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 September 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)
One Union Square South, New York, New York 10003
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(Address of principal executive offices)
(212) 353-8468
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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 November 8, 2000 there were 269,347,561 shares of the issuer's Common Stock,
$.001 par value, and 0 shares of the issuer's Preferred Stock, $.001 par value
outstanding.
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ORBITTRAVEL.COM CORPORATION
QUARTERLY REPORT FOR THE
PERIOD ENDED SEPTEMBER 30, 2000
FORM 10-QSB
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999.................................................... 3
Condensed Consolidated Statements of Operations for the three and nine-month
periods ended September 30, 2000 and 1999................................ 5
Condensed Consolidated Statements of Changes in Shareholders' Deficit for
the nine-month period ended September 30, 2000........................... 6
Condensed Consolidated Statements of Cash Flows for the three and nine-month
periods ended September 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.................................................15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................27
Item 2. Changes in Securities...........................................30
Item 3. Defaults Upon Senior Securities.................................31
Item 4. Submission of Matters to a Vote of Securities Holders...........32
Item 5. Other Information...............................................32
Item 6. Exhibits and Reports on Form 8-K................................32
Signatures..............................................................33
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ORBITTRAVEL.COM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,
2000 December 31,
(Unaudited) 1999
------------- -------------
Current assets:
Cash $ 29,569 $ 174,492
Trade accounts receivable, net 25,986 82,608
Accounts receivable from related parties 6,797 114,332
Prepaid expenses and other current assets 56,771 288,442
------------- -------------
Total current assets 119,123 659,874
Furniture and equipment, net 157,440 72,023
Intangible assets 787,500 -
Other assets 100,000 136,425
------------- -------------
Total assets $ 1,164,063 $ 868,322
============= =============
See accompanying notes
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ORBITTRAVEL.COM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' DEFICIT
September 30, December 31,
2000 1999
(Unaudited)
------------- ------------
Current liabilities:
Accounts payable $ 1,181,053 $ 1,210,614
Accrued expenses 918,470 1,562,666
Accrued compensation and payroll 104,506 5,328,122
Due to bank 57,923 -
Amounts due to related parties - 60,500
Dividends payable - 1,730,000
Notes payable 5,816,963 3,392,504
Notes payable to related parties 530,000 661,800
------------- ------------
Total current liabilities 8,608,915 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 September 30,
2000 and at December 31, 1999, respectively 281 287
Common Stock, $.001 par value; 800,000,000 and
200,000,000 shares authorized at September 30,
2000 and at December 31, 1999, respectively;
269,347,561 and 13,753,642 shares issued and
outstanding as of September 30, 2000
and December 31, 1999, respectively 269,347 13,754
Additional paid-in capital 67,781,968 42,523,558
Accumulated deficit (75,285,511) (55,404,546)
Convertible Preferred Stock held in
treasury, 281,250 shares (210,937) (210,937)
------------ -------------
Total shareholders' deficit (7,444,852) (13,077,884)
------------- ------------
Total liabilities and shareholders' deficit $ 1,164,063 $ 868,322
============= ============
See accompanying notes
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ORBITTRAVEL.COM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Operating revenues: $ 102,720 $ - $ 484,488 $ -
----------- ----------- ---------- ------------
Operating expenses:
Compensation expense 568,387 - 5,894,817 -
Stock based compensation expense 93,800 - 1,594,315 -
General and administrative expenses 353,783 103,803 1,675,833 572,288
Professional fees,including legal
and accounting 177,195 - 1,076,255 85,711
Stock based professional fees 792,610 - 1,323,860 -
Depreciation and amortization expense 4,432 - 20,867 -
----------- ----------- ---------- ------------
Total operating expenses 1,990,207 103,803 11,585,947 657,999
----------- ----------- ---------- ------------
Operating loss (1,887,487) (103,803) (11,101,459) (657,999)
Other income (expense):
Interest expense (156,000) (26,731) (6,261,592) (80,963)
