U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
Post-Effective Amendment #4
General Form For Registration of Securities
Of Small Business Issuers under
Section 12(b) or (g) of The Securities Exchange Act of 1934
LCS, Golf, Inc.
(Name of Small Business Issuer in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
11-3200338
(I.R.S. Employer Identification No.)
809 North Dixie Highway, Suite 200, West Palm Beach, Florida 33401
(Address of principal executive offices) (Zip Code)
(561) 835-8484
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001
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TABLE OF CONTENTS
Part I
Item 1. Description of Business..............................................3
Item 2. Management's Discussion and Analysis
or Plan of Operation.......................................11
Item 3. Description of Property.............................................14
Item 4. Security Ownership of Certain Beneficial
Owners and Management......................................14
Item 5. Directors, Executive Officers, Promoters
and Control Persons........................................16
Item 6. Executive Compensation..............................................18
Item 7. Certain Relationships and Related Transactions......................19
Item 8. Description of Securities...........................................20
Part II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters................20
Item 2. Legal Proceedings...................................................21
Item 3. Changes in and Disagreements with Accountants.......................21
Item 4. Recent Sales of Unregistered Securities.............................22
Item 5. Indemnification of Directors and Officers...........................27
Part F/S
Financial Statements.........................................................28
Part III
Item 1. Index to Exhibits...................................................83
Signatures...................................................................84
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
To simplify the language in this registration statement, references to "We,"
"Us" or "LCS Golf" refer to LCS Golf, Inc. and its subsidiaries.
Business Development.
We were incorporated in the State of Delaware on October 8, 1997 as Linkun
Enterprise, Inc. to design and distribute golf clubs and golf related products.
On October 27, 1997, we changed our name to LCS Golf, Inc.
On October 28, 1997, LCS Golf, Inc. a New York Corporation (hereinafter "LCS New
York") was merged into our Company and we were the surviving company. Pursuant
to the merger, we exchanged nine hundred eighty thousand nine hundred and four
(980,904) shares of our common stock for all of the issued and outstanding
shares of LCS New York on a one-share for one-share basis.
We entered into this transaction to obtain the name LCS Golf, Inc. Prior to this
transaction, our officers and directors had no affiliation with LCS Golf, Inc.
New York.
On May 1, 1998, we acquired Golf Universe, Inc., which became our wholly owned
subsidiary. Golf Universe, Inc. was incorporated in the state of Florida on
October 23, 1996. We acquired all of the outstanding stock in Golf Universe in
exchange for the following consideration:
o 400,000 shares of our common stock issued to Golf Universe's
shareholders,
o A promissory note for $100,000, which we paid prior to February 28,
1999, and
o Expenses of $16,750 associated with the transaction
We entered into this transaction to acquire Golf Universe's plans for
development of a golf related website. Prior to this transaction, our officers
or directors had no affiliation with Golf Universe.
On November 17, 1998, we entered into a stock purchase agreement with Milton
Besen who controlled all of the issued and outstanding common stock of Mr. B
III, Inc. ("B III"). B III was incorporated in the state of Florida on September
3, 1996. In this transaction, we exchanged 150,000 shares of our common stock
and $250,000 for all of the issued and outstanding shares of B III. In
completing the transaction we also issued an additional 150,000 shares of our
common stock for expenses related to the acquisition. B III became our wholly
owned subsidiary. We entered into this transaction to acquire B III's
manufacturing operations. Prior to this transaction, our officers and directors
had no affiliation with B III.
On January 26, 1999, we entered into a common stock purchase agreement with Alex
Bruni, the holder of 100% of the issued and outstanding shares of Play Golf Now,
Inc. Play Golf was incorporated on
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November 27, 1998 in the state of New York. We acquired all of the issued and
outstanding shares of Play Golf in exchange for:
o 350,000 shares of our common stock issued to Mr. Bruni,
o An unconditional option issued to Mr. Bruni to purchase an
additional 200,000 shares of our common stock at a purchase price of
$0.50 per share that may be exercised in whole or in part on or
before January 25, 2001.
Play Golf Now then became our wholly owned subsidiary. We entered into this
transaction to acquire Play Golf's golf membership discount program, consisting
of a network of golf courses, driving ranges, and pro shops offering discounted
rates to Play Golf's members. Prior to this transaction, our officers and
directors had no affiliation with Play Golf.
On February 15, 1999, we entered into a common stock purchase agreement with
Leigh Ann Colguhoun, the holder of 100% of the issued and outstanding shares of
Golfpromo, Inc. Golfpromo was incorporated in the state of Florida on February
10, 1999. We acquired all of the issued and outstanding shares of Golfpromo in
exchange for 350,000 shares of our common stock. Golfpromo then became our
wholly owned subsidiary. We entered into this transaction to acquire Golfpromo's
mailing database list of golfers. Prior to this transaction, our officers and
directors had no affiliation with Golfpromo.
On August 27, 1999, we incorporated I Fusion Corp. as our wholly owned
subsidiary, to provide both Internet and traditional and marketing services.
Business of Issuer.
We sell products and offer information over the Internet through our five wholly
owned subsidiaries:
o Golf Universe
o B III
o Play Golf
o Golf Promo
o iFusion
Internet Operations.
Golf Universe.com
o Golfuniverse.com has been operational since March of 1999 and currently
averages approximately 150,000 hits per day. Golfuniverse.com delivers
information and details on over 24,000 golf courses located world wide and
over 10,000 golf related businesses as well as other golf related data and
information.
o The Golf Universe site offers an online pro shop, where golf-related
products and services are sold through third party vendors. The website
offers products and services from major golf equipment manufacturers,
apparel designers, and other golf related manufacturers. Consumers can
purchase items from exclusive resorts such as Doral, PGA National and
Pebble Beach. We obtain commissions when site visitors purchase products,
reserve tee times, and make travel plans online.
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Our commissions on these transactions range from 12% to 20% depending on
the vendor, type and amount of reservation or sale.
o The Golf Universe site offers a Golf Universe Preferred Members Club that
provides members discounts on golf services and products. Through
alliances with Choice Hotels International, Avis(R), Alamo(R), Budget(R),
National(R) and Nike Golf Schools, the Club offers members discounts at
over 2000 golf courses, resorts, practice facilities, as well as equipment
and apparel through the Online Pro Shop. We plan to develop benefits for
Club members such as a monthly online newsletter, a bi-monthly magazine, a
Recreation Directory, savings on condo rentals, short notice airfare
savings, vacation package savings, discounts on cruises, motor home
savings and skiing discounts. We do not have written contracts with out
named allies.
The Company intends to provide discounts by purchasing discount books
providing golf and hotel discounts from vendors and issuing these books to
new members as they subscribe to our members' program. The vendors that we
purchase the books from will deliver the discount books to our members. We
will not carry any inventory of these discount books
ifusionco.com
iFusionco.com is a full-service Internet marketing company that provides the
following services:
o creative and concept development;
o national marketing program implementation and management;
o corporate and package development;
o sweepstaking, and couponing;
iFusion generates revenues from monthly retainers, subcontract work, and per
project work.
Targetmails.com is a website operated by iFusion, which utilizes our databases.
Our database of golfers includes:
o in excess of 4.2 million email addresses:
o 1.8 permission email addresses,
o 2 million physical mail addresses,
o 24,000 golf course names and addresses; and
o over 15,000 golf retailers and pro shops.
Additionally, we have databases of individuals associated with the travel,
healthcare, and investment industries. The databases in the healthcare and
investment industries are an extension of our existing golfers database. By
segregating the demographics and interests of our golfers into new databases, we
create databases of individuals who are interested in receiving information
about healthcare or investments. Tailoring our databases to specific interests
allows us to create additional revenues by increasing the population of users to
whom we can market our services. For example, advertisers and researchers may
rent our healthcare and investment industry databases.
With our diverse databases:
o we are able to direct market specific GolfUniverse and Preferred Club
products and services
o rent the database to advertisers, researchers, and golf industry
consumers; and
o and increase traffic to the GolfUniverse.com and Wall StreetGolf.com web
sites through the targetmails.com website.
Golfpromo.net and playgolfnow.com are used principally as links to our other
web-sites.
B III
We formerly designed and manufactured consumer products through B III, but we
ceased our manufacturing operations in November of 1999. We are planning to sell
B III therapeutic magnet products and specialty pillows on our websites. The
manufacturing of our products is done by Allied Packaging and Manufacturing.
Allied will be using B III's manufacturing equipment to produce these
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product lines. We are in the process of negotiating a formal agreement for the
manufacturing of these products. Until a manufacturing agreement is executed, we
compensate Allied on a per project basis.
Namath Agreement.
In December 1998, we entered into a ten-year agreement with Mr. Joe Namath
providing that for six days a year Mr. Namath will produce infomercials
containing his endorsement of B III's therapeutic magnet products. This
agreement expires on December 1, 2008. Mr. Namath was paid consideration of
600,000 shares of our common stock with a market value of approximately $587,000
and $25,000 upon the signing of the agreement. Additionally, Mr. Namath is to
receive royalties of 5% of the gross sales price of all endorsed products sold.
To date, Mr. Namath has received no royalty payments. We also paid 600,000
shares of our common stock to Mr. Namath's licenser, Planned Licensing, Inc.,
valued at approximately $587,000 as consideration for the use of Mr. Namath's
services. In addition we issued 600,000 shares of our common stock with a
market value of $388,000 for expenses.
Suppliers and Consumer Base.
We are not dependent upon suppliers of raw materials or upon any single
customer. We maintain no inventory. We do not sell any of or own products on our
Golf Universe website and we maintain no inventory. We provide links to the
websites of vendors who sell their own products on their websites. All shipping
and credit card transactions are processed by the vendors whose products are
displayed.
Competition for our Internet Operations.
We compete with consumer products and specialty retail businesses with physical
locations as well as with other websites selling products similar to ours. Our
leading competitors include retail stores such as Target stores, Wal-Mart
Stores, Inc., and other physical store locations that sell golf related
products. We attempt to compete on the basis of content, quality, uniqueness,
pricing, assortment of our merchandise, brand name, service to customers, and
proprietary customer lists.
Government Approval and Compliance with Governmental Regulation.
We will not collect sales or other similar taxes from goods sold on our website
except where required by law. Some states or the federal government may seek to
impose sales tax collection obligations on out-of-state companies that engage in
or facilitate online commerce. Proposals have been made at the state and local
level that would impose additional taxes on the sale of goods and services
through the Internet. Such proposals, if adopted, could substantially impair the
growth of electronic commerce, and could adversely affect our opportunity to
derive financial benefit from such activities.
Due to the increasing popularity and use of the Internet, a number of laws and
regulations may be adopted, covering privacy, pricing, and quality of products
and services regarding the Internet. The growth of Internet commerce may prompt
calls for more stringent consumer protection laws that may impose additional
burdens on our business. The adoption of any additional laws or regulations may
decrease the growth of the Internet, which, in turn, could decrease the demand
for our Internet products or increase our cost of doing business, results of
operations and financial condition.
We sell our products and services to numerous consumers residing in such states
and jurisdictions that may claim that we are required to qualify to do business
as a foreign corporation in each such state or foreign country. Our failure to
qualify as a foreign corporation in a jurisdiction where it is required to do
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so could subject us to taxes and penalties for failure to qualify. Any such
existing or new legislation or regulation, including state sales tax, or the
application of laws or regulations from jurisdictions whose laws do not
currently apply to our business, could have a material adverse effect on our
business, results of operations and financial condition.
Agreements.
On February 16, 2000, we entered into a series of related agreements with
Quintel Communications, Inc. ("Quintel"), including a loan agreement to borrow
$500,000 from Quintel in the form of a convertible promissory note. The
promissory note is secured by our database of information. The note bears
interest at a variable rate not to exceed 14%. The note was due on demand any
time after August 16, 2000. Quintel may have converted the remaining principal
into shares of our common stock and such shares would have had registration
rights as set forth in a registration rights agreement. Further, any additional
shares issued upon conversion of the debt are protected by anti-dilution
provisions, subject to our right to repurchase any shares issued under such
anti-dilution provisions at $1.00 per share, which repurchase right may be used
once in twelve months from the date of the agreement.
On the same date, we entered into a marketing agreement and licensing
agreement with Quintel. As consideration for providing marketing services for a
period of two years, we issued options (valued at approximately $139,000 using
the Black-Scholes Model. The model enables us to estimate the fair value of
stock options granted because it takes into account, as of the grant date of the
option; i) the exercise price; ii) the expected life of the option; iii) the
current price of the underlying common stock; iv) the stock's expected
volatility; v) the expected dividends; and vi) the risk free interest rate for
the expected term of the option) to purchase 200,000 shares of our common
stock. Options to purchase 100,000 shares are exercisable for a period of two
years from issuance at $1.00 per share and options to purchase 100,000 shares
are exercisable for a period of two years from issuance at $2.00 per share. The
shares underlying these options have registration rights as described in the
registration rights agreement discussed above.
Under the licensing agreement, Quintel acquired a license to use our
database of information in exchange for payment of $5,000 per month. If we
default under the loan agreement, Quintel may credit this monthly amount towards
any amounts in arrears under the terms of the loan agreement. The licensing
agreement is for a term of ten years with an option to renew for an additional
five years.
On August 7, 2000 following certain disagreements concerning Quintel's use
of our database, we entered into a forbearance agreement and amendment of our
security agreement with Quintel. Quintel acknowledged receipt of a $50,000.00
payment against the principal balance of $500,000 due on the convertible note,
funded personally by Dr. Mitchell. The related note was amended to provide for
payment upon written demand. If there is a default under the terms of the
forbearance agreement or the note, the interest rate will equal the prime rate
as defined in the note plus 4% not to exceed fourteen(14%)percent. Until payment
of all amounts due under the note are made, amendment #1 to the security
agreement requires us to pay fifty percent (50%) of the collections received for
accounts receivable outstanding as of August 10, 2000, and twenty-five percent
(25%) of collections for all new accounts receivable, within five days. Payment
is to be credited against amounts due under the note, first to interest, then to
principal. Quintel also receives 50% of all other cash receipts including
additional loans, cash equivalents and marketable securities generated by us
from any source whatsoever until payment in full of the amounts due under the
note. The security agreement filed February 22, 2000 was amended to include all
accounts of LCS Golf and all securities or guarantees held by us in respect of
the accounts and all account proceeds. In addition, Dr. Mitchell, President and
CEO of LCS Golf, executed and delivered a guarantee on August 7, 2000 of up to
$250,000.00 on the note.
Quintel agreed to forbear from demanding payment of the note or commencing
any action against us as long as Quintel receives at least $10,000.00 per month
in payment of principal and interest on the Note, or collections of the accounts
or from the guarantor, and we generate gross revenues of at least $75,000.00 per
calendar month from the normal conduct of business.
On August 8, 2000 American Warrant Partners, LLC ("American
Warrant")invested $300,000.00 in our Company. We issued an 8% convertible
subordinated promissory note to American Warrant with a maturity date for the
principal of August 8, 2002. The note is convertible into our common stock at
$0.25 per share, subject to adjustment, which resulted in a discount of the note
of approximately $225,000 which will be amortized over the term of the note or
until the date of conversion, whichever is sooner. Interest is payable on a
quarterly basis commencing September 30, 2000. We also issued to American
Warrant a warrant expiring on August 8, 2005 to purchase up to 600,000 shares of
our common stock, at the exercise price of $0.40 per share, to be exercised in
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whole or in part. The value of this warrant at grant date, utilizing the
Black-Scholes option pricing model, was approximately $260,000. The assumptions
used in determining the value was an expected volatility of 227%, an average
interest rate of 6.06% per annum and an expected holding period of five years.
