<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, 2000; 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
ORBITTRAVEL.COM CORPORATION
Formerly Known As
(DIVOT GOLF CORPORATION)
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(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)
1230 Peachtree Street, Suite 1900, Atlanta, GA 30309
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(Address of principal executive offices)
(404) 942-2500
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(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 X No
On August 17, 2000 there were 250,447,562 shares of the issuer's Common Stock,
$.001 par value, and 0 shares of the issuer's Preferred Stock, $.001 par value
outstanding.
1
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ORBITTRAVEL.COM CORPORATION
QUARTERLY REPORT FOR THE
PERIOD ENDED JUNE 30, 2000
FORM 10-QSB
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999................................................... 3
Condensed Consolidated Statements of Operations for the three and six-
month periods ended June 30, 2000 and 1999.......................... 5
Condensed Consolidated Statements of Changes in Shareholders' Deficit
for the six-month period ended June 30, 2000........................ 6
Condensed Consolidated Statements of Cash Flows for the three and six-
month periods ended June 30, 2000 and 1999........................... 7
Notes to Condensed Consolidated Financial Statements................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................29
Item 2. Changes in Securities..............................................33
Item 3. Defaults Upon Senior Securities....................................34
Item 4. Submission of Matters to a Vote of Securities Holders..............35
Item 5. Other Information..................................................35
Item 6. Exhibits and Reports on Form 8-K...................................35
Signatures.................................................................36
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ORBITTRAVEL.COM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30,
2000 December
(Unaudited) 31, 1999
------------- -------------
<S> <C> <C>
Current assets:
Cash $ 850,890 $ 174,492
Trade accounts receivable, net 103,923 82,608
Accounts receivable from related parties - 114,332
Prepaid expenses and other current assets 53,279 288,442
------------- -------------
Total current assets 1,008,092 659,874
Furniture and equipment, net 156,662 72,023
Intangible assets 787,500 -
Other assets 100,000 136,425
------------- -------------
Total assets $ 2,052,254 $ 868,322
============= =============
</TABLE>
See accompanying notes
3
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ORBITTRAVEL.COM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
June 30, December
2000 31, 1999
(Unaudited)
------------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,158,829 $ 1,210,614
Accrued expenses 797,362 1,562,666
Accrued compensation and payroll - 5,328,122
Amounts due to related parties - 60,500
Dividends payable - 1,730,000
Notes payable 6,805,752 3,392,504
Notes payable to related parties 543,659 661,800
------------- ------------
Total current liabilities 9,305,602 13,946,206
Shareholders' deficit:
Convertible Preferred Stock, $.001 par value;
1,000,000 shares authorized; 281,250 and 286,835
shares issued and outstanding as of June 30,
2000 and December 31, 1999, respectively 281 287
Common Stock, $.001 par value; 200,000,000 shares
authorized at June 30, 2000 and at December 31,
1999, respectively; 199,686,141 and 13,753,642
shares issued and outstanding as of June 30, 2000
and December 31, 1999, recpectively 199,686 13,754
Additional paid-in capital 65,965,219 42,523,558
Accumulated deficit (73,207,597) (55,404,546)
Convertible Preferred Stock held in
treasury, 281,250 shares (210,937) (210,937)
------------ ------------
Total shareholders' deficit (7,253,348) (13,077,884)
------------ ------------
Total liabilities and shareholders' deficit $ 2,052,254 $ 868,322
============ ============
</TABLE>
See accompanying notes
4
<PAGE>
ORBITTRAVEL.COM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Operating revenues: $ 192,265 $ - $ 381,768 $ -
----------- ----------- ---------- ------------
Operating expenses:
Compensation expense 806,528 - 5,326,430 -
Stock based compensation expense 1,500,515 - 1,500,515 -
General and administrative expenses 818,503 160,180 1,322,050 468,485
Professional fees, including legal 153,354 - 899,060 85,711
and accounting
Stock based professional fees 531,250 - 531,250 -
Depreciation and amortization 9,403 - 16,435 -
expense ----------- ----------- ---------- ------------
Total operating expenses 3,819,553 160,180 9,595,740 554,196
----------- ----------- ---------- ------------
Operating loss (3,627,288) (160,180) (9,213,972) (554,196)
Other income (expense):
Interest expense (6,068,144) (26,732) (6,105,592) (54,232)
Litigation settlement expense (332,934) (982,917) (2,436,261) (982,917)
Loss on investments (219,351) - (219,351) -
Other income (expense) (87,742) 2,991 172,125 20,430
----------- ----------- ---------- ------------
Net loss $(10,335,459) $(1,166,838)$(17,803,051) $ (1,570,915)
=========== =========== ========== ============
Basic and diluted net loss per share $ (0.07) $ (0.12)$ (0.21) $ (0.28)
=========== =========== ========== ============
Weighted average number of common
shares outstanding 138,201,100 9,528,642 86,258,800 5,703,600
=========== =========== ========== ============
</TABLE>
See accompanying notes
5
<PAGE>
ORBITTRAVEL.COM 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, 1999............. 13,753,642 $13,754 286,835 $ 287 $42,523,558 $(55,404,546) (281,250) $(210,937) $(13,077,884)
Net loss (unaudited) -- -- -- -- -- (17,803,051) -- -- (17,803,051)
Issuance of Common
Stock in connection
with conversion of
Preferred Stock...... 41,219,432 41,219 (5,585) (6) 1,688,787 -- -- -- 1,730,000
Issuance of Common
Stock in connection
with conversion of
debt................. 37,966,666 37,967 -- -- 9,514,049 -- -- -- 9,552,016
Issuance of Common
Stock in connection