Litigation settlement expense (45,000) - (2,481,261) (982,917)
Loss on investments - - (219,351) -
Other income (expense) 10,573 - 182,698 20,430
----------- ----------- ----------- -------------
Net loss $(2,077,914) $ (130,534)$(19,880,965) $(1,701,449)
=========== =========== ========== ============
Basic and diluted net loss per share $ (0.01) $ (0.01) $ (0.16) $ (0.19)
=========== =========== ========== ============
Weighted average number of common
shares outstanding 193,233,400 13,753,642 122,177,200 9,147,900
=========== =========== =========== ============
</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) -- -- -- -- -- (19,880,965) -- -- (19,880,965)
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
Issuance of Common
Stock in connection
with conversion of
debt................. 50,761,420 50,761 -- -- 949,239 -- -- -- 1,000,000
Issuance of Common
Stock in connection
with employees and
consulting services 18,900,000 18,900 -- -- 867,510 -- -- -- 886,410
---------- ------- --------- ------ ----------- ------------ -------- --------- ------------
Balance at September
30, 2000 (Unaudited) 269,347,561$269,347 281,250 $281 $67,781,968 $(75,285,511) (281,250) $(210,937) $(7,444,852)
=========== ======== ========= ====== =========== ============ ======== ========= ============
</TABLE>
See accompanying notes
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ORBITTRAVEL.COM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,077,914) $ (103,534) $(19,880,965) $(1,701,449)
Adjustment to reconcile net
loss to
Net cash provided (used) in operating activities:
Issuance of shares in
settlement of litigation - - 2,320,711 982,917
Issuance of shares for
conversion of debt - - 3,952,699 -
Issuance of shares for
interest expense - - 3,103,573 -
Issuance of shares for
services 886,410 - 3,105,675 -
Depreciation and
amortization 4,432 - 20,867 -
Accounts receivable from
related parties - - - 60,115
Decrease in other assets - - 36,425 -
Discount on convertible
debt-interest - - 3,202,022 -
Net change in other working
capital items 280,960 99,731 197,669 651,507
------------ ------------ ------------ ------------
Net cash provided (used) in (906,112) (3,803) (3,941,324) (6,910)
operating activities
Investing activities:
Purchase of intangible and
other assets - - (247,500) -
Purchase of property and
equipment, net (5,209) - (106,284) -
------------ ------------ ------------ ------------
Net cash used in investing activities (5,209) - (353,784) -
Financing activities:
Proceeds from borrowings, net 90,000 20,000 4,150,185 26,800
------------ ------------ ------------ ------------
Net cash provided by financing
activities 90,000 20,000 4,150,185 26,800
Increase (decrease) in cash (821,321) 16,197 (144,923) 19,890
Cash at beginning of period 850,890 4,261 174,492 568
------------ ------------ ------------ ------------
Cash at end of period $ 29,569 $ 20,458 $ 29,569 $ 20,458
============ ============ ============ ============
</TABLE>
See accompanying notes
7
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ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 September 30, 2000, the Company has a net working capital deficiency of
$8,489,792 and a shareholders' deficit of $7,444,852. 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.
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 nine months ended September 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.
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
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ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
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 nine months ended September 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. During August 2000, the Company issued
50,761,420 shares of common stock in satisfaction of the remaining $1,000,000 in
debt. As a result $6.1 million 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 nine months ended September
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
9
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ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
Ms. Knight.
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.
Effective October 5, 2000, the Company entered into a separation agreement with
Mr. Noosinow terminating his employment with the Company. As part of the
agreement, the Company agrees to pay $22,211 in salary, $18,173 for accrued
vacation, and $30,000 as severance. The Company also agreed to issue shares of
the Company's common stock equal to 2.5% of the total issued and outstanding
shares of common stock and warrants to acquire at par value, common shares
equivalent to 5.0% of the issued and outstanding shares of the Company's common
stock.