The value of this warrant will be amortized over five years or shorter if
exercised. In order to elect to exercise the warrant at the share price computed
using the formula in the warrant agreement, American Warrant must deliver the
warrant and a written notice of election to exercise the warrant to us. In
addition, we entered into a registration rights agreement in which we promise to
register the shares with the Commission as soon as reasonably practicable, but
in no event later than September 15, 2000. To date, no such Registration
Statement has been filed. Certain officers and directors of the Company agreed
to a lock-up provision restricting their right to sell, transfer, pledge or
hypothecate or otherwise encumber their shares until the earlier of the one year
anniversary of the agreement, the effective date of the Registration Statement,
or until we raise $1,000,000 in equity or debt financing. We also agreed that
without prior written consent, until the earlier of 85% of the principal balance
and interest is paid or converted to common stock, or 180 days from the date of
the warrant agreement, we will not offer to sell or sell any of our common stock
at a price per share (or conversion or exercise price per share) less than the
average closing price per share of our common stock as quoted by the OTC
Electronic Bulletin Board on the five days immediately prior to the close of the
transaction. We also agreed to recommend and use our best efforts to elect a
designee and representative of American Warrant as a member of the Board of
Directors until the later of one year from the date of the agreement or until
such time we receive $1,000,000 in equity or debt financing.
Debt in Default
The American Warrant investment of $300,000 placed us in default of the
forbearance agreement that we signed with Quintel because we did not in turn
remit fifty percent of the cash proceeds as required under the agreement. On
August 30, 2000, Dr. Mitchell agreed to fund personally two payments of $50,000
each towards principal and interest on the Quintel loan. We also changed to 50%
instead of 25% of receipts from new accounts receivable that are payable to
Quintel under the amended security agreement.
Intellectual Property.
Through our acquisition of B III, we own patent serial number 29/073.138 to a
product sold under the label "Adorables," that is an animal pillow with a pouch.
We have not sought trademark registration of the "Adorables" name with the U.S.
Patent & Trademark Office. Golf Universe has registered the following domain
names:
o golfuniverse.com o skiuniverse.com
o golfpromo.net o universe-online.com
o ifusionco.com o ifusionco.net
o playgolfnow.com o junior-golf.com
o targetmails.com o mygolfuniverse.com
o wallstreetgolf.com o freeis4me.com
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o lcsgolf.com o golfuniverse-online.com
Research and Development.
We have conducted no research and development in the past two (2) fiscal years.
Status of Publicly Announced New Products or Services.
We have no publicly announced new products or services.
Employees.
LCS Golf and its subsidiaries have 15 full-time employees, and a total of 15
employees.
Risk Factors.
We Are In Default of a Senior Secured Loan Which May Cause Us to Curtail or
Cease Operations.
Our failure to remit 50% of the cash proceeds from the American Warrant
transaction to Quintel resulted in a default under the forbearance agreement
with Quintel. If Quintel elects to pursue its remedies under the forbearance
agreement and we are unable to reach an amicable resolution with Quintel, we may
have to curtail or cease operations unless we are able to obtain additional
financing. Even if we do reach an amicable resolution with Quintel which we have
no reason to believe such resolution is possible, and continue operations, our
efforts to satisfy continuing obligations under the Quintel agreements will
significantly impact our cash flow. Pursuant to arrangements with Quintel, we
increased the percentage of receipts which we must remit from new accounts
receivable from 25% to 50% which will significantly impact on our cash flow
until such time as we are able to make payment in full under the Quintel
agreement.
Our Financial Condition is Poor and We May Be Unable to Continue as a Going
Concern.
Our operations have been dependent upon short-term borrowing and other funding
resources. From March 1, 1999 through November 30, 1999, our president has made
additional net advances of approximately $261,000. Our independent auditors
report on our consolidated financial statements for the year ended February 28,
1999, raises substantial doubt as to our ability to continue as a going concern.
Our financial statements show an accumulated deficit of $6,241,901. We expect to
continue to incur net losses for the foreseeable future and negative cash flow
from operations through at least the year 2000. We expect to significantly
increase our operating expenses as a result of expanding our sales and
marketing, product development and administrative operations and developing new
strategic relationships to promote our future growth. As a result, we will need
to generate increased sales to meet these expenses and to achieve profitability.
In addition, due to our default under the agreement with Quintel, we must now
remit 50% of all accounts receivable to Quintel which will further significantly
reduce our cash flow. Therefore, an investment should not be made in our
securities unless an investor is prepared to lose his or her entire investment.
We Recently Redirected Our Strategic Focus; Therefore Our Recent Operating
Results Are Not Comparable to Our Results for Prior Periods
We were founded in 1997 to design and distribute golf clubs and related
products. In early 1999, we began to provide permission email and Internet
services. For the nine months ended November 30, 1999, permission email
marketing services represented 40% of our revenue, compared to 0% in the nine
months ended November 30, 1998. Accordingly, our operating results since the
year ended February 28, 1999 are not comparable to our results for prior
periods. We cannot be certain that our business strategy will be successful, or
that we will adequately address these risks.
We Have Only Been In Existence For a Short Time Period; Therefore, You May Not
Be Able to Assess Our Business for Investment Purposes.
Because our business has been in existence only since October 1997, you may not
be able to assess our future performance.
We May Not Be Able to Obtain Funds From Other Funding Sources to Stay In
Business.
If our revenues are not sufficient to continue our business, we may have to seek
other funding. If we are unable to obtain any such funding, our ability to
continue in business will be negatively impacted.
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Our Management May Not Have the Requisite Experience or be Unable to Devote the
Time Necessary to Develop Our Business.
Our management has little experience in managing Internet based companies. Such
inexperience could hinder our ability to fully develop our business. Although
our Chief Executive Officer works full-time for us, his employment agreement
with LCS Golf requires him to devote a minimum of only twenty hours per week to
our operations. Our management's inability to devote their full attention to our
business, could effect our growth and sales.
The Golf Industry is Highly Seasonal and Subject to Fluctuations.
The majority of golf sales occur during warmer weather. Therefore, our revenues
may be higher during the golf season. If we are unable to effectively develop
marketing strategies that account for decreased sales during these months, we
may not generate sufficient sales during certain financial quarters to be
profitable. In addition, due to such seasonal fluctuations, our quarterly
results may not be indicative of our future earnings.
Our Revenues May be Negatively Affected by Internet Security Risks.
We are dependent upon encryption and authentication technology to provide
security to effect secure transmission of confidential data and information.
There is no assurance that new technological discoveries will not result in
compromises to our security. If our security is compromised, we could be subject
to litigation and our business reputation could be negatively impacted.
Our Success is Dependent Upon Broad Market Acceptance of Permission Email
Marketing Services.
We do not know if our products and services will be successful. The market for
permission email marketing services is in its infancy, and we are not certain
whether our target customers will widely adopt and deploy this technology. Even
if they do so, they may not choose our products for technical, cost, support or
other reasons. Adoption of permission email marketing services, particularly by
those entities that have historically relied upon traditional means of direct
marketing, such as telemarketing and direct mail, requires the broad acceptance
of a new and substantially different approach to direct marketing.
If We Fail to Develop and Maintain Our Sales, Marketing, and Support
Organization and Relationships With Our Network Partners and Third Party List
Managers, Our Growth Will Be Limited.
We must continue to maintain and expand our relationships with network partners
who provide us with access to permission email lists. We began to enter into
agreements with our network partners in the first quarter of 1999. These
contracts are generally short-term, ranging from a one-time project to an
initial term of six months. In accordance with these contracts, we provide our
network partners with tracking services and generate revenues by reselling the
permission email lists to direct marketers. Our network partners receive a
percentage of our revenues from such resale. We cannot assure that the growth of
our business as a result of our entering into these agreements will be
sufficient to meet our expectations for sales growth and profitability.
We also have our proprietary lists, which include the majority of the email
addresses used in our operations. We complement our lists through reseller
arrangements with network partners, under which we pay a fixed fee for
nonexclusive use of their list for a specific campaign. These network partners
are
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not contractually obligated to provide us with access to their lists. If we fail
to maintain or grow our relationships with our network partners, our business
could be negatively impacted.
The Loss of Any of Our Executive Officers or Key Personnel Would Likely Have an
Adverse Effect on Our Business.
We need to hire a significant number of additional sales, support, marketing and
product development personnel to expand our business. If we fail to attract
qualified personnel or retain current employees, our sales may not increase and
could decline. Competition for these individuals is intense, and we may not be
able to attract, assimilate or retain additional highly qualified personnel in
the future. Our future success also depends upon the continued service of our
executive officers and other key sales, marketing and support personnel. We do
not have "key person" life insurance policies covering any of our employees.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information, the discussion in this report contains
forward-looking statements that involve risks and uncertainties. These
forward-looking statements include, among others, those statements including the
words "expects," "anticipates," "intends," "believes" and other similar
language. Our actual results could differ materially from those discussed
herein. You should not place undue reliance on these forward-looking statements,
which apply only as of the date of this report. Factors that could cause or
contribute to such differences include, but are not limited to, the risks
discussed in "Certain Factors That May Affect Future Results of Operations."
Overview
LCS Golf Inc. is a holding company that provides:
o permission email direct marketing services through Golfpromo.net and
Targetmails.com;
o Internet and direct marketing services through Ifusionco.com.
o Golf ecommerce, news and information through GolfUniverse.com ; and
o discounts on golf services through Playgolfnow.com.
Our manufacturing operations are cyclical in nature. We expect sales to increase
during September, October through December and March through May and decrease
during January to February and July to August. Additionally, we do not know if
our products will be accepted in the marketplace. If the products are not well
received by the consumer we will have to decrease our efforts in promoting our
manufacturing operation for B III.
The company believes that once our Internet operations are consolidated we can
achieve economy of scales within our organization. We expect the Internet golf
market along with permission based marketing to be at the forefront of the
companies growth.
As we outsourced our manufacturing company B III we expect our revenues and
expenses from our manufacturing operations to be minimal in the near future. The
company's inability to create a market for its therapeutic magnetic products has
left us with little choice but to reduce our focus in this less profitable line
of business and concentrate our full efforts into developing our Internet and
marketing business.
We believe that by concentrating on our internet and marketing business we can
create greater profits and also decrease our cash flow requirements by cutting
all of our manufacturing expenses such as inventory, payroll, rent and general
overhead items.
The reduction in expenses should allow us to meet our operating budget.
Our operating results are difficult to predict. Our future quarterly operating
results may fluctuate significantly. If this occurs, the price of our common
stock is likely to decline, perhaps substantially. Factors that may cause
fluctuations in our operating results include the following:
o seasonality of direct marketing expenditures which are typically
higher in the second and fourth quarters and lower in the first and
third quarters;
o the level of market acceptance of our products and services;
o delays we may encounter in introducing new products and services;
o competitive developments;
o demand for advertising on the Internet;
o changes in pricing policies and resulting margins;
o changes in the growth rate of Internet usage;
o the growth rate of our network affiliates;
o changes in the mix of products and services sold;
o changes in the mix of sales channels through which products and
services are sold;
o costs related to acquisitions of technology or businesses; and
o economic conditions generally as well as those specific to the
Internet and related industries.
We expect that revenue growth in the first and third quarters of each year may
be lower than revenue growth in the second and fourth quarters of that and the
preceding year. We believe this trend may occur as a result of our customers'
annual budgetary, purchasing and sales cycles. In addition, our sales cycle has
varied from customer to customer and several customers have taken many months to
evaluate our services before making their purchase decisions. To the extent that
significant revenues occur earlier than expected, our operating results for
later quarters may not compare favorably with operating results from earlier
quarters.
If we cannot obtain adequate funds on acceptable terms, we may be unable
to:
o fund our capital requirements;
o take advantage of strategic opportunities;
o respond to competitive pressures; and
o develop or enhance our services.
Any of these failures could adversely affect our profitability. If we do not
achieve or sustain profitability in the future, we may be unable to continue our
operations.
If we fail in our attempts to prevent the distribution of unsolicited bulk
email, or spam, our business and reputation may be harmed. Internet service
providers, or ISPs, and other organizations devote significant effort to
identifying spam and blocking its distribution. Spam-blocking efforts by these
groups may also result in the blocking of our clients' legitimate messages.
While we do not condone spam, and do not believe we distribute it, each of these
groups may set its own definition of what is, and what is not, spam. We have
recently been warned by one such group, MAPS, that the failure of certain of our
clients to use the subscription management methods advocated by MAPS could
result in MAPS listing us as a distributor of spam. Many ISPs use the MAPS
listings to identify distributors of email to block. We are currently working
with MAPS to resolve the issue. In addition, distribution of our email has been
blocked by various ISPs in the past and we anticipate blockages to occur in the
future. Spam may contain false email addresses or be generated by the use of
false email addresses. Our reputation may be harmed if email addresses with our
domain names are used in this manner. Any of these events may cause clients to
become dissatisfied with our service and terminate their use of our services.
11
<PAGE>
Results of Operations for the Years ended February 28, 1999 and 1998
Our results of operations for the year ended February 28, 1999 underscores the
startup nature of our business. As previously discussed, the company has
purchased 4 companies in the fiscal year and is in the process of consolidating
its business model. Golf Promo, Play Golf Now and Golf Universe did not have
substantial revenues for any of the fiscal quarters for the year ending
2/28/1999; this can be seen by looking at our financial statements indicating
revenues of $108,000 for the period ending 2/28/1998 as compared to no revenues
in the prior year.
Selling, general and administrative expenses consist primarily of our direct
sales force, marketing staff and programs, and related costs for general
corporate functions including accounting, legal and shares issued for consulting
fees. For the year ended February 28, 1999 and 1998, these expenses were
approximately $5,552,000 and $92,000, respectively. These amounts include
$5,142,000 and $25,000 of expenses paid with common stock, respectively. The
increase over the prior year is principally due to the Company's four
acquisitions which were made at various times during the fiscal year ended
February 28, 1999, and including their operations from their date of
acquisition.
Income Taxes. Because we had no losses since our inception through February 28,
1999, we were not required to record federal or state income taxes. The deferred
tax benefit of these net operating losses has been reduced by a 100% valuation
allowance.
Results of Operations for the Nine Months Ended November 30, 1999 and 1998
Total sales revenues were approximately $1,665,000 for the nine months ending
November 30, 1999, compared with approximately $500 for the year ending November
30, 1998. Our sales revenues for the nine months ended November 30, 1999,
consisted of approximately $1,000,000 from manufacturing and $662,000 from the
golf related segment.
Cost of Sales. Cost of sales was approximately $1,063,000 for the nine months
ending November 30, 1999, compared with $0 for the year ending November 30,
1998. Cost of sales were $985,000 for manufacturing and $78,000 of online and
reproduction services and labor.
Selling, General, and Administrative Expenses. Total selling, general, and
administrative expenses for the nine months ending November 30, 1999, were
approximately $3,701,000 compared to $3,815,267 for the nine months ending
November 30, 1998. These amounts include approximately $1,734,000 and $3,706,000
of expenses paid with common stock for the nine months November 30, 1999 and
1998 respectively.
12
<PAGE>
General and administrative expenses were approximately $3,187,000 for the 9
months ended November 1999, pertaining to the following expense areas:
o personnel
o finance
o accounting
o legal
o shares issued for financial consulting services and settlement of
claims
Sales and marketing expenses were approximately $514,000 for the nine months
ended November 30, 1999, pertaining to the following expense areas:
o direct sales force
o marketing staff
o marketing programs
o trade shows
o advertising
o public relations.
Because we created a direct sales force, increased our marketing expenditures to
build our permission email and Internet marketing strategy, and over the next
year we will hire additional sales and marketing personnel over the next year,
we expect increased sales and marketing expenses.
Interest Expense. Interest expense was approximately $40,000 for the nine months
ending November 30, 1999, and consists of interest on debt obligations.
Income Taxes. Because we had no losses since our inception through November 30,
1999, we were not required to record federal or state income taxes. The deferred
tax benefit of these net operating losses has been reduced by a 100 % valuation
allowance.
Liquidity and Capital Resources
Our revenues consist of fees from providing Internet marketing services,
including the delivery of permission email direct marketing messages to members
in our network, newsletter-marketing, ecommerce, banner advertising, Internet
marketing services and direct marketing campaigns. We have also entered into
agreements with several companies to manage and represent their company's
database and broker their client's list. These agreements should allow us to
realize additional revenues, increased brand awareness and capture additional
market shares in the permission based and affinity marketing email
communications services.