with settlement of
litigation........... 8,340,000 8,340 -- -- 1,964,610 -- -- -- 1,972,950
Issuance of Common
Stock in connection
with conversion of
debt................. 58,944,595 58,945 -- -- 7,746,650 -- -- -- 7,805,595
Issuance of Common
Stock in connection
with settlement of
litigation........... 4,452,765 4,452 -- -- 343,309 -- -- -- 347,761
Issuance of Common
Stock in connection
with consulting
services and intan-
gible assets acquired 35,009,041 35,009 -- -- 2,184,256 -- -- -- 2,219,265
---------- ------- --------- ------ ----------- ------------ -------- --------- ------------
Balance at June
30, 2000 (Unaudited) 199,686,141 $199,686 281,250 $ 281 $65,965,219 $(73,207,597) (281,250) $(210,937) $(7,253,348)
========== ======== ========= ====== =========== ============ ======== ========= ============
</TABLE>
See accompanying notes
6
<PAGE>
ORBITTRAVEL.COM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(10,335,459) $ (1,166,838) $(17,803,051) $(1,571,915)
Adjustment to reconcile net loss to
Net cash provided (used) in operating activities:
Issuance of shares in settlement of litigation 347,761 982,917 2,320,711 982,917
Issuance of shares for conversion of debt - - 3,952,699 -
Issuance of shares for interest expense 3,103,573 - 3,103,573 -
Issuance of shares for services 2,219,265 - 2,219,265 -
Depreciation and amorization 9,403 - 16,435 -
Accounts receivable from related parties - - - 60,115
Decrease in other assets 12,500 - 36,425 -
Discount on convertible debt-interest 3,202,022 - 3,202,022 -
Net change in other working capital items (72,628) 187,929 (83,291) 524.776
------------ ------------ ------------ ------------
Net cash provided (used) in operating activities (1,513,563) 4,008 (3,035,212) (3,107)
Investing activities:
Purchase of intangible and other assets (187,500) - (247,500) -
Purchase of property and equipment, net (77,808) - (101,075) -
------------ ------------ ------------ ------------
Net cash used in investing activities (265,308) - (348,575) -
Financing activities:
Proceeds from borrowings 2,480,009 - 4,060,185 6,800
------------ ------------ ------------ ------------
Net cash provided by financing activities 2,480,009 - 4,060,185 6,800
Increase in cash 701,138 4,008 676,398 3,693
Cash at beginning of period 149,752 253 174,492 568
------------ ------------ ------------ ------------
Cash at end of period $ 850,890 $ 4,261 $ 850,890 $ 4,261
============ ============ ============ ============
</TABLE>
See accompanying notes
7
<PAGE>
ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
NOTE A. Business of the Company and Significant Accounting Policies
Description of Business
OrbitTravel.com f/k/a Divot Golf Corporation ("the Company") has experienced
poor operating performance in the golf industry and as a result of perceived
opportunities in the e-commerce industry, the Company has ceased operations as a
golf related products and services company and is repositioning itself 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.
On March 1, 2000, a majority of the holders of the Company's common stock
approved, by consent, an amendment to the Company's Certificate of
Incorporation, changing the Company's name to "OrbitTRAVEL.com Corporation." The
name change was made effective on April 20, 2000. In addition, the Company
changed its stock trading symbol from "PUTT" to "OBTV" to better reflect its new
name and business strategy.
As of June 30, 2000, the Company has a net working capital deficiency of
$8,297,510 and a shareholders' deficit of $7,253,348. 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. As of June 30, 2000, the Company had received
the first $2 million round of a promised $10 million financing from Teakwood
Ventures, L.L.C. 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 and its ability to continue as a going concern.
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, 2000 are not
necessarily indicative of the results for the year ending December 31, 2000. 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.
8
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ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
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.
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, warrants and convertible securities are considered
anti-dilutive and have not been considered in the computations.
NOTE B. Non-Cash Activities
During the six months ended June 30, 2000 the following significant non-cash
activities occurred:
Debt of $540,000 was issued in consideration for other assets which includes
certain intellectual property assets related to the TravelFile website. An
additional $369,755 of debt was issued in order to pay off various other accrued
liabilities.
All outstanding preferred shares, including $1,730,000 in accrued dividends,
were converted to 41,219,432 shares of common stock.
The Company issued 37,966,666 shares of common stock as payment of $231,449 in
accounts payable and accrued expenses and $5,307,368 of accrued compensation. In
addition $3,952,699 of compensation expense was recorded as a result of the
excess of the fair market value of the shares on the date of issuance versus the
amount previously recorded as accrued compensation.
During June 2000, the Company issued 58,944,595 shares of common stock in
satisfaction of $1,500,000 in debt. In addition $3,103,573 of interest expense
was recorded as a result of the excess of the fair market value of the shares on
the date of issuance versus the amount of debt previously received.
As a result of the following litigation during the six months ended June 30,
2000, the Company issued 12,792,765 shares of common stock resulting in a
litigation expense of $2,436,261.
On February 25, 2000, the Company issued 450,000 shares to Robert
Hochstein in settlement of litigation.
On March 12, 2000, the Company issued 1,890,000 shares of common stock to
the Joseph R. Cellura Trust, a Trust established for the benefit of Ellee
Knight, a previous employee of the Company. These shares were issued in
full and final settlement as part of an amended and restated settlement
agreement, dated March 1, 2000, entered into with Ms. Knight.