Effective November 1, 2000, the Company executed a two year employment agreement
with its new interim Chief Operating Officer, Robert Gilbert, which requires
annual compensation of $175,000, stock options to purchase 500,000 shares of the
Company's common stock, along with certain fringe benefits (as defined in the
agreements). This agreement also requires the Company to pay commissions at the
rate of 5% of sales generated.
Minimum commitments for future salaries, excluding bonuses, by year and in the
aggregate for Messrs. Cellura and Gilbert consist of the following at September
30, 2000:
10
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ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
2000......................... $ 92,000
2001.......................... 425,000
2002.......................... 396,000
Thereafter.................... 869,000
-------
$1,782,000
On January 27, 2000, Spartan Capital Management, LLC, a limited liability
company controlled by one of the Company's former 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. Under
provisions of the agreement, the Company is currently in default on the
remaining $480,000 of payments due under the note. The Company has received
unverified indications that the creditor of Orbit Network may not have received
good title to the assets.
In October of 2000, a group of the Company's stockholders and stock holders of
a, filed two lawsuits in the California's Marin County Superior Court against
the Company, the acquired corporation, Mr. Cellura and other unnamed executive
officers and stockholders. The complaints alleged, among other things, that (1)
the Company had not exercised reasonable care or business judgment, (2) the
Company and its officers committed fraud in the issuance of securities, and (3)
various breaches of contract. Management believes the Company has meritorious
defenses and have retained counsel in California to vigorously defend the
Company and Mr. Cellura. However, due to the inherent uncertainties of the
litigation process and the judicial system, management is not able to predict
the outcome of this litigation.
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
11
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ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
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 three of the required payments, totaling $90,000, as of
November 8, 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
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.
Teakwood Ventures LLC.
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
12
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ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
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.
At August 17, 2000, the Company issued the final 50,761,420 common shares due
Teakwood Ventures as satisfaction of the $2.0 million funding through such date
under the February 15, 2000 agreement.
As of October 30, 2000, the Company concluded a transaction with Teakwood
Ventures, which amended and restated all prior agreements with Teakwood Ventures
and provided for future funding through an amended funding agreement and secured
revolving credit agreement ("Revolving Loan Funding Agreement"). Under terms of
the Revolving Loan Funding Agreement, Teakwood Ventures will make loans to the
Company in the aggregate principal amount of $1,500,000, with half of the
funding amount attributed to a Revolving Loan and the other half being
attributable to an equity contribution. As of September 30, 2000, Teakwood
Ventures had advanced $250,000 to the Company, which is deemed to be an
extension advance under this Revolving Loan Funding Agreement. An additional
amount of $95,000 was funded prior to execution of the Revolving Loan Funding
Agreement in October under similar terms.
On October 30, 2000, an additional $355,000 was funded under the Revolving Loan
Funding Agreement. Aggregate advances at October 30, 2000 of $700,000 consist of
$350,000 allocated to revolving loans and $350,000 allocated to equity
contribution. Additional subsequent advances of $200,000 each will commence on
November 15, November 30, December 1 and December 15, 2000.
Certain provisions exist with respect to each subsequent funding and Teakwood
Ventures has the ability to extend the final funding date to January 15, 2001 if
the Company secures additional outside funding.
The revolving loan portion is evidenced by a secured promissory note, with
interest at 12% per annum and is due on June 30, 2001.
The total to be allocated to equity contributions of $750,000 provides for the
purchase of 19.8% of the
13
<PAGE>
ORBITTRAVEL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
Company's common stock, equivalent to 53,330,317 shares as of November 8, 2000.
Such shares will have certain conversion rights, registration rights,
anti-dilution provisions and a warrant attached at a no pay exercise price to
maintain a 20% ownership of the Company. In addition, two members may be
appointed to the Company's Board of Directors by Teakwood Ventures.
Proceeds are to be used for working capital needs of the Company and are subject
to pre-approved budgets by Teakwood Ventures.
