Deficit Shares Amount Total
---------- ------- --------- ------- ----------- ------------ -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1998............. 4,410,041 $ 4,410 287,025 $ 287 $41,722,902 $(46,709,764) (281,250) $(210,937) $ (5,193,102)
Net loss.............. -- -- -- -- -- (1,570,915) -- -- (1,570,915)
Issuance of Common
Stock in connection
with conversion of
Preferred Stock...... 1,293,601 1,294 (190) -- (1,294) -- -- -- --
Issuance of Common
Stock in connection
with settlement of
litigation........... 8,050,000 8,050 -- -- 801,950 -- -- -- 810,000
---------- ------- --------- ------ ----------- ------------ -------- --------- ------------
Balance at June
30, 1999 (unaudited). 13,753,642 $13,754 286,835 $ 287 $42,523,558 $(48,280,679) (281,250) $(210,937) $ (5,954,017)
========== ======= ========= ====== =========== ============= ========= ========== ============
</TABLE>
See accompanying notes
6
<PAGE>
DIVOT GOLF CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
<S> <C> <C> <C> <C>
1999 1998 1999 1998
-------------- --------------- --------------- ---------------
Cash flows from operating activities:
Net loss $ (1,166,838) $ (815,865) $ (1,570,915) $ (2,667,853)
Adjustment to reconcile net loss to
Net cash used in operating activities:
Gain on sale of golf course - (523,799) - (523,799)
Depreciation and amortization - 50,585 - 136,506
Amortization of debt discount - 94,149 - 354,932
Amortization of loan costs - 213,199 - 294,972
Litigation settlement expense 982,917 - 982,917 -
Net change in other working capital items 187,929 (1,045,771) 524,776 (428,826)
Accounts receivable from related parties - (227,936) 60,115 (92,751)
-------------- --------------- --------------- ---------------
Net cash (used in) operating activities 4,008 (2,255,438) (3,107) (2,926,819)
Investing activities:
Payments for intangibles asssets - (1,525,018) - (1,525,018)
Sales of property and equipment, net - 3,417,250 - 1,420,497
Change in restricted cash - 126,012 - 135,019
-------------- --------------- --------------- ---------------
Net cash provided by investing activities - 2,018,244 - 30,498
Financing activities:
Proceeds from borrowings - 2,065,562 6,800 4,591,538
Payments on borrowings - (5,276,898) - (5,466,125)
Proceeds from issuance of common stock - 15,000 - 15,750
Proceeds from issuance of convertible
preferred stock - 3,627,913 - 3,747,913
-------------- --------------- --------------- ---------------
Net cash provided by a financing activities - 431,577 6,800 2,889,076
Increase (decrease) in cash 4,008 194,383 3,693 (7,245)
Cash at beginning of period 253 (148,362) 568 53,266
-------------- --------------- --------------- ---------------
Cash at end of period $ 4,261 $ 46,021 $ 4,261 $ 46,021
============== =============== =============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ - $ 241,809 $ - $ 327,022
============== =============== =============== ===============
</TABLE>
See accompanying notes
7
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DIVOT GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
NOTE A. Business of the Company and Significant Accounting Policies
Description of Business
Divot Golf Corporation ("the Company") is engaged in the development, licensing
and marketing of golf-related businesses. Additionally, the Company plans to
reposition itself by providing specialized e-commerce applications and providing
essential distribution services and on-line marketing solutions to the travel
industry worldwide.
As of June 30, 1999, the Company has a net working capital deficiency of
$6,014,339 and a shareholders' deficit of $5,954,017. The Company has had
recurring net losses, pending litigation and is not generating sufficient
revenues from its operations to fund its activities and therefore is dependent
on additional financing from external sources. These factors among others raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company is
actively working to raise additional equity and debt financing and, if
successful, management believes that the Company will have adequate resources to
continue to meet its current debt obligation, fund capital improvements and
expand and develop its businesses. There is no assurance that such additional
funding will be completed and the inability to obtain such financing would have
a material adverse effect on the Company.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form 10-QSB
and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission
("SEC"). Accordingly, the financial statements do not include all of the
information and footnotes required by generally accepted accounting principles.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three and six months ended June 30, 1999 are not
necessarily indicative of the results for the year ended
December 31, 1999. The accompanying condensed consolidated financial statements
and notes thereto should be read in conjunction with the Company's audited
financial statements as of December 31, 1999 and 1998 contained in its current
Annual Report on Form 10-KSB.
Income Taxes - The Company records income taxes pursuant to the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, deferred taxes are
provided for the difference between the tax and financial statement bases of
assets and liabilities, and a valuation allowance is established for
deferred tax assets that, based upon available evidence, are not expected to
be realized.
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DIVOT GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
Net Loss Per Share - Net loss per share has been computed in accordance with the
Statement of Financial Accounting Standards No. 128, "Earnings Per Share," based
on the weighted average number of shares outstanding during the period
presented. Stock options and warrants are considered anti-dilutive and have not
been considered in the computations.
NOTE B. Commitments and Contingencies
The Company has employment agreements with certain of its executive officers,
the terms of which expire at various times through June 24, 2006. Such
agreements provide for minimum salary levels, as well as for incentive bonuses
which are payable if specified management goals are attained. In addition, the
Company is required to issue 18 million stock options to these executives during
2000 to purchase the Company's common stock at an exercise price equal to the
fair market value at the date of issuance. Minimum commitments for future
salaries, excluding bonuses, by year and in the aggregate consist of the
following at December 31, 1999:
2000........................... $ 835,000
2001........................... 835,000
2002........................... 835,000
Thereafter..................... 1,957,000
----------
$4,462,000
==========
NOTE C. Subsequent Events
On January 9, 2000, OrbitTravel.com, the Company's wholly owned subsidiary,
executed a content distribution agreement for a term of three years with
AsiaGateway.com, Ltd. Under the terms of this agreement, the Company was
required to issue 200,000 shares of its common stock 30 days from the execution
of this agreement. As of March 23, 2000, since the Company has not issued
such shares, either party may terminate this agreement.
On January 27, 2000, Spartan Capital Management, LLC, a limited liability
company controlled by one of the Company's directors and executive officers,
assigned to the Company its rights and obligations under an agreement dated as
of the same date pursuant to which the Company purchased the intellectual
property assets related to the TravelFile website previously owned by Orbit
Network for $60,000 in cash, a note payable due in 2000 in the amount of
9
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DIVOT GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
$540,000, and the future issuance of 3,000,000 shares of the Company's common
stock. A creditor of Orbit Network acquired these assets from Orbit Network
through a judicial foreclosure proceeding on January 13, 2000. Under the terms
of the agreement, the Company is required to pay two independent contractors a
total of $450,000 over three years in exchange for professional consulting
services to the Company.