Our revenues for the twelve months ended February 29, 2000 were $1,909,000 on a
consolidated basis, the Internet and marketing services generated $934,000 and
the manufacturing component generated $975,000. Our operating expenses (cost of
sales and selling, general and administrative expenses) were $4,536,000 for the
Internet and marketing services and $1,292,000 for BIII and our other expense,
net (interest and write-off of goodwill) was $1,315,000. In an effort to reduce
the strain on our cash flow we have outsourced our manufacturing operations at
BIII. This change has allowed us to reduce our fixed operating costs. We
incurred substantial non cash expenses such as issuance of capital stock for
services rendered, amortization of goodwill and write-offs totaling $3,650,000
which did not affect our cash flow position necessary to operate our business.
We are currently in default of the loan agreement with Quintel. We will repay
Quintel over a period of time from current sales, cash infusions or loans. Our
monthly cash flow position of $65,000 will be greatly affected by the repayment
of the loan. We have to pay 50% of our monthly receivables to Quintel, creating
a shortfall in our cash flow of $40,000 per month. We may have to arrange short
term loans from our CEO, Dr. Michael Mitchell to make up for the deficiencies in
cash flow until full repayment is complete. We expect to pay this loan in full
once we have received additional funding. Dr. Mitchell has personally guaranteed
repayment of up to $250,000.00 of the Quintel loan and has already made payments
of $150,000 to Quintel.
We are in the process of addressing the liquidity issues. We are looking to
third party investors to raise additional capital to assist us in creating
sufficient cash flow to maintain our operations for the next twelve months. The
availability of capital is predicated upon becoming a reporting company that is
listed on the OTC Bulletin Board. If we are not able to meet the above-mentioned
standards, we will raise capital from our Board of Directors and our CEO. We can
make no assurances that we will be able to raise capital sufficient to continue
as a going concern.
We expect to use additional funding to meet our current operating needs, hire
additional sales staff and invest in infrastructure and marketing. We expect
revenues to increase proportionally to the
13
<PAGE>
utilization of funds, and additional revenues will allow us to maintain a
positive cash flow position for the next twelve months. We expect to maintain
our fixed cost at a steady rate and we will control our variable cost in
proportion to our revenue base. We believe that with an infusion of new capital,
a cost control strategy and an increase in revenues, we will be in a position to
continue as a going concern. We expect to execute this plan on an ongoing
basisi.
If we are unable to raise capital from the sources described above we will
reduce our overhead by terminating lines of business that are currently in
development or generating inadequate cash flows. We are also prepared to reduce
staff to assure a positive cash flow scenario.
Results of Operations for the Twelve Months Ended February 29, 2000
Revenues. Our revenues consist of fees from providing Internet marketing
services, including the delivery of permission email direct marketing messages
to members in our network, newsletter-marketing, e-commerce, banner advertising,
Internet marketing services and manufacturing. Total revenues were $1,909,297
for the twelve months ended February 29, 2000 compared with $107,840 for the
year ending February 28, 1999.
Golf related segment revenues continues to grow at a rapid pace. Our
Internet email marketing revenues for the year ending February 29, 2000 were
approximately $934,000 as compared to $0 for the fiscal year ended February
28,1999. We have also entered into agreements with several companies to manage
and represent their company's database and broker their client's list. These
agreements will allow us to realize additional revenues, increased brand
awareness and capture additional market shares in the permission based and
affinity marketing email communications services.
Cost of Revenue. Cost of revenues were $1,197,820 for the twelve months ended
February 29, 2000 compared with $191,872 for the year ending February 28, 1999.
Selling, General and Administrative. General and administrative expenses consist
primarily of personnel and related costs for general corporate functions,
including finance, accounting, human resources, facilities, legal, shares issued
for consulting fees and settlement of claims. General and administrative
expenses were $4,186,193 for the twelve months ended February 28, 2000 compared
to $5,551,559 for the year ending February 28, 1999.
Selling expenses consist of personnel and related costs of our direct
sales force and marketing staff and marketing programs, including trade shows,
advertising and public relations. Sales and marketing expenses were $570,175 and
$556,861 for the twelve months ended February 29, 2000 and February 28, 1999
respectively.
The increase in selling expenses was primarily due to increases in of our
direct sales force and increased marketing expenditures targeted at building our
permission email and Internet marketing strategy. We expect sales and marketing
expenses will increase over the next year as we hire additional sales and
marketing personnel and initiate additional marketing programs.
Goodwill Expense. Due to changes in our business focus during the fourth quarter
ended February 29, 2000, we decided to write-off all of our goodwill valued at
approximately $1,367,000. We have outsourced our manufacturing operations of Mr.
B. We have changed our focus from principally golf related operations to an
internet data collection service and marketing company.
Interest Expense. Interest expense consists of interest on debt obligations.
Interest expense was $56,000 for the twelve months ending February 29, 2000
compared to $6,000 for the year ending February 28, 1999.
Income Taxes. No provision for federal or state income taxes was recorded as we
incurred net operating losses since inception through February 29, 2000. The tax
benefit of the net operating losses has been reduced by a 100% valuation
allowance.
Liquidity and Capital Resources
From inception to February 29, 2000, we primarily funded our growth
through the issuance of stock and short-term borrowings. In February 2000 we
entered into an agreement with Quintel. Quintel made a 6-month, $500,000 loan to
LCS Golf, which is convertible at Quintel's election into shares of LCS Golf's
common stock at a rate of one (1) share for each $1 of the loan. LCS Golf also
granted Quintel options to acquire 200,000 shares of LCS Golf's common stock, of
which 100,000 shares may be acquired at an exercise price of $1.00 per share and
100,000 shares at an exercise price of $2.00 per share. On August 10, 2000 we
entered into a forbearance agreement in which Quintel agreed to forbear from
instituting an action to collect the amount due under the $500,000 note
outstanding. In consideration for the forbearance we paid $50,000 on account of
the principal balance due on the note (now reduced to $450,000.00) and we
amended the security agreement to allow Quintel to collect payments in a lockbox
account, returning 50% of the collections of current accounts and 75% of the
collections of new accounts to us, and crediting the amount kept by Quintel
against amounts due under the note. In addition, we agreed to allow Quintel to
keep 50% of all cash collections, to be credited against amounts due under the
note, first to interest, then to principal. Interest on the unpaid balance of
the note is at the rate of seven percent (7%) per annum, payable monthly on the
first day of each month commencing August 1, 2000. Under a default, the interest
rate will equal the prime rate as defined in the note plus four (4%) percent not
to exceed fourteen (14%) percent.
ITEM 3. DESCRIPTION OF PROPERTY
We do not own any real property. We lease office space at 809 North Dixie
Highway, Suite 200, West Palm Beach, Florida for our internet operations. This
space is approximately 5000 square feet. The monthly rental for this premise is
$5,000.00 and the term of the lease is three years. This lease expires on August
11, 2002, but provides an option to renew for an additional two years if we are
not in default on the terms of the lease.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables set forth certain information with respect to the
beneficial ownership of our common stock by (a) each person known to us to be
the beneficial owner of more than five percent of our common stock, (b)
directors and executive officers both individually and as a group, as of March
31, 2000. Unless otherwise indicated, we believe that the beneficial owner had
sole voting and investment power over such shares.
Security Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Number of Beneficially Percentage Ownership of
Title Name and Address of Beneficial Owner Owned Shares Class
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dr. Michael Mitchell
President 24 East 12th Street 4,118,309(1) 20.30%
and CEO New York, NY 10003
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Security Ownership of Management
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Number of Beneficially Percentage Ownership of
Title Name and Address of Beneficial Owner Owned Shares Class
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
President Dr. Michael Mitchell 4,118,309(1) 20.30%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
and CEO 24 East 12th Street
New York, NY 10003
--------------------------------------------------------------------------------------------------------------------
Mr. John H. Flood, III
Director 24 East 12th Street 50,000 0.25%
New York, NY 10003
--------------------------------------------------------------------------------------------------------------------
Mr. Don Klosterman
Director 809 N Dixie Hgwy, Suite 200 50,000 0.25%
West Palm Beach, FL 33401
--------------------------------------------------------------------------------------------------------------------
Mr. Charles Gargano
Director 633 3rd Ave., 37th Fl. 250,000 1.23%
New York, NY 10017
--------------------------------------------------------------------------------------------------------------------
Mr. Kenneth Greenblatt
Director 809 N Dixie Hgwy, Suite 200 100,000 0.49%
West Palm Beach, FL 33401
--------------------------------------------------------------------------------------------------------------------
Mr. Lawrence Slavin
Director 87 St. Jon's Road 205,000(3) 1.01%
Wilton, CT 06897
--------------------------------------------------------------------------------------------------------------------
Chief Alex Bruni
Operating 809 N Dixie Hgwy, Suite 200 550,000(2) 2.70%
Officer West Palm Beach, FL 33401
--------------------------------------------------------------------------------------------------------------------
Mr. James Walsh
Director 5874 Deerfield Place 600,000 2.96%
Lake Worth, FL 33463
--------------------------------------------------------------------------------------------------------------------
All Executive Officers and Directors as 5,923,309 28.92%
a group (8 people)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This amount includes 200,000 shares earned by Lynn Mitchell, Dr.
Mitchell's wife, for services to us.
(2) This amount includes 200,000 shares that may be obtained through January
2001 by Mr. Bruni upon exercise of his outstanding options.
(3) This amount includes 5,000 shares issued to Mr. Slavin's wife for services
rendered to us.
Changes in Control.
We are unaware of any arrangements, which may cause a change in control.
15
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Directors and Executive Officers.
The following sets forth the names, ages, positions and terms of office of our
officers and directors. Our directors are elected annually by the shareholders,
and the officers are elected by the board at the first meeting of the board
following the annual meeting.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Name Age Position Term of Office
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dr. Michael Mitchell 44 President and CEO Annual
--------------------------------------------------------------------------------------------------------------------
Mr. Charles A. Gargano 64 Director Annual
--------------------------------------------------------------------------------------------------------------------
Mr. Lawrence J. Slavin 46 Director Annual
--------------------------------------------------------------------------------------------------------------------
Mr. Alex Bruni 41 Chief Operating Officer Annual
--------------------------------------------------------------------------------------------------------------------
Mr. James C. Walsh 58 Director Annual
--------------------------------------------------------------------------------------------------------------------
Mr. Don Klosterman 69 Director Annual
--------------------------------------------------------------------------------------------------------------------
Mr. John H. Flood, III 49 Director Annual
--------------------------------------------------------------------------------------------------------------------
Mr. Kenneth Greenblatt 52 Director Annual
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Dr. Michael Mitchell
Dr. Mitchell obtained a degree in biology from Jacksonville University in 1976.
In 1980, he obtained his M.D. degree from the University of Dominica. From 1985
through the end of 1999, he has been a physician at Greenwich Village
Pediatrics. He is board certified in pediatrics and has memberships in the
Academy of Pediatrics and the New York County Medical Society. He has now left
the practice of pediatrics to devote his full attention to LCS Golf.
Mr. Charles A. Gargano
Mr. Gargano earned his B.S. and M.B.A. degrees from Fairleigh Dickinson
University and an M.S. in civil engineering from Manhattan College. He served
under Presidents Reagan and Bush as the Ambassador to the Republic of Trinidad
and Tobago. Since 1995, Mr. Gargano has served as the Commissioner for the New
York State Department of Economic Development, while simultaneously serving his
appointment as Chairman of Empire State Development, Inc. Mr. Gargano is a
licensed Professional Engineer and a Civil Engineer.
Mr. Lawrence J. Slavin
In 1974, Mr. Slavin received his history degree at Hofstra University. He then
received his M.A. in Healthcare Administration at C.W. Post College in 1977.
From 1991 through 1996, he worked as
16
<PAGE>
Executive Director and Managing Partner of Hartsdale Diagnostic & Women's
Imaging Service in Hartsdale, New York. In 1996, Mr. Slavin became Vice
President of Business Development and Marketing at U.S. Management Systems,
Inc., a healthcare management service company, where he developed and managed
sales and marketing plans for entities in the healthcare industry. In 1998, Mr.
Slavin began service as the President of Slavin Consulting, LLC, a healthcare
consulting firm in Wilton, Connecticut, where he focuses on the development of
strategic growth plans for healthcare related facilities.
Mr. Alex Bruni
Mr. Bruni serves as our Chief Operating Officer. He obtained a BBA in Accounting
and a MS in Taxation from Hofstra University. From 1988 through 1998, Mr. Bruni
worked at American Express as the Director of International Taxes, managing a
staff of five tax accountants while also managing and planning American Express
international operations. In addition, Mr. Bruni worked as a tax manager for
Nomura Securities from 1986 through 1988 and as a tax specialist for Wertheim
Schroder from 1984 through 1986.
Mr. James C. Walsh
Mr. Walsh received his B.S. and J.D. degrees from the University of Alabama. He
is admitted to practice law in Louisiana and New York, where he has been
practicing since 1966. Mr. Walsh practices in his own firm, specializing in the
representation of entertainers and professional athletes. He is also the
President of Namanco Productions, Inc. specializing in the marketing and
management of athletes. Mr. Walsh is a Director of Sportsline, USA, Inc., a
NASDAQ publicly traded company under the symbol "SPLN." This company is an
Internet based sports media company.
Mr. Don Klosterman
Mr. Klosterman graduated from Loyola University of Los Angeles in 1952. He is a
former Chairman of the Board and currently Director for the public television
company NTN (an AMEX company). He also serves as Director for Aldila, a golf
shaft manufacturing company traded on NASDAQ, Director for the National
Registry, Inc., a software development company traded on NASDAQ, and as a
Director of the Bel-Air Country Club.
Mr. John H. Flood, III
Mr. Flood received his A.B in Psychology from Harvard College in 1975. He
obtained his J.D. from the University of Virginia School of Law in 1978. Mr.
Flood is currently the President of Oldron Sports & Entertainment Company, which
does professional sports team marketing and consulting. Prior to his current
position, Mr. Flood directed and managed the National Football League
Properties, Inc. for eleven years where he held the positions of Director of
Legal and Business Affairs, Executive Vice President, General Counsel, and
President.
Mr. Kenneth Greenblatt
Mr. Greenblatt has a BBA degree in Finance from the University of Miami. He
currently serves as a member of the President's Council of the University of
Miami and as a member of the Board of Directors of the Helen Hayes Theatre, in
addition to his position with our company. In 1987, Mr. Greenblatt founded
Waverly Converting, Inc., a textile company, and served as its President until
the
17
<PAGE>
company was sold to Missbrenner, Inc. in 1997. Prior to founding Waverly
Converting, Inc., Mr. Greenblatt served as Chairman for Guilford Mills
Incorporated.
Significant Employees.
Eric Reinertsen was a significant employee of Golf Promo prior to their
acquisition and continued his employment with LCS Golf after the acquisition to
facilitate a smooth transition with the transfer of control. Mr. Reinertsen's
duties with LCS Golf include customer relations and email distribution, which
comprise two essential areas of our business. Prior to joining Golf Promo in
October of 1997, Mr. Reinertsen served as General Manager for Eric's Outboard,
Inc., a company involved in boat sales. Concurrent with his employment with
Golfpromo, Inc., Mr. Reinertsen has worked as a national accounts sales manager
for Vitarich, Inc., a company involved in production and sales of vitamins.
Other than those mentioned above, we currently have no significant employees.
Family Relationships.
There are no family relationships among our directors, executive officers or
persons nominated for such positions.
Involvement in Certain Legal Proceedings.
As of the date of this registration statement, no events have occurred during
the past five years, which would be material to an evaluation of the ability or
integrity of any director, officer or persons nominated for such positions.
ITEM 6. EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (C) (d) (e) (f) (g) (h) (i)
------------------------------------------------------------------------------------------------------------------------------------
Name and Restricted Securities LTIP All Other
Principle Fiscal Salary Bonus Other Annual Stock Award(s) Underlying Payouts Compensation
Position Year ($) ($) Compensation ($) ($) Options/SARs (#) ($) ($)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael 1997 0 0 0 0 0 0 0
Mitchell, 1998 0 0 0 0 0 0 0
President 1999 0 0 0 $1,925,000 0 0 0
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1999 Dr. Michael Mitchell did not receive compensation pursuant to the terms of
his employment agreement in fiscal year ended 2/29/00 because the Company
operated at a loss. Such compensation has been accrued on our financial
statements.