NOTE D. - Stockholders' Deficit
On July 17, 2000, a majority of our common shareholders approved by consent an
increase of authorized common shares to 800 million shares, par value $.001 per
share, from 200 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.
Stock Option Plan
On November 2, 2000, the Company authorized and approved a stock option
incentive plan for its employees, officers, directors, and others performing
services on behalf of the Company. The Board approved 175,000,000 shares of the
Company's registered common stock to be reserved for this plan. The options will
be issued at the sole discretion of the Board of Directors or by a Committee
appointed by the Board. Granted options shall expire ten years or earlier from
the date of grant and the exercise price shall not be less than the fair market
value at the date of grant. In addition, any grant to an individual owning more
than 10% of the Company's common stock, requires the exercise price to be at
least 110% of the fair market value and the option period must not be more than
five years. The aggregate fair market of all shares of stock to which Incentive
Stock Options are exercisable may not exceed $100,000 in any calendar year
The Company also ratified the issuance of stock awards to certain officers,
directors, employees and consultants of which approximately 24 million shares
have been issued and another 88 million shares have been designated.
14
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 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
nine-month periods ended September 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.
RECENT DEVELOPMENTS
Acquisition Activity
On October 5, 1999, Orbit Network, Inc. ("Orbit Network"), a privately held
company located in Novato, California, 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
15
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
in business and has had its charter revoked by the State of Delaware.
On January 27, 2000, Spartan Capital Management, LLC, a limited liability
company controlled by David Noosinow, one of our directors and executive
officers, entered into an asset purchase agreement with Mark Savoretti pursuant
to which Spartan Capital agreed to acquire the intellectual property assets
related to the TravelFile website previously owned by Orbit Network for $600,000
in cash and the issuance of 3.0 million shares of our common stock. Mr.
Savoretti, a creditor of Orbit Network, acquired these assets from Orbit Network
through a judicial foreclosure proceeding on January 13, 2000 after Orbit
Network failed to pay $771,000 owed to Mr. Savoretti. Immediately upon execution
of this asset purchase agreement, Spartan Capital Management, LLC assigned all
of its rights and obligations under the agreement to us for $10.
One of the obligations assigned 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 the
remaining $480,000 of payments due under the note. We have received unverified
indications that the creditor of Orbit Network may not have received good title
to the assets.
In October of 2000, a group of our stockholders and stock holders of a company
(Orbit Network, Inc.) that we acquired in October 1999, filed two lawsuits in
the California's Marin County Superior Court against us, the acquired
corporation, Mr. Cellura and other unnamed executive officers and stockholders.
The complaints alleged, among other things, that (1) we had not exercised
reasonable care or business judgment, (2) we and our officers committed fraud in
the issuance of securities, and (3) various breaches of contract. We believe we
have meritorious defenses and have retained counsel in California to vigorously
defend ourselves. However, due to the inherent uncertainties of the litigation
process and the judicial system, we are not able to predict the outcome of this
litigation.
Financing Activity
Teakwood Ventures LLC.
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,
16
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
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 58,944,595 shares were issued prior to June
30, 2000.
At August 17, 2000, we issued the final 50,761,420 common shares due Teakwood
Ventures as satisfaction of the $2.0 million funding through such date under the
February 15, 2000 Agreement.
As of October 30, 2000, we concluded a transaction with Teakwood Ventures, which
amended and restated all prior agreements with Teakwood Ventures and provided
for future funding through an amended funding agreement and secured revolving
credit agreement ("Revolving Loan Funding Agreement"). Under terms of the
Revolving Loan Funding Agreement, Teakwood Ventures will make loans to us in the
aggregate principal amount of $1,500,000, with half of the funding amount
attributed to a Revolving Loan and the other half being attributable to an
equity contribution. As of September 30, 2000, Teakwood Ventures had advanced
$250,000 to us, which is deemed to be an extension advance under this Revolving
Loan Funding Agreement. An additional amount of $95,000 was funded prior to
execution of the Revolving Loan Funding Agreement in October under similar
terms.