A holder of the Company's convertible preferred stock ("the holder") paid
$97,915 on the Company's behalf during 1998 to satisfy some of the Company's
payroll obligations to employees. In full satisfaction of the amounts the
Company owes to the holder and other litigation threatened by the holder, the
Company entered into a settlement agreement with the holder as of January 31,
2000 pursuant to which the Company has agreed to issue to the holder
approximately 4.5 million shares of the Company's common stock and deliver to
the holder specific items of personal property owned by the Company and by the
Chairman and CEO of the Company.
On January 31, 2000, the Company entered into an agreement with Wilhelmina
Artist Management LLC pursuant to which the Company would acquire all of the
outstanding common stock of its wholly owned subsidiary,
WilhelminaTravelFile.com, in exchange for approximately 80 million shares of the
Company's common stock. Unless the transaction has closed, either party may
terminate the Wilhelmina agreement at any time after February 15, 2000.
On February 7, 2000, OrbitTravel.com executed a three-year consulting services
agreement and joint content agreement with Laspata/Decaro Studio Corporation, an
organization of designers and photographers, pursuant to which Laspata/Decaro
would provide the Company with media consulting services regarding brand
building and promotion. In addition, Laspata/Decaro would contribute their
library of destination images, photography and other content for use with the
Company's TravelFile service. Under the agreement, the Company expects issue 2.5
million shares of the Company's common stock vesting in equal annual
installments over the three-year term of the agreement. In addition, the Company
has verbally agreed to issue Laspata/Decaro an additional 100,000 shares upon
Laspata/Decaro's completion of each of the following tasks: (1) the development
and implementation of a promotion and marketing plan; and (2) the provision of
additional proprietary content and the implementation of an agreed-upon
operations strategy.
On February 15, 2000, an accredited investor agreed to fund up to $10 million
pursuant to a funding commitment letter and subscription agreement whereby the
investor agreed to purchase: (1) 11,223,334 shares of the Company's common stock
at $0.1782 per share on or before March 30, 2000; (2) 11,223,334 shares of the
Company's common stock at $0.1782 per share on or before June 30, 2000; and (3)
18,856,065 shares of the
Company's common stock at $0.3182 per share on or before September 30, 2000. The
investor's agreement to purchase the Company common stock is subject to several
10
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DIVOT GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
conditions, including the condition that the shares to be issued to the investor
must be freely tradeable. In addition, if the Company's total equity market
capitalization is less than $200 million on any dates that the investor
purchases the Company's common stock, the Company has agreed to proportionally
reduce the per share price of the common stock to be purchased by the investor.
The agreement also requires that the Company appoint two directors who are
nominated by the investor to the Company's board.
On February 24, 2000, the Company executed a non-binding letter of intent to
acquire from AnimInet, Inc. intellectual property assets related to AnimInet's
3-D Internet asset for approximately 473.9 million shares of the Company's
common stock. These intellectual property assets primarily include the software
being developed by AnimInet to create "Streaming Intelligent Beings," which are
digital 3D computerized personalities that would communicate directly with
Internet users. AnimInet is a corporation formed solely by one of the Company's
executive officers. This letter of intent expires on May 1, 2000.
On October 22, 1998, an individual ("the plaintiff") filed a complaint against
the Company, the Chairman and CEO of the Company and other entities controlled
by him alleging that the Company violated various federal and state securities
laws. On February 16, 2000, the Company and the plaintiff executed a settlement
pursuant to which the Company agreed to pay $150,000 during 2000 and to issue
850,000 shares of the Company's common stock in settlement of this dispute. Of
these shares, 400,000 shares were issued during the first quarter of 1999 and
the remaining 450,000 shares were issued on February 25, 2000. If the Company
fails to pay the amounts due in 2000 or 450,000 shares of the 850,000 shares
of the Company's common stock are not freely tradeable by the terms of the
settlement agreement, the Company has agreed that a judgment for $575,000 may
be entered into against the Company, the Chairman and CEO of the Company and
other entities controlled by him. If the price of our common stock falls below
30 cents per share for two trading days before March 18, 2000, we have agreed to
repurchase up to 400,000 shares of our common stock which Mr. Hochstein has not
liquidated prior to that date for 30cents per share. Prior to March 18, 2000,
the common stock traded at a price less than $0.30 per share for two trading
days.
In January and May of 1999, a group of former stockholders and employees
(including a former officer of the Company) and stockholders and employees of
various companies, formerly controlled by the Chairman and CEO of the Company,
filed three lawsuits against the Company, these various acquired corporations,
the Chairman and several of the Company's other executive officers and
stockholders. The complaints alleged, among other things, that (1) the Company
had failed to issue an aggregate of 15 million shares of the Company's common
stock (such number of shares is prior to the effect of a 1-for-15 reverse stock
split effected with regard to the Company's common stock on June 2, 1998), (2)
the Company and its officers had committed fraud in the issuance of securities,
and (3) various breaches of contract. The parties to the lawsuit entered into a
settlement agreement as of June 29, 1999 pursuant to which the plaintiffs agreed
to release the defendants from all of the claims in the lawsuits in exchange
for: (1) a note payable to a former officer of the Company in the amount of
$225,000; (2) the issuance of 7.65 million shares of the Company's common stock
(of which 333,334 shares were issuable to the Company's former officer); and (3)
the assignment by the Chairman of the Company of all of his rights, title or
interest to the profits generated from a few parcels of land in the World Golf
Village. The Chairman
11
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DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
assigned these rights to the plaintiffs on June 24, 1999. The Company ordered
the 7.65 million shares to be issued in August 1999 and those shares were
delivered on February 29, 2000. As of February 10, 2000, the Company has not
repaid any amounts due under the $225,000 note payable. This note payable
currently matures on March 31, 2000.
12
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements included herein for the three and
six-month periods ended June 30, 1999 and 1998 and with the audited
consolidated financial statements and notes thereto for the years ended December
31, 1999 and 1998, included in the our 1999 Annual Report on Form 10-KSB.
Overview and Background
We were incorporated in Delaware on November 12, 1991 under the name "Longview
Golf Corporation." We changed our name to "Brassie Golf Holdings, Ltd." on
September 18, 1992, and then again, on March 29, 1993, to "Brassie Golf
Corporation." On June 2, 1998, we changed our name to "Divot Golf Corporation."
By mid 1997, we owned four golf courses and managed more than 20 others.
Through April 1998, we were engaged in acquiring, designing, constructing,
operating and managing private, semi-private and public golf courses in the
United States. We were also focused on business opportunities in the World Golf
Village resort. The World Golf Village is a destination golf resort located near
Jacksonville, Florida.
Due to labor and capital intensive programs associated with golf courses and
the poor operating results of our golf course ownership, design, and management
activities, we decided to refocus our business strategy. We elected to continue
our efforts in the World Golf Village. But instead of focusing on the ownership,
design, and management of golf courses, we decided to focus on developing,
licensing, and marketing of golf-related products and services. In July 1997, we
sold the division responsible for managing the third party-owned golf courses.
In August 1997, we sold our golf course design subsidiary. From November 1997
through April 1998, we sold the golf courses we owned.