Michael Mitchell, M.D.
18
<PAGE>
On June 1, 1998, we entered into an employment agreement with Dr. Michael
Mitchell for his services as our President and Chief Executive Officer. The
agreement is for a term of five (5) years. There may be termination for cause
ninety (90) days after a written demand for services by our board of directors
has been provided. Termination without cause requires at least three (3) months
notice to Dr. Mitchell. Dr. Mitchell's duties include all those customary for
such positions, as well as any duties reasonably imposed or removed from such
customary duties under our discretion. Dr. Mitchell is to perform such services
at least twenty (20) hours per week. As consideration for these services, we
have agreed to pay Dr. Mitchell an annual salary of two hundred, sixty thousand
dollars ($260,000.00) payable in weekly installments of five thousand dollars
($5,000.00). This salary is to be increased each year by at least four percent
(4%) during the term of the agreement.
Since we were unable to pay Dr. Mitchell pursuant to the terms of his agreement
with us, we issued 2,000,000 restricted shares of our common stock to Dr.
Mitchell in January of 1999. Such shares had a market value of $1,925,000 at the
time of issuance, based on the trading price of free-trading shares of the same
class. Dr. Mitchell's shares were unable and unavailable to be sold at the then
prevailing market price per share. Given that the shares were restricted and
illiquid, management decided that the shares were equivalent in value to the
amounts owed to Dr. Mitchell under the terms of his employment agreement through
the end of 1998.
Alex Bruni.
In accordance with the agreement in which we purchased all of the outstanding
shares of Play Golf, we agreed to employ Alex Bruni for a period of two-years
from May 26, 1999 as Chief Operating Officer of Play Golf and Golf Universe at
an annual salary of $104,000 payable in bi-weekly installments.
Eric Reinertsen.
In accordance with the agreement in which we purchased all of the outstanding
shares of Golf Promo, we agreed to employ Eric Reinertsen for a period of
one-year from the date of the agreement at an annual salary of $60,000 payable
in bi-weekly installments. This agreement is renewable at the mutual option of
the parties.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In January 1999, as compensation for services rendered under his employment
contract for the period from June 1, 1998 through December 31, 1998, we issued
Dr. Michael Mitchell, our President and Director, 2,000,000 shares of our common
stock valued at $1,925,000. In September of 1998, we issued 200,000 shares of
our common stock valued at $75,000 to Lynn Mitchell, wife of Dr. Michael
Mitchell, for services rendered to the Company. In addition, Dr. Mitchell
periodically makes short-term loans to the Company for operations without
specific repayment terms.
Other than those described above, we have no transactions which involved or are
planned to involve a direct or indirect interest of a director, nominee,
executive officer, 5% shareholder or any family of such parties. We are not a
subsidiary of any other company.
19
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES.
Common Stock.
In General. We are authorized to issue 50,000,000 shares of common stock, par
value $0.001 per share, of which 20,282,225 shares were issued and outstanding
as of March 31, 2000. All of the issued and outstanding common stock is fully
paid and nonassessable.
Voting. Each share of our common stock entitles the holder thereof to one vote
per share in the election of directors and in all other matters upon which
stockholders are entitled to vote.
The holders of shares of common stock do not have cumulative voting rights,
which means that the holders of more than 50% of such outstanding shares voting
for the election of directors can elect all of the directors to be elected, if
they so choose. In such event the holders of the remaining shares will not be
able to elect any of our directors.
Dividends. Each share of common stock entitles the holder thereof to receive
cash dividends, as the Board of Directors may declare from funds legally
available therefore. However, we do not intend to declare any dividend on our
common stock in the foreseeable future.
Preemptive Rights. There are no preemptive rights with respect to the common
stock. Upon liquidation, dissolution or winding up of our affairs, and after
payment of creditors, the assets legally available for distribution will be
divided ratably on a share-for-share basis among the holders of the outstanding
shares of common stock.
Debt Securities.
As of the date of this registration statement, we have no debt securities
outstanding.
Other Securities.
As of the date of this registration statement, we have 200,000 options
outstanding to Alex Bruni, which are exercisable through January of 2001. In
addition, we issued 200,000 options to Quintel Communications, Inc. for their
services under a marketing agreement. 100,000 of these options are exercisable
at $1.00 per share until February 16, 2002. The remaining 100,000 options are
exercisable at $2.00 per share until February 16, 2002. These options have
registration rights. We are not authorized to issue preferred stock. We have 50
warrants outstanding, which are each eligible to be exercised for 7 shares at
$0.35 per share.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Market Information.
20
<PAGE>
From mid-1998 through January 19, 2000, our common stock was traded on the
NASDAQ Over-The-Counter Bulletin Board under the symbol "LCSG." The following
chart sets forth the high and low sales prices for each quarter since listing of
the Company's common stock.
1998 Quarter High Low
------------ -----------------------
July 1 - September 30 $0.50 $0.20
October 1 - December 31 $1.49 $0.25
1999 Quarter
------------
January 1 - March 31 $2.75 $0.75
April 1 - June 30 $3.62 $2.25
July 1 - September 30 $2.625 $1.218
October 1 - December 31 $1.625 $0.687
On January 19, 2000, we were de-listed from the Over the Counter Bulletin Board
for failure to comply with the new listing standards set forth by the NASD
before our phase-in date. Since January 20, 2000, our stock has been quoted in
the National Quotation Bureau pink sheets. If we obtain compliance with the NASD
listing requirements, we intend to reapply for listing on the Over the Counter
Bulletin Board. There is no guarantee that we will ever re-obtain such listing.
No prediction can be made as to the effect, if any, that future sales of shares
of common stock or the availability of common stock for future sale will have on
the market price of the common stock prevailing from time-to-time. Sales of
substantial amounts of common stock on the public market could adversely affect
the prevailing market price of the common stock.
Holders.
As of March 31, 2000, there were approximately 425 holders of common stock.
Dividends.
We have not paid a cash dividend on the common stock since the arrival of our
current management, and we do not plan at this time to declare dividends.
Management anticipates that any funds available will be reinvested in our
business. The payment of dividends may be made at the discretion of our Board of
Directors and will depend upon, among other things, our operations, capital
requirements, and overall financial condition.
ITEM 2. LEGAL PROCEEDINGS
Currently, there are no legal proceedings pending against us. However, from time
to time we could be subject to suits arising in the ordinary course of business.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On May 31, 2000, we dismissed our independent auditors, Cornick, Garber &
Sandler, LLP ("Cornick") and engaged the firm of Richard A. Eisner & Company LLP
("Eisner") to serve as our new independent auditors. The reason for such
dismissal was not due to any disagreement with Cornick , whether or not
resolved, on any matter of accounting principles or practices, financial
statement disclosure or auditory scope or procedure. Rather, it was because the
audit partner most familiar with us recently left Cornick and joined Eisner.
None of Cornick's reports on our financial statements have ever contained an
adverse opinion or disclaimer of opinion, or were modified as to audit scope or
accounting principles. However, Cornick's audit report on our financial
statements as of February 28, 1999 was modified as to a going concern
uncertainty.
Our Board of Directors approved the dismissal of Cornick and the appointment of
Eisner by unanimous written consent as of May 31, 2000.
21
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On October 14, 1997, we issued 10,279,216 shares of common stock to Linkun
Holding Company in exchange for certain assets of Linkun Holding Company.
On October 17, 1997, we transferred these assets to WMF Holding Company in
exchange for services valued at $1,500.00.
On October 28, 1997, we issued 850,000 shares of our common stock in our merger
with LCS New York.
On May 1, 1998, we issued 400,000 shares of our common stock in our acquisition
of Golf Universe.
On November 17, 1998, we issued 150,000 shares of our restricted common stock in
our acquisition of B III.
On January 26, 1999, we issued 200,000 shares of our common stock and an option
to purchase an additional 200,000 shares of our common stock in our acquisition
of Play Golf.
On March 8, 1999, we issued 350,000 shares of our common stock in connection
with our acquisition of Golf Promo on February 15, 1999.
The aforementioned share issuances were all made in reliance upon the exemption
from registration provided in Section 4(2) of the Securities Act of 1933, as
amended. We believe the exemption from registration in Section 4(2) of the
Securities Act was available because the transactions did not involve a public
offering. No commissions were paid in any of these transactions.
We issued the following securities in reliance up on the exemption provided in
Rule 504 of Regulation D, of the Securities Act. Our basis for claiming this
exemption is i) we were not a reporting company at the time of the transactions;
ii) we were not an investment company; iii) we were not a development stage
company without a specific plan of business or purpose; and iv) we did not
receive aggregate proceeds of more than $1,000,000 in a twelve-month period. No
commissions were paid in these transactions.
On September 21, 1998, we issued 905,000 shares of our common stock for
Consulting and Business Services rendered to us.
On October 6, 1998, we issued 42,000 shares of our common stock for Legal and
Administrative Services rendered to us.
On October 15, 1998, we issued 18,000 shares of our common stock for Legal
Services rendered to us.
22
<PAGE>
On October 22, 1998, we issued 137,000 shares of our common stock for Legal and
Management Services rendered to us.
On November 3, 1998, we issued 34,200 shares of our common stock for Legal
Services rendered to us.
On November 12, 1998, we issued 35,000 shares of our common stock for Consulting
Services rendered to us.
On November 15, 1998, we issued 16,500 shares of our common stock for Legal
Services rendered to us.
On November 19, 1998, we issued 50,000 shares of our common stock for Consulting
Services rendered to us.
On November 23, 1998, we issued 20,000 shares of our common stock for Consulting
Services rendered to us.
On November 30, 1998, we issued 11,800 shares of our common stock for Legal
Services rendered to us.
On December 1, 1998, we completed the sale of 200,000 units, each comprised of 1
share of common stock and 2 warrants for the purchase 7 shares of common stock
at an exercise price of $0.35, at $0.10 per unit pursuant to an offering under
Rule 504 of Regulation D of the Securities Act. Our basis for claiming this
exemption is i) we were not a reporting company at the time of the transactions;
ii) we were not an investment company; iii) we were not a development stage
company without a specific plan of business or purpose; and iv) we did not
receive aggregate proceeds of more than $1,000,000 in a twelve-month period. No
commissions were paid in these transactions. No commission was paid with respect
to the offering, as the shares were sold by our officers and directors. We
raised $993,752.50 in cash proceeds from the offering.
On December 7, 1998, we issued 125,000 shares of our common stock for Consulting
Services rendered to us.
On December 9, 1998, we issued 350,000 shares of our common stock for Consulting
Services rendered to us.
On December 10, 1998, we issued 11,100 shares of our common stock for Legal
Services rendered to us.
On December 11, 1998, we issued 55,000 shares of our common stock for Consulting
Services rendered to us.
On December 15, 1998, we issued 400,000 shares of our common stock for payment
of a Licensing Fee due from us.
On December 16, 1998, we issued 7,000 shares of our common stock for Legal
Services rendered to us.
23
<PAGE>
On December 21, 1998, we issued 7,200 shares of our common stock for Legal
Services rendered to us
On December 22, 1998, we issued 35,000 shares of our common stock for Management
Services rendered to us.
The aforementioned securities were issued in reliance on Rule 504 of Regulation
D promulgated under the Securities Act, as amended. Our basis for claiming this
exemption is i) we were not a reporting company at the time of the transactions;
ii) we were not an investment company; iii) we were not a development stage
company without a specific plan of business or purpose; and iv) we did not
receive aggregate proceeds of more than $1,000,000 in a twelve month period. No
commissions were paid in these transactions.
On January 26, 1999, we issued 25,000 shares of our common stock for Legal
Services rendered to us.
On March 1, 1999, we issued 20,000 shares of our common stock for Legal Services
rendered to us.
On March 1, 1999, we issued 175,000 shares of our common stock for Public
Relations and Consulting Services rendered to us.
On March 3, 1999, we issued 20,000 shares of our common stock for Consulting
Services rendered to us.
On March 4, 1999, we issued 7,500 shares of our common stock for Legal Services
rendered to us.
On April 9, 1999, we issued 115,000 shares of our common stock for Legal
Services rendered for the Company.
On April 21, 1999, we issued 50,000 shares of our common stock for Legal
Services rendered for the Company.
The aforementioned securities were issued in reliance on Rule 504 of Regulation
D promulgated under the Securities Act, as amended. Our basis for claiming this
exemption is i) we were not a reporting company at the time of the transactions;
ii) we were not an investment company; iii) we were not a development stage
company without a specific plan of business or purpose; and iv) we did not
receive aggregate proceeds of more than $1,000,000 in a twelve-month period. No
commissions were paid in these transactions.
We issued the following securities in reliance up on the exemption provided in
Section 4(2) of the Securities Act. We believed that this exemption was
available in each of the above transactions, as they did not involve a public
offering. No commissions were paid in these transactions.
On September 21, 1998, we issued 120,000 restricted shares of our common stock
for Business Consulting Services rendered to us.
24
<PAGE>
On October 23, 1998, we issued 15,000 restricted shares of our common stock for
Business Consulting Services rendered to us.
On November 6, 1998, we issued 35,000 restricted shares of our common stock for
Business Consulting Services rendered to us.
On December 7, 1998, we issued 75,000 restricted shares of our common stock for
the repayment of debt owed by us.
On December 11, 1998, we issued 115,000 restricted shares of our common stock
for Business Consulting Services rendered to us.
On December 15, 1998, we issued 200,000 restricted shares of our common stock as
payment of a Licensing Fee due by us.
On December 21, 1998, we issued 110,000 restricted shares of our common stock
for Consulting Services rendered to us.
On January 4, 1999, we issued 15,000 restricted shares of our common stock for
Public Relations Services rendered to us.
On January 5, 1999, we issued 2,000,000 restricted shares of our common stock to
our President, Dr. Michael Mitchell, in lieu of compensation for services
rendered to us.
On January 7, 1999, we issued 1,200,000 restricted shares of our common stock as
payment of a Licensing Fee due by us.
On January 26, 1999, we issued 1,015,000 restricted shares of our common stock
for various Consulting Services rendered to us.
On February 17, 1999, we issued 265,000 restricted shares of our common stock
for Consulting Services rendered to us.
On March 1, 1999, we issued 80,000 restricted shares of our common stock for
Consulting Services rendered to us.
On March 4, 1999, we issued 20,000 restricted shares of our common stock for
Consulting Services rendered to us.
On March 8, 1999, we issued 30,000 restricted shares of our common stock for
Consulting Services rendered to us.
On March 25, 1999, we issued 80,000 restricted shares of our common stock for
Consulting Services rendered to us.
25
<PAGE>
On April 9, 1999, we issued 15,000 restricted shares of our common stock for
Administrative Services rendered to us.
On May 21, 1999, we issued 30,000 restricted shares of our common stock for
Consulting Services rendered to us.
On June 1, 1999, we issued 50,000 restricted shares of our common stock for
Consulting Services rendered to us.
On June 24, 1999, we issued 125,000 restricted shares of our common stock for
Executive Services rendered to us.
On June 28, 1999, we issued 200,000 restricted shares of our common stock for
Consulting Services rendered to us.
On July 27, 1999, we issued 200,000 restricted shares of our common stock for
Consulting Services rendered to us.
On August 23, 1999, we issued 275,000 restricted shares of our common stock for
Consulting Services rendered to us.
On September 23, 1999, we issued 3,000 restricted shares of our common stock for
Consulting Services rendered to us.
On October 28, 1999, we issued 200,000 restricted shares of our common stock for
settlement of an employment dispute.
On November 30, 1999, we issued 50,000 restricted shares of our common stock for
management services rendered to us.
On December 1, 1999, we issued 55,000 restricted shares of our common stock for
management services rendered to us.
On December 6, 1999, we issued 25,000 restricted shares of our common stock for
management services rendered to us.
On December 17, 1999, we issued 82,500 restricted shares of our common stock for
employee services rendered to us.
On January 13, 2000, we issued 170,000 restricted shares of our common stock for
settlement of an employment dispute.
On February 6, 2000, we issued 200,000 restricted shares of our common stock for
financial consulting services rendered to us.