9
<PAGE>
ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
In March 2000, the Company issued 6,000,000 shares of common stock to
Joseph Salvani in settlement of claims against the Company for threatened
litigation for alleged damages he incurred due to the fact that certain
common shares were not issued to him previously. The issuance of these
shares is in full and final settlement of all claims Mr. Salvani might
have against the Company and releases us from any future claims.
In June 2000, the Company issued 4,452,765 shares of common stock to Kirk
Scoggins in settlement of claims against the Company for threatened
litigation for alleged damages he incurred due to the fact that certain
common shares were not issued to him previously. The issuance of these
shares is in full and final settlement of all claims Mr. Scoggins might
have against us and releases the Company from any future claims.
NOTE C. 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
that are payable if specified management goals are attained. In addition, during
the year 2000, the Company is required to issue 10 million stock options to
these executives to purchase the Company's common stock at an exercise price
equal to the fair market value at the date of issuance. On March 1, 2000, a
majority of the holders of the Company's common stock consented to the approval
of the Executive Employment Agreements executed between the Company and Joseph
R. Cellura, David A. Noosinow, and Douglas R. Dollinger. At June 30, 2000, by
mutual agreement, the Company terminated Mr. Dollinger's Employment Agreement in
consideration for a severance payment to Mr. Dollinger of $250,000.
Minimum commitments for future salaries, excluding bonuses, by year and in the
aggregate for Messrs. Cellura and Noosinow consist of the following at June 30,
2000:
2000...................................................... $ 237,000
2001...................................................... 475,000
2002...................................................... 475,000
Thereafter................................................ 1,282,000
---------
$2,469,000
In connection with the Company's February 21, 1996 Agreement in Principle with
the Company's three Pension Fund Partners, definitive agreements were reached
during the second quarter of 1996 with regards to two of the Company's four
previously owned golf courses. However, the Company's efforts to interpret the
Agreement in Principle and negotiate with EPI Pension Fund regarding the two
10
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ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
other courses were unsuccessful. On May 31, 1996, EPI Pension Fund commenced an
action against the Company claiming breach of contract, specific performance, a
constructive trust and temporary and permanent injunctive relief. At a hearing
conducted on July 12, 1996, the court issued a preliminary injunction which
required the Company to transfer to EPI Pension Fund 45% of the outstanding
equity in the Company's GLV and GMW subsidiaries whereby the Company retained
30% of the outstanding equity in each of these two subsidiaries and EPI Pension
Fund owned the remaining 70%. The Company filed an appeal brief to this
preliminary injunction on August 14, 1996. The court denied this appeal on
February 11, 1997. The Company entered into a settlement agreement with the EPI
Pension Fund on October 15, 1997, which intended to resolve all outstanding
issues between the Company and the EPI Pension Fund. The Company failed to
perform all of the Company's obligations under the settlement agreement. On
February 10, 1998, the court entered an order directing the Company to perform
fully all of the Company's obligations under the settlement agreement prior to
February 24, 1998. At a hearing on March 26, 1998, the Company offered partial
performance under the settlement agreement which was taken under advisement by
the court and opposing counsel and will be ruled upon at a hearing to be
scheduled in the future. On March 1, 2000, a majority of the Company's holders
consented to approval of this settlement agreement.
The Company 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 of $152,000 due at the end of one year. The deferred payment
will be non-interest bearing. The Company has requested that it be permitted to
prepay the settled amount at a discount. The Company does not know if the EPI
Pension Fund will require security. In addition, if the proposed settlement is
not accepted, 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. The Company cannot be assured that the EPI Pension Fund will accept
the proposed settlement or that the terms will be substantially similar to those
disclosed above. As the matter now stands, the EPI Pension Fund is free to
enforce the outstanding judgment.
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 August 11, 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. Spartan had purchased these assets from a creditor of Orbit
Network for $60,000 in cash, a note payable due in 2000 in the amount of
$540,000, and the issuance of 3,000,000 shares of the Company's common stock in
May 2000. The Company has assumed the obligations. The creditor of Orbit Network
had acquired these assets from Orbit Network through a judicial foreclosure
proceeding on January 13, 2000. As an additional condition, 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. The $540,000
11
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ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
promissory note is currently in default. In addition, the Company has not made
the monthly consulting fee payments as required. The Company has received
unverified indications that the creditor of Orbit Network may not have received
good title to the assets. Pending a current investigation by the Company, the
Company has withheld both the payments under the promissory note and the
consulting agreements.
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 owed to the holder and in satisfaction of 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 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. As of June 30, 2000, the Company had issued all
of the shares required by the settlement agreement.
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 April
18, 2000, the parties entered into an amended and restated Stock Acquisition
Agreement, which provided for the acquisition of WilhelminaTravelFile.com by the
Company in consideration for the issuance of an amount of Company shares
equivalent to ten percent (10%) of the issued and outstanding shares of the
Company on a fully diluted basis. As of August 11, 2000, the Company had not
issued the shares necessary to close the transaction, although neither party has
elected to cancel the amended and restated agreement.
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 was required to
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 May 12, 2000, the Company issued 2,700,000 shares to
Laspata/Decaro, which represents the full amount of shares due to Laspata/Decaro
over the three-year term of the Agreement. The Company's Board of Directors
authorized the accelerated share issuance as a result of the exemplary
performance on the part of Laspata/Decaro following the execution of the
Agreement. The agreement has forward consulting services as required by the
Company for cash payments.
12
<PAGE>
ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
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's
common stock is subject to several conditions, including the condition that the
shares to be issued to the investor must be freely tradable. 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. As of
March 31, the Company and the investor agreed to extend the obligations of the
parties under the funding commitment letter and subscription agreement by up to
ninety days, due to market fluctuations and repricing considerations. As of June
30, 2000, the Company had received the first $2,000,000 round of financing.