To implement our new strategic focus, in April 1998 we acquired three golf-
related products companies, Divot Golf Corporation, Miller Golf, Inc. and
Talisman Tools Incorporated. After defaulting on a newly obtained line of credit
with Citizens Bank in February 1999, third parties foreclosed on our Miller Golf
assets after Citizens Bank sold the notes to such third parties. In addition, we
wrote off the newly acquired Divot Golf and Talisman Tools assets as of December
31, 1998. As a result of our poor operating performance in the golf industry and
perceived opportunities in the e-commerce industry, we have ceased our
operations as a golf related products and services company and are repositioning
ourselves as a value added services provider specializing in e-commerce
applications and providing essential distribution services and on-line marketing
solutions to the travel industry worldwide.
13
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
Recent Developments
Acquisition Activity. On October 5, 1999, Orbit Network publicly issued a
press release stating that we had announced that we had signed a definitive
merger agreement to acquire Orbit Network in a stock for stock exchange.
However, upon completion of our due diligence review of Orbit Network, we and
Orbit Network mutually agreed to cancel this merger agreement and agreed to
enter into the transactions we discuss below.
We entered into a right to use agreement with Orbit Network as of November 1,
1999 pursuant to which we paid $500,000 in cash for a six-month right to use and
operate Orbit Network's GDS contracts with Amadeus, Sabre, Galileo and World
Span, its services agreement with AOL and related furniture and equipment. As
part of this right to use agreement,we operate the "TravelFile" website that
provides travel suppliers and Internet users travel planning services. We are
entitled under the right to use agreement to retain any revenues for a six-month
period that may be generated from the GDS and ancillary contracts. Also, as part
of the right to use agreement, we paid $100,000 (included in the $500,000 paid
on November 1, 1999) for an option (exercisable in our sole and absolute
discretion) to purchase in Orbit Network's rights under the GDS and ancillary
contracts and related furniture and equipment for the assumption of $5.1 million
of Orbit Network debt. This purchase option expires on May 1, 2000, unless
extended by us for an additional six months. We cannot assure you that we will
exercise this purchase option or that we will otherwise acquire the GDS and
ancillary contracts and related furniture and equipment nor can we assure you
that, if we do not acquire the GDS and ancillary contracts and related furniture
and equipment, that we will be able to extend the term of the right to use
agreement.
On November 17, 1999, our wholly owned subsidiary, OrbitTravel.com, Inc.,
entered into a joint venture agreement with Web Travel Systems, Ltd., a wholly
owned subsidiary of British Airways, pursuant to which we and Web Travel Systems
formed Bonveno.com, Ltd. We each own a 50% interest in Bonveno. Bonveno is
intended to be a European-based online travel information and reservation system
for the distribution of travel-related information and services to European
travel product providers and the traveling public. Also on November 17, 1999,
OrbitTravel entered into an operational agreement with Bonveno pursuant to which
14
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
we would provide technical support, licenses and technical maintenance, a
software development agreement pursuant to which we would develop software
applications, and a management agreement which sets forth an operational
management structure, marketing policy, content sharing and product distribution
policy for our joint venture.
On January 27, 2000, Spartan Capital Management, LLC, a limited liability
company controlled by David Noosinow, one of our directors and executive
officers, entered into an asset purchase agreement with Mark Savoretti pursuant
to which Spartan Capital agreed to acquire the intellectual property assets
related to the TravelFile website previously owned by Orbit Network for $600,000
in cash and the issuance of 3.0 million shares of our common stock. Mr.
Savoretti, a creditor of Orbit Network, acquired these assets from Orbit Network
through a judicial foreclosure proceeding on January 13, 2000 after Orbit
Network failed to pay $771,000 owed to Mr. Savoretti. Immediately upon execution
of this asset purchase agreement, Spartan Capital Management, LLC assigned all
of its rights and obligations under the agreement to us for $10. One of the
obligations assigned is an obligation to enter into consulting agreements with
Mr. Savoretti and another person, under which we would pay a total of $450,000
over three years. We thereafter acquired the intellectual property assets
related to the TravelFile website directly from Mr. Savoretti in exchange for
$60,000 in cash, a note payable in the amount of $540,000 and 3.0 million shares
of common stock, which would represent approximately 0.4% of our common stock
assuming all of the transactions described in our Annual Report are consummated.
On February 24, 2000, we executed a non-binding letter of intent to acquire
from AnimInet, Inc. intellectual property assets related to AnimInet's 3-D
Internet asset for approximately 473.9 million shares of our common stock, which
would represent approximately 52.6% of our common stock assuming all of the
transactions described in our Annual Report are consummated. These intellectual
property assets primarily include the software being developed by AnimInet to
create "Streaming Intelligent Beings," which are digital 3D computerized
personalities that would communicate directly with Internet users. AnimInet is a
corporation formed solely by Dean Miller, one of our executive officers. We
currently expect the stockholders of Orbit Network, who are each accredited
investors under Rule 501 of the Securities Act, to individually purchase all of
AnimInet's common stock. This letter of intent is subject to the execution of a
definitive agreement and customary due diligence. We currently do not have a
sufficient number of authorized and unissued shares available under our charter
to consummate such an acquisition. Although we currently expect to ask our
shareholders to approve a reverse stock split on an up to 20-for-1 basis, we
15
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
cannot assure you that we would be successful in obtaining such approval. This
letter of intent is subject to the execution of definitive agreements and
customary due diligence. We cannot assure you that this acquisition will be
consummated or that it will be consummated on the terms set forth in the letter
of intent.
On January 31, 2000, we entered into an agreement with Wilhelmina Artist
Management LLC pursuant to which we would acquire all of the outstanding common
stock of its wholly owned subsidiary, WilhelminaTravelFile.com, in exchange for
approximately 80.0 million shares of our common stock, which would represent
approximately 9.0% of our common stock assuming all of the transactions
described in this Quarterly Report are consummated. We believe that
Wilhelmena is one of the world's leading talent management agencies. Wilhelmina
and WilhelminaTravelFile.com have entered into an exclusive license pursuant to
which WilhelminaTravelFile would showcase Wilhelmena-provided content through an
Internet website dedicated to travel information and services. We expect that
Wilhelmena models and other celebrities would act as on-screen hosts for travel
destinations providing travel tips and inside information, offering special
promotions and branded product offerings. Unless the transaction has closed,
either party may terminate the Wilhelmina agreement at any time after February
15, 2000. We cannot assure you that we will be able to consummate this
acquisition. We currently do not have a sufficient number of authorized and
unissued shares available under our charter to consummate such an acquisition.
Although we currently expect to ask our stockholders to approve a reverse stock
split on an up to 20-for-1 basis, we cannot assure you that we would be
successful in obtaining such approval.
On January 9, 2000, OrbitTravel.com, our wholly owned subsidiary, executed a
content distribution agreement with AsiaGateway.com, Ltd. Under the terms of
this agreement, we were required to issue 200,000 shares of our common stock 30
days from the execution date of this agreement. As of March 23, 2000, since
we have not issued such shares, either party may terminate this agreement.