26
<PAGE>
On February 11, 2000, we issued 75,000 restricted shares of our common stock for
management services rendered to us.
On March 21, 2000, we issued 150,000 restricted shares of our common stock for
management services rendered to us.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our bylaws provide that we shall indemnify each of our directors and officers
against all costs and expenses actually and necessarily incurred by him or her
in connection with the defense of any action, suit or proceeding in which he or
she may be involved or to which he or she may be made a party by reason of his
or her being or having been such director or officer, except in relation to
matters as to which he or she shall be finally adjudged in such action, suit or
proceeding to be liable for negligence or misconduct in the performance of duty.
27
<PAGE>
PART F/S
LCS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1999
28
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1999
TABLE OF CONTENTS
Page
----
Independent Auditors' Reports 1-2
Consolidated Balance Sheets
as at February 28, 1999 and November 30, 1999 3
Consolidated Statements of Operations
for the Years Ended February 28, 1998 and 1999
and the Nine Months Ended November 30, 1998 and 1999 4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended February 28, 1998 and 1999 and the
Nine Months Ended November 30, 1999 5
Consolidated Statements of Cash Flows 7
for the Years Ended February 28, 1998 and 1999
and the Nine Months Ended November 30, 1998 and 1999
Notes to Consolidated Financial Statements 9
29
<PAGE>
Independent Auditors' Report
To the Shareholders
LCS Golf, Inc.
We have audited the accompanying consolidated balance sheet of LCS GOLF,
INC. AND SUBSIDIARIES as at February 28, 1999 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of LCS Golf, Inc.
and Subsidiaries as at February 28, 1999 and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred significant losses from operations for the year ended
February 28, 1999 and has relied on loans from its major stockholder. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding this matter are also described in
Note A. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ CORNICK GARBER & SANDLER, LLP
----------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
September 1, 1999
30
<PAGE>
Independent Auditors' Report
LCS Golf, Inc.
New York, New York
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of LCS Golf, Inc. for the year ended February 28, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of LCS Golf,
Inc. for the year ended February 28, 1998 in conformity with generally accepted
accounting principles.
/s/ J.T. SHULMAN & COMPANY, P.C.
--------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Carle Place, New York
May 19, 1998
With respect to Note A,
October 24, 2000
31
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28, November 30,
1999 1999
------------ ------------
ASSETS (Unaudited)
Current assets:
Cash $ 289,029 $ 2,727
Accounts receivable (Note C) 164,417
Due from factor (Note C) 94,584 53,064
Inventory (Note D) 73,377 87,739
Prepaid and other current assets 335,617 23,919
Loans to stockholder - officer (Note E) 26,515
---------- ----------
Total current assets 819,122 331,866
Fixed assets - at cost, less accumulated
depreciation and amortization (Note F) 43,050 83,373
Prepaid license fee (Note G) 1,546,912 1,427,918
Intangible assets (Note A) 1,522,886 1,405,523
Security deposits 10,200 18,000
---------- ----------
TOTAL $3,942,170 $3,266,680
========== ==========
The notes to financial statements are made a part hereof.
32
<PAGE>
February 28, November 30,
1999 1999
------------ ------------
LIABILITIES (Unaudited)
Current liabilities:
Cash overdraft $ 3,127
Accounts payable and accrued expenses $ 156,762 532,919
Notes payable 50,000
Loans from officer/stockholder (Note E) 260,746
Other current liabilities 41,928 71,002
----------- -----------
Current liabilities before liabilities
subsequently paid with common stock 198,690 917,794
----------- -----------
Liabilities subsequently paid with common
stock (Notes I and L) 1,830,796 224,783
----------- -----------
Commitments (Notes H and I)
STOCKHOLDERS' EQUITY
(Notes A, B, G, H, I and L)
Common stock - $.001 par value each -
authorized 50,000,000 shares; issued and
outstanding 17,519,225 shares at February 28,
1999 and 19,524,725 shares at November 30, 1999 17,519 19,525
Additional paid-in capital 8,137,066 11,475,567
Deficit (6,241,901) (9,370,989)
----------- -----------
Total stockholders' equity 1,912,684 2,124,103
----------- -----------
TOTAL $ 3,942,170 $ 3,266,680
=========== ===========
33
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
February 28, November 30,
---------------------------- ----------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Sales $ 107,840 $ 509 $ 1,664,795
Cost of sales 191,872 1,063,016
------------ ------------ ------------
Gross profit (loss) (84,032) 509 601,779
Selling, general and administrative
expenses (includes $25,000,
$5,141,680, $3,706,411 and
$1,734,495, respectively, of
expenses paid with common stock) $ 92,184 5,551,559 3,815,267 3,701,127
------------ ------------ ------------ ------------
(Loss) from operations (92,184) (5,635,591) (3,814,758) (3,099,348)
Other income (expense):
Other income 22,910 23,720 8,663
Interest income 1,282
Interest expense (2,204) (5,602) (1,121) (39,685)
------------ ------------ ------------ ------------
NET (LOSS) $ (94,388) $ (5,618,283) $ (3,792,159) $ (3,129,088)
============ ============ ============ ============
Basic and diluted net (loss) per share $ (.03) $ (.63) $ (.55) $ (.16)
============ ============ ============ ============
Weighted average number of
shares outstanding 3,615,735 8,961,285 6,955,885 18,968,875
============ ============ ============ ============
</TABLE>
The notes to financial statements are made a part hereof.
34
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 28, 1998 and 1999 (AUDITED)
AND THE NINE MONTHS ENDED NOVEMBER 30, 1999 (UNAUDITED)
(NOTES A, B, G, H, I AND L)
<TABLE>
<CAPTION>
Total
Stockholders'
Common Shares Additional Equity
------------------------- Paid-in (Capital
Shares Amount Capital Deficit Deficiency)
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balances - March 1, 1997:
As previously reported 988,250 $ 988 $ 276,268 $ (405,526) $ (128,270)
Adjustment of prior year's expenses (123,704) (123,704)
----------- -------- ---------- ---------- ----------
As adjusted 988,250 988 276,268 (529,230) (251,974)
Additional shares provided to existing
shareholders prior to recapitalization 364,750 365 (365)
Recapitalization:
Adjustment to reflect reverse merger 980,904 981 (981)
Common stock issued in exchange for services
rendered in connection with reverse merger 3,916,360 3,916 21,084 25,000
Contribution of stockholder loans to
additional paid-in capital 223,180 223,180
Net (loss) for year ended February 28, 1998 (94,388) (94,388)
----------- -------- ---------- ---------- ----------
Balances - March 1, 1998 (carry forward) 6,250,264 6,250 519,186 (623,618) (98,182)
</TABLE>
35
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 28, 1998 and 1999 (AUDITED)
AND THE NINE MONTHS ENDED NOVEMBER 30, 1999 (UNAUDITED)
(NOTES A, B, G, H, I AND L)
-2-
<TABLE>
<CAPTION>
Total
Stockholders'
Common Shares Additional Equity
----------------------- Paid-in (Capital
Shares Amount Capital Deficit Deficiency)
--------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balances - March 1, 1998 (brought forward) 6,250,264 $ 6,250 $ 519,186 $ (623,618) $ (98,182)
Shares issued In Regulation D offering 2,982,150 2,982 976,722 979,704
Shares issued in connection with
acquisitions 1,500,000 1,500 1,302,450 1,303,950
Options issued in connection with
acquisition 169,755 169,755
Shares issued for services 6,786,811 6,787 5,168,953 5,175,740
Net (loss) for the year ended
February 28, 1999 (5,618,283) (5,618,283)
---------- -------- ----------- ----------- -----------
BALANCES - FEBRUARY 28, 1999 17,519,225 17,519 8,137,066 (6,241,901) 1,912,684
Liabilities paid with common stock 1,107,500 1,108 1,526,117 1,527,225
Shares issued for services 898,000 898 1,812,384 1,813,282
Net (loss) for the nine months
ended November 30, 1999 (3,129,088) (3,129,088)
---------- -------- ----------- ----------- -----------
BALANCES - NOVEMBER 30, 1999 19,524,725 $ 19,525 $11,475,567 $(9,370,989) $ 2,124,103
========== ======== =========== =========== ===========
</TABLE>
The notes to financial statements are made a part hereof.
36
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
February 28, November 30,
--------------------------- ---------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net (loss) $ (94,388) $(5,618,283) $(3,792,159) $(3,129,088)
Adjustments to reconcile results of
operations to net cash effect of
operating activities:
Depreciation and amortization 80,206 14,628 243,950
Issuance of common stock for services -
net 25,000 5,141,680 3,706,411 1,734,495
Changes in assets and liabilities, net of
effects of acquisition of businesses:
Accounts receivable (164,417)
Due from factor 178,539 68,071 41,520
Inventory (21,573) (15,540) (14,362)
Prepaid and other current assets (30,223) (24,818) 311,698
Prepaid licensing fee (25,000)
Security deposits (7,800)
Accounts payable and accrued expenses (95) 71,543 (23,543) 376,157
Other current liabilities (2,148) 21,041 29,074
----------- ----------- ----------- -----------
Net cash used for operating
activities (69,483) (225,259) (45,909) (578,773)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Payment for purchases of businesses (369,446) (19,282)
Purchase of fixed assets (47,917)
Officer/stockholder (loans) loan
repayments (26,515) 26,515
----------- ----------- ----------- -----------
Net cash used for investing
activities (395,961) (19,282) (21,402)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Cash overdraft 3,127
Net proceeds from issuance of shares
in Regulation D 979,704 250,933
Proceeds from notes issued 50,000
Proceeds of loans from officer/stock-
holder 70,450 468,606
Repayment of officer/stockholder's
loans (70,450) (9,377) (207,860)
----------- ----------- ----------- -----------
Net cash provided by
financing activities 70,450 909,254 241,556 313,873
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH $ 967 $ 288,034 $ 176,365 $ (286,302)
CASH - beginning of period 28 995 995 289,029
----------- ----------- ----------- -----------
CASH - END OF PERIOD $ 995 $ 289,029 $ 177,360 $ 2,727
=========== =========== =========== ===========
</TABLE>
37
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-2-
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
February 28, November 30,
--------------------------- ---------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Supplementary disclosures of cash paid for:
Interest $ 333 $ 30,729
====== =========
Income taxes $ 5,602 $ 488
======== ======
</TABLE>
The notes to financial statements are made a part hereof.
38
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE A - Description of Business and Summary of Significant Accounting Policies
The Company
On October 28, 1997, LCS Golf, Inc. (the Company), an inactive New York
corporation, was merged in a reverse merger transaction into an
inactive Delaware corporation with the same name ("LCS Delaware") in
exchange for 980,904 shares of LCS Delaware's common stock. The Company
paid $50,000 as a finders fee in connection with the merger which has
been charged to expense. In addition, 3,916,360 shares with a value of
$25,000 were issued to certain existing shareholders of the Company for
services rendered in connection with the merger has also been charged
to expense. For financial accounting purposes, the merger on October
28, 1997 has been treated as the acquisition of LCS Delaware by the
Company in the form of a recapitalization. Therefore, no value has been
ascribed to the common stock held by the LCS Delaware shareholders.
The Company was formed under the laws of the State of New York on March
8, 1994. On October 26, 1994, the Company commenced business operations
with the purchase of substantially all of the assets and the assumption
of specific liabilities of Bert Dargie Golf, Inc., a Tennessee
corporation engaged in the business of designing, assembling and
marketing golf clubs and related accessories.
In August, 1996, the Company conveyed, assigned, transferred and
delivered substantially all of its business assets to Dargie Golf Co.
(the "Purchaser") in exchange for the: i) cancellation of the remaining
debt owed to the Purchaser arising from the October 26, 1994 purchase,
ii) sale by Herbert A. Dargie III of his 5 percent ownership interest
in the Company to the Company and, iii) the assumption of certain
liabilities of the Company by the Purchaser.
The Company retained all of its rights to the specialty golf club known
as the "Rattler." Additionally, the Purchaser granted to the Company a
license to use the "Dargie" name in connection with the marketing of
the "Rattler" utility club outside a 200 mile radius of Memphis,
Tennessee for a term of no less than eighteen months.
After the acquisitions described in Note B, the Company is primarily
engaged in the acquisition and operation of companies which provide
products and services to the golf playing public. These products and
services include magnetic therapeutic devices, discounted greens fees
and other services, and a golf website (http:www.golfuniverse.com)
which provides various golf-related hyperlinks to other golf websites
and golf course previews.
(Continued)
39
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE A - Description of Business and Summary of Significant Accounting Policies
(Continued)
Principles of Consolidation
The consolidated financial statements include the accounts of LCS and
its subsidiaries, all of which are wholly owned. All material
intercompany accounts and transactions have been eliminated in
consolidation.
Basis of Presentation
The accompanying consolidated financial statements have been prepared
on a going concern basis which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
Through November 30, 1999, the Company has not been able to generate
significant revenues from its operations to cover its costs and
operating expenses. Although the Company has been able to issue its
common stock (Note I) for a significant portion of its expenses or has
obtained cash advances from its principal stockholder (Note E), it is
not known whether the Company will be able to continue this practice or
be able to obtain continuing cash advances or if its revenue will
increase significantly to be able to meet its cash operating expenses.
This, in turn, raises substantial doubt about the Company's ability to
continue as a going concern. Management believes that the subsidiaries
acquired during the year ended February 28, 1999 will begin to generate
higher revenues and that the Company will be able to raise additional
funds through an offering of its common stock or alternative sources of
financing. However, no assurances can be given as to the success of
these plans. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
Interim Financial Data
The unaudited consolidated financial information as of November 30,
1999 and for the nine months ended November 30, 1999 and 1998 has been
prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, contain all adjustments
(consisting of normal recurring adjustments) necessary to present
fairly the financial information in accordance with generally accepted
accounting principles. The results of the interim periods are not
necessarily indicative of the results to be expected for a full year.
(Continued)
40
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE A - Description of Business and Summary of Significant Accounting Policies
(Continued)
Inventories
Inventories are valued at the lower of cost determined on a first-in,
first-out basis or market.
Depreciation of Equipment
Depreciation is provided utilizing the straight-line method over the
estimated useful lives of the related assets. For income tax purposes,
accelerated depreciation methods are utilized for certain assets.
Deferred Income Taxes
Deferred income taxes are reported using the liability method. Deferred
tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
As a result of the Company's net losses to date, the Company has
provided a valuation allowance of $2,169,000 at February 28, 1999 and
$3,376,000 at November 30, 1999 against the income tax benefit
attributable to its net operating loss carryforwards and other
temporary differences which aggregate approximately $5,618,000 and
$8,747,000 at February 28, 1999 and November 30, 1999, respectively.
Almost all of such temporary differences relate to the Company's net
operating loss carryforwards which expire substantially in 2019 and
2020.
Intangible Assets
Intangible assets which are comprised of the goodwill, customer lists
and website costs relating to acquisitions (Note B) are being amortized
on a straight-line basis over ten years.
The Company plans to evaluate these assets for impairment on the basis
of whether their cost is recoverable from projected, undiscounted net
cash flows for each related business (See Note L).
(Continued)
41
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE A - Description of Business and Summary of Significant Accounting Policies
(Continued)
Concentrations
Financial instruments which potentially subject the Company to
concentration of credit risk consist of accounts receivable and cash
deposits. Cash balances are held principally at one financial
institution and may exceed Federal Deposit Insurance Corporation
insured amounts.
For the year ended February 28, 1999, sales to two customers accounted
for approximately 89% of total sales, the largest of which represented
approximately 73% of the total. For the nine months ended November 30,
1999, sales to two customers accounted for approximately 40% of total
sales, the largest of which accounted for approximately 21%. In
addition, two customers accounted for approximately 78% of accounts
receivable at November 30, 1999, the largest of which accounted for
55%.
Advertising Costs
The Company expenses its advertising costs when incurred. However,
$10,000 of expenses relating to an infomercial which was in production
as of February 28, 1999 are included in prepaid expenses at that date
and were expensed upon the first showing of the infomercial during the
nine months ended November 30, 1999.