However, because the market capitalization of the Company had fallen below the
minimum required by the Agreement, the shares sold in connection with that round
have been repriced, which resulted in an obligation to issue 109,706,016 shares
of which 58,944,595 shares were issued prior to June 30, 2000 and the remaining
50,761,421 shares were issued in August 2000 as satisfaction for the $2.0
million funding and $500,000 of previously issued convertible debt.
Additionally, based on certain terms under the commitment letter and in view of
the Company's current common stock price, the accredited investor is not
obligated to extend the remaining $8.0 million in financing. The Company is
attempting to renegotiate a satisfactory resolution to this matter and is
hopeful it will receive the additional financing. There are no assurances that
the Company will be successful in renegotiating the financing terms or that the
terms will be favorable to the Company.
On May 1, 2000, the Company elected not to pursue the AnimInet transaction.
The Company has recorded a loss for all development and other costs advanced to
AnimInet as of June 30, 2000, which approximated $219,000.
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 1999 and the remaining 450,000
shares were issued on February 25, 2000. If the 450,000 shares of the 850,000
shares of the Company's common stock are not freely tradable 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 the Company's common stock falls
13
<PAGE>
ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
below $0.30 per share for two trading days before March 18, 2000, the Company
has agreed to repurchase 400,000 shares of the Company's common stock for a
minimum of $0.30 per share. Prior to March 18, 2000, the common stock traded at
a price less than $0.30 per share for two trading days. On March 1, 2000, a
majority of the holders of the Company's common stock consented to the approval
of the settlement agreement between the Company and the plaintiff. At June 30,
2000, the Company had satisfied the $150,000 obligation to the plaintiff.
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 15-for-1 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 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. The note payable matured on
March 31, 2000. On March 1, 2000, a majority of the holders of the Company's
common stock consented to the approval of this settlement agreement. Also on
March 1, 2000, the Company and its former officer agreed to amend the Note to
provide for the issuance of 1,100,000 shares of the Company's common stock in
consideration for reducing the principal amount due thereunder to $115,000. The
common shares were issued in March 2000. On August 7, 2000, the Company and its
former officer further amended the note amount to $120,000, which includes
interest, with four equal payments to be made through September 3, 2000. The
Company has made two of the required payments, totaling $60,000, as of August
11, 2000.
On April 24, 2000, Harlan Logan, a former employee of Divot Golf Corporation,
filed a complaint in Florida Circuit Court against us and Mr. Cellura, alleging
that the Company has failed and refused to pay Mr. Logan those wages due and
owing for the last two months of his employment with the Company, as well as a
performance bonus which he claimed was earned when the "MobileSuites Project"
was ready for production. Specifically, Mr. Logan is seeking $15,000 in unpaid
wages ($7,500 per month x 2) and a $65,000 performance bonus. The claim arises
out of a failed project known as "MobileSuites", a separate and wholly owned
subsidiary of Divot Golf Corporation, whose purpose was to develop and
manufacture a prototype for display at the World Golf Village in St. Augustine,
Florida. Mr. Logan claims that he fulfilled his obligation regarding the
"MobileSuites Project" as it was ready for production, but that it was never
manufactured due to the financial condition of the company. Mr. Logan also
claims that, in accordance with his employment agreement, he purchased real
estate on behalf of the Company at the World Golf Village in March 1998 in the
amount of $95,000, and that in consideration for the purchase, we agreed to buy
14
<PAGE>
ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
the property back for the original purchase price by the year ending 1998 and to
reimburse him for all expenses, interest, costs, down payment, and closing costs
associated with the purchase. Mr. Logan also claims that Mr. Cellura wrongfully
converted for his own personal use the Company's funds that were to be used for
payment of his wages and performance bonus. The Company filed an answer to the
complaint on May 22, 2000 denying all of the material allegations raised in the
complaint, and plan on vigorously defending the action through corporate
counsel. The Company is considering filing a counterclaim against Mr. Logan for
fraud in connection with his submission and our payments of fraudulent expenses
and costs associated with the project, as well as for tortious interference with
contractual relations by improperly using his position of authority at the Palma
Ceia Golf Club to have the Company's corporate golf membership revoked as a
result of which the Company lost a $50,000 membership fee. Due to the inherent
uncertainties of the litigation process and the judicial system, the Company is
not able to predict the outcome of this litigation.
NOTE D. - Shareholders' Deficit
On July 17, 2000, a majority of our common shareholders approved by consent an
increase of authorized common shares to 800.0 million shares, par value $.001
per share, from 200.0 million common shares, par value $.001 per share,
previously authorized. Our Certificate of Incorporation was thereafter amended
and the amendment became effective in the State of Delaware on August 4, 2000.
15
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
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, 2000 and 1999 and with the audited consolidated
financial statements and notes thereto for the years ended December 31, 1999 and
1998, included in 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."
On March 1, 2000, a majority of the holders of the our common stock consented to
the approval of an amendment to our Certificate of Incorporation, changing the
our name to "Orbittravel.com Corporation." The name change was made effective on
April 20, 2000. In addition, on April 20, 2000 we changed our stock trading
symbol from "PUTT" to "OBTV" to better reflect our new name and business
strategy.
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 one of the leading golf resorts in the
U.S.
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 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
companies engaged in the manufacture of golf consumer products; 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
16
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
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.
Recent Developments
Acquisition Activity. On October 5, 1999, Orbit Network publicly issued a
press release stating 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, which reflected a much more
deteriorating financial condition than originally believed, we cancelled this
merger agreement and entered 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 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 expired on May 1, 2000, unless
extended by us for an additional six months. As of the present time, Orbit
Network is insolvent, is no longer in business and has had its charter revoked
by the State of Delaware.