Assuming consummation of this transaction, Asiagateway.com would act as our
distribution, marketing and sales partner for the Asian region. Asiagateway.com
is a provider of commerce, community and content for the Asian marketplace.
Content produced and compiled by Asiagateway.com would be integrated into our
online travel services. Our online travel services, in turn, would be featured
in Asiagateway.com.
On February 7, 2000, OrbitTravel.com, our wholly owned subsidiary, executed a
three-year consulting services agreement and joint content agreement with
Laspata/Decaro Studio Corporation, an organization of designers and
photographers, pursuant to which Laspata/Decaro would provide us with media
16
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
consulting services regarding brand building and promotion. In addition,
Laspata/Decaro would contribute their library of destination images, photography
and other content for use within our TravelFile service. We also expect
LaSpata/Decaro to assist us in the creation of new video, multi-media, and
rich-media content for our online services. We are required to issue under the
agreement 2.5 million shares of our common stock vesting in equal annual
installments over the three-year term of the agreement, which would represent
approximately 0.3% of our common stock assuming all of the transactions and
issuances described in this Quarterly Report are consummated. In addition,
we would issue to Laspata/Decaro an additional 100,000 shares upon
Laspata/Decaro's completion of each of the following tasks: (1) the development
and implementation of a promotion and marketing plan; and (2) the provision of
additional proprietary content and the implementation of an agreed-upon
operations strategy.
Financing Activity. On February 15, 2000, Teakwood Ventures, LLC, an accredited
investor under Rule 501 of the Securities Act, agreed to fund up to $10 million
pursuant to a funding commitment letter and subscription agreement whereby
Teakwood Ventures agreed to purchase: (1) 11,223,334 shares of our common stock
at $0.1782 per share on or before March 30, 2000; (2) 11,223,334 shares of our
common stock at $0.1782 per share on or before June 30, 2000; and (3) 18,856,065
shares of our common stock at $0.3182 per share on or before September 30, 2000.
Teakwood Ventures' agreement to purchase our common stock on these varying dates
is subject to several conditions, including the condition that the shares to be
issued to Teakwood Ventures must be freely tradeable. We cannot assure you that
these conditions will be met. Therefore, we cannot assure you that we will
consummate all or part of this transaction. In addition, if our total equity
market capitalization is less than $200 million on any of the dates that
Teakwood Ventures purchases our shares of common stock, we have agreed to
proportionally reduce the per share price of the common stock to be purchased by
Teakwood Ventures. For example, if our total equity market capitalization is
$100 million on September 30, 2000, the purchase price per share would be
$0.1591 and we would consequently be required to issue 37,712,130 shares to
Teakwood Ventures. In addition, our agreement with Teakwood Ventures requires
that we appoint two directors who are nominated by Teakwood Ventures to our
board.
Since the end of 1999, we have issued or agreed to issue approximately 113.8
million shares of common stock for no cash consideration to various executive
officers, employees, consultants and other third parties. A portion of these
shares have been issued or will be issued to settle various disputes and
contingent liabilities. See "Legal Proceedings." We have issued, or expect to
issue, these shares in a series of unrelated registered and private offerings.
17
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
In addition, we have offered to issue approximately 52.7 million additional
shares of our common stock to existing security holders in exchange for all of
our outstanding convertible preferred stock and convertible debt, other than the
notes that OrbitTravel.com, our wholly owned subsidiary, has issued. As of
February 25, 2000, the holders of all of our convertible preferred stock and all
of our convertible debt have accepted this offer.
Since its inception on October 6, 1999, our wholly owned subsidiary,
OrbitTravel.com, has issued approximately $3.2 million of debt that is
convertible into approximately 6.4 million shares of our common stock. However,
we currently expect to exchange these notes for approximately 70.3 million
shares of our common stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital
Resources."
On January 9, 2000, OrbitTravel executed an exclusive content distribution
agreement with AsiaGateway. Under the terms of this agreement, we were required
to issue 200,000 shares of our common stock 30 days from the execution date of
this agreement. As of March 23, 2000, since we had not issued such shares,
either party may terminate this agreement.
We currently expect to ask our stockholders to approve a reverse stock split
on a 20-for-1 basis. We cannot assure you that we will be successful in
obtaining such approval. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
for a table setting forth our expected capitalization assuming all of the
transactions and issuances described in this Quarterly Report are consummated
and we effect a reverse stock split on an up to 20-for-1 basis.
RESULTS OF OPERATIONS
Quarter Ended June 30, 1999 Compared to Quarter Ended June 30, 1998
We generated no revenues from operations during the three months ended June 30,
1999 compared to $2,621,469 during the three months ended June 30, 1998. This
decrease was due to the fact that we discontinued our golf-related
equipment and accessories business during 1998.
Our total operating expenses decreased by $3,305,108, or 95%, to $160,180 from
$3,465,288 during the three month period ended June 30, 1999 and 1998
respectively. The expenses during 1998 primarily
18
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
relates to the hiring of key employees necessary to facilitate the execution of
ongoing business activities; and professional fees, which were primarily legal
and accounting fees incurred in connection with our efforts towards complying
with the Securities and Exchange Commission and NASDAQ rules and other costs
incurred to pursue acquisitions and financing alternatives, some of which were
unsuccessful. The decrease in 1999 was due to the fact that in 1998 we
discontinued our golf-related equipment and accessories business.
General and administrative expenses include management and administrative
compensation, related payroll taxes and benefits, telephone, utilities,
insurance, other taxes, travel, meals and entertainment and office expenses,
including rents.
During the quarter ended June 30, 1999, we recorded a loss of $982,917 on the
settlement of various litigation. In connection with the settlements we issued
7,650,000 shares of common stock and recorded a note payable for $225,000 during
the second quarter of 1999.
For the quarter ended June 30, 1999, we had a net loss of $1,166,838, an
increase of $350,973 from the net loss of $815,865 for the three-month period
ended June 30, 1998. The increase is attributable to the reasons stated above,
namely, the recognition of a loss on the settlement of certain litigation offset
by a substantial decrease in total operating expenses as a result of our
repositioning in non-golf related areas.
Inflation did not have a material effect on our operations during the
three-month periods ended June 30, 1999 or June 30, 1998.
Six-Months Ended June 30, 1999 Compared to Six-Months Ended June 30, 1998
We generated no revenues from operations during the six months ended June 30,
1999 compared to $2,758,937 during the six months ended June 30, 1998. This
decrease was due to the fact that we discontinued our golf-related
equipment and accessories business during 1998.
Our total operating expenses decreased by $4,356,870, or 89%, to $554,196 from
$4,911.066 during the six month period ended June 30, 1999 and 1998 rspectively.
The expenses during 1998 primarily relates to the hiring of key employees
necessary to facilitate the execution of ongoing business activities; and
professional fees, which were primarily legal and accounting fees incurred in
connection with our efforts towards complying with the Securities and Exchange
Commission and NASDAQ rules and other costs incurred to pursue acquisitions and
financing alternatives, some of which were unsuccessful. The decrease in 1999
was due to the fact that in 1998 we discontinued our golf-related equipment and
accessories business.