Advertising costs were approximately $6,700 for the year ended February
28, 1999 and $146,000 for the nine months ended November 30, 1999 which
includes approximately $134,000 for expenses of the infomercial. There
were no advertising costs incurred for the year ended February 28, 1998
and the nine months ended November 30, 1998.
Loss Per Share
Loss per share has been computed by dividing the net loss by the
weighted average number of common shares outstanding during each
period. The effect of outstanding stock options is not included in the
per share calculations as it would be antidilutive.
(Continued)
42
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE A - Description of Business and Summary of Significant Accounting Policies
(Continued)
Prior Period Adjustment
The deficit balance as at March 1, 1997 has been adjusted to reflect
the write off of a trademark which had no value to the Company and
should have been written off in a prior year's financial statements.
Other Adjustments
The costs and expenses related to the acquisition of LCS Delaware are
treated as period costs. Certain costs of these and expenses have been
revised in the financial statements as of February 28, 1998. The effect
of these adjustments on the year ended February 28, 1998 financial
statements was to increase selling, general and administrative expenses
and net loss by approximately $71,000 and basic and diluted net loss
per share increased by $.02. This change represents the treatment of a
cash payment of $50,000 as a finder fee and the issuance of 3,916,360
shares of common stock for services valued at an additional $21,084.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE B - Acquisitions
The results of operations of the following acquisitions are included in
the attached consolidated statements of operations and cash flows from
their respective dates of acquisition.
Golf Universe, Inc.
On May 1, 1998, the Company acquired, in a purchase transaction, the
outstanding common stock of Golf Universe, Inc., which operates a golf
website that provides hyperlinks to other golf related websites. The
purchase price was $245,250, which included 400,000 shares of the
Company's common stock with a market value of $128,500 as at the date
of issuance and a note payable of $100,000 which was paid prior to
February 28, 1999. The purchase price also includes $16,750 in
expenses.
Mr. B III, Inc.
On November 17, 1998, the Company acquired, in a purchase transaction,
the outstanding common stock of Mr. B III, Inc. ("B III"), which
designs, manufactures, markets and distributes therapeutic magnetic
products and specialty pillows. The purchase price was approximately
$679,000, which included a cash payment of $250,000 and 150,000 shares
of the Company's common stock with a market value of $71,250 as at the
date of issuance. The purchase price also includes expenses of
approximately $358,000, which includes 150,000 shares of the Company's
common stock with a market value of approximately $355,000 as at the
date of issuance.
(Continued)
43
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE B - Acquisitions (Continued)
Play Golf Now, Inc.
On January 26, 1999, the Company acquired, in a purchase transaction,
the outstanding common stock of Play Golf Now, Inc., which sells
memberships that enable the holder to play at specified golf courses
across the country at reduced greens fees and entitle the holder to
receive various other discounts from participating vendors on golf
related items. The purchase price was approximately $192,000
representing the market value at the date of issuance of 200,000 shares
of the Company's common stock issued to the seller. The seller also
received non-qualified stock options to purchase to January 25, 2001,
200,000 shares of the Company's common stock at $.50 per share. The
value of these options at grant date utilizing the Black-Scholes
option-pricing model, was approximately $170,000. The assumptions used
in determining the value of these options was an expected volatility of
181.00%, an average interest rate of 4.64% per annum and an expected
holding period of two years. In March 1999, the Company issued an
additional 150,000 shares of its common stock with a market value of
approximately $144,000.
Golfpromo, Inc.
On February 15, 1999, the Company acquired, in a purchase transaction,
the outstanding common stock of Golfpromo, Inc., whose principal asset
is a mailing list of golfers. The purchase price was approximately
$316,000, representing the market value as at the date of issuance of
350,000 shares of the Company's common stock issued to the seller.
The agreements for the acquisitions of B III, Play Golf Now, Inc. and
Golfpromo, Inc. include a provision that if the price of the Company's
common stock is less than $1.00 per share, one year from the date(s) of
issuance, additional shares were to be issued to the seller(s). The
Company believes that the price per share was not less than $1.00 on
the applicable dates and, accordingly, no additional shares will be
issued.
(Continued)
44
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE B - Acquisitions (Continued)
The following presents, on an unaudited pro forma basis, the net sales,
net loss and loss per share had the acquisitions occurred on March 1,
1997 or the date of inception of the acquired company, whichever is
later. The information for Golf Universe, Inc. is based upon its
unaudited financial data for the period March 1, 1998 through April 30,
1998 and for the year ended February 28, 1998. The information for B
III is based upon its unaudited financial data for the period March 1,
1998 through November 16, 1998 and for the year ended February 28,
1998. The information for Golfpromo, Inc. ("GP") includes removing the
operations of GP for the period February 15, 1999 through February 28,
1999, included in the historical financial information for the year
ended February 28, 1999, and including the operations of GP for the
year ended December 31, 1998. The information for Play Golf Now, Inc.
has not been included because it was not material. The pro forma
information does not purport to be indicative of the results of
operations that would have occurred had the transactions taken place at
the beginning of the periods presented nor is it indicative of the
expected future results of operations:
Year Ended February 28,
--------------------------
1999 1998
----------- ---------
Net sales $ 1,055,000 $ 1,242,000
=========== ===========
Net loss $(5,755,000) $ (320,000)
=========== ===========
Loss per share $ (.57) $ (.06)
=========== ===========
NOTE C - Due from Factor
B III's agreement with a factor provides for the sale of all credit
approved accounts receivable of B III only at the invoice price less a
factoring commission of 1.75%. Minimum factoring commissions of $15,000
a year, payable monthly are required. The agreement is automatically
renewable by the Company each October 31, unless the factor gives the
Company 30 - 60 days notice of cancellation prior to that date. The
Company is given credit for the sale within two weeks of collection by
the factor. If a receivable is not collected for any reason other than
the customer's financial inability to pay, the credit approval is
automatically terminated and it becomes a "client risk" receivable. A
client risk receivable is a purchase by the factor with recourse and
can be charged back to the Company at the factor's option. The factor
may advance up to 80% of the purchase price of uncollected accounts
receivable. These advances bear interest at a rate the greater of 9% or
2% above the prime rate. The factor is collateralized under this
agreement by the accounts receivable, cash in banks and intangible
assets of B III. At February 28, 1999 and November 30, 1999, the
Company has a receivable due from the factor which bears interest at 2%
below the prime rate.
(Continued)
45
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE C - Due from Factor (Continued)
In March 1999, the President of the Company personally guaranteed the
above agreement.
Accounts receivable on the consolidated balance sheet are not subject
to the factoring agreement at November 30, 1999.
NOTE D - Inventory
Inventory is summarized as follows:
February 28, November 30,
1999 1999
------------ ------------
Raw materials $30,768 $47,739
Work-in-process 4,069
Finished goods 38,540 40,000
------- -------
Total $73,377 $87,739
======= =======
NOTE E - Loans to/from Major Stockholder/Officer
Loans to/from a major stockholder/officer are payable on demand with
interest at 10% a year. These loans are unsecured. From February 28,
1999 to November 30, 1999, the loans receivable from the
stockholder/officer were repaid and the stockholder/officer made net
advances to the Company of approximately $261,000. At February 29,
2000, the net advances from the stockholder/officer were approximately
$229,000.
NOTE F - Equipment
Equipment consists of the following:
<TABLE>
<CAPTION>
February 28, November 30, Useful Lives
1999 1999 (Years)
------------ ------------ ------------
<S> <C> <C> <C>
Office equipment and computers $10,515 $58,432 5
Machinery and equipment 34,425 34,425 5
------ ------
Total 44,940 92,857
Less accumulated depreciation 1,890 9,484
------ ------
Total $43,050 $83,373
======= =======
</TABLE>
(Continued)
46
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE F - Equipment (Continued)
Depreciation expense for the year ended February 28, 1999 and the nine
months ended November 30, 1999 was $1,890 and $7,594, respectively.
NOTE G - Licensing Agreement
In December 1998, the Company entered into a ten year licensing
agreement for the services of Joe Namath to be a spokesperson to
promote the Company's products. The license fee of approximately
$1,586,500, which is being amortized over the life of the agreement,
was paid for by the issuance of 1,200,000 shares of the Company's
common stock with a market value of $1,174,500, the issuance of 600,000
shares of common stock with a market value of approximately $387,000 to
two individuals who assisted in obtaining the agreement and $25,000 in
cash. The amortization expense for the year ended February 28, 1999 and
for the nine months ended November 30, 1999 was approximately $40,000
and $119,000, respectively. In addition, Mr. Namath is entitled to a
royalty fee of 5% of the gross sales, as defined, generated from
products promoted in accordance with the agreement. No royalties are
due for the year ended February 28, 1999 and the nine months ended
November 30, 1999.
NOTE H - Commitments
Employment Agreements
On June 1, 1998, the Company entered into a five year employment
agreement with its President which provides for a minimum annual salary
of $260,000 with annual increases of not less than four percent.
However, in lieu of cash payments of $150,000 due under the agreement
through December 1998, the Company issued 2,000,000 shares of common
stock to its President. The $1,925,000 quoted market value of these
shares on the date of issuance has been charged to operations for the
year ended February 28, 1999, as officer's salary.
On February 18, 1999, the Company entered into a one year employment
agreement with the Vice President of Golfpromo, Inc., which provides
for a minimum annual salary of $60,000. Additionally, the agreement
provides for a bonus of five percent of sales of Golfpromo, Inc. up to
$500,000 and three percent of its sales between $500,001 and
$1,000,000. The agreement is renewable at the option of both parties.
Golfpromo had no sales for the period ended February 28, 1999 and sales
of approximately $567,000 for the nine months ended November 30, 1999.
In addition, the Company agreed to continue the employment of two
employees for one year at a combined annual salary of approximately
$76,000.
(Continued)
47
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE H - Commitments (Continued)
Employment Agreements (Continued)
In connection with the acquisition of Play Golf Now, Inc., the Company
entered into an employment agreement with the seller for a two year
period commencing on May 26, 1999 at an annual salary of $104,000.
Lease
In August 1999, the Company entered into a three year lease for office
space in Florida. The lease can be renewed for an additional two year
term. Rent is $5,000 a month with an annual cost of living increase and
is subject to further adjustments for any increases in real estate
taxes or insurance. The minimum annual base rentals under this lease
are as follows:
Year ending February 28:
2000 $ 40,000
2001 60,000
2002 60,000
2003 20,000
---------
Total $ 180,000
=========
The Company's other locations are leased on a month-to-month basis.
Rent expense was $15,980 for the year ended February 28, 1999 and
$1,200 and $60,056 for the nine month periods ended November 30, 1998
and 1999, respectively.
NOTE I - Stockholders' Equity
During the year ended February 28, 1999, the Company sold, under
Regulation D of the Federal Securities Act, 200,000 units at $.10 a
unit. Each unit consists of one share of the Company's common stock and
two common stock warrants. Each warrant is for the purchase of seven
shares of common stock at $.35 a share. As of November 30, 1999,
2,782,150 shares have been issued for the exercise of the warrants,
warrants to purchase 350 shares are outstanding and warrants to
purchase 17,500 shares have been surrendered by the holders. The
Company received $979,704 in proceeds from the sale of the units and
exercise of the warrants, net of offering expenses of $14,048.
(Continued)
48
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 31, 1998 AND 1999 IS UNAUDITED)
NOTE I - Stockholders' Equity (Continued)
The Company has issued shares of common stock for the following
services rendered (the shares have been recorded at the quoted market
value of the Company's stock) on the dates issued:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
February 28, 1999 November 30, 1999
----------------------- -------------------------
Quoted Quoted
Number of Market Number of Market
Shares Issued for Services Shares Value Shares Value
---------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Employment contract settlement
(Note K) 200,000 $ 268,750
Licensing agreement (Note G) 1,800,000 $1,561,576
Board of Directors fees 200,000 108,124 50,000 53,126
Consulting services ** 1,711,811 1,000,378 640,000 1,476,718
President's wages (Note H) 2,000,000 1,925,000
Consulting fees - related parties* 1,325,000 820,975
Finance costs 8,000 14,688
--------- ---------- ------- ----------
Total 7,036,811 $5,416,053 898,000 $1,813,282
========= ========== ======= ==========
</TABLE>
*The Company utilized consulting services provided by certain family
members of the President of the Company.
** For the year ended February 29, 1999, approximately $274,000 of fees
are included in prepaid and other current assets.
On June 25, 1999, the stockholders of the Company approved an increase
in the number of authorized shares from 20,000,000 shares to 50,000,000
shares.
NOTE J - Segments
LCS Golf, Inc., through its subsidiaries, provides products and
services to the golf playing public. The Company's two reportable
business segments are managed separately based on fundamental
differences in their operations. They consist of the golf related and
manufacturing segments. The golf related segment commenced operations
subsequent to February 28, 1999.
(Continued)
49
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE J - Segments (Continued)
The golf related segment provides diverse services through its web
sites, including direct marketing services and e-mail direct marketing
services, e-commerce news and information, internet access and
discounts on golf products and services.
The manufacturing segment is involved in the design, manufacture,
marketing and distribution of therapeutic magnetic and specialty
products. In November 1999, the Company ceased manufacturing operations
and, utilizing its manufacturing assets, is outsourcing this phase of
the segment.
The following table reflects information for the segments as at
February 28, 1999 and November 30, 1999 and for the nine months ended
November 30, 1999, consistent with the Company's management system.
These results are not necessarily a depiction that is in conformity
with generally accepted accounting principles. Certain significant
assets and expenditures which related to the overall management and
operations of the Company are not allocated to any segment. These
expenses include consulting fees of approximately $1,387,000,
professional fees of approximately $351,000, settlement of claims of
approximately $433,000 and general corporate salaries of approximately
$200,000. The Golf related segment of the Company had no operations for
the year ended February 28, 1999.
<TABLE>
<CAPTION>
Unallocated
Golf Management/
Total Related Manufacturing Operations
----------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Total assets:
February 28, 1999 $ 3,942,170 $1,152,037 $ 623,624 $ 2,166,509
November 30, 1999 3,266,680 1,290,773 536,760 1,439,147
----------- ---------- ----------- -----------
(Decrease) increase
in total assets $ (675,490) $ 138,736 $ (86,864) $ (727,362)
=========== ========== =========== ===========
Sales $ 1,664,795 $ 662,243 $ 1,002,552
=========== ========== ===========
Net (loss) $(3,129,088) $ (73,558) $ (454,698) $(2,600,832)
=========== ========== =========== ===========
</TABLE>
(Continued)
50
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE K - Claim Settlement
During January 2000, the Company reached a final settlement of a claim
from a former employee of LCS New York. The Company issued 200,000
shares of common stock in October 1999 and an additional 170,000 shares
of common stock in January 2000. The market value of these shares of
approximately $403,000 has been reflected in the November 30, 1999
financial statements. These shares are restricted and have piggyback
registration rights should the Company file a registration statement
with the SEC, subject to the agreement of the managing underwriter.
NOTE L - Events Subsequent to Issuance of the Auditors' Reports (Unaudited)
[1] Debt in Default
On February 16, 2000, the Company borrowed $500,000 from Quintel
Communications, Inc. (the "lender"), an internet marketing and
development company, in the form of a convertible promissory note. The
note is due on demand at any time after August 16, 2000 and is
convertible into 500,000 shares of common stock of the Company at any
time prior to repayment. Any shares issued by the Company will have
registration and piggyback registration rights and are subject to
anti-dilution adjustments in certain cases. If any additional shares
are issued under the anti-dilution provisions, the Company will have a
one-time repurchase right at a $1.00 per share during the twelve month
period following the date of conversion of the note. The note is
without interest until the earlier of August 17, 2000 or an event of
default under the note. Interest to be charged will be at prime plus
4%, not to exceed 14%. The note may be prepaid at anytime after giving
15 days prior written notice. The note is secured by the Company's
database and all related records, contract rights and intangibles which
has been delivered to the lender and must be updated upon request,
until the obligation has been paid. If the Company should be in default
under this agreement, the lender can use the database and related items
for a period of ten years for a fee of $5,000 a month.