On November 17, 1999, our wholly owned subsidiary, OrbitTravel.com, Inc.,
("OrbitTravel.com") entered into a joint venture agreement with Web Travel
Systems, Ltd., pursuant to which Web Travel Systems and we formed Bonveno.com,
Ltd. As of June 30, 2000, we have mutually terminated our joint venture
agreement with Web Travel Systems and the Bonveno 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.
17
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
One of the obligations assigned was an obligation requiring us to enter into
consulting agreements with Mr. Savoretti and another person, under which we
would pay a total of $450,000 over three years. Our obligation also included a
payment to Mr. Savoretti of $60,000 in cash, the issuance of a note payable in
the amount of $540,000 and the issuance of 3.0 million shares of common stock in
May 2000. Under provisions of the agreement, we are currently in default on
payments due under the note. In addition, we have not made the monthly
consulting fee payments required. We have received unverified indications that
the creditor of Orbit Network may not have received good title to the assets.
Pending a current investigation by us, we have withheld both the payments under
the promissory note and the consulting agreements.
On May 1, 2000, we elected to terminate the proposed transaction with
AnimInet. We recorded a loss for all development and other costs advanced to
AnimInet as of June 30, 2000, which approximated $219,000.
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. We believe that
Wilhelmina 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 Wilhelmina-provided content through an
Internet website dedicated to travel information and services. We expect that
Wilhelmina 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. On April 18, 2000, the parties entered into an amended and restated
Stock Acquisition Agreement, which provided for the acquisition of
WilhelminaTravelFile.com by us in consideration for the issuance of an amount of
our shares equivalent to ten percent (10%) of our issued and outstanding shares
on a fully diluted basis. As of August 11, 2000, we had not issued the shares
necessary to close the transaction, although neither party has elected to cancel
the amended and restated agreement.
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 August 11, 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
18
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
Laspata/Decaro Studio Corporation, an organization of designers and
photographers, pursuant to which Laspata/Decaro would provide us 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 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. On May 12, 2000, we issued 2,700,000 shares to
Laspata/Decaro, which represents the full amount of shares due to Laspata/Decaro
over the three-year term of the Agreement. Our Board of Directors authorized the
accelerated share issuance as a result of the exemplary performance on the part
of Laspata/Decaro following the execution of the Agreement. The agreement has
forward consulting services as required by the Company for cash payments.
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 tradable. 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. As of March 31, we have agreed with Teakwood Ventures to extend the
obligations of the parties under the funding commitment letter and subscription
agreement by up to ninety days, due to market fluctuations and repricing
considerations. As of June 30, 2000, we had received the first $2,000,000 round
of financing. However, because our market capitalization fell below the minimum
required by the Agreement, the shares sold in connection with that round were
repriced, which resulted in the obligation to issue 109,706,016 shares, of which
19
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
58,944,595 shares were issued prior to June 30, 2000 and the remaining
50,761,421 shares were issued in August 2000 as satisfaction for the $2.0
million funding and $500,000 of previously issued convertible debt.
Additionally, based on certain terms under the commitment letter and in view of
our current common stock price, Teakwood is not obligated to extend the
remaining $8.0 million in financing. We are attempting to renegotiate a
satisfactory resolution to this matter and we are hopeful we will receive the
additional financing. There are no assurances that we will be successful in
renegotiating the financing terms or that the terms will be favorable to us.
Since the end of 1999, we have issued or agreed to issue approximately 113.8
million shares of common stock for compensation and fees to various executive
officers, employees, consultants and as settlement of various disputes and
contingent liabilities to other third parties. See "Legal Proceedings." We have
issued, or expect to issue, these shares in a series of unrelated registered and
private offerings. Through June 30, 2000, we have issued approximately 80.2
million shares out of the 113.8 million shares.
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. Through June 30, 2000, we have
issued approximately 41.2 million shares in such exchanges.
Since its inception on October 6, 1999, our wholly owned subsidiary,
OrbitTravel.com, has additionally issued approximately $3.2 million of debt that
is convertible into approximately 6.4 million shares of our common stock,
excluding the Teakwood transaction. 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.com 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 August 11, 2000, since we had not
issued such shares, either party may terminate this agreement.
20
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
RESULTS OF OPERATIONS
Quarter Ended June 30, 2000 Compared to Quarter Ended June 30, 1999
We generated revenues of $192,265 from operations during the three months ended
June 30, 2000 compared to no revenues during the three months ended June 30,
1999. This increase was due to the fact that we discontinued our golf-related
equipment and accessories business during 1998 and started our Internet
activities in late 1999.
Our total operating expenses increased by $3,659,373 to $3,819,553 from $160,180
during the three-month period ended June 30, 2000 and 1999. $2,031,765 of this
increase is related to stock based compensation recognized as a result of the
issuance of approximately 35 million common shares to various employees and
consultants during the quarter. We also incurred $806,528 in other employee
compensation during the quarter ended June 30, 2000. An additional $153,354 of
this increase is related to professional services provided during the second
quarter of 2000, primarily as a result of activities related to our annual
reports for the years ended 1999 and 1998 which included legal, accounting, and
printing services. The remaining approximately $668,000 of this increase related
to the fact that we began to implement our Internet related business during late
1999 and during the first six months of 2000, whereas in the first quarter of
1999 we had discontinued our golf related business and had minimal operating
activity.
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.