General and administrative expenses include management and administrative
compensation, related payroll taxes and benefits, telephone, utilities,
insurance, other taxes, travel, meals and entertainment and office expenses,
including rents.
19
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
During the quarter ended June 30, 1999, we recorded a loss of $982,917 on the
settlement of various litigation. In connection with the settlements we issued
8,050,000 shares of common stock in the first and second quarters of 1999 and
recorded a note payable for $225,000 during the second quarter of 1999.
For the six months ended June 30, 1999, we had a net loss of $1,570,915, a
decrease of $1,096,938 from the net loss of $2,667,853 for the six-month period
ended June 30, 1998. The decrease is attributable to the reasons stated above,
namely, the recognition of a loss of the settlement of litigation offset by a
substantial decrease in total operating expenses as a result of our
repositioning in non-golf related areas offset by the recognition of a loss on
the settlement of certain litigation.
Inflation did not have a material effect on our operations during the six-month
periods ended June 30, 1999 or June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization. Our charter authorizes the issuance of 200.0 million shares of
common stock and 1.0 million shares of preferred stock. As of February 16, 2000,
we had approximately 13.8 million shares of common stock outstanding. In
addition, as of such date, we had approximately 5,685 shares of preferred stock
outstanding that are convertible into 42.6 million shares of common stock, $1.5
million of notes outstanding (other than the OrbitTravel notes) that are
convertible into 10.1 million shares of common stock. In addition, as of
February 16, 2000, OrbitTravel had issued $3.2 million of notes convertible
into 6.4 million shares. However, we currently expect to exchange these notes
for approximately 70.3 million shares of our common stock.
We have offered to issue approximately 52.7 million shares of our common stock
to existing securityholders in exchange for all of our outstanding convertible
preferred stock and convertible debt, other than the notes that OrbitTravel has
issued. As of February 25, 2000, the holders of all of our convertible preferred
stock and all of our convertible debt have accepted this offer.
Since the end of 1999, we have issued or agreed to issue an additional 113.8
million shares of common stock for no cash consideration to various executive
officers, employees, consultants and other third parties. A portion of these
shares have been issued or will be issued to settle various disputes. See "Legal
Proceedings." We have issued, or expect to issue, these shares in a series of
unrelated registered and private offerings.
20
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
On February 15, 2000, we and Teakwood Ventures, LLC, an accredited investor
under Rule 501 of the Securities Act, executed a funding commitment letter and
subscription agreement pursuant to which Teakwood Ventures agreed to purchase:
(1) 11,223,334 shares of our common stock at $0.1782 per share on or before
March 30, 2000; (2) 11,223,334 shares of our common stock at $0.1782 per share
on or before June 30, 2000; and (3) 18,856,065 shares of our common stock at
$0.3182 per share on or before September 30, 2000. Teakwood Ventures' agreement
to purchase our common stock on these varying dates is subject to several
conditions, including the condition that the shares to be issued to Teakwood
Ventures must be freely tradeable. We cannot assure you that these conditions
will be met. Therefore, we cannot assure you that we will consummate all or part
of this transaction. In addition, if our total equity market capitalization is
less than $200 million on any of the dates that Teakwood Ventures purchases our
shares of common stock, we have agreed to proportionally reduce the per share
price of the common stock to be purchased by Teakwood Ventures. For example, if
our total equity market capitalization is $100 million on September 30, 2000,
the purchase price per share would be $0.1591 and we would consequently be
required to issue 37,712,130 shares to Teakwood Ventures.
Current and Future Liquidity Needs. We have not generated net cash from
operations for any period since 1996. We have primarily financed our operations
since 1996 through private sales of equity and debt securities. As of March 15,
2000, our principal source of liquidity was approximately $197,000 in cash. We
estimate that monthly operational cash requirements are approximately $300,000.
As part of our monthly operational cash requirements, we are obligated to pay an
aggregate of approximately $92,000 to our executive officers under the terms of
their employment agreements. In addition, as discussed below, we have
significant short-term financing cash requirements. We currently do not have
sufficient funds to meet our current cash and financing needs nor do we expect
to generate sufficient cash from operations to meet these needs. We cannot
assure you that we will be able to obtain funds to finance our current cash and
financing needs on acceptable terms, if at all. In addition, any increases in
anticipated expenses would further strain our liquidity and capital resources.
We must raise additional capital from public or private equity or debt sources
in order to finance operating losses, anticipated growth and contemplated
capital expenditures. If such sources of financing are insufficient or
unavailable, we will be required to modify our operating plans in accordance
with the extent of available funding. We may not be able to raise any such
capital on acceptable terms or at all. Further, we cannot assure you that we
will be able to raise sufficient capital to continue our operations. If we
cannot continue our operations, we may be forced to discontinue our business and
liquidate our assets.
21
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
All of the notes that have been issued by OrbitTravel.com mature six months
from the date of issuance. Approximately $500,000 of these notes will mature on
March 29, 2000. We cannot assure you that we will have sufficient capital, or be
able to raise sufficient capital, to repay our obligations under these notes nor
can we assure you that we would be successful in extending the maturity dates of
these notes. All of the notes that have been issued by OrbitTravel.com are
convertible into shares of our common stock at a conversion price of $.50 per
share. However, when OrbitTravel issued these notes, we were contemplating
consummating a merger with Orbit Network. The stated conversion price of $.50
assumed that we had effected a recapitalization of our common stock in
connection with such a merger. Upon completion of our due diligence review of
Orbit Network, we and Orbit Network mutually agreed to cancel our merger
agreement and agreed to enter into the other transactions we discuss in our
Annual Report on Form 10-KSB. Consequently, in order to ensure that the
purchasers of the OrbitTravel notes receive the same proportion of our shares of
common stock that they would have received had we effected a recapitalization of
our common stock, we currently expect to offer to exchange such holders' notes
for shares of common stock based on an exchange ratio of $.0455. Thus, instead
of issuing approximately 6.4 million shares upon conversion of these notes, we
expect to exchange these notes for approximately 70.3 million shares. The
issuance of any shares of our common stock upon conversion of these OrbitTravel
notes will result in dilution in net tangible book value to our current
stockholders.
In addition, we cannot assure you that we will have sufficient capital to pay
the $636,000 that we are required to pay as of February 16, 2000 under various
settlement agreements with employees, former employees and other creditors. See
"Legal Proceedings."