The Company also entered into a two year marketing agreement with the
lender to develop programs to market products and services and send
promotional e-mails to the visitors and customers of the Company's
websites. The lender will pay the Company $.25 for each individual who
"opts in" to be registered with the lender at its site. Revenues
generated from these programs (less direct "out-of-pocket" costs,
including royalties, cost of producing the marketing materials and
other expenses directly related to the programs) will be divided
equally and distributed quarterly less any required reserves.
(Continued)
51
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT NOVEMBER 30, 1999 AND
FOR THE NINE MONTH PERIODS ENDED
NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE L - Subsequent Events (Continued)
In connection with the marketing agreement, the Company issued two year
options to purchase 100,000 shares of the Company's common stock at
$1.00 a share and 100,000 shares at $2.00 per share. The value of these
options at grant date, utilizing the Black-Scholes option pricing
model, was $139,000. The assumptions used in determining the value was
an expected volatility of 155%, an average interest rate of 6.68% per
annum and an expected holding period of two years. These options are
subject to certain anti-dilution provisions and provide registration
rights for the underlying shares. The agreement can be terminated in
the event of a default under the agreement by either party which is not
corrected within 30 days after notice is given.
On August 7, 2000, following certain disagreements concerning the
lender's use of the Company's database, the Company entered into a
forebearance agreement and amended the security agreement with the
lender. The Company made a $50,000 payment against the $500,000
convertible note which was funded personally by its major
stockholder/president. The note was amended to provide for payment on
demand. The amended security agreement requires the Company to remit to
the lender 50% of collections on the outstanding accounts receivable
as of August 10, 2000 and 25% of all subsequent accounts receivable
collected, within five days. Payments are to be credited, first to
interest and then to principal. The lender is also to receive 50% of
all other cash receipts, including additional loans, until the note is
paid. The amended security agreement also includes all accounts of the
Company and all security, or guarantees held with respect to the
accounts and all account proceeds. In addition, the Company's major
stockholder/president personally guaranteed up to $250,000 of the note.
Due to the above amendments, the lender agreed not to demand payment on
the note or commence any action against the Company, as long as it
receives payments for interest and principal of at least $10,000 per
month and the Company generates revenues of at least $75,000 per month.
On August 8, 2000, the Company received $300,000 from American Warrant
Partners, LLC ("American Warrant") in the form of a 8% convertible
subordinated promissory note. The Company did not remit 50% of the cash
proceeds of this note, as required by the forebearance agreement, which
put the Company into default under its agreement with the lender. The
Company has not obtained a waiver of the default; however, the major
stockholder/president of the Company agreed to fund personally, two
payments of $50,000 each towards the principal and interest on the
lender's note. In addition, the Company agreed to remit 50% (formerly
25%) of cash received from new accounts receivable.
[2] Fiscal Year Ended February 29, 2000 Operations
For the fiscal year ended February 29, 2000 the Company incurred a net
loss in excess of $5,000,000, which includes a write-off of the
Company's intangible assets with a net book value of $1,271,000 at
February 29, 2000.
52
<PAGE>
GOLF PROMO, INC.
(a development stage company)
FINANCIAL STATEMENTS
DECEMBER 31, 1998
53
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Proprietor
Golf Promo
We have audited the accompanying balance sheet of Golf Promo (a proprietorship)
(a development stage company) as of December 31, 1998 and the related statements
of operations and proprietor's capital and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Golf Promo as of December 31,
1998 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Richard A. Eisner and Company, LLP
--------------------------------------
Certified Public Accountants
New York, New York
June 8, 2000
54
<PAGE>
Golf Promo
(a development stage company)
Balance Sheet
December 31, 1998
ASSETS $ 0
========
LIABILITIES AND PROPRIETOR'S CAPITAL
Liabilities $ 0
--------
Proprietor's capital:
Net capital contributions 11,906
Net loss (11,906)
--------
Total proprietor's capital 0
--------
$ 0
========
See notes to financial statements.
55
<PAGE>
Golf Promo
(a development stage company)
Statement of Operations and Proprietor's Capital
Year Ended December 31, 1998
Revenue $ 22,133
Operating expenses 34,039
--------
Net loss (11,906)
Proprietor's capital - beginning of year 0
Net contributions by proprietor 11,906
--------
Proprietor's capital - end of year $ 0
========
See notes to financial statements.
56
<PAGE>
Golf Promo
(a development stage company)
Statement of Cash Flows
Year Ended December 31, 1998
Cash flows from operating activities:
Net loss $(11,906)
Cash flows from financing activities:
Net contributions by proprietor 11,906
--------
Net change in cash and ending balance $ 0
========
See notes to financial statements.
57
<PAGE>
Golf Promo
(a development stage company)
Notes to Financial Statements
December 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Nature of operations and basis of accounting:
Golf Promo (the "Company") a proprietorship, is in the development stage.
The Company provides direct marketing services to clients via permission
email. Revenue is derived by charging fees for sending email messages to
subscribers. The proprietorship began operations on January 1, 1998.
The Company's financial statements do not include the assets or
liabilities of the owner unrelated to the business.
[2] Income taxes:
The Company is not a taxpaying entity for purposes of federal and state
income taxes. The income or loss of the Company are included in the
federal and state personal income tax returns of the proprietor.
Accordingly, no provision for income taxes is made in the financial
statements.
[3] Use of estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the proprietor to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
[4] Revenue recognition:
Email distribution revenue is derived from delivering permission email for
third parties to the Company's mailing list of golfers. Email distribution
revenue is recognized when the mail is delivered.
NOTE B - SUBSEQUENT EVENT
In 1999 the assets of Golf Promo, consisting principally of the email subscriber
list, were contributed to Golf Promo Inc. a newly formed corporation. On
February 15, 1999, one hundred percent of the outstanding stock of Golf Promo,
Inc. was acquired by LCS Golf, Inc. in a transaction accounted for as a
purchase. LCS Golf, Inc. issued 350,000 shares of its common stock, with a
market value of approximately $316,000, in exchange for all the outstanding
stock of Golf Promo, Inc.
58
<PAGE>
GOLF UNIVERSE, INC.
(a development stage company)
FINANCIAL STATEMENTS
DECEMBER 31, 1997
59
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
Golf Universe, Inc.
Palm Beach Gardens, Florida
We have audited the accompanying balance sheet of Golf Universe, Inc. (a
development stage company) as of December 31, 1997 and the related statements of
operations and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Golf Universe, Inc. as of
December 31, 1997 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
--------------------------------
Certified Public Accountants
New York, New York
June 8, 2000
60
<PAGE>
Golf Universe, Inc.
(a development stage company)
Balance Sheet
December 31, 1997
ASSETS
Current asset:
Cash $ 325
========
LIABILITY AND STOCKHOLDER'S EQUITY (CAPITAL DEFICIENCY)
Current liability:
Loan from stockholder $ 46,018
--------
Stockholders' equity (capital deficiency):
Capital stock - $.001 par value; 100,000 shares authorized;
100,000 issued and outstanding 100
Deficit accumulated during development stage (45,793)
--------
(45,693)
--------
$ 325
========
See notes to financial statements.
61
<PAGE>
Golf Universe, Inc.
(a development stage company)
Statement of Operations and Accumulated Deficit
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
------------ ---------------------------
1997 1997 1998
-------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenue $ -- $ -- $ --
Operating expenses 45,793 17,180 13,231
-------- -------- --------
Net loss and deficit accumulated during development stage $(45,793) $(17,180) $(13,231)
======== ======== ========
</TABLE>
See notes to financial statements.
62
<PAGE>
Golf Universe, Inc.
(a development stage company)
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
------------ --------------------------
1997 1997 1998
-------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(45,793) $(17,180) $(13,231)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of capital stock 100 100 --
Proceeds from stockholder loans 46,018 22,600 13,391
-------- -------- --------
Net cash provided by financing activities 46,118 22,700 13,391
-------- -------- --------
Net increase in cash 325 5,520 160
Cash - beginning of year 0 0 325
-------- -------- --------
Cash - end of year $ 325 $ 5,520 $ 485
======== ======== ========
</TABLE>
See notes to financial statements.
63
<PAGE>
Golf Universe, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Principal business activities:
Golf Universe, Inc. (the "Company"), a corporation formed under the laws
of the state of Florida on October 23, 1996, remained inactive until
January 15, 1997. The Company is in the development stage and operates a
golf website that provides hyperlinks to other golf related websites.
[2] Income taxes:
The Company accounts for income taxes based upon the provisions of
Statements of Financial Accounting Standards No. 109 ("SFAS No. 109"),
Accounting for Income Taxes. Under SFAS No. 109, the liability method is
used for accounting for income taxes, and deferred tax assets and
liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities.
[3] Use of estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
[4] Accounting policies:
The information for the periods ended March 31, 1998 and 1997 is unaudited
but reflects all adjustments which are necessary, in the opinion of
management, for a fair presentation of the results for the interim
periods. The operating results for the three months ended March 31, 1998
and 1997 are not necessarily indicative of the operating results to be
expected for a full fiscal year.
NOTE B - LOAN FROM STOCKHOLDER AND OTHER MATTERS
The stockholder makes advances to the Company when necessary. These advances are
non-interest bearing and have no repayment terms.
The stockholder of the Company developed the website for which he was not paid a
salary. In addition, the Company incurred other development costs which were not
considered material and were not capitalized.
NOTE C - INCOME TAXES
The Company has a deferred tax asset in the amount of approximately $6,900,
representing the future tax benefit of a net operating loss carryforward in the
amount of approximately $45,800. Utilization of the deferred tax asset is
dependent on future taxable income. As a result of the losses to date, the
Company has recorded a valuation allowance equal to the deferred tax asset. As a
result of the acquisition of the Company (see Note E), the utilization of the
net operating loss carryforward will be subject to annual limitations.
64
<PAGE>
Golf Universe, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 1997
NOTE D - SUBSEQUENT EVENT
On May 1, 1998, one hundred percent of the outstanding common stock of the
Company was acquired by LCS Golf, Inc. in a transaction accounted for as a
purchase. LCS Golf, Inc. issued 400,000 shares of its common stock, with a
market value of $128,500 and a note for $100,000 in exchange for all the
outstanding stock of the Company.
65
<PAGE>
PLAY GOLF NOW, INC.
(a development stage company)
FINANCIAL STATEMENTS
DECEMBER 31, 1998
66
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
Play Golf Now, Inc.
New York, New York
We have audited the accompanying balance sheet of Play Golf Now, Inc. (a
development stage company) as of December 31, 1998 and the related statements of
operations and cash flows for the period November 25, 1998 (inception) through
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Play Golf Now, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
period November 25, 1998 (inception) through December 31, 1998 in conformity
with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
--------------------------------
Certified Public Accountants
New York, New York
June 8, 2000
67
<PAGE>
Play Golf Now, Inc.
(a development stage company)
Balance Sheet
December 31, 1998
ASSETS
Current asset:
Cash $ 484
=====
LIABILITY AND STOCKHOLDERS' EQUITY
Liabilities $ 0
-----
Stockholders' equity:
Capital stock - no par value; 200 shares authorized,
issued and outstanding 500
Deficit accumulated during development stage (16)
-----
484
-----
$ 484
=====
See notes to financial statements.
68
<PAGE>
Play Golf Now, Inc.
(a development stage company)
Statement of Operations
For the Period From November 25, 1998 (Inception) Through December 31, 1998
Revenue $ --
Operating expenses 16
----
Net loss and accumulated deficit $(16)
====
See notes to financial statements.
69
<PAGE>
Play Golf Now, Inc.
(a development stage company)
Statement of Cash Flows
For the Period From November 25, 1998 (Inception) Through December 31, 1998
Cash flows from operating activities:
Net loss $ (16)
Cash flows from financing activities:
Proceeds from issuance of common stock 500
-----
Net increase in cash 484
Cash - beginning of period 0
-----
Cash - end of period $ 484
=====
See notes to financial statements.
70
<PAGE>
Play Golf Now, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Principal business activities:
Play Golf Now, Inc., (the "Company"), a corporation formed under the laws
of the state of New York on November 25, 1998, is a development stage
company that intends to sell memberships through its website that will
enable the member to play at specified golf courses across the country at
reduced green fees and entitles the member to receive various other
discounts from participating vendors on golf related items. The Company
was originally organized as a sole proprietorship which commenced
operations in early 1998. The predecessor proprietorship's only activity
was the setup and design of the website. The costs associated with the
website setup and design, in the amount of $7,000, were incurred and
expensed by the predecessor proprietorship and, accordingly, are not
reflected in these financial statements. On November 25, 1998, the
proprietorship contributed its assets to the Company.
[2] Income taxes:
The Company accounts for income taxes based upon the provisions of
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
Accounting for Income Taxes. Under SFAS No. 109, the liability method is
used for accounting for income taxes, and deferred tax assets and
liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities. At December 31, 1998,
there were no deferred taxes.
[3] Use of estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE B - CAPITAL STOCK
Capital stock consists of 200 shares of authorized, no par value, common stock,
all of which are issued and outstanding.
NOTE C - SUBSEQUENT EVENT
On January 26, 1999, one hundred percent of the outstanding common stock of the
Company was acquired by LCS Golf, Inc. in a transaction accounted for as a
purchase. LCS Golf, Inc. issued 350,000 shares of its common stock, with a
market value of approximately $336,000, in exchange for all the outstanding
stock of Play Golf Now, Inc. In addition, LCS Golf Inc. issued options to
purchase 200,000 shares of its common stock at $.50 per share expiring January
25, 2001.
71
<PAGE>
MR. B III, INC.
FINANCIAL STATEMENTS
FOR THE PERIOD FROM SEPTEMBER 3, 1996
TO DECEMBER 31, 1996 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
72
<PAGE>
Independent Auditors' Report
To the Shareholder
Mr. B III, Inc.
We have audited the accompanying balance sheets of MR. B III, INC. as at
December 31, 1996 and 1997 and the related statements of operations and
accumulated deficit and cash flows for the period from September 3, 1996
(inception) to December 31, 1996 and for the year ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mr. B III, Inc. as at
December 31, 1996 and 1997 and the results of its operations and cash flows for
the period from September 3, 1996 (inception) to December 31, 1996 and for the
year ended December 31, 1997 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred losses since commencing operations, continues to incur
losses in the subsequent periods and has relied on loans and additional
contributions from its shareholder and, since being acquired (see Note J), has
continued to rely on advances from the parent company. This factor raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding this matter are also described in Note A. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
\s\ Cornick, Garber & Sandler, LLP
----------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
June 30, 1999
73
<PAGE>
MR. B III, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
As at
December 31,
------------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,667 $ 18,154
Accounts receivable 15,594 23,702
Due from factor (less allowance for customer
chargebacks of $48,000 in 1997) (Note C) 41,957 90,323
Inventory (Notes A and B) 48,822 69,804
Prepaid expenses and other current assets 2,219 2,026
--------- ---------
Total current assets 111,259 204,009
Property and equipment (Note D) 38,700 35,488
Security deposits 9,385 10,200
--------- ---------
TOTAL $ 159,344 $ 249,697
========= =========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 23,856 $ 84,030
Payroll taxes payable 5,979 11,664
Loan payable - shareholder (Note E) 107,425 143,307
--------- ---------
Total current liabilities 137,260 239,001
--------- ---------
Commitments (Note G)
SHAREHOLDER'S EQUITY
(NOTES E AND F)
Capital stock 1,000 1,000
Additional paid-in capital 24,000 207,400
Deficit (2,916) (197,704)
--------- ---------
Total shareholder's equity 22,084 10,696
--------- ---------
TOTAL $ 159,344 $ 249,697
========= =========
</TABLE>
The notes to financial statements are made a part hereof.
74
<PAGE>
MR. B III, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
For the
Period from
September 3,
1996 Nine Months
(Inception) to Year Ended Ended September 30,
December 31, December 31, --------------------------
1996 1997 1997 1998
-------------- ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 204,934 $ 1,082,126 $ 416,437 $ 897,720
Cost of goods sold 153,291 1,029,830 386,521 833,504
--------- ----------- --------- ---------
Gross profit 51,643 52,296 29,916 64,216
Selling, general and administrative expenses 50,270 195,607 99,764 72,541
--------- ----------- --------- ---------
Income (loss) from operations 1,373 (143,311) (69,848) (8,325)
Interest expense 4,289 51,477 26,974 34,545
--------- ----------- --------- ---------
NET (LOSS) (2,916) (194,788) (96,822) (42,870)
Deficit - beginning of period (2,916) (2,916) (197,704)
--------- ----------- --------- ---------
DEFICIT - END OF PERIOD $ (2,916) $ (197,704) $ (99,738) $(240,574)
========= =========== ========= =========
</TABLE>
The notes to financial statements are made a part hereof.