We recognized approximately $6.1 million of interest expense related to the
difference between fair market value of shares issued or obligated to be issued
in satisfaction of certain debts, which primarily includes the $2.0 million
funding from Teakwood Ventures and $500,000 of previously issued convertible
debt.
Other expenses during the quarter ended June 30, 2000 consisted of $332,934
related primarily to the settlement of the following litigation:
In June 2000, we issued 4,452,765 shares of our common stock to Kirk Scoggins in
settlement of claims against us for threatened litigation for alleged damages he
incurred due to the fact that certain common shares were not issued to him
previously. The issuance of these shares is in full and final settlement of all
claims Mr. Scoggins might have against us and releases us from any future
claims.
As a result of terminating a proposed transaction with AnimInet we recorded a
loss for all development and other costs advanced to AnimInet as of June 30,
2000, which approximated $219,000.
21
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
For the quarter ended June 30, 2000, we had a net loss of $10,335,459, an
increase of $9,168,621 from the net loss of $1,166,838 for the three-month
period ended June 30, 1999. The increase is attributable to the reasons stated
above, namely, a substantial increase in total operating expenses as a result of
our repositioning in non-golf related areas and interest expense recorded for
conversion of debt to common stock.
Inflation did not have a material effect on our operations during the
three-month periods ended June 30, 2000 or June 30, 1999.
For the Six-Months Ended June 30, 2000 and 1999
We generated revenues of $381,768 from operations during the six months ended
June 30, 2000 compared to no revenues during the six months ended June 30, 1999.
This increase was due to the fact that we discontinued our golf-related
equipment and accessories business during 1998 and started our Internet
activities in late 1999.
Our total operating expenses increased by $9,041,544 to $9,595,740 from $554,196
during the six-month period ended June 30, 2000 and 1999. $3.9 million of this
increase is related to compensation expense related to the difference between
the amount of certain accrued compensation at December 31, 1999 and the fair
market value of common shares issued in March 2000 to satisfy the obligation.
Another $2,031,765 of this increase is related to stock based compensation
recognized as a result of the issuance of approximately 35 million common shares
to various employees and consultants during the six months. We also incurred
$1,373,731 in other employee compensation during the six months ended June 30,
2000 as a result of the issuance of common stock as part of previous settlement
agreements that were entered into. An additional $813,000 of this increase is
related to professional services provided during the first six months of 2000.
These fees were incurred as a result of activities related to our annual reports
for the years ended 1999 and 1998 which included legal, accounting, and printing
services and legal costs incurred assisting with additional filings during the
first six months of 2000. The remaining approximately $923,000 of this increase
related to the fact that we began to implement our Internet related business
during late 1999 and during the first six months of 2000, whereas in the first
quarter of 1999 we had discontinued our golf related business and had minimal
operating activity.
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.
We recognized approximately $6.1 million of interest expense related to the
difference between fair market value of shares issued or obligated to be issued
in satisfaction of certain debts, which primarily includes the $2.0 million
funding from Teakwood Ventures and $500,000 of previously issued convertible
debt.
22
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
Other expenses during the six months ended June 30, 2000 consisted of $2,436,261
related primarily to the settlement of the following litigation:
On February 25, 2000, we issued 450,000 shares of our common stock to
Robert Hochstein in settlement of litigation.
On March 12, 2000, we issued 1,890,000 shares of our common stock to the
Joseph R. Cellura Trust, a Trust established for the benefit of Ellee
Knight, a previous employee of ours. These shares were issued in full and
final settlement as part of an amended and restated settlement agreement,
dated March 1, 2000, entered into with Ms. Knight.
In March 2000, we issued 6,000,000 shares of our common stock to Joseph
Salvani in settlement of claims against us for threatened litigation for
alleged damages he incurred due to the fact that certain common shares
were not issued to him previously. The issuance of these shares is in full
and final settlement of all claims Mr. Salvani might have against us and
releases us from any future claims.
In June 2000, we issued 4,452,765 shares of our common stock to Kirk
Scoggins in settlement of claims against us for threatened litigation for
alleged damages he incurred due to the fact that certain common shares
were not issued to him previously. The issuance of these shares is in full
and final settlement of all claims Mr. Scoggins might have against us and
releases us from any future claims.
As a result of terminating a proposed transaction with AnimInet we recorded a
loss for all development and other costs advanced to AnimInet as of June 30,
2000, which approximated $219,000.
For the six months ended June 30, 2000, we had a net loss of $17,803,051, an
increase of $16,232,136 from the net loss of $1,570,915 for the six-month period
ended June 30, 1999. The increase is attributable to the reasons stated above,
namely, a substantial increase in total operating expenses as a result of our
repositioning in non-golf related areas and interest expense recorded as a
result of conversions of debt to common stock.
Inflation did not have a material effect on our operations during the six-month
periods ended June 30, 2000 or June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization. Our shareholders approved, effective August 4, 2000, an increase
in our authorized common shares available for issuance to 800.0 million from
23
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
200.0 million. We also have 1.0 million shares of preferred stock authorized for
issuance. As of August 17, 2000, we had approximately 250.4 million shares of
common stock outstanding, which includes the approximate 50.8 million shares
issued to Teakwood Ventures, LLC in August 2000. In addition, as of such date,
we had no shares of preferred stock outstanding, $1.5 million of notes
outstanding (other than the OrbitTravel.com notes) that are convertible into
10.1 million shares of common stock. In addition, as of June 30, 2000,
OrbitTravel.com had issued an additional $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 security holders in exchange for all of our outstanding convertible
preferred stock and convertible debt, other than the notes that OrbitTravel.com
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.
Through June 30, 2000, we have issued approximately 41.2 million shares for
conversion of the preferred stock.