On January 27, 2000, Spartan Capital Management, LLC, a limited liability
company controlled by David Noosinow, one of our directors and executive
officers, entered into an asset purchase agreement with Mark Savoretti pursuant
to which Spartan Capital agreed to acquire the intellectual property assets
related to the TravelFile website previously owned by Orbit Network for $60,000
in cash, a note payable in the amount of $540,000 and the issuance of 3.0
million shares of our common stock. Mr. Savoretti, a creditor of Orbit Network,
acquired these assets from Orbit Network through a judicial foreclosure
proceeding on January 13, 2000 after Orbit Network failed to pay $771,000 owed
to Mr. Savoretti. Immediately upon execution of this asset purchase agreement,
Spartan Capital assigned all of its rights and obligations under the agreement
to us for $10. One of the obligations assigned is an obligation to enter into
22
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
consulting agreements with Mark Savoretti and another person, under which we
would pay a total of $450,000 over three years. We thereafter acquired the
intellectual property assets related to the TravelFile website directly from Mr.
Savoretti in exchange for $60,000 in cash, a note payable in the amount of
$540,000 and 3.0 million shares of the Company's common stock, which would
represent approximately 0.4% of our common stock assuming all of the
transactions and issuances described in this Quarterly Report are consummated.
On the date of closing, we paid Mr. Savoretti $60,000 and executed a promissory
note in the amount of $540,000. This note is payable in cash upon the effective
date of any registration statement of ours registering any of our common stock
under the Securities Act. We cannot assure you that we will be able to raise
sufficient capital, on acceptable terms or otherwise, to satisfy our obligations
under Mr. Savoretti's note.
On February 24, 2000, we executed a non-binding letter of intent to acquire from
AnimInet, intellectual property assets related to AnimInet's 3-D Internet asset
for approximately 473.9 million shares of our common stock, which would
represent approximately 52.6% of our common stock assuming all of the
transactions and issuances described in this Quarterly Report are consummated.
These intellectual property assets primarily include the software being
developed by AnimInet to create "Streaming Intelligent Beings," which are
digital 3D computerized personalities that would communicate directly with
Internet users. AnimInet is a corporation formed solely by Dean Miller, one of
our executive officers. We currently expect the stockholders of Orbit Network,
who are each accredited investors under Rule 501 of the Securities Act, to
individually purchase all of AnimInet's common stock. This letter of intent is
subject to the execution of a definitive agreement and customary due diligence.
We cannot assure you that this acquisition will be consummated or that it will
be consummated on the terms set forth in the letter of intent. We currently do
not have a sufficient number of authorized and unissued shares available under
our charter to consummate such an acquisition. Although we currently expect to
ask our stockholders to approve a reverse stock split on an up to 20-for-1
basis, we cannot assure you that we would be successful in obtaining such
approval.
On January 31, 2000, we entered into an agreement with Wilhelmina Artist
Management LLC pursuant which we would acquire all of the outstanding common
stock of WilhelminaTravelFile.com in exchange for approximately 80.0 million
shares of our common stock, which would represent approximately 9.0% of our
common stock assuming all of the transactions and issuances described in this
Quarterly Report are consummated. Unless the transaction has closed, either
party may terminate the Wilhelmina agreement at any time after February 15,
2000. We
23
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
cannot assure you that we will be able to consummate this acquisition. We
currently do not have a sufficient number of authorized and unissued shares
available under our charter to consummate such an acquisition. Although we
currently expect to ask our stockholders to approve a reverse stock split on an
up to 20-for-1 basis, we cannot assure you that we would be successful in
obtaining stockholder approval for any such actions.
The following table sets forth the beneficial ownership of our common stock
assuming all of the transactions and issuances described in this Quarterly
Report are consummated.
Number of
Shares Owned
Number of After
Shares Owned Reverse Percent
Before Reverse Stock Split of All
Name/Category of Stockholder Stock Split of 20 to 1 Shares
- ---------------------------- -------------- ------------ -------
Current stockholders (1).................. 13,753,642 687,682 1.6%
Officers and directors (2)................ 46,797,374 2,339,869 5.3
Other future recipients................... 119,753,749 5,987,687 13.5
AnimInet.................................. 473,928,276 23,696,414 53.5
Orbit Travel noteholders (3).............. 109,890,110 5,494,506 12.4
Wilhelmina Artist......................... 80,000,000 4,000,000 9.0
Teakwood Ventures, LLC.................... 41,302,733 2,065,136 4.7
----------- ---------- ----
Total................................. 885,425,884(4) 44,271,294 100%
=========== ========== ====
- --------
(1) As of February 16, 2000. Includes 2.5 million shares issued to Mr.
Dollinger, our General Counsel, as part of the settlement of litigation in
which he served as plaintiff's counsel.
(2) Excludes 2.5 million shares issued to Mr. Dollinger as part of the
settlement of litigation in which he served as plaintiff's counsel.
(3) Assumes the exchange of all of the OrbitTravel notes based on an exchange
ratio of $.0455 per share. Includes shares of common stock that will be
offered in exchange for an additional $1.8 million of debt that we expect to
issue.
(4) We currently expect that if we exercise our option to purchase the GDS and
ancillary contracts from Orbit Network for the assumption of approximately
$5.1 million in Orbit Network debt, we will exchange that debt for
approximately 137.4 million shares of our common stock. We cannot assure you
that we will exercise our option, or if we do exercise our option, that we
will exchange the debt for shares. This number in the table excludes any
shares that may be issued in an exchange.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information contained in this quarterly report Form 10-QSB may
contain forward-looking statements. Such statements include, in particular,
24
<PAGE>
DIVOT GOLF CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
statements about our plans, strategies and prospects under the headings
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." You can identify forward-looking statements by our use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. Although we believe that our
plans, intentions and expectations reflected in or suggested by such
forward-looking statements are reasonable, we cannot assure you that our plans,
intentions or expectations will be achieved. When considering such
forward-looking statements, you should keep in mind the following important
factors that could cause our actual results to differ materially from those
contained in any forward-looking statement:
. we have a limited operating history as an e-commerce company;
. we have a limited operating history as a company that specializes in
Internet travel distribution;
. we may not be able to complete our acquisition activity, including
acquiring the 3D animation asset from AnimInet, the stock of Wilhelmina
TravelFile.com and the GDS and ancillary contracts and related furniture
and equipment from Orbit Network, as quickly or on as favorable terms as
anticipated, if at all;
. we may not be able to hire and retain qualified employees;
. we may experience difficulties in maintaining our competitiveness if we
are unable to keep up with technological advancements;
. we may not be able to integrate our acquired assets quickly or
successfully into our existing business plan or corporate structure;
. we may not be able to meet our short-term or long-term liquidity needs
on terms favorable to us, if at all;
. we may experience technological difficulties in our delivery of
application software products;
. our operating performance and business strategy depends upon the
continued viability and growth of the Internet and the travel business;
. we compete in a highly competitive industry with low barriers to entry;
and
25
<PAGE>
. we may have incorrectly assessed our potential monetary liabilities and
expenses with respect to various court proceedings in which we are
currently involved.
Given these uncertainties, we caution you not to place undue reliance on
forward-looking statements. We undertake no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances or to reflect the occurrence of
unanticipated events.
27
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In connection with our February 21, 1996 Agreement in Principle with our three
Pension Fund Partners, definitive agreements were reached during the second
quarter of 1996 with regards to two of our four previously owned golf courses.