75
<PAGE>
MR. B III, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
Period from
September 3,
1996 Nine Months
(Inception) to Year Ended Ended September 30,
December 31, December 31, ------------------------
1996 1997 1997 1998
-------------- ------------ ----------- -----------
(INCREASE) DECREASE IN CASH (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (2,916) $(194,788) $ (96,822) $ (42,870)
Adjustments to reconcile results of operations
to net cash effect of operating activities:
Depreciation and amortization 989 6,613 3,895 5,100
Allowance for chargebacks 48,000
Imputed interest 8,400 6,250 7,785
Net changes in assets and liabilities:
Accounts receivable (15,594) (8,108) 896 16,534
Due from factor (41,957) (96,366) (23,223) (140,222)
Inventory (48,822) (20,982) (142,978) (38,701)
Prepaid expenses and other (2,219) 193 2,219 1,776
Security deposit (9,385) (815) (815) --
Accounts payable and accrued expenses 19,281 64,749 41,252 61,093
Payroll taxes payable 5,979 5,685 731 (7,818)
--------- --------- --------- ---------
Net cash used for operating activities (94,644) (187,419) (208,595) (137,323)
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of equipment (35,114) (7,976) (3,174) --
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuing common stock 25,000
Proceeds from additional capital contributions 125,000 125,000
Proceeds from stockholder loans 107,425 85,882 85,882 164,247
--------- --------- --------- ---------
Net cash provided by financing activities 132,425 210,882 210,882 164,247
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 2,667 15,487 (887) 26,924
Cash - beginning of period 2,667 2,667 18,154
--------- --------- --------- ---------
CASH - END OF PERIOD $ 2,667 $ 18,154 $ 1,780 $ 45,078
========= ========= ========= =========
Supplementary disclosures:
Cash paid during the period for interest $ 4,219 $ 43,114 $ 20,761 $ 26,760
========= ========= ========= =========
Noncash transaction - capitalization of shareholder loan $ 50,000 $ 50,000 $ 307,554
========= ========= =========
</TABLE>
The notes to financial statements are made a part hereof.
76
<PAGE>
MR. B III, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies
Organization and Operations
Mr. B III, Inc. (the "Company") was incorporated in September 1996 and is
a manufacturer and distributor of specialty pillows and therapeutic
magnetic products. The Company's customers are primarily comprised of
department store chains located throughout the United States.
Basis of Presentation
The accompanying financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the financial statements, the Company has incurred losses since commencing
operations, continues to incur losses in the subsequent periods and has
relied on loans and additional capital contributions from its shareholder.
As discussed in Note J, the Company became a wholly-owned subsidiary of
LCS Golf, Inc. ("LCS") on November 17, 1998 which, since acquired, has
continued to rely on advances from LCS. LCS has limited funding and is
planning to raise additional capital. This raises substantial doubt about
the Company's ability to continue as a going concern. Management believes
that with new products being introduced, its marketing efforts and the
continued support from LCS, which is dependent upon the raising of
additional capital, that it should be able to continue operating and
ultimately achieve profitable operations. However, no assurances can be
given to the success of these plans. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Inventories
Inventories are valued at the lower of cost determined on a first-in,
first-out basis or market.
Fixed Assets
Fixed assets are recorded at cost. Expenditures for additions and
betterments are capitalized and expenditures for maintenance and repairs
are charged to operations as incurred. Depreciation is provided using the
straight-line method over the estimated useful lives of the related
assets. Upon retirement or disposal, the asset cost and related
accumulated depreciation and amortization are eliminated from the
respective accounts and the resulting gain or loss, if any, is included in
the results of operations for the period.
Concentrations
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist of accounts receivable and cash
deposits. Cash balances are held principally at one financial institution
and from time-to-time, may exceed Federal Deposit Insurance Company
insured amounts.
For the year ended December 31, 1997, sales to three customers accounted
for approximately 41% of total sales, the largest of which represented
approximately 16%. For the period from September 3, 1996 to December 31,
1996, one customer accounted for 76% of sales.
(Continued)
77
<PAGE>
MR. B III, INC.
NOTES TO FINANCIAL STATEMENTS
-2-
NOTE A - Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Interim Financial Information
The information for the periods ended September 30, 1998 and 1997 is
unaudited but reflects all adjustments which are necessary, in the opinion
of management, for a fair presentation of the results for the interim
periods. The operating results for the nine months ended September 30,
1998 and 1997 are not necessarily indicative of the operating results to
be expected for a full fiscal year.
NOTE B - Inventory
Inventory is summarized as follows:
1997
-------
Raw materials $23,709
Work-in-process 1,923
Finished goods 44,172
-------
$69,804
=======
The information for 1996 is not currently available. The Company believes
that would have a similar breakdown as shown for 1997.
NOTE C - Due from Factor
The Company's agreement with a factor provides for the sale to the factor
of credit approved accounts receivable at the invoice price less a
factoring commission of 1.75%. The Company is required to pay the factor
at a minimum of $15,000 a year in factoring commissions. At each October
31, the agreement is automatically renewed on an annual basis unless the
factor at any time gives the Company 30 days notice of cancellation. The
Company is given credit for the sale within two weeks of collection by the
factor. If an account receivable is not collected for any reason other
than the customer's financial inability to pay, the credit approval is
automatically terminated and it becomes a "client risk receivable." A
client risk receivable is a purchase by the factor with recourse and can
be charged back to the Company at the factor's option. The factor may
advance up to 80% of the purchase price of uncollected accounts
receivable. These advances bear interest at a rate, the greater of 9% or
2% above the prime rate. The factor is collateralized under this agreement
by the accounts receivable, cash in banks and any intangible assets. At
December 31, 1996 and 1997, the Company has a receivable due from the
factor which bears interest at 2% below the prime rate.
(Continued)
78
<PAGE>
MR. B III, INC.
NOTES TO FINANCIAL STATEMENTS
-3-
NOTE D - Fixed Assets
Fixed assets consist of the following:
December 31,
---------------------- Estimated
1996 1997 Useful Lives
-------- -------- ------------
Office equipment and computers $ 12,253 $ 12,253 5 years
Machinery and equipment 27,436 30,837 7 years
-------- --------
39,689 43,090
Less accumulated depreciation (989) (7,602)
-------- --------
Net property and equipment $ 38,700 $ 35,488
======== ========
NOTE E - Loan Payable - Shareholder
The loan is payable on demand and is noninterest bearing. Interest has
been imputed on this loan at 6% and, accordingly, the Company record
interest expense of $8,400 with a corresponding increase in additional
paid-in capital for the year ended December 31, 1997. Interest was not
material for the prior year.
NOTE F - Shareholder's Equity
Capital stock consists of 10,000 shares of authorized no par value common
stock of which 1,000 shares are issued and outstanding.
During 1997, the shareholder of the Company made additional capital
contributions to the Company of $175,000 which have been included in
additional paid-in capital.
NOTE G - Income Taxes
At December 31, 1997, the Company has net operating loss carryforwards of
approximately $189,000 for federal income tax purposes. These
carryforwards expire between 2011 and 2012.
(Continued)
79
<PAGE>
MR. B III, INC.
NOTES TO FINANCIAL STATEMENTS
-4-
NOTE G - Income Taxes (Continued)
While generally accepted accounting principles permit the recognition of a
deferred tax asset for the benefit of net operating loss carryforwards,
they also require the recognition of a valuation allowance against such
asset when it is more likely than not that such benefit will not be
realized. As a result of the Company's losses since inception and its
relatively brief operating history, it has recorded a valuation allowance
equal to its $47,000 deferred tax asset account, which arises from its net
operating loss carryfowards.
NOTE H - Advertising
During the period and year ended December 31, 1996 and 1997, the Company
had advertising expenses of approximately $1,900 and $3,200, respectively.
NOTE I - Lease
The Company's office/warehousing premises are leased through September
1999 at an average annual rental of approximately $48,000, plus real
estate tax escalation charges.
The attached financial statements include rent expense of approximately
$14,300 and $55,000 for the periods ended December 31, 1996 and 1997,
respectively.
Aggregate minimum rental payments under long-term leases for premises are
as follows:
Year Ending December 31,
1998 $48,625
1999 40,375
-------
Total $89,000
=======
NOTE J - Subsequent Events
On November 17, 1998, the Company become a wholly-owned subsidiary of LCS
Golf, Inc. upon the sale of its outstanding stock to that corporation.
In March 1999, the president of LCS Golf, Inc. has personally guaranteed
amounts due under the factoring agreement.
80
<PAGE>
Pro Forma Financial Information (Unaudited)
The Pro Forma Condensed Consolidated Statement of Operations for the fiscal year
ended February 28, 1999 adjusts the historical financial information of the
Company to show the effect of the four acquisitions as if they occurred at March
1, 1998 or the date of inception of the acquired company, whichever is later.
All of these acquisitions were recorded utilizing the purchase method of
accounting. For the Golf Universe ("GU") acquisition on May 1, 1998, the
statement includes the operations of GU for the period March 1, 1998 to April
30, 1998. For the Mr. B III ("B III") acquisition on November 17, 1998, the
statement includes the operations of B III for the period March 1, 1998 through
November 16, 1998. The operations of Play Golf Now for the period November 25,
1998 (inception) through January 25, 1999 have not been included because they
were not material. For the Golf Promo ("GP") acquisition on February 15, 1999,
the statement includes removing the operations of GP for the period February 15,
1999 through February 28, 1999, included in the historical financial
information, and includes the operations of GP for the year ended December 31,
1998. The "Pro Forma Adjustments" column reflects the amortization of intangible
assets generated from the above acquisitions for the pro forma period presented
and the interest expense on a $100,000 note issued in connection with the GU
acquisition. The pro forma loss per share reflects the issuance of common stock
for the four acquisitions as if they occurred at the beginning of the year or
the date of inception of the acquired company, whichever is later.
The unaudited pro forma condensed consolidated financial statement has been
prepared by the Company based upon assumptions deemed proper by it. This
unaudited pro forma condensed consolidated financial statement presented herein
is shown for illustrative purposes only and is not necessarily indicative of the
future results of operations of the Company, or the results of operations of the
Company that would have actually occurred had the transactions been in effect
for the period presented. The unaudited pro forma condensed consolidated
financial statement should be read in conjunction with the historical financial
statements and related notes of the Company.
Pro Forma Condensed Consolidated Statement of Operations
Year Ended February 28, 1999 (Unaudited)
<TABLE>
<CAPTION>
Pro
Historical Golf Golf Forma
The Company Universe Mr. B III Promo Adjustments Pro Forma
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 108,000 $ 925,000 $ 22,000 $ 1,055,000
Cost of revenue 192,000 810,000 1,002,000
----------- ----------- ----------- -----------
Gross profit (loss) (84,000) 115,000 22,000 53,000
Selling, general and
administrative
expenses 5,552,000 $ 8,000 126,000 33,000 $ 76,000(A) 5,795,000
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations (5,636,000) (8,000) (11,000) (11,000) (76,000) (5,742,000)
Other loss, net 17,000 (27,000) (3,000)(B) (13,000)
----------- ----------- ----------- ----------- ----------- -----------
Net loss $(5,619,000) $ (8,000) $ (38,000) $ (11,000) $ (79,000) $(5,755,000)
=========== =========== =========== =========== =========== ===========
Basic and diluted net
loss per share $ (0.63) $ (0.57)
=========== ===========
Weighted average
number of shares
outstanding 8,961,285 10,132,054(C)
=========== ===========
</TABLE>
81
<PAGE>
(A) To reflect the amortization of intangible assets generated from the four
acquisitions for the period presented.
(B) To reflect interest expense for two months on the $100,000 note issued in
connection with the Golf Universe acquisition.
(C) The pro forma weighted average number of shares that would have been
outstanding for the period commencing on March 1, 1998 or the date of
inception of the acquired company, whichever is later, up to the issuance
date of the common stock.
The calculation is as follows:
Weighted average number of shares outstanding - historical 8,961,285
Golf Universe 215,385
Mr. B III 240,000
Play Golf Now 380,769
Golf Promo 334,615
----------
Pro forma weighted average of shares outstanding 10,132,054
==========
82
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Exhibit Number Description
------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Linkun Holding Company (as filed in the Form 10-SB filing on 12/9/99)
------------------------------------------------------------------------------------------------------
2.2 LCS Golf, Inc. Merger (as filed in the Form 10-SB filing on 12/9/99)
------------------------------------------------------------------------------------------------------
2.3 Golf Universe, Inc. (as filed in the Form 10-SB filing on 12/9/99)
------------------------------------------------------------------------------------------------------
2.4 Mr. "B" III, Inc. (as filed in the Form 10-SB filing on 12/9/99)
------------------------------------------------------------------------------------------------------
2.5 GolfPromo, Inc. (as filed in the Form 10-SB filing on 12/9/99)
------------------------------------------------------------------------------------------------------
2.6 Play Golf Now, Inc. (as filed in the Form 10-SB filing on 12/9/99)
------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation (as filed in the Form 10-SB filing on 12/9/99)
------------------------------------------------------------------------------------------------------
3.2 By-laws (as filed in the Form 10-SB filing on 12/9/99)
------------------------------------------------------------------------------------------------------
4.1 Form of Common Stock Certificate (as filed in the Form 10-SB filing on 12/9/99)
------------------------------------------------------------------------------------------------------
10.1 Namath Agreement (as filed in the Form 10SB12G/A on 4/12/2000)
------------------------------------------------------------------------------------------------------
10.2A Quintel Loan Agreement (as filed in the Form 10SB12G/A on 4/12/2000)
------------------------------------------------------------------------------------------------------
10.2B Quintel Convertible Promissory Note (as filed in the Form 10SB12G/A on 4/12/2000)
------------------------------------------------------------------------------------------------------
10.2C Quintel Security Agreement (as filed in the Form 10SB12G/A on 4/12/2000)
------------------------------------------------------------------------------------------------------
10.2D Quintel License Agreement (as filed in the Form 10SB12G/A on 4/12/2000)
------------------------------------------------------------------------------------------------------
10.2E Quintel Marketing Agreement (as filed in the Form 10SB12G/A on 4/12/2000)
------------------------------------------------------------------------------------------------------
10.2F Quintel Registration Rights Agreement (as filed in the Form 10SB12G/A on 4/12/2000)
------------------------------------------------------------------------------------------------------
10.2G* Quintel Forbearance Agreement, dated as of August 8, 2000.
------------------------------------------------------------------------------------------------------
10.2H* Quintel Amendment #1 to the Security Agreement, dated as of August
8, 2000.
------------------------------------------------------------------------------------------------------
10.2I* Guaranty dated as of August 7, 2000 by Michael Mitchell for the
timely repayment of the obligations of LCS Golf under the Promissory
Note dated as of February 16, 2000 between Quintel and LCS Golf.
------------------------------------------------------------------------------------------------------
10.3A* Agreement dated as of August 10, 2000 between American Warrant
Partners LLC and LCS Golf.
------------------------------------------------------------------------------------------------------
10.3B* Registration Rights Agreement between American Warrant Partners LLC
and LCS Golf.
------------------------------------------------------------------------------------------------------
10.3C* American Warrant Partners LLC warrant for up to 600,000 shares of
common stock expiring August 8, 2005.
------------------------------------------------------------------------------------------------------
10.3D* American Warrant Partners LLC 8% Subordinated Convertible Promissory
note.
------------------------------------------------------------------------------------------------------
21* Subsidiaries of the Registrant
------------------------------------------------------------------------------------------------------
27 Financial Data Schedule
------------------------------------------------------------------------------------------------------
</TABLE>
* Filed herewith
83
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
/s/ Dr. Michael Mitchell
-----------------------------------
By: Dr. Michael Mitchell, President
Dated: November 9, 2000