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 has 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. Through June 30, 2000, we have
issued approximately 80.2 million shares in such exchanges.
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 tradable. 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.
As of June 30, 2000, we had received the first $2,000,000 round of financing.
However, because our market capitalization fell below the minimum required by
the Agreement, the shares sold in connection with that round were repriced,
which resulted in the obligation to issue 109,706,016 shares of which 58,944,595
shares were issued prior to June 30, 2000 and the remaining 50,761,421 shares
24
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
were issued in August 2000 as satisfaction for the $2.0 million funding and
$500,000 of previously issued convertible debt. Additionally, based on certain
terms under the commitment letter and in view of our current common stock price,
Teakwood is not obligated to extend the remaining $8.0 million in financing. We
are attempting to renegotiate a satisfactory resolution to this matter and we
are hopeful we will receive the additional financing. There are no assurances
that we will be successful in renegotiating the financing terms or that the
terms will be favorable to us.
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. In light of our
normal monthly operating expenses and with the payment of certain obligations
that we had, our principal source of liquidity, cash, was down to approximately
$100,000 as of August 11, 2000. We estimate that monthly operational cash
requirements are approximately $200,000. As part of our monthly operational cash
requirements, we are obligated to pay an aggregate of approximately $70,000 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.
All of the notes that have been issued by OrbitTravel.com mature six months
from the date of issuance. $2.5 million of these notes were converted into
common shares as of June 30, 2000, with 50.8 million of those shares delivered
in August 2000. Approximately $2.3 million of these notes have matured as of
August 11, 2000 and are currently in default. At such date, we are in
discussions with the holders of these notes concerning their conversion into
shares of the company pursuant to the conversion feature of the notes. We cannot
assure you that we will have sufficient capital, or be able to raise sufficient
capital, to repay our obligations under these notes or can we assure you that we
would be successful in extending the maturity dates of these notes or converting
such notes into our common stock. 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.com 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, which reflected a much more deteriorating
financial condition than believed, we cancelled this merger agreement and
entered into the transactions discussed below. Consequently, in order to ensure
that the
25
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
purchasers of the OrbitTravel.com 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.com 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 $411,000 that we were required to pay as of June 30, 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
consulting agreements with Mark Savoretti and another person, under which we
would pay a total of $450,000 over three years. Our obligation also included a
payment to Mr. Savoretti of $60,000 in cash, the issuance of a note payable in
the amount of $540,000 and the issuance of 3.0 million shares of common stock in
May 2000. Under provisions of the agreement, we are currently in default on
payments due under the note. In addition, we have not made the monthly
consulting fee payments required. We have received unverified indications that
the creditor of Orbit Network may not have received good title to the assets.
Pending a current investigation by us, we have withheld both the payments under
the promissory note and the consulting agreements.
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. Unless the transaction has closed, either party may
terminate the Wilhelmina agreement at any time after February 15, 2000. On April
18, 2000, the parties entered into an amended and restated Stock Acquisition
Agreement, which provided for the acquisition of WilhelminaTravelFile.com by us
in consideration for the issuance of an amount of our shares equivalent to ten
percent (10%) of our issued and outstanding shares on a fully diluted basis. As
of August 11, 2000, we had not issued the shares necessary to close the
transaction, although neither party has elected to cancel the amended and
restated agreement.
26
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
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,
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 stock of WilhelminaTravelFile.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;
27
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
. we compete in a highly competitive industry with low barriers to entry;
and
. 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.
28
<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. On March 1, 2000, a
majority of our holders of common stock consented to the approval of this
settlement agreement.
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 $152,000
balloon payment due 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 EPI Pension Fund will
require security. In addition, if the proposed settlement is not accepted, 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 be assured that the EPI Pension Fund will accept the proposed settlement
or that the terms will be substantially similar to those disclosed above. As the
matter now stands, the EPI Pension Fund is free to enforce the outstanding
judgment.
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, Mr.
29
<PAGE>
Hochstein and we 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 the additional $50,000 on June 16, 2000. If
the remaining 450,000 shares of our common stock are not freely tradable 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 $0.30 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 $0.30 per share. Prior to March 18, 2000, the common stock traded at a
price less than $0.30 per share for two trading days. At June 30, 2000, we have
satisfied the $150,000 obligation due to Mr. Hochstein.
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. This note payable matured on March 31, 2000. On March 1, 2000, a
majority of the holders of the Company's common stock consented to the approval
of this settlement agreement. Also on March 1, 2000, the Company and its former
officer agreed to amend the Note to provide for the issuance of 1,100,000 shares
of the Company's common stock in consideration for reducing the principal amount
due thereunder to $115,000. The common shares were issued in March 2000. On
August 7, 2000, the Company and its former officer further amended the note
amount to $120,000, which includes interest, with four equal payments to be made
through September 3, 2000. The Company has made two of the required payments,
totaling $60,000, as of August 11, 2000.
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
30
<PAGE>
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 June 30, 2000, we have repaid approximately $79,000 due
under the $250,000 note payable. This note payable matured 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. On March 1, 2000, a majority of our holders of common stock consented to
the approval of this settlement agreement. On or about March 12, 2000, we issued
27,333,333 shares to Mr. Cellura pursuant to this settlement agreement.
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.
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 owed to Mr. Scoggins and in satisfaction
of 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. On March 1, 2000, a majority of our holders of consented
to this settlement agreement. As of June 30, 2000 we had issued all shares due
to Mr. Scoggins pursuant to this settlement agreement.