However, our efforts to interpret the Agreement in Principle and negotiate with
EPI Pension Fund regarding the two other courses were unsuccessful. On May 31,
1996, EPI Pension Fund commenced an action against us claiming breach of
contract, specific performance, a constructive trust and temporary and permanent
injunctive relief. At a hearing conducted on July 12, 1996 in the Circuit Court
in and for Hillsborough County, Florida, the court issued a preliminary
injunction which required us to transfer to EPI Pension Fund 45% of the
outstanding equity in our GLV and GMW subsidiaries whereby we retained 30% of
the outstanding equity in each of these two subsidiaries and EPI Pension Fund
owned the remaining 70%. We filed an appeal brief to this preliminary injunction
on August 14, 1996 in the 2nd District Court of Appeals for the 13th Judicial
District in and for Hillsborough County, Florida. The District Court denied this
appeal on February 11, 1997. We entered into a settlement agreement with the EPI
Pension Fund on October 15, 1997, which purported to resolve all outstanding
issues between us and the EPI Pension Fund. We failed to perform all of our
obligations under the settlement agreement. On February 10, 1998, the Circuit
Court entered an order directing us to perform fully all of our obligations
under the settlement agreement prior to February 24, 1998. At a hearing on March
26, 1998, we offered partial performance under the settlement agreement which
was taken under advisement by the Circuit Court and opposing counsel and will be
ruled upon at a hearing to be scheduled in the future.
We submitted a proposed settlement to the EPI Pension Fund, with a $3,000 good
faith deposit. The terms of the proposed settlement include a down payment to be
made within 30 days of executing the settlement documents with a balloon payment
to be delivered at the end of one year. The deferred payment will be
non-interest bearing. We have requested that we be permitted to prepay the
settled amount at a discount. We do not know if the settlement will be secured.
A penalty will be imposed upon default on the proposed settlement in addition to
EPI Pension Fund's rights to enforce the original judgment of $152,000. We
cannot assure you that the proposed settlement will be accepted by the EPI
Pension Fund or that the terms will be substantially similar to those disclosed
above.
27
<PAGE>
On October 22, 1998, Robert Hochstein filed a complaint in federal court against
us, Mr. Cellura and other entities controlled by Mr. Cellura alleging that we
violated various federal and state securities laws. On February 16, 2000, we and
Mr. Hochstein executed a settlement pursuant to which we agreed to pay $150,000
and to issue 850,000 shares of our common stock (of which we issued 400,000
shares in the first quarter of 1999) in settlement of this dispute. We issued
450,000 shares to Mr. Hochstein on February 25, 2000. We paid him $100,000 on
February 17, 2000 and have agreed to pay the additional $50,000 by June 16,
2000. If we fail to pay the $50,000 when due or the remaining 450,000 shares of
our common stock are not freely tradeable by the terms of the settlement
agreement, we have agreed that a judgment for $575,000 may be entered into
against us, Mr. Cellura and other entities controlled by Mr. Cellura. If the
price of our common stock falls below 30 cents per share for two trading days
before March 18, 2000, we have agreed to repurchase up to 400,000 shares of our
common stock which Mr. Hochstein has not liquidated prior to that date for 30
cents per share. Prior to March 18, 2000, the common stock traded at a price
less than $0.30 per share for two trading days.
In January and May of 1999, a group of our former stockholders and employees
and stockholders and employees of various companies that we acquired in April
1998, which formerly were controlled by Mr. Cellura, our chief executive
officer, filed three lawsuits in the United States District Court for the
Southern District of New York against us, these various acquired corporations,
Mr. Cellura and several of our other executive officers and stockholders. The
complaints alleged, among other things, that (1) we had failed to issue an
aggregate of 15.0 million shares of our common stock (such number of shares is
prior to the effect of a 15-for-1 reverse stock split effected with regard to
our common stock on June 2, 1998), (2) we and our officers committed fraud in
the issuance of securities, and (3) various breaches of contract. The parties to
the lawsuit entered into a settlement agreement as of June 29, 1999 pursuant to
which the plaintiffs agreed to release the defendants from all of the claims in
the lawsuits in exchange for: (1) a note payable in the amount of $225,000; (2)
the issuance of 7.65 million shares of our common stock; and (3) the assignment
by Mr. Cellura of all of his rights, title or interest to the profits generated
from a few parcels of land in the World Golf Village. Mr. Cellura assigned these
rights to the plaintiffs on June 24, 1999. In August 1999, we instructed our
transfer agent to issue these shares, which were ultimately issued on February
29, 2000. As of February 16, 2000, we have not repaid any amounts due under the
$225,000 note payable. This note payable currently matures on March 31, 2000. We
cannot assure you that we will have sufficient funds available to repay the note
payable upon maturity or that we would be able to extend the maturity date of
the note payable. If we are not able to repay the note payable according to its
terms, we cannot assure you that the plaintiffs will not seek court action to
enforce the terms of the settlement agreement. We would incur substantial
expenses if we must defend any additional actions in connection with these
lawsuits.
28
<PAGE>
In June 1999, Joseph R. Cellura, our chief executive officer, threatened to
file a lawsuit against us alleging, among other things, that: (1) Mr. Cellura
suffered substantial monetary loss in the defense of the lawsuits we refer to in
the previous paragraph; (2) Mr. Cellura suffered real and substantial damage to
his personal character as a result of the filing of these lawsuits; (3) we
failed to issue to Mr. Cellura and other stockholders in various companies
controlled by him an aggregate of 20.0 million shares of our common stock and
5.0 million options to purchase shares of our common stock (such number of
shares is prior to the effect of a 1-for-15 reverse stock split effected with
regard to our common stock on June 2, 1998); and (4) we failed to indemnify Mr.
Cellura as required by our indemnity agreement with him in connection with these
lawsuits. We and Mr. Cellura agreed to enter into a settlement agreement,
effective as of June 29, 1999, pursuant to which Mr. Cellura agreed to release
us from these claims in exchange for: (1) a note payable in the amount of
$250,000; and (2) the issuance of approximately 27.34 million shares of our
common stock. As of February 16, 2000, we have repaid $64,000 due under the
$250,000 note payable. This note payable currently matures on April 30, 2000. We
cannot assure you that we will have sufficient funds available to repay the
remaining amounts outstanding under the note payable upon maturity or that we
would be able to extend the maturity date of the note payable. If we are not
able to repay the note payable according to its terms, we cannot assure you that
Mr. Cellura will not seek court action to enforce the terms of the settlement
agreement. We would incur substantial expenses if we must defend any such court
action.
After we acquired Talisman Tools, a third party threatened to sue us for
patent infringement if we sold products based on the design of the repair tool
that we acquired in the Talisman acquisition. We subsequently refused to repay
the remaining $90,000 that we owed as part of the acquisition agreement.