On October 30, 2000, an additional $355,000 was funded under the Revolving Loan
Funding Agreement. Aggregate advances at October 30, 2000 of $700,000 consist of
$350,000 allocated to revolving loans and $350,000 allocated to equity
contribution. Additional subsequent advances of $200,000 each will commence on
November 15, November 30, December 1 and December 15, 2000.
Certain provisions exist with respect to each subsequent funding and Teakwood
Ventures has the ability to extend the final funding date to January 15, 2001 if
we secures additional outside funding.
The revolving loan portion is evidenced by a secured promissory note, with
interest at 12% per
17
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
annum and is due on June 30, 2001.
The total to be allocated to equity contributions of $750,000 provides for the
purchase of 19.8% of our common stock, equivalent to 53,330,317 shares as of
November 8, 2000. Such shares will have certain conversion rights, registration
rights, anti-dilution provisions and a warrant attached at a no pay exercise
price to maintain a 20% ownership of our outstanding common shares. In addition,
two members may be appointed to our Board of Directors by Teakwood Ventures.
Proceeds are to be used for our working capital needs and are subject to
pre-approved budgets by Teakwood Ventures.
Other financing activities.
Since the end of 1999, we have issued or agreed to issue approximately 220
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 September 30, 2000, we have issued approximately 99
million shares out of the 220 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 September 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."
18
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
RESULTS OF OPERATIONS
Quarter Ended September 30, 2000 Compared to Quarter Ended September 30, 1999
We generated revenues of $102,720 from operations during the three months ended
September 30, 2000 compared to no revenues during the three months ended
September 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 $1,886,404 to $1,990,207 from $103,803
during the three-month period ended September 30, 2000 and 1999. $886,410 of
this increase is related to stock based compensation recognized as a result of
the issuance of approximately 19 million common shares to various employees and
consultants during the quarter. We also incurred $568,387 in other employee
compensation during the quarter ended September 30, 2000. An additional $177,195
of this increase is related to professional services provided during the
quarter, primarily as a result of activities related financing activities and
other operating agreements which included legal and accounting services. The
remaining approximately $254,412 of this increase related to the fact that we
began to implement our Internet related business during late 1999 and during the
first nine months of 2000, whereas in the third 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.
Other expenses during the quarter ended September 30, 2000 consisted of $45,000
related to the settlement of litigation and $156,000 in accrued interest during
the quarter.
For the quarter ended September 30, 2000, we had a net loss of $2,077,914, an
increase of $1,947,380 from the net loss of $130,534 for the three-month period
ended September 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 stock-based expenses recorded
for the issuance of common stock to various consultants.
Inflation did not have a material effect on our operations during the
three-month periods ended September 30, 2000 or September 30, 1999.
For the Nine-Months Ended September 30, 2000 and 1999
We generated revenues of $484,488 from operations during the nine months ended
September 30, 2000 compared to no revenues during the nine months ended
September 30, 1999. This increase was due to the fact that we discontinued our
golf-related equipment and accessories business during 1998
19
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
and started our Internet activities in late 1999.
Our total operating expenses increased by $10,927,948 to $11,585,947 from
$657,999 during the nine-month period ended September 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 $2,918,175 of this increase is related to stock based
compensation recognized as a result of the issuance of approximately 54 million
common shares to various employees and consultants during the nine months. We
also incurred $1,994,817 in other employee compensation during the nine months
ended September 30, 2000 as a result of the issuance of common stock as part of
previous settlement agreements that were entered into. An additional $1,076,255
of this increase is related to professional services provided during the first
nine 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 and financing activities during the first nine months of
2000. The remaining approximately $1,038,701 of this increase related to the
fact that we began to implement our Internet related business during late 1999
and during the first nine 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. We also accrued an additional $156,000 in interest expense related to
other outstanding debts.