31
<PAGE>
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. This note payable matured 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. On March 1, 2000, a majority
of our holders of common stock approved, adopted, and ratified this settlement
agreement. On or about March 12, 2000, we issued 5,300,000 shares to Mr. Bagnall
pursuant to this settlement agreement. As of August 11, 2000, we have made
payments totaling $50,000 toward the principal of Mr. Bagnall's Note. The Note
has been extended to August 15, 2000.
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. This note payable matured 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 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. On March 1, 2000,
a majority of our holders of common stock approved, adopted, and ratified this
settlement agreement. On or about March 12, 2000, we issued 3,500,000 shares to
Mr. Craig pursuant to this settlement agreement. As of August 11, 2000, we have
made no payments toward the principal of Mr. Craig's Note.
On April 24, 2000, Harlan Logan, a former employee of Divot Golf Corporation,
filed a complaint in Florida Circuit Court against us and Mr. Cellura, alleging
that we have failed and refused to pay Mr. Logan those wages due and owing for
the last two months of his employment with us, as well as a performance bonus
which he claimed was earned when the "MobileSuites Project" was ready for
production. Specifically, Mr. Logan is seeking $15,000 in unpaid wages ($7,500
per month x 2) and a $65,000 performance bonus. The claim arises out of a failed
32
<PAGE>
project known as "MobileSuites", a separate and wholly owned subsidiary of Divot
Golf Corporation, whose purpose was to develop and manufacture a prototype for
display at the World Golf Village in St. Augustine, Florida. Mr. Logan claims
that he fulfilled his obligation regarding the "MobileSuites Project" as it was
ready for production, but that it was never manufactured due to the our
financial condition. Mr. Logan also claims that, in accordance with his
employment agreement, he purchased real estate on behalf of the company at the
World Golf Village in March 1998 in the amount of $95,000, and that in
consideration for the purchase, we agreed to buy the property back for the
original purchase price by the year ending 1998 and to reimburse him for all
expenses, interest, costs, down payment, and closing costs associated with the
purchase. Mr. Logan also claims that Mr. Cellura wrongfully converted for his
own personal use our funds that were to be used for payment of his wages and
performance bonus. We filed an answer to the complaint on May 22, 2000 denying
all of the material allegations raised in the complaint, and plan on vigorously
defending the action through corporate counsel. We are considering filing a
counterclaim against Mr. Logan for fraud in connection with his submission and
our payments of fraudulent expenses and costs associated with the project, as
well as for tortious interference with contractual relations by improperly using
his position of authority at the Palma Ceia Golf Club to have our corporate golf
membership revoked as a result of which we lost a $50,000 membership fee. Due to
the inherent uncertainties of the litigation process and the judicial system, we
are not able to predict the outcome of this litigation.
Item 2. Changes in Securities
On March 1, 2000, a majority of our holders of common stock consented to the
approval of an amendment to our Certificate of Incorporation, changing our name
to "Orbittravel.com Corporation." The name change was made effective on April
20, 2000. In addition, on April 20, 2000 we changed our stock trading symbol
from "PUTT" to "OBTV" to better reflect our new name and business strategy.
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.
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," which we changed to "OBTV" in April 2000.
On July 17, 2000, a majority of our common shareholders approved by consent an
increase of authorized common shares to 800.0 million shares, par value $.001
per share, from 200.0 million common shares, par value $.001 per share,
previously authorized. Our Certificate of Incorporation was thereafter amended
and the amendment became effective in the State of Delaware on August 4, 2000.
33
<PAGE>
Sales of Unregistered Securities
The following sets forth all of our sales of unregistered securities during
2000 and 1999:
<TABLE>
<CAPTION>
Brief description of the purchaser
Date Securities and the consideration therefor
----------------------- ----------------------------- -------------------------------------
<S> <C> <C>
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
January 1, 2000-- 41,219,432 shares of common Conversions of preferred stock
March 31, 2000 stock
January 1, 2000-- 8,340,000 shares of common Issuance of common stock in
March 31, 2000 stock settlement of litigation
January 1, 2000-- 37,966,666 shares of common Conversions of debt
March 31, 2000 stock
May 12, 2000 33,009,041 shares of common Issuances to various consultants,
Stock employees, attorneys, and others
June 2, 2000 58,944,595 shares of common Sale of shares to Teakwood
stock Ventures in part for $2,000,000
June 2, 2000 6,452,765 shares of common Issuances to various consultants,
Stock employees, attorneys, and others
and settlement of litigation.
August 17, 2000 50,761,421 shares of common Sale of shares to Teakwood
stock Ventures in part for balance of
$2,000,000
</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, failing to complete a
transaction with Orbit Network and failing to have its annual shareholders'
meeting.
34
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Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 - Settlement Agreement between Divot Golf Corporation and Joseph
Salvani, dated March 1, 2000 *
10.2 - Settlement Agreement between Divot Golf Corporation and Joseph
Cellura Trust, dated March 1, 2000 *
10.3 - Addendum to Funding Commitment Letter and Subscription Agreement
between Teakwood Ventures, LLC and OrbitTravel.com Corporation *
* Previously filed with the Company's Form 10QSB for March 31, 2000.
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8K
June 23, 2000, Item 4, Change in Registrant's Certifying Accountant
August 8, 2000, Item 4, Change in Registrant's Certifying Accountant
35
<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.
ORBITTRAVEL.com Corporation
/s/Joseph R. Cellura
Joseph R. Cellura, Chief Executive Officer
/s/ David A. Noosinow
David A. Noosinow, President & Secretary
(Principal Financial and Accounting Officer)
/s/ Clifford F. Bagnall
Clifford F. Bagnall, Chief Financial Officer
Date: August 21, 2000
36
<PAGE>