Although this third party has since stopped threatening to sue us for patent
infringement, the former Talisman shareholders then sued us for failing to repay
these amounts. The molds that we acquired from Talisman were ultimately seized
as part of the Miller asset foreclosure. We have written off the investment in
Talisman as of December 31, 1998. We have engaged local counsel to vigorously
defend this claim and to seek to rescind the original acquisition agreement and
recover amounts we paid on the closing date. Due to the inherent uncertainties
of the litigation process and the judicial system, we are not able to predict
the outcome of this litigation.
29
<PAGE>
Kirk Scoggins, a holder of our convertible preferred stock, paid $97,915 on
our behalf during 1998 to satisfy some of our payroll obligations to employees.
In full satisfaction of the amounts we owe to Mr. Scoggins and other litigation
threatened by Mr. Scoggins, we entered into a settlement agreement with Mr.
Scoggins as of January 31, 2000 pursuant to which we have agreed to issue to Mr.
Scoggins approximately 4.5 million shares of our common stock and deliver to Mr.
Scoggins specific items of personal property owned by us and by Mr. Cellura.
Clifford F. Bagnall, one of our former directors and a current executive
officer, had threatened to file a lawsuit against us alleging that we owe Mr.
Bagnall amounts due under his employment contract in force while he was an
executive officer and that (1) Mr. Bagnall suffered substantial monetary loss in
the defense of the May 1999 lawsuits by the former stockholders of various
companies formerly controlled by Mr. Cellura; (2) Mr. Bagnall suffered real and
substantial damage to his personal character as a result of the filing of the
lawsuits; and (3) we failed to indemnify Mr. Bagnall as required by our
indemnity agreement with him in connection with these lawsuits. We and Mr.
Bagnall agreed to enter into a settlement agreement, effective as of January 31,
2000, pursuant to which Mr. Bagnall agreed to release us from this claim in
exchange for: (1) a note payable in the amount of $100,000; and (2) the issuance
of 5.3 million shares of our common stock. As of February 16, 2000, we have not
repaid any amounts due under the $100,000 note payable. This note payable
currently matures on May 15, 2000. We cannot assure you that we will have
sufficient funds available to repay the note payable upon maturity or that we
would be able to extend the maturity date of the note payable. If we are not
able to repay the note payable according to its terms, we cannot assure you that
Mr. Bagnall will not seek court action to enforce the terms of the settlement
agreement. We would incur substantial expenses if we must defend any such court
action.
Kenneth Craig, one of our former directors and executive officers, had
threatened to file a lawsuit against us alleging that we owe Mr. Craig amounts
due under his employment contract in force while he was an executive officer. We
and Mr. Craig agreed to enter into a separation agreement, effective as of
September 1, 1999, pursuant to which Mr. Craig agreed to release us from this
claim in exchange for: (1) a note payable in the amount of $75,000; and (2) the
issuance of 3.5 million shares of our common stock. As of February 16, 2000, we
have not repaid any amounts due under the $75,000 note payable. This note
payable currently matures on June 30, 2000. We cannot assure you that we will
have sufficient funds available to repay the note payable upon maturity or that
we would be able to extend the maturity date of the note payable. If we are not
30
<PAGE>
able to repay the note payable according to its terms, we cannot assure you that
Mr. Craig will not seek court action to enforce the terms of the settlement
agreement. We would incur substantial expenses if we must
defend any such court action.
Item 2. Changes in Securities
Prior to March 22, 1999, trading of our common stock had been quoted on the
Nasdaq SmallCap Market. Our common stock was de-listed from the Nasdaq SmallCap
Market as a result of our failure to meeting various listing requirements.
A 1-for-15 reverse stock split was effectuated on June 16, 1998 to raise the per
share price of our common stock and to increase the number of shares available
for issuance. All dollar amounts in the above table have been revised to reflect
the reverse stock split.
Since our common stock was de-listed on March 22, 1999 from Nasdaq SmallCap
Market, our common stock has been traded over-the-counter under the symbol
"PUTT."
Sales of Unregistered Securities
The following sets forth all of our sales of unregistered securities during
1998 and 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
Brief description of the purchaser
Date Securities and the consideration therefor
- ----------------------- ----------------------------- -------------------------------------
January 1, 1998 4,020 shares of preferred Issuance of convertible preferred
to June 30, 1998 stock stock
January 1, 1998-- 457,402 shares of common Issuance of common stock for
December 31, 1998 stock conversions
of convertible debentures
January 1, 1998-- 46,429 shares of common Conversions of preferred stock
December 31, 1998 stock
January 16, 1998 50,000 shares of common Issuance of common stock
for stock funding related to
acquisition of Parcel 11
at World Golf Village
February 19, 1998 94,304 shares of common Issuance of common stock
for exercise stock of warrants under
convertible debentures.
April 3, 1998 53,333 shares of common Issuance of common stock for
stock acquisition
</TABLE>
31 of Miller Golf
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
April 20, 1998 10,000 shares of common Issuance of common stock for
stock acquisition
of Talisman Tools
May 4, 1998 1,933 shares of common Issuance of stock for right of
stock first refusal
on possible land acquisition
July 14, 1998-- July 31, $1.5 million of our notes Issuance of notes under private
1998 placement
July 30, 1998 500,000 shares of common Issuance of common stock under
stock private placement
October 30, 1998 354,463 shares of common Issuance of common stock for
stock acquisition of possible joint
venture
January 1, 1999-- 1,293,601 shares of common Conversions of preferred stock
December 31, 1999 stock
February 11, 1999 400,000 shares of common stock Issuance of common stock in
settlement of litigation
August 24, 1999 7,650,000 shares of common Issuance of common stock in
stock settlement of litigation
October 1, 1999-- $1.68 million of OrbitTravel Issuance of notes under private
December 31, 1999 convertible notes placement
</TABLE>
We believe that we took reasonable steps to ensure that each of the offerees
in these transactions were accredited investors under Rule 501 of the Securities
Act.
Item 3. Defaults Upon Senior Securities
The Company has defaulted on certain obligations of its senior securities by
failing to meet its obligation to file a registration statement, having such
registration statement become effective by a certain date, and having its annual
shareholder meeting.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
32
<PAGE>
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8K
Dated April 1, 1999
Dated May 24, 1999
Dated June1, 1999
33
<PAGE>
SIGNATURES
Pursuant to 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.
DIVOT GOLF CORPORATION
/s/Clifford F. Bagnall
_______________________________________
Clifford F. Bagnall, Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: MARCH 24, 2000
34
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,261
<SECURITIES> 0
<RECEIVABLES> 95,247
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 99,508
<PP&E> 77,165
<DEPRECIATION> 16,843
<TOTAL-ASSETS> 159,830
<CURRENT-LIABILITIES> 6,113,847
<BONDS> 0
0
287
<COMMON> 13,754
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 159,830
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 554,196
<OTHER-EXPENSES> 982,917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,232
<INCOME-PRETAX> (1,570,915)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,570,915)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,570,915)
<EPS-BASIC> (.28)
<EPS-DILUTED> (.28)
</TABLE>