Other expenses during the nine months ended September 30, 2000 consisted of
$2,481,261 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
20
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
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 September
30, 2000, which approximated $219,000.
For the nine months ended September 30, 2000, we had a net loss of $19,880,965,
an increase of $18,179,516 from the net loss of $1,701,449 for the nine-month
period ended September 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, interest expense recorded
as a result of conversions of debt to common stock, and stock-based expenses
recorded for the issuance of common stock to various consultants and employees.
Inflation did not have a material effect on our operations during the nine-month
periods ended September 30, 2000 or September 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
200.0 million. We also have 1.0 million shares of preferred stock authorized for
issuance. As of November 8, 2000, we had approximately 269.3 million shares of
common stock outstanding. 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 September 30, 2000, OrbitTravel 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
21
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
this offer. Through September 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 approximately 220
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 September 30, 2000, we have issued approximately 99
million shares out of the 220 million shares.
Teakwood Ventures, LLC funding
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 September 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.
At August 17, 2000, we issued the final 50,761,420 common shares due Teakwood
Ventures as satisfaction of the $2.0 million funding through such date under the
February 15, 2000 Agreement.
As of October 30, 2000, we concluded a transaction with Teakwood Ventures, which
amended and restated all prior agreements with Teakwood Ventures and provided
for future funding through an amended funding agreement and secured revolving
credit agreement ("Revolving Loan Funding Agreement"). Under terms of the
Revolving Loan Funding Agreement, Teakwood Ventures will make loans to us in the
aggregate principal amount of $1,500,000, with half of the funding amount
attributed to a Revolving Loan and the other half being attributable to an
equity contribution. As of September 30, 2000, Teakwood Ventures had advanced
$250,000 to us,
22
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
which is deemed to be an extension advance under this Revolving Loan Funding
Agreement. An additional amount of $95,000 was funded prior to execution of the
Revolving Loan Funding Agreement in October under similar terms.
On October 30, 2000, an additional $355,000 was funded under the Revolving Loan
Funding Agreement. Aggregate advances at October 30, 2000 of $700,000 consist of
$350,000 allocated to revolving loans and $350,000 allocated to equity
contribution. Additional subsequent advances of $200,000 each will commence on
November 15, November 30, December 1 and December 15, 2000.
Certain provisions exist with respect to each subsequent funding and Teakwood
Ventures has the ability to extend the final funding date to January 15, 2001 if
we secures additional outside funding.
The revolving loan portion is evidenced by a secured promissory note, with
interest at 12% per annum and is due on June 30, 2001.
The total to be allocated to equity contributions of $750,000 provides for the
purchase of 19.8% of our common stock, equivalent to 53,330,317 shares as of
November 8, 2000. Such shares will have certain conversion rights, registration
rights, anti-dilution provisions and a warrant attached at a no pay exercise
price to maintain a 20% ownership of our outstanding common shares. In addition,
two members may be appointed to our Board of Directors by Teakwood Ventures.
Proceeds are to be used for our working capital needs and are subject to
pre-approved budgets by Teakwood Ventures.
Current and Future Liquidity Needs
We have not generated net cash from operations for any period since 1996. We
have primarily financed our operations since 1996 through private sales of
equity and debt securities. 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 $ 77,000 as of November 8, 2000. We
estimate that monthly operational cash requirements are approximately $140,000.
As part of our monthly operational cash requirements, we are obligated to pay an
aggregate of approximately $32,000 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
23
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
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 September 30, 2000, with 50.8 million of those shares
delivered in August 2000. Approximately $2.9 million of these notes have matured
as of November 8, 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, Orbit Network and we cancelled our merger
agreement and agreed to enter into the other transactions we discuss in our
Annual Report on Form 10-KSB. Consequently, in order to ensure that the
purchasers of the OrbitTravel.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 $314,000 that we were required to pay as of September 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 former 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
24
<PAGE>
ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
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 the remaining $480,000 of payments due under the
note. We have received unverified indications that the creditor of Orbit Network
may not have received good title to the assets.
In October of 2000, a group of our stockholders and stock holders of a company
(Orbit Network, Inc.) that we acquired in October 1999, filed two lawsuits in
the California's Marin County Superior Court against us, the acquired
corporation, Mr. Cellura and other unnamed executive officers and stockholders.
The complaints alleged, among other things, that (1) we had not exercised
reasonable care or business judgment, (2) we and our officers committed fraud in
the issuance of securities, and (3) various breaches of contract. We believe we
have meritorious defenses and have retained counsel in California to vigorously
defend ourselves. However, due to the inherent uncertainties of the litigation
process and the judicial system, we are not able to predict the outcome of this
litigation.
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 anticipated acquisition activity
. we may not be able to hire and retain qualified employees;
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ORBITTRAVEL.COM CORPORATION
MANAGEMENT'S DISCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
. we may experience difficulties in maintaining our competitiveness if we
are unable to keep up with technological advancements;
. we may not be able to integrate our acquired assets quickly or
successfully into our existing business plan or corporate structure;
. we may not be able to meet our short-term or long-term liquidity needs
on terms favorable to us, if at all;
. we may experience technological difficulties in our delivery of
application software products;
. our operating performance and business strategy depends upon the
continued viability and growth of the Internet and the travel business;
. we compete in a highly competitive industry with low barriers to entry;
and
. 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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 three of the required payments,
totaling $90,000, as of November 8, 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
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
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payable in the amount of $250,000; and (2) the issuance of approximately 27.34
million shares of our common stock. As of September 30, 2000, we have repaid
approximately $166,000 due under the $250,000 note payable, leaving a balance of
approximately $84,000. 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.
Clifford F. Bagnall, one of our former directors and a former 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
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November 8, 2000, we have made payments totaling $57,500 toward the principal of
Mr. Bagnall's Note. The Note was extended to August 15, 2000 and is currently in
default.
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 November 8, 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
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
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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.
In October of 2000, a group of our stockholders and stock holders of a company
(Orbit Network, Inc.) that we acquired in October 1999, filed two lawsuits in
the California's Marin County Superior Court against us, the acquired
corporation, Mr. Cellura and other unnamed executive officers and stockholders.
The complaints alleged, among other things, that (1) we had not exercised
reasonable care or business judgment, (2) we and our officers committed fraud in
the issuance of securities, and (3) various breaches of contract. We believe we
have meritorious defenses and have retained counsel in California to vigorously
defend ourselves. However, 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.
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.
On November 2, 2000, the Company authorized and approved a stock option
incentive plan for its employees, officers, directors, and others performing
services on behalf of the Company. The Board approved 175,000,000 shares of the
Company's registered common stock to be reserved for this plan. The options will
be issued at the sole discretion of the Board of Directors or by a Committee
appointed by the Board. Granted options shall expire ten years or earlier from
the date of grant and the exercise price shall not be less than the fair market
value at the date of grant. In addition, any grant to an individual owning more
than 10% of the Company's common stock, requires the exercise price to be at
least 110% of the fair market value and the option period must not be more than
five years. The aggregate fair market of all shares of stock to which Incentive
Stock Options are exercisable may not exceed $100,000 in any calendar year
The Company also ratified the issuance of stock awards to certain officers,
directors, employees and consultants of which approximately 24 million shares
have been issued and another 88 million have been designated.
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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
August, 2000 18,900,000 shares of common Issuances to various consultants,
Stock employees, attorneys, and others.
</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 pay or exchange amounts due, 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
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Orbit Network and failing to have its annual shareholders' meeting.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 *
10.4 - Restated and Amended Funding Agreement and Secured Revolving
Credit Agreement between Teakwood Ventures, LLC and
orbitTRAVEL.com Corporation
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
* Previously filed
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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
Date: November 13, 2000
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